More companies are opting to “commercialize” their IT and/or their IT clouds so they can provide IT to outside companies and bring revenue in to offset costs. It seems like a good idea — but IT departments contemplating this move should look before they leap. Here are 10 issues to consider before deciding to commercialize an IT service.
1: Market and competitive environment
Is there enough of a market for you to commercialize your product or service? Companies considering a commercial spinoff business must understand existing demand for their products — such as smaller organizations in the same industry that are not direct competitors and that can’t afford the product or service on their own. These companies might be willing to “buy in” with an equity interest and/or on a subscription basis for the service. If there is enough critical mass with these initial business clients to start a commercial venture, you’ve begun to build a revenue stream.
2: Level of support within your enterprise
Time spent on a commercialization venture can translate into time away from the core business — and your enterprise users won’t like this. Key employees are also required for the new commercial venture, which makes them less available to the internal enterprise. This is why commercial spinoffs should never be undertaken unless they squarely fit within overall enterprise strategy and everyone has bought off on them.
3: Board formation
Who you have on your board and how the venture is funded are very important. Many commercial ventures have boards made up of stakeholders who are going to be clients of the service. Some board participants even have minority ownership stakes in the venture. An optimal combination for the board consists of members who are customers bringing business to the venture, as well as investment dollars.
4: Service and support
Is the staff you are bringing to the venture equipped to handle customer service and support? Many IT professionals lack these skills. Since service and support are the “face” of the organization that your clients most likely will see, you should never take shortcuts in staffing this area. If your IT staff can’t produce stellar skills in people handling, problem resolution, collaboration, and understanding your clients’ end businesses, find people who can.
5: Product and service development
Your products and services might be great today, but do you have a roadmap for further expanding them? Your customers and prospects will certainly want to know. If they see and understand your vision and know you will be making the necessary investments, they will be more likely to sign with you.
6: Selling your offerings
Do you know how you are going to sell your wares and to whom? Company commercializations usually start with a small circle of immediate clients and stakeholders — but from there, they must expand. The ability to expand is often dictated by what startups are willing to commit to a formal sales and marketing function for the new organization. Almost always, it is necessary to hire these sales folks from the outside.
7: Governance, compliance, and security
Commercializing an IT venture includes solid governance, security, and compliance practices, especially in industries like finance, insurance, healthcare, and aerospace. It is expensive to prepare and to certify a new organization in all these areas. Budgeting for the new venture should include a line item for these expenses.
8: DR, liability, and legal due diligence
Do you have a disaster recovery plan that is written and tested specifically for your new operation? How about a statement of the liability protections you are prepared to offer your clients? Clients and prospects will be asking about these. This is why it is important to do all the legal work upfront for your spinoff in the areas of business formation, branding/trademark, and liability protection and risk.
9: IP protection
If you collaborate with your clients on new products, who owns the intellectual property and the right to profits that are derived from it? Corporate startups should have a plan that addresses intellectual property ownership in joint product ventures and how profit splits and paybacks are orchestrated.
10: Business partnerships
Companies greatly benefit when they find business partners and products that are complementary to what they offer. But it is equally important to have the skillsets onboard to evaluate these potential business partnerships for the right cultural and reputation “fits” before you agree to them. You are known by the reputation you create — but also by the associations you enter into.
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