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Starting Out Versus Starting Up

Spinoffs are a smart way for large brands to shake off their baggage.

Starting Out Versus Starting Up

The start-up community continues to garner attention and interest—new is always sexier than the old robe. The long-established corporations are certainly not blind to this—they’re also drawn to the lure of a start-up team that could end up as a unicorn. This has led to some noteworthy behaviors in the world of innovation.

Startups, and the mindset that comes with those ventures, have been adopted as an innovation methodology among large brands. The older brands need the next widget, food concept, or 5G-ready business idea. The start-ups need capital, resources, scale, encouragement, advice, and perhaps an acquirer on the five-year horizon.

So the innovation ecosystem has adopted another enterprise: the startup venture accelerator, incubator, or corporate venture fund. We see this in partnerships between Techstars and major corporations like Cargill and Ecolab here in town. We also see it with national organizations like MassChallenge, which has grown far beyond Massachusetts.

The underlying behavior comes from a need to be nimble, agile, and moving at a new-economy pace. This pace isn’t natural for an organism designed for stability and deliberate behaviors, i.e., the major corporation. Such organizations can still find ways to adapt to the marketplace, with the benefits of size.

The recent wave of divestitures led by Pentair and Honeywell offers a peek inside the mindset. Both large corporations spun off portions of their business—what I call “starting out” instead of “starting up.” Honeywell’s Resideo Technologies spinoff last year instantly became a cash-flow-positive venture with $5 billion in revenue and 13,000 employees globally.

Then there’s Resideo’s neighbor, nVent, which opened its own headquarters on the other side of I-394 from parent company Pentair. That means there are two $2 billion ventures hanging out in St. Louis Park. Now that we have these two new living brands in the real world, we can watch them create something new from something old. The local history of this strategy has some baggage; has anyone seen Imation recently? (For the younger audience, Imation was spun out of 3M in 1996.)

Niccolo de Masi, the new Resideo president, frames the art of divestiture this way: “During that year-long process, we were laser-focused on what mattered most—our culture, our customers, and delivering shareholder value.” Resideo has a license agreemeent to use Honeywell Home as a product brand. Building Resideo into a parent brand is not so easy, however—it still involves a fussy audience, stakeholders, perceptions, and all the anxieties of a community.

We certainly have high hopes for these two new ventures. They have the cultural benefit of an upward trajectory, in contrast to the brands divesting them, which have the cultural equivalent of leftovers. Yet Honeywell and Pentair both have bragging rights for what they have “divested” into the world, although “divest” might not be the best word. Why not describe this as “extravest,” something outside of and beyond the original? The result of these new ventures should not be a clone of the original, but a genetic improvement and a bright new future.

Here are a few things this observer will be looking for from these ventures.

  1. Winning culture signals to the outside world. Perhaps winning awards for employer of the year (but not the boondoggle versions out there), impressive Glassdoor ratings, and generally a reputation for an innovation-driven culture.
  2. Authentic brand-building efforts. Not just the occasional ad spend, but a culture where brands are known for their asset value to the organization and built creatively from the inside out and vice versa.
  3. Design thinking woven into the organizational structure. It doesn’t need to be a chief design officer, but design as a way of thinking should be a fundamental part of any organization with the hope to build a valuable brand.

We as a creative business community get to see these new brands come to life and grow up. Let’s give them the best chance of success in the modern global marketplace for ideas, products, and experiences.

Aaron Keller (aaronkeller@capsule.us) is co-founder and managing principal of Capsule (capsule.us), a Minneapolis branding agency. He co-authored The Physics of Brand, physicsofbrand.com

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