Two 2000 Inc. 500 CEOs demonstrate that spinning off new start-ups from within can give big benefits -- and profits -- to both parent and child.
For hard-core entrepreneurs, spotting business opportunities isn't just a passion -- it's an obsession. That's a good thing, too, since today's ancillary business unit may be tomorrow's cash cow -- possibly even outstripping the business that spawned it.
At GDI Infotech (#32), the serendipitous start-up syndrome struck in 1997, when two software developers persuaded CEO Bhushan Kulkarni to let them use the company's intranet to train and certify employees. Such a program was paramount at GDI Infotech, which handled information-technology consulting projects in 40 states from its headquarters, in Ann Arbor, Mich.
Traditionally, the company's technical staff attended training and certification sessions led by outside instructors. But because many staffers were often on the road, nearly everyone at some point fell behind.
Developers Shreyas Saitawadekar and Pete Solar set out to change all that. They began by uploading training manuals that were already available elsewhere; then they added their own mentoring component whereby trainees could hook up with colleagues who'd already been through the drill. The two developers also built in a function that enabled their human-resources department to track the employees' progress. The program soon became a celebrated hit. "Because it was all done online, we actually were able to assess whether what we were doing was right or not," Kulkarni notes. "We saw a gargantuan leap in having employees be both trained and certified."
GDI quickly realized that its internal training capabilities could benefit its clients, too, by enhancing their own customer training through online tutorials. The company dubbed the new service EdShop.com, which it began offering to clients such as NSK Corp. in 1998. The ancillary business with its training tools has even started attracting new clients, which GDI has been able to cross-sell on its primary consulting services. Indeed, Kulkarni says, EdShop.com was a major contributor to the company's 1999 revenues of more than $11 million.
Although EdShop.com appears perfectly comfortable sharing a roof with its parent company, the serendipitous start-up at Dynamic Resources (#60) already has one foot out the door. Christened Z3 Technologies, the business was born of CEO Evan Giniger's efforts to speed information flow among all the parties involved in retail-design projects he manages for clients such as Levi Strauss, Liz Claiborne, and Gateway. Such projects usually involve coordinating some 50 to 70 professionals, from interior designers and architects to carpenters.
In mid-1998, Giniger sensed he could gain a competitive advantage by creating a tool that would keep all the players apprised of project developments and that would alert them to their upcoming moves. Giniger first sought feedback on that idea from some of his clients at Levi Strauss, and their reaction was so enthusiastic that they offered to cover development costs, in the hope that the result would yield cost-saving efficiencies down the road. Seven months later Giniger and his staff had come up with iReact, a technology for handling collaborative management over the Web.
By early 1999, the CEO was convinced that iReact had an enormous market potential, so he spun off Z3 Technologies as a separate corporation. And while Dynamic Resources has achieved stellar growth, racking up 1999 revenues of $6.8 million, Giniger is betting that Z3 is on track to become a $200-million business within three years.