Breaking Away

The CEO of a spin-off discusses the opportunities and dangers of spinning off a business from a major parent company.

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How does a service department in a billion-dollar insurance conglomerate become an entrepreneurial company overnight? So far spin-off founder Dan Logan seems to have the answer

"Here are three ways of getting information -- elicitation, observation, and penetration." Dan Logan, between bites of duck salad, is explaining what he learned in intelligence school before spending three years overseas as a military attach&eacuate; in the 1970s. The techniques served him well in those days ("If someone was trying to kill me, they failed," he says without irony), and they have also come in handy in his latest career maneuver: jumping easily from the most staid of corporate environments into the maelstrom of entrepreneurship. Unlike most start-up entrepreneurs, Logan didn't begin from scratch and enter the marketplace with a blank slate (and an equally empty bank account). Instead, he launched a covert operation inside his old company that enabled him to jump-start his new business, which thus began life with significantly more assets than is typically the case.

A stone's throw from the Boston restaurant where he is lunching stands the stolid granite building housing the New England (TNE), the nation's oldest chartered mutual-life-insurance company and Logan's former employer. Three summers ago, in July 1992, Logan began to deploy his information-gathering techniques, particularly elicitation, which he describes as "getting information out of people without them knowing you're trying to get it." As head of the insurer's internal communications department, Logan, like all department heads, had been told to find ways to cut costs and reduce overhead. At the time, his 90-person department was spread over two floors of TNE's block-long Back Bay headquarters and had an annual operating budget of $5 million. Packed into cubicles, Logan's group handled all the communications needs -- from annual reports to direct mail to training videos -- of the 165-year-old, 2,800-employee company and of six of its separate business units.

Logan talked with those internal customers and used his best spy manner to gain information while planting the seed of an idea in their heads. He asked about their problems and then, after hearing them out, he wondered aloud whether they thought an outside firm that understood their business could help them with solutions.

In that fashion, Logan began to covertly lay the groundwork for his life as an entrepreneur. Though he had spent the previous 20 years as a corporate vice-president -- 8 at TNE and a dozen before that at a New York City advertising agency -- entrepreneurship had long been on his mind. In 1984 TNE lured him away from the agency by offering him the opportunity to build his own department there from scratch. The company gave him generous corporate resources to turn what had been a seven-person skeletal crew into a full-service communications department. But coming from the informality of the advertising world, he quickly discovered that adapting to the culture of an insurance company was going to be a stretch for him. "You learn the art of having dinner for three hours and never saying anything," he says.

Nevertheless, Logan spent the next several years using TNE's corporate resources to build his group into a model department: he computerized all systems, instituted time reports and detailed financial breakdowns, and enrolled his employees in courses in public speaking and business fundamentals. In the fall of 1990 TNE asked him to spearhead its quality initiative and flew him around the country to examine leading-edge management practices like total quality management, peer review, team-based project management, and outsourcing, as practiced by such companies as IBM, Federal Express, and Corning Glass. Eventually, the company even adopted some of those techniques. Over time, however, Logan came to believe that he had been unrealistic to hope that a tradition-bound New England-based insurance company that was a century and a half old could ever turn itself into something lean and sleek. "They don't want to be out in front of these things," notes Logan.

Logan decided to view TNE's chaotic reorganizing effort as his opportunity to become a real entrepreneur -- but without having to go cold turkey, so to speak. TNE had been good to him, letting him run the department almost as if it were his own, all the while paying for all the training and equipment he needed. In return, the company asked only that his department break even and that Logan play by its rules. Now it wanted him to cut his costs, so how could it object if he eliminated them by shutting down his own department?

Logan would quit. He'd even forgo the generous severance package TNE was offering departing employees as part of its downsizing effort. There was just one thing he wanted: his department and its business.

Logan needed a highly placed ally, and he found one in Jim Zilinski, the senior marketing officer to whom Logan reported. Zilinski, a member of CEO Bob Shaffto's senior team, was as eager as anyone to cut corporate costs, and he trusted Logan's instincts well enough to help him make his case. "My job was to be supportive and run interference," says Zilinski, who has since left TNE himself to become president of Berkshire Life Insurance Co., in Pittsfield, Mass. Next, Logan needed to do reconnaissance work -- "observation" in spy parlance -- on corporate spin-offs. He found a conveniently local example at Digital Equipment Co., in Maynard, Mass., and spent several days with the person who oversaw the breaking away of that company's communications department. "He told me to move quickly and clearly once I made the decision," recalls Logan. "Otherwise, corporate resistance would build up, and the effort could get bogged down."

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