Startups - The " Inside" Stories

Admit it: At least once in the past few years, over lunch with friends, you've kicked around an idea for a startup. Before you were halfway through your sandwich, you had already quit your job, found a venture capitalist, planned the IPO, and spent your newfound wealth. But then you finished eating -- and daydreaming -- and you returned to the real world.

Gord Larose and his friend David Allan had that very experience in early 1996, but their story had a different ending. At the time, they both worked in Ottawa at Nortel Networks, a giant telecommunications-equipment maker. One Friday afternoon, over a few beers in Larose's kitchen, they dreamed up a scheme for renting software over the Internet. The service would allow people to sample programs in a few different ways: They could use a free trial offer, pay for a few hours of use, buy the software outright, or rent to own.

But the two friends didn't forget about the plan. Nor did they follow the standard-issue fantasy of quitting their jobs and signing up with Kleiner Perkins or some other blue-chip venture-capital firm. Instead, they reported to work on Monday, explained their plan to their boss, and launched into a proof-of-concept skunk-works project. Four years later, their idea has evolved into a full-blown company called Channelware, which Nortel spun off last summer. Today, Channelware has 60 employees and offices in Ottawa, New York City, San Francisco, and Los Angeles. Some of its bigger customers include Barnes & Noble, Sega Enterprises, and Sprint Communications.

Were Larose and Allan nuts not to launch the company on their own and keep all the equity for themselves, instead of ceding much of it to a giant like Nortel? Maybe not. For lots of good reasons, plenty of people with great product and service ideas don't risk everything they have on a startup.

"We all deal with trade-offs," says Robert Horne, 60, who recently retired from his post as Channelware's vice chairman but still remains a company adviser. "If you are a true entrepreneur, you probably shouldn't be at a big company in the first place. But if you want to test the entrepreneurial waters, doing it from within a company is a good move. And most of us are in the big-company camp, despite what the newspapers tell us."

That said, big companies have rarely been known for their ability to nurture grassroots ideas. For every person who comes up with an idea like 3M's Post-it Notes, there are scores of disgruntled up-and-comers who can't get anyone at their giant corporation to listen to their ideas. When you think about recent big innovations, it's startups such as Dell Computer, Netscape, and Yahoo! that come to mind.

The people running the behemoths are fully aware of that situation, and they are doing all sorts of things to catch up. Companies like McDonald's and Microsoft are acquiring stakes in startups or buying them out altogether. Others, such as Intel and General Electric, are setting up in-house venture-capital firms to fund the ideas of those who are outside the company.

Nortel is taking yet a third path. In addition to scanning the globe for the Next Big Thing, Nortel's senior leaders are also partnering with the people they know best -- their own employees. Three years ago, the company set up an in-house incubator called the Business Ventures Group, which shepherds the best grassroots ideas from skunk works to startup -- come what may.

Many more big companies have done nothing of the sort, and it's entirely possible that your company lacks such a formal program. That doesn't mean, however, that your company wouldn't make a similar investment if an insider presented a compelling case for it. If you want to build such a case, you can learn a lot by studying the tactics of the self-styled intrapreneurs who have launched startups within their own organizations.

"Between concept and delivery, there are an incredible number of places where you can miss a step and break both of your legs," says Jeff Dodge, 39, a former Nortel senior business manager who is now the president and CEO of Channelware. After having jump-started Channelware without a major stumble, Dodge, Larose, and their Nortel cohorts have formed a good model for launching an in-house IPO. Here are five questions, based on their experiences, that every intrapreneur must reckon with.