This article was published on June 30, 2016

How to spin-off a startup (without making your head spin)

How to spin-off a startup (without making your head spin)
Gareth Wilson
Story by

Gareth Wilson

Gareth is an executive who works on FogBugz and HyperDev at Fog Creek. Gareth is an executive who works on FogBugz and HyperDev at Fog Creek.

Trello grew quickly. So quickly, in fact, that in 2014 it was something of a headache for us at Fog Creek.

We had other existing products that people loved and made us a nice pile of cash each year. But, we risked ignoring them as Trello took up more and more time and resources. We needed to make some changes, but what exactly?

What we knew was that Trello needed VC funding if it was to continue to grow as fast as it needed to. Yet, we didn’t want to give up ownership of Fog Creek. And frankly, VCs found the prospect of investing in our more than a decade old, profitable, bootstrapped software business a bit weird – I mean really, how prosaic of us!

Of course, a lot of the advice we got was to pivot. But we really didn’t want to do that. We refused to believe that our only option was the devout pursuit of just a single idea, huddled away like nuns in a convent.

In spite of the startup dogma of focus above all else, we were convinced that we could do more than one thing at once without screwing it up. Why couldn’t we make it work? You can, after all, use the resources from your existing business to fund and build your idea, prove demand, show you can deliver, and put-off raising outside funds until you’ve gotten enough traction to snag great terms.

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So, that’s what we did – we spun-off Trello into its own business. We’d done similar with Stack Overflow a few years before, and both worked out well. It wasn’t easy, and there’s a ton of things you can mess up along the way. So for those considering doing similar, here’s a few of the issues you’ll have to deal with:

Juggling those resources

While you’re running both businesses, resources are going to be stretched. In fact, that’ll be the case for some time even after you’ve spun-off too. After all, you still need to backfill the positions of those who move on to the new thing. But, these issues are only temporary, and resource sharing can be super helpful.

Take finding office space for example. In San Francisco, New York and elsewhere, finding suitable office space can be a real drag – it’s time-consuming and a big distraction from what you really want to be doing. So when we co-created Stack Overflow, some of the staff worked out of Fog Creek’s office before they got their own space.

And Trello continues to share the Fog Creek office even now, which has saved them from having to worry about where all the new hires will go.

Breaking up can be hard to do

Stack Overflow grew quickly, and so at times going into the Fog Creek cafeteria could be a startling experience – you’d see a bunch of unfamiliar people, when before you were used to knowing everyone.

So keep in mind that spinning off a company can be a testing time for some. Especially in our case where many had joined us, an established business, to avoid the roller coaster of startup life.

Be upfront with the detail

You know how quickly office gossip can spread. So you need to be clear about all specifics of the split. This is when getting into the weeds is actually a good thing.

Providing as much information up-front will keep the rumour mill at bay. This is something we got better at each time. Before moving forward with the Trello split, Joel Spolsky, our co-founder, gave a presentation about what was happening with lots of time for questions after, and all the details were on our internal Wiki for reference later.

But it shouldn’t be a one-time brain dump.

The details should keep coming throughout the process, continuing even after the spin-off. Without explaining how things’ll work silly little issues, like confusion over meeting room bookings when left unresolved, can impact inter-company relations down the line.

Don’t forget about life after spin-off

Give some thought to how the companies will work after they’ve been spun-off too.

For Fog Creek, Trello, and Stack Overflow there’s what we call a shared operating system. This comes mostly from the founders who are actively involved in all of them. But what this means is that while each company works how it needs to, there’s a shared approach between them. They evolve on their own, but they learn from each other.

Take Sales, for instance – the successful approach from Stack Overflow is now in operation at both Trello and Fog Creek. That goes for hiring, too. We all have the same high standards for hiring, so employees often move between the companies, which is great for retention.

There’ll be lots of other issues specific to your own situation, but spinning-off a company is an exciting time.

There’s a great sense of pride that comes with working at a company that can create other successful businesses. So, the next time you’re thinking about pivoting, consider whether a spin-off is another way to go.

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