We stopped spinning out; what happened?

Six months ago we stopped trying to spin-out. We accepted that the project that had taken over nine months, a large number of meetings and a lot of very late nights may not happen.

There’s been a lot said about failure and the extent to which we can learn from it. The decision to try to spin out was born itself out of some earlier abstracted failures not worth the focus right now. The opportunity provided by the proposal felt right and with the commitment of an incredible team, we set out on the path of creating an entirely new entity.

What worked?

  • The business model felt sound (more on the detail on the model itself to follow).
  • We had a reasonable degree of optimism about income. The statutory need to provide a Needs Assessment and the increasing interest in using data to drive local decision making meant that this felt like a good idea at the right time.
  • We had a really strong level of support from the organisation. One of the criticisms levelled of spin-outs is that they are not sufficiently supported by the current system, this wasn’t the case here.
  • The governance model was relatively mature.Community Interest Companies being run as a mutual have been present in the public sector for some considerable time. We had acquaintances looking at them we knew were doing them, even. We had a handful of wonderful, interested, committed people from academia, the local community and elsewhere willing to put in their time and brainpower to make it work.

So why did we stop?

It’d be easy to finger point at any single part of a process (not least because the people were, almost without fault, wonderful and helpful) in determining the cause of this failure. It would also be easy to make this a conversation about public versus private – a commercial imperative versus an almost intangible public service ethos, but the reality is neither is true. Sure the structures aren’t hugely compatible but I don’t for a second think it’s any easier to talk yourself out of something in this sector compared to the private.

That said, there are some specific factors

  • It was one of our directors who asked the very simple question “every organisation needs cash in the bank, where does yours come from?”. The business model understood our income potential (with some degree of assurance), but actual start-up capital was more challenging.
  • Ultimately the amount of capital needed to mitigate an uninsurable risk against an number of TUPE assurances and the risk of missed payments meant that a significant capital requirement was needed. I should add, there is no intention here is not to criticise those regulations. Protecting the interests of staff should always be an essential part of the process.
  • The upshot is that we would need to have ask our host organisation to provide additional capital for a ‘reserve’. This reserve would, of course, be subject corporation tax each year. In essence this money would be in addition to the existing organisational expenditure on the team. Even in less difficult financial times, this would be an unreasonable request.
  • It seems other organisations have managed this risk (although informally, I hear that many struggle) by levering assets and taking short term finance to manage this risk. We would have held no physical assets, so the ability to generate this money would be limited.

I hope in the future to go more into some of the specifics, because they may be of use to others thinking about going down the same route. In this case, though, it’s important to reflect on what in particular worked for us, what didn’t. Hopefully this reflection might help us do things better or create conditions of success for someone else.

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