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Juan MC Larrosa
New Recruitment Strategy: Ask Your Best Employees to Leave
A look at how large companies are tapping into the entrepreneurial urges of their employees.
Blue Chips
Congratulations! You got the job. Now, when can you leave?
That's not exactly what subsidiaries of Lockheed-Martin Corp. tell new hires, but some divisions of the $26-billion defense contractor do offer an unusual benefit: the Entrepreneurial Leave of Absence Program. Under the program, employees itching to start businesses can use two years of unpaid leave to do so, paying company rates for health insurance. After that, they either leave permanently or return--for a while, anyway. "If you're successful with your spin-off, you can hire some management and come back to our lab and invent something else," says Bill Martin, vice-president of technology transfer for Lockheed-Martin Energy Research Corp., in Oak Ridge, Tenn.
Lockheed-Martin's motivation is unique: the Department of Energy (DOE) pays the company to manage labs such as the one at Oak Ridge--where the program began two years ago--based partly on such measures as the number of start-ups generated and the number of jobs created in the private sector. But Lockheed is hardly the only large company to conclude that it's wiser to tap into, rather than resist, the entrepreneurial urges of its employees. At Xerox Corp., workers who leave and open Xerox sales agencies are eligible for a special bonus based on their gross sales, available for their first three quarters in business. "They're probably going to leave anyway and maybe start something else," says Stephen Lurain, manager of business planning at Xerox. "We've found that former sales employees who want to be entrepreneurs are our best sales agents."
The Lockheed-Martin subsidiaries also stand to profit from setting folks free: the company makes equity investments and strikes licensing agreements with the new ventures. Jack Stack, CEO of Springfield Remanufacturing Corp., a $105-million engine rebuilder based in Springfield, Mo., claims that such a program--his company owns stakes in 24 employee spin-offs--has helped make his business less vulnerable to a downturn in any one sector. "We started it to create opportunities for people and also to build a defensive strategy for the company," Stack says. "If we take a hit, it doesn't take the entire company out."
In the past, would-be entrepreneurs at Lockheed-Martin had to either moonlight or quit; occasionally, the giant company would make a small investment. "Their idea was to throw $100,000 at a start-up and take a huge share in products that were nowhere near ready for market," says Tim Scott. In October 1995 Scott became the first employee to apply for an entrepreneurial leave, after a research project he was working on turned up an enzyme that gives denim a stonewashed look. With two partners, he launched Genase LLC.
Lockheed-Martin's venture-capital group, Innovative Ventures Corp., invests about $250,000 in the start-ups in return for around 10% equity. The start-up pays the DOE a patent-licensing fee ranging from $5,000 to $20,000, depending on the product's likely market. The patent is registered to the DOE, and the start-up pays royalties--1% to 5% of gross revenues--for the life of the patent. Innovative Ventures also provides incubator space, management advice, and introductions to potential investors.
So far, employees on leave have launched four companies. (See "New Recruits: Lockheed-Martin's Start-ups" below.) Genase began posting sales in March, and another start-up expects to post sales this year. Those are unusually quick payoffs for start-ups that are typically far from market ready, says David G. Beall, president of Innovative Ventures. "We're working with very front end, high-risk seed capital." That risk doesn't scare Scott, who will not return to his old job. "I didn't know what I was getting into," he says. "But after three months, I decided that working on my own is what I really want to do."
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