Opening
I invite you to look at the app world from a new perspective.
Look at the film industry. A production studio releases 20 movies a year. 19 fail at the box office. One is a blockbuster. That’s all they need. One blockbuster.
Compare this model to the app industry. Each startup works as a “one movie” production studio. Why is our industry still funding “one movie” companies?
The true resource of the studio is its core team. This is how they continue to have successes. They know what works. If 19 movies fail, they’ve gained knowledge and perspective to evolve and create better, stronger projects next year.
Startups are no different. Their true resource is its team. By investing in a “one movie” company, you are losing the team, significant intellectual capital — and — momentum you have gained within the year.
StartLab Model for Finding Viral Practicability in the Mobile App Industry
- - What is a StartLab?
- - The 2 Types of StartLabs
- - Key People of a StartLab
- - Workflow Schema & Budget
- - KON
- - The Math
- - The Comparative Risk of Investment (StartLab vs Single App Concept)
- - The Core Assets Angels Gain with a StartLab Investment
- - VCs, StartLabs, and the Future of the App Industry
- - The Revolution of Institutional Funds
- - +40 Entrepreneurs: Why Are They the Best
If startups are the gestation period of companies, then StartLabs are the conception- the first step in building success.
1 / What is a StartLab?
A StartLab is a core of 3–4 people whose sole purpose is to find viral practicability and “valid for investment” in the mobile app sphere.
Once the StartLab cracks a solution or pinpoints an opportunity, this “find” moves forward as a new legal entity. It is now “valid for investment”- complete with a new team to spearhead the efforts.
Each new company that comes out of the StartLab holds the same cap-table.
2 / The 2 Types of StartLabs
TC — Test to Cater
Much like a production studio, the Test to Cater team brings “scripts” to life. The process begins with choosing a promising script and then producing a pilot to test the probability of its success. If a pilot receives strong ratings, this team then begins the search for a full “cast”- a dedicated team- with the talent necessary to bring the “script” to fruition in its greatest form.
TB — Test to Build
The Test to Build team fully develops ideas until they are deemed fit to build from its StartLab phase into the startup stage. If lucky andwell-managed, this team may even be able to thoroughly transition an idea into a company.
3 / Key People in a StartLab
A StartLab consists of 3 key people.
1. Code and product
1 Full Stack developer (iOS/Android — Web/Mobile — Back/Front End)
2. Design and product
1 person This individual also holds a mastery of video editing and after effects, as necessary in a world of increasingly video-based expression in all verticals.
3. Director
1 Person The Director (CEO) must have an ability to raise funds, tell a story, understand branding and marketing, analytics and appreciate and participate in the creative process. The ability to design or code is also, in my opinion, a necessary skill. These capabilities are central to envision as well as execute ideas in the startup world.
I know this may seem like too many qualifications for one person, but I do know a few people who hold these abilities. These are the people a StartLab should build around.
4 / StartLab Workflow Schema & Budget
A StartLab’s goal is to launch 4 products in the first year and push for 1 app a month in the second year. This includes PR preparations and marketing.
To reach this goal, a StartLab’s workflow schema is simple and efficient.
Every project begins with a roadmap of concepts and tests. Once the roadmap of concepts and tests is completed (in the 1st month), the Lab enters the process of building the app. The app launches in the 2nd-3rd month.
One month after the launch, the team moves on to the next test, hiring only 1 more position: Marketing Manager. He is the pulse checker and analyst of the previously launched app. The Marketing Manager must be highly mobile and web savvy, have a deep understanding of marketing strategies, and possess a sharp eye for PR opportunities.
The Marketing Manager (the authority on marketing and analytics) begins to test PR results and marketing efforts of the most recent app for 30 days. This period is crucial. The entire structure of the Lab relies on viral practicability.
Once he is installed, the core team reaches the “Flip Day”. It is truly one of the most interesting and invigorating days for the team. You clear your desktop and prepare for a new project. Flip Day is much like a sports team entering a new season. You’re excited by a new beginning- yet you are wiser and more efficient as a team since the previous project. You’re ready to tackle the next challenge with more confidence and skill.
How does a StartLab decide which apps to move forward with? We approach success and failure directly and honestly with the concept of KON.
5 / KON — Kill or Nurture
Every app is a story. When you tell a story, you know if the audience hooked or not. When you produce an app, you know if it has “stickiness” or not.
And as storytellers, we want to know ASAP whether to continue spending creativity and energy developing the narrative or not.
Every app is a test for “stickiness”.
Every test has 60–90 days of development.
Every test has 30–60 days of a pulse period to analyze whether it is viable for further development.
Every test should result with a straight-forward answer: Kill or Nurture.
Kill means that the concept is a fail. It’s dead. Although this app is not fit for further development, it will gain you exposure and eventually help your advertising efforts.
Nurture sends the project to a new operating team to launch a startup based on the outcome of the test.
I’m sure those of you in finance now see the extra benefit of investing in a StartLab…
6 / The Math
Each “test” costs $120,000. The $120,000 is for 3 months development + 1 month of PR (including office space etc). This is the price tag to release a respectable MVP when working in a structure of 3–4.
Reaching the efficiency milestone of 12 apps a year will take $2.1M, 2 years and the team to grow. Yet the market will already be engaged with 16 apps, and your team will only getting warmed up as they have 3 more years of operation.
A TC (Test to Cater) StartLab, funded by $6M, needs to reach a goal of at least 50 apps during its life cycle.
Referencing the earlier “studios” analogy, these 50+ apps are your “studio’s releases”. Clearly, the rate of success is much higher than a single app concept, the “one movie company” of the startup world.
7 / The Comparative Risk of Investment
StartLab vs Single App Concept. Or why is investing in a StartLab less risky than investing in a single app concept?
The mobile app is no longer a world of techies. It has developed to be a world of storytellers. The creative, the designer, the product, the after effects and video editing — these are the new rockstars, and this is only the beginning.
When you invest in a single idea startup, you will quickly lose its founders. Even if the founders bring a 20X return to their investors, it’s still just 20X. The team will then take their share of the cap and move on with an upside that you, their investor, will no longer share in their profits.
Or, here’s another common scenario. You invested your money in an idea and the idea fails. What now? The stress levels rocket, your team is not the fit for quick pivots and tests, and you ultimately find yourself giving up. And what about the team? The team has already moved on to their next project.
This team has the ability to grow and continue to launch many more ideas and concepts using the outcome of their attempts. Yet you have been left behind.
8 / The Core Assets Angels Gain with
a StartLab Investment
What are the core assets angels gain when investing in a single app (and not a StartLab)?
By investing in a StartLab, you simply increase your chances. You now have a dedicated team and are not reliant on one success or failure. The team launches a test and learns from the entire process only to launch a new test. The team evolves. They are fully motivated. They know that their financial future lays in their persistence and creativity- not random chance- because they are funded and backed by a runway of 5 years. There are no dilutions to the StartLab cap.
There is no “Let’s get the hell out of here and build this cool concept on our own”. No terrifying prospect, resulting in panic and sloppiness, of completely losing funding. Their progress is your benefit and they’re all in.
You gain a team that lives off creativity and has the sharp focus required in building an idea.
You are investing in people- in talent- not a single concept dependent on chance and a fickle market.
9 / VCs, StartLabs, and the Future of the App Industry
Yes, I am sure the VC guys see themselves relevant in years to come. But the truth is that once technology is able to serve creative people without the ability to code at all, things will change dramatically. They will be the first to build things and be able to move things forward with less capital than ever before. The creative people are the next to rule and their ideas are the new currency.Why should the VC world start looking for StartLab talents?
Steven Spielberg once said that someday, people will be able to see his movies directly from his editing room. Well, aside from legal and business issues, that day has come. Technology is eliminating the middleman. Creators are now able to directly connect with their consumers.
Given the speed and path of technology’s development, the guys that fund the tech world will soon arrive at a two-way crossroad:
Move to the talent model and invest in people or lose their role as the middleman in the $1M-$5M tech industry.
If StartLabs turn out to be the mainstream of core development, there will be no room for MicroVC in the mobile app industry. There will also be no room for any VC in rounds of 500K-5M. The only round that will be VC relevant is the B round and up- the scale money.
A “find” leaves the StartLab at a stage that any VC will want to invest in. The valuation at this point will be at a high, as the team presents opportunities and the opportunities are backed by tests and proven business models.
The ONLY reason to raise $1M-$5M is to start something right. To start something right you need a space and a dedicated team, etc. This costs money. But once you have a funded StartLab, you have no need for funding, unless, you need big money to scale a “find”.
When you hold a StartLab, your rate of success rises because you’ve moved beyond the tunnel vision of randomly “betting” on a single app and moved to a higher vantage point- investing in people’s ability to create and develop ideas.
The smart move for 500K-5M VCs will be to invest in StartLabs. That’s the only way to stay in the game.
For 10M-100M VCs, the smart path will be to build a few StartLabs and act like a WME agency.
10 / The Revolution of Institutional Funds
The VC has convinced Institutional Fund holders, the public, that it always knows best and is unfaulting in its judgment. And yet, the VC’s traditional, inflexible strategy doesn’t complement or nurture the potential of a constantly evolving startup world that many investors want to include in their portfolios.
Instead of investing our money in “outsource” ventures lead by VCs, Institutional Funds will should invest in building their own StartLabs.
Here’s an example. You’re the Head of Innovation at a private insurance company headquartered in NYC. Considering you are in NY (like the majority of these funds), you are surrounded by at least 100 of the world’s TRULY most talented people in the field of Web and Mobile.
Why are we not taking advantage of this resource? It is time to utilize the resources that are under our noses. Find 4 people out of these 100 for a lab, invest $6M (total) for 5 years of operation, and let them get down to business.
How do you present this approach to your investors and potential investors? Communicate the greatest benefit of StartLab investments: Control. People love the concept of control and being part of a process, especially when it comes to their financial future. This marketing approach centers on the idea of ownership and building your own future.
Invite your clients with the strongest credentials for financial leadership and strategy to join the “board” of the lab. They then truly become a key players in the project and can see their investment at work in the most interesting way.
Whether the first lab generates significant or 0% revenue, your fund grows by new investor recruitment as a result of your new approach to the ownership and participation in the growth of the fund.
When Institutional Funds draft their strategy to spearhead the Web and Mobile product world, they will revolutionize new tech and concentrated investment. With this approach and potential, countless people with an eye towards the future will confidently invest their money in these Funds.
11 / +40 Entrepreneurs: Why Are They the Best?
Why do I prefer to work with +40 entrepreneurs?
To be a +40 entrepreneur means you’ve launched over 40 startups. It means you’ve probably been in the game for 15–20 years. 15–20 years is a lifetime. You’ve won few times. You’ve failed time and time again. You’ve learned to live modestly; you’ve learned to live large. You’ve learned to dedicate yourself like an Olympic athlete. You respect fear and no longer treat it with disdain. You embrace failures like a normal human embraces moments of joy. Your wife is in it; your kids are in it; you dream the same dream. You are a leader. You are wise and not impulsive.
You truly enjoy the competition — you must. Your mind and soul work together. You’ve learned how to listen to your gut and analyze it with your brain. You are thorough, agile and decisive. You research everything and once you have a clear picture, you build the leanest strategy to test your assumption. Life taught you to be humbled.
When an opportunity comes, you are better skilled to identify it. Once you feel a pulse, you don’t need to think, you’ve developed an impulse to act.
You believe. Any entrepreneur believes in something. Whether it is God or karma, all +40 entrepreneurs will agree that they can feel when it’s right.
You accept your ego. You no longer claim that your decisions are not affected by your ego. You now know you have an ego. You learn from it. You let it push you forward.
You are a +40 entrepreneur. It’s only a matter of time before the sphere of investors will ask themselves if they’re willing to grant you/your team with the time to find that “thing”. They must ask themselves if they want to invest in the new startup world’s most valuable assets: people, talent and mutually motivational relationships. And that, I believe, is the first step in mining success.
Best of luck to you all,
Itay Adam | Founder and CEO
Creative Freedom
