347 Decoding Spinouts: How Entrepreneurial Employees Leverage Corporate Experience for Startup Advantage with Andre Laplume | Partnering Leadership Global Thought Leader

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[00:00:00] Mahan Tavakoli: Andre Laplume, welcome to partnering leadership. I am thrilled to have you in this conversation with me. 

[00:00:05] Andre Laplume: Thank you. I'm happy to be here. 

[00:00:07] Mahan Tavakoli: Looking forward to talking about spin out ventures, transitioning from employees to entrepreneurs.

Before we do that, Andre, we'd love to know a little bit about you. Whereabouts did you grow up and how did your upbringing help contribute to who you've become? 

[00:00:24] Andre Laplume: I grew up in Winnipeg, Manitoba which is right in the center of North America, actually, equidistant, from every, uh, equidistant from every ocean, actually.

It's a great place , to grow up. I studied computer science. When I went to university and I started working for firm based out of Winnipeg doing consulting for all kinds of different companies. So I got exposure to many different types of businesses early on in my career. As I sort of grew as a, grew as a consultant, I decided to do an MBA.

So I would learn more about, how businesses operate. And how they become successful and how they do things like strategy. So after that, I went back to management consulting and I continued working for different clients and learning more about different types of value added processes that management consultants can provide., I got a job as a professor at Michigan Tech or as an assistant professor at the time. And started to do a lot of research there in entrepreneurship, so that's what led me down the path of entrepreneurship and ultimately uncovering, a lot about this topic of spin up ventures that we're going to talk about today.

 Are there certain things that you have seen that contribute to a person wanting to become an entrepreneur versus working in an organization and becoming an entrepreneur? 

[00:01:37] Andre Laplume: I think they're different approaches or different options. So someone's working in a company for a long time and they're exposed to an idea. And maybe they have an opportunity to pursue it internally as an internal corporate venture. Not all companies really have that internal ecosystem in place to be able to allow employees to pursue innovations internally, but that can happen as well.

And if it doesn't work out well internally then the choice to go external as a spin out is an alternative option, right? But I think that entrepreneurial employees could go either way, depending on. What the occasion is in terms of what makes them different. There's been a lot of research looking at the individual characteristics of entrepreneurs.

 You've probably heard a lot of things like they have high tolerance for ambiguity and they can deal with uncertainty and these sorts of things. And I think that's been out, entrepreneurs are quite similar and so are intrapreneurs are similar as well, but it ends up being a decision based on 

the opportunity at hand.

[00:02:35] Mahan Tavakoli: So with that Andre, what is a spin out entrepreneur? What is the difference between a spin out entrepreneur versus the typical entrepreneur that comes to people's minds?

, the big difference is that spit out entrepreneurs are people who are leaving employment.

[00:02:51] Andre Laplume: So they may be a manager or an engineer or, employed in some way for an established company, an incumbent company. Or it could be a fast growing startup that they're a part of as an employee and they're deciding to leave as it grows.

So they're not coming to the entrepreneurial journey, with a blank slate, often what they're doing is they're bringing ideas or knowledge that they've acquired while working for these incumbents or for these other firms. And then taking that into the spin out venture, a spin out is really a startup that has a kind of advantage.

Because it's founders are coming from a place of employment and often taking ideas. And not only ideas, sometimes they also will end up attracting human resources, employees will come with them to the spin out venture. And so they tend to grow faster and that makes them more competitive against other types of startups that tend to come in with a less of a scale advantage, 

and less experience.

[00:03:41] Mahan Tavakoli: Do those spin out ventures ever operate well within the structure of the organization or are they always full spin outs away and outside of the organization?

[00:03:53] Andre Laplume: I think there's definitely a spectrum  for example, AstraZeneca does a lot of spin outs where they try to actually encourage them.

And what they want to do is they want to retain a 20 percent equity stake in the spin out. So they can still be involved. Having a small piece of it and not necessarily controlling it often spin outs are for ventures that don't fit internally within the structure of the company.

So AstraZeneca would tend to choose projects that it doesn't think that's going to get enough internal funding, or perhaps doesn't quite have the internal capability to do it properly. Okay. And so the idea is, okay let's find some external ways to do this, but often it's not the managers who are insightful about this.

It's often the employees themselves are making independent decisions to take ideas out of companies. Because not all companies are spin out friendly. 

[00:04:40] Mahan Tavakoli: Now you also debunk this image that a lot of us have of the startup entrepreneur starting in their garage.

[00:04:51] Andre Laplume: The garage idea one of the key ones was Steve Jobs and Steve Wozniak working in a garage developing Apple, but when you poke at that story and you look at what Steve Wozniak especially brought to the table when he was working at Hewlett Packard, he had basically developed a prototype for the PC while working there, and he pitched it to his managers, several times. I can't remember the number, but it's a ridiculous number of times. He tried really hard to get Hewlett Packard to adopt the PC as an internal corporate venture and to pursue it as a product, but Hewlett Packard for their own reasons, decided not to pursue it.

And ultimately Steve ended up leaving there was some work that went on in the garage, but a lot of the core activities came out of Hewlett Packard essentially. 

[00:05:31] Mahan Tavakoli: I wonder, Andre, everyone's familiar with Zoom, we are recording over Zoom now, Eric Yuan's story.

Of trying to convince his bosses at Cisco that this has a lot of potential and they said no. I wonder whether there are opportunities for these innovations to be captured within organizations or they produce much better results when there is a spin out and people go out on their own.

[00:06:01] Andre Laplume: If you look at that example, Eric, he wasn't able to convince Cisco to invest.

in a rebuild of the WebEx technology. So they weren't going for it. Probably they should have went for it, looking back. But it was their strategic choice at that time. And Eric didn't want to wait forever. And so when he left, he actually ended up attracting 40 engineers from Cisco to join him at Zoom to build this thing because, other people also understood his vision.

He wasn't the only one frustrated with the approach that Cisco had. I think there are a lot of cases where, the parent organization could have said yes to a spin out and instead of it being a spin out, it could have been an internal corporate venture and perhaps a new product.

But in many of the cases that we see the main driver behind a spin out is some kind of strategic disagreement between the levers and the management. That causes the spin out to occur instead of it occurring internally.

[00:06:52] Mahan Tavakoli: Are there certain things that you have seen that make it more likely for spinouts to be successful?

[00:06:59] Andre Laplume: So most of what we're doing in the book is based on the research that's happening on the phenomenon. And not only our own research , but there's lots of other people doing studies and one of the hottest areas right now is to try to answer that question, which ones are more successful than others, or what makes them successful?

, one of the answers that seems to be emerging is that the spinouts that do take or transfer some resources from their parent organizations, but also manage to differentiate themselves in the marketplace. And so they don't end up having a direct competition with the parent organization.

They seem to be the ones who have found the sweet spot and are able to outperform.

[00:07:35] Mahan Tavakoli: Now, I wonder Andre part of what has happened over the past couple of decades is more people. Working for themselves in entrepreneurial environments and leaving organizations or being associated with organizations through contractual relationships.

So a shift in the dynamics of workplace would love to get your thoughts based on what you've seen with these spin outs. Where do you project some of this going into the future as the future of work? 

 I think that we went through a period of time when companies, corporations have really done a good job of appropriating wealth.

[00:08:16] Andre Laplume: The rights that they've been essentially given to restrict their employees using restrictive covenants like non competes and non disclosures and non solicitation agreements and things like that, have gone to the point where it's gone overboard. You probably heard a story somewhat recently from Jimmy John's sandwich company that was having it's sandwich workers sign non competes. , it went too far and the pendulum is swinging back. I think though you probably heard that the FTC has recently enacted a ban on non competes and it's not just in the U S it's happening in Canada, it's happening in the UK and Australia and in other places where, you know many people are starting to recognize that there's value in having mobility of employees not just between firms, but also so that they can create their own organizations.

And I think that trend is going to continue. And we, I think we'll continue to see more bans on non competes and perhaps even a rethinking of non disclosure agreements and non solicitation agreements or no poach agreements, which also have a lot of benefits. Problematic anti competitive aspects to them. 

[00:09:15] Mahan Tavakoli: As you said, the pendulum is swinging because in many instances, the non competes that were being enforced were so broad , they prevented people from even working in the same geography, in the same industry. So 

when is it the right time? decision in your view to actually go with the spin out idea, the entrepreneurial route, rather than stay with a more stable structure within an organization.

[00:09:45] Andre Laplume: Yeah, I think the people who are choosing the spin out are the entrepreneurs there is something somewhat distinct about them, they're not like the other employees who may have things like fear of failure,

but what I want to emphasize is that a lot of this journey starts while the spin out entrepreneur is still an employee. And I think it comes down often to the way that people view work. So some people view their job as, okay this is my job. , it begins here and it ends here and there's really not much more to it.

And they end up siloing themselves and only really seeing a very small part of what an organization does. Whereas other people see a job and they say, okay I have this role or job, but this is a broader organization. And there's lots of potential roles that I could have or I could maybe even change the role that I have here.

And I can get exposure to all the different parts of the organization and really treat this like a learning environment so that I can figure out, how it is that this organization that I'm working for is being successful or not, and to better understand that. So the employees that managed to expose themselves, to both exploratory projects or new initiatives within parent organizations or within their employers organizations. And also initiatives that do execution, where they're implementing ideas or, creating new products or getting them out in front of customers. People who have experienced the spectrum of those types of activities in employment, they're much more likely to want to leave because they've seen the whole show.

They understand how it works and then, it gives them the confidence , to think that they can replicate that success themselves. 

[00:11:16] Mahan Tavakoli: Now there's also a middle ground that I would love to get your thoughts on Andre. There are some people who want to be employees. They show up at a certain time.

They end at a certain time. They don't want to necessarily engage much more with their work. There are some people that have some of that entrepreneurial desire and a spin out makes sense for them. There's been a lot of conversation Also about intrapreneurship. So an element of entrepreneurship within the work that's done in the organization.

We'd love to get some of your thoughts with respect to that and how you think that plays a role in this mix. 

[00:11:56] Andre Laplume: A lot of spinouts have their origin in internal corporate ventures. If you look at what happens with internal corporate ventures it's like creating an ecosystem for startups within an organization.

So an organization is a lot smaller than the whole market. But the advantage is it gets to rely on the resources of the firm to be able to advance the idea forward. So when you look at those portfolios of internal corporate ventures, they're just riddled with failures.

Many of the internal corporate ventures end up getting shot down during the stage gate process. The stage gate process tends to try to apply rigorous metrics such as growth and financial return and all these kinds of things. And many of the good ideas end up getting weeded out during that process, 

 Organizations that have a very healthy internal corporate venturing process. Also have to shut down a lot of these initiatives, and many of those end up being good ones to take externally , sometimes the return that's needed for a startup might be very different from what's needed for some of these larger incumbent.

organizations that already have, high margin profitable businesses that they need to compete with, because internally within a large company, the internal corporate ventures, they have to compete with the core business, whereas within a startup or a spinout, they don't have to compete in that way because they have a blank slate environment to develop new expectations about what performance should be.

[00:13:12] Mahan Tavakoli: That's why the spin out makes so much sense to me. I've both been in organizations where I have seen the antibodies kick in. And in essence. Make sure that the intrapreneurship within the organization or the project doesn't end up working. And as you said, the expectations on the success, the measures are very different than when it becomes an entrepreneurial venture that is separate from the parent entity.

So I wonder Andre, you also give examples of companies like Zillow 23andme and how they took alternative paths to spin out, would love for you to share a little bit about them and those alternative paths as well. 

[00:14:03] Andre Laplume: I think the 23andme story, although, they've had some rocky times recently, but it's still an interesting example because the founder, she was working In an investment banking focusing as an analyst, doing research on pharmaceutical companies and biotech companies, especially.

And so her experience was primarily on the analyst side in being able to figure out what are the good business models and how are these business models going to evolve over time. And it led her to a kind of frustration, where she saw that a lot of these startups that were in the biotech space were more treatment oriented type startups.

And this is something that bothered her and inspired her to do her own We call it a spin out. It's a vertical spin out. If you think about it, she's not competing in any way against the investment banks. She ended up generating a new biotech firm that we know as 23andMe.

And, despite the data breach and all the things that have happened since, definitely what they did was very innovative in the industry instead of trying to treat, , the idea was to try to provide people with more information about their own situation so that they could have better decisions about their treatments.

[00:15:06] Mahan Tavakoli: Despite some of their challenges, they are ahead of their time. In terms of where medicine is headed and it's possible that people within the industry were not able to see it as much as an observer from outside of the industry was able to see it as now AI is enabling some vaccines, even for some cancers.

It's a very different perspective on medicine than a lot of the traditional players had. 

[00:15:39] Andre Laplume: For sure. You mentioned Zillow as well. I think , the essence that I like about that case is the fact that the founder was taking this data driven business model that he experienced at Expedia and was able to essentially replicate it in different industries, completely different industries by generating new ventures.

And I think that's a great example because a lot of the best spin outs are the ones who do learn, as we said before, transfer something, transfer knowledge from the parent organization, but also don't compete with it. And so they find That sweet spot.

And so I think Zillow is a great example of that. 

[00:16:10] Mahan Tavakoli: So I would love to know, Andre, in your view, what would be some effective or some steps in the spin out validation model in that. To a great extent lean startup, Eric Reese, there's the minimum viable product and test if it works in the market or not, what have you seen work with the spinout, what would be the validation process before the person says, okay, I'm leaving for the spinout.

 I don't think it's necessarily that different, but we do have a chapter about it, actually chapter 10 touches on this and the idea is, well, the spinout still needs to do its own validation, but it tends to have an advantage because a lot of that validation may be done ahead of time , in the parent organization.

[00:16:56] Andre Laplume: And so we were talking about the stage gate process just a bit earlier. As an internal corporate venture moves through the gates, more and more information. is known about it and its business model and its potential. A lot of that may, even involve going all the way to customers and getting feedback from customers.

And so there's a lot of validation that's already happening with many of these ideas that don't end up getting pursued internally. So that's a big leg up, for spinout entrepreneurs who are able to identify those opportunities that are validated. And we've seen many of them.

 We interviewed a bunch of them and we've got a bunch of quotes from them in the book have seen the validation for themselves, stories where someone's on the client site and the client is asking for a specific innovation and the company just doesn't want to do it.

The employer is not interested in that innovation. And so it's difficult for the employee to just let it go because they say this is a great idea and nobody's pursuing it. Hey, somebody has got to do it. And that often ends up being the impetus for spin out.

So I think they have to validate their product and they have to have product market fit, but they just have that advantage that a lot of that stuff is getting done before they even exit the company to form the startup. 

[00:17:59] Mahan Tavakoli: That's a great way to think about it. They have that advantage. And I circled back to a point you made earlier, our assumptions are incorrect about a lot of these startups as. Two people going in a garage, having access to no resources, experimenting and starting. So this is closer to the way a lot of entrepreneurial ventures have started and then grown than the way we traditionally think about it.

Now, Andre, you have a very unique experience in that you've been involved in business. You have done consulting and advising, you have studied business. And you're teaching business. How are these roles difference? And in what ways have you had to change to adjust in these different environments?

, that's a good question. , I think the roles are very different. I also had an experience as a startup founder, a startup called launch score, which is no longer around. So it gives you an idea of how that went. So I got to see, all my own weaknesses in action, While working on that startup.

[00:19:10] Andre Laplume: I think the big difference that I see between my role as a researcher, and a practitioner is the ability to sit back and reflect and think about what's going on out there. Because, when you're a practitioner, there's just no time, there's too many things to do.

It's too much time spent executing and getting things done. Not enough time to really think and reflect and challenge ideas. Or even test to see if our ideas are any good, that's what I really love about being a researcher, is that I get to test ideas to see if they're any good, and sometimes they even test ideas that are, people say why'd you test that? That was obvious. But maybe sometimes what we think is obvious is wrong, so I think it's the best job in the world for that reason. And it's tied into teaching. I teach entrepreneurship, I teach innovation, I teach strategy.

I think, there's nothing better than a combination of research and teaching really because the better the research gets, the more it informs the teaching and it becomes more, increasingly real for the students as well. 

[00:20:04] Mahan Tavakoli: So Andre for the audience to find out more about both your book and follow your work, where would you send them to? 

[00:20:13] Andre Laplume: We created a website called spinoutventures. net. So that's a good place to find out more about the book. And there's an FAQ there books available in Amazon, all the normal places.

And I'm happy to, link up with people on LinkedIn.

[00:20:24] Mahan Tavakoli: I really appreciate the conversation, Andre and your book, spinoutventures transitioning from employees to entrepreneurs. Thank you so much, Andre LePlume. 

[00:20:36] Andre Laplume: Thank you, Mahan.