Can you elaborate on the idea that companies should spin off departments? On the face of it, I don't see how that could work, but I probably don't understand your idea fully.
I also did not understand how that could work in most cases.
I agree with allanienhuis, that it can work well for products.
I was myself working on a mobile app (before they were really a thing) at Nokia. The app was for analyzing golf swings. There was a department working on sports related products. Someone decided to streamline the company (around 2002 or so I guess - nothing major back then), and this department was killed.
We were allowed to spin off the app and related IP to our own company, and were able to continue working on it. At the time I think it was a win-win for both sides.
The idea might work better for products than departments.
I worked for an employer who did exactly that when one of the new product/business they'd built wasn't growing (enough?) to warrant more investment. So he set up a couple of the developers working on the product with the rights to the product and helped work out new contracts with the existing handful of clients (it was large enterprise software). There was enough revenue (maintenance contracts) to support the two guys, and so the existing customers were taken care of in terms of maintenance. Worked out pretty well for everyone as far as I know.
But was the alternative in that case to fire the two employees? It sounds more like the case that they wanted to cut the product.
Specifically, in the case of the article, spinning off the redundant employees leaving them in a new firm with no product and no revenue sounds like a cruelly dystopian option. And if the company was willing to put money into it, I'm pretty sure most employees would prefer that as a severance package instead.
Cutting a product often comes with layoffs. The other products may or may not be able to support the staff that were working on the products being cut. Obviously the larger the company is the more likely there are other options aside from layoffs.
In this case I expect he might have made a spot for those employees working on a different product, but that's not certain - technologies & skills were different & the vertical markets were completely different.
And in this specific case, the two staff thought it was an amazing opportunity for them - I think their short-term salary went up & they got a lot more flexibility plus potential upside if they could grow the business even slowly. Obviously some downsides in terms of benefits, etc. But even if it didn't work out it would have been a pretty good line item on their resume. :)
These seem like extremely competent developers. They could have transferred them to more important projects that had less competent developers in them, and let two or more less competent developers go.
> I'm pretty sure most employees would prefer that as a severance package instead.
Possibly, but I think the employee should be given a choice. If even just 1% of laid-off people took the choice and succeeded, the entire economy would clearly benefit.
Sounds like they should have shut down the product but kept the developers. If they were able to run the business on their own, they were probably 10x developers. Even if they lost half of their momentum by being switched to a new team, they still would have been great for the company.
Shutting down the product is exactly what they were trying to avoid. As a business owner, he made commitments to his customers to support the software he sold them. Walking away from those commitments would have compromised his reputation and hurt his ability to sell in other new markets. I think it was primarily a personal obligation he felt towards his clients, and a matter of integrity.
In the B2B space, the costs of switching vendors/products is often a really big deal. Spinning the product off released him from the obligation (allowing him to focus on more promising products), and avoided (most of?) the pain for his clients.
I agree with allanienhuis, that it can work well for products.
I was myself working on a mobile app (before they were really a thing) at Nokia. The app was for analyzing golf swings. There was a department working on sports related products. Someone decided to streamline the company (around 2002 or so I guess - nothing major back then), and this department was killed.
We were allowed to spin off the app and related IP to our own company, and were able to continue working on it. At the time I think it was a win-win for both sides.