Idealab, Betaworks, Science… Just a few of the wildly successful companies that follow the so-called startup studio approach. You can also call them venture builders, startup factories. These are organizations that –a bit similar to Hollywood movie studios – produce multiple startups in parallel, with in-house resources, in a sustainable way.
The big promise of this methodology is that it provides a cost-efficient and low-risk platform for building innovative new companies. Because studios have most startup-building capabilities (like development, design, marketing… and of course cash) in-house, they allow entrepreneurs to focus on what matters most: product, customer, growth.
The number of startup studios more than doubled from 2015 to 2016 (now counting 120+). The funding into portfolio companies has been increasing 48% year-over-year since 2010, now exceeding $7B. And 2016 is a great year for direct investment into the studios themselves.
Expa, the San Francisco-based startup studio raised $100 million. Spanish startup studio Antai strengthened its operations with €25 million investment fund. German fintech company builder FinLeap raised €21M at €121M valuation. There have been about 19 portfolio companies acquired, on average three years after their launch. Biggest exit so far was Dollar Shave Club’s $1 billion exit. The company was nurtured by Los Angeles-based the Science-Inc, lead by ex-Myspace CEO Mike Jones.
There are many building blocks of a thriving startup studio. Here are the three most important pillars:
Building the founding team of a studio is even bigger challenge than building the founding team of a regular startup. In the latter case, people will have to focus on one product, one business. In the case of a studio, people will build multiple startups at the same time. Often lines will get blurred between these startup initiatives. There will be prioritization and resource issues.
To succeed, it’s best of the founders of a studio are already established entrepreneurs with a strong track record of growing companies. The Core Team (the developers, designers, marketers) also need a mindset that enables them to work on multiple startups in parallel.
The bread and butter of a studio is to launch one startup after another. Common practices like Lean Startup, Design Thinking, agile development frameworks come handy, but you need to tailor them to work in a mass-production mode.
Startup studios are very efficient venture builders. With a large enough core team, you start to see economies of scale in building products and businesses. But to build up and operate the core team demands a large amount of cash. To get this initial money, there are different ways:
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