The carve-out is a business version of a high-stakes TV breakup. One day, you're all part of a happy work family, and the next, you're packing up your digital belongings, renaming Slack/Teams channels, and awkwardly deciding who gets custody of the IT, Finance, and HR departments.
A successful carve-out requires strategy, patience, and possibly a strong beverage. So, before you dive headfirst into the business abyss, here are four key considerations to ensure you make it out alive (and remain profitable).
1. Who's Taking the IP Subnets and WIFI Passwords? - Separating IT and Systems
Imagine moving into a new house only to realize you left all your keys in the old one. That's what happens when IT isn't properly separated in a carve-out. You don't want to find yourself calling your ex-parent company just to access your email.
- Plan ahead: Make sure systems, databases, and software licenses are untangled well in advance, and there is a coordinated separation plan leading to a clearly defined target state environment.
- Double-check access: There's nothing more tragic than an entire workforce locked out of their files because someone forgot to update the permissions. Ensure all team members have appropriate access to complete their jobs.
- New email, who dis? Ensure smooth data migration so employees aren't left sending carrier pigeons to clients, and the communications are rebranded to reflect the carved-out company.
2. Want to Play Talent Musical Chairs? - Talent and Leadership Transfer
During a carve-out, one moment you have a CEO, a CFO, and a team of 500 people, and the next, half of them are gone, and you're wondering if you accidentally acquired an empty office building.
- Make leadership decisions early: Don't wait until Day 1 of the carve-out to realize no one knows who's in charge. Definitively decide and communicate.
- Keep employees informed: Transparent communication (to the extent possible) is key. Otherwise, people might start updating their LinkedIn with the "Available" badge faster than you can say "organizational restructuring."
- Talent retention matters: Let's be honest, no one likes to be picked up last for the pickleball team, and nobody wants to be the last one left at the office wondering where all their coworkers went. Make sure there are retention plans in place for the best talent and succession plans for others.
3. The Breakup Budget - Financial and Legal Readiness
Carve-outs are expensive (like buying-a-whole-new-wardrobe-after-a-breakup expensive). If you don't budget properly, you might end up spending more on legal fees and transition costs than on actually running the business.
- Cash flow is king: Make sure the newly carved-out entity doesn't start its independent life on financial life support. Ensure the appropriate transition of operating bank accounts, customer receivables, employee payroll, and vendor payable processes.
- Legal loves paperwork: Get ahead of transitioning contracts, intellectual property rights, and compliance requirements. Otherwise, your lawyers might be the only ones profiting from this deal.
- Hidden costs lurk everywhere: You think you're done, then—boom!—a surprise invoice for software licenses nobody remembered existed. Budget accordingly.
4. Brand Identity Crisis - Marketing and Customer Retention
Your company used to be "Part of BigCorp", but now you're on your own. It's time to convince the world you still matter.
- Rebrand, but don't lose the plot: A rebrand is great, but if customers can't recognize you, they might think you've ghosted them.
- PR matters: Mobilize strategic communications experts to provide the right public messaging about the carve-out. Otherwise, people will assume the carve-out happened because of scandalous reasons (even if it was just for "strategic realignment").
- Customer transition is key: It's important to manage the customer experience throughout the stages of the carve-out because no one wants to wake up and find out their favorite vendor vanished overnight.
- Think digital: For the love of all things business, don't forget to update your website and social media.
Carve-outs Are Like Breakups. Prepare Accordingly.
Much like a particularly messy (but necessary) breakup, a carve-out requires planning, patience, and a solid transition strategy. If done well, both entities can thrive separately. If done poorly, your carve-out will serve as a cautionary tale to tell at your next company retreat.
Now, go forth and carve responsibly.
Explore Carve-out Success Stories:
- Executing a Division Carve-out at Lehigh Hanson
- Navigating the Carve-out Process for a Payment Processing Provider
- Executing a Carve-out and Back Office Stand Up for a Mid-Market Apparel Company
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
