In June I had the privilege of being invited to Nesta’s office to discuss the concept of a Startup Studio and whether they are a better way to build successful tech companies. Hosted by Nesta and Makeshift it made for a fascinating afternoon of discussion and debate. Split into two parts the first was a workshop during which we discussed the different definitions of a Startup Studio and the challenges they faced. This was followed by a panel discussion chaired by Techcrunch’s Mike Butcher (or Techchurch according to his name card). We heard many opinions during the day about the concept of a Startup Studio but I don’t think we got close to any general consensus. Thankfully, Nick Marsh (of Makeshift) has put together his own summary of the day which has helped me structure my own thoughts.
What does a Startup Studio do?
As a starting point Nesta put together a list of attributes of a Startup Studio:
1. Serial vs. Parallel
- Rapid development and prototyping of new products
- Work on multiple startups, hacks and projects at any one time instead of single-minded focus
2. Leverage synergies and other value adds
- Re-using infrastructure, software and best practices across products
- Projects often in overlapping space or target same customer segment.
3. Funded by exited entrepreneurs
- Appeal to exited founders who want the best of both worlds.
- Founders can invest and fund new ideas, whilst still being involved in the daily life of the products.
4. Experienced, cross-disciplinary team
- One full time team often working across products.
- Often with previous startup experience in specialist areas.
My interpretation of this is that a Startup Studio should be trying to tackle the following challenges:
1. Killing bad ideas early
Startups by definition are risky and so the ability to kill bad ideas at speed is a way to minimise your risk and maximise your productivity. By working on multiple ideas simultaneously you can increase the rate at which this happens and therefore find that “diamond in the rough” sooner.
2. Not reinventing the wheel
When you’re developing a new idea you don’t want to be slowed down by trying to develop new processes and technologies. You want to use as many existing tools as possible to quickly create an artefact that can be demonstrated, discussed and iterated on. This process of combinatorial innovation can then lead to early validation or invalidation (see point 1).
3. Finding good mentors/partners/funding
Famous failures of well-funded startups prove that the amount of funding raised does not necessarily correlate with likelihood of success. It’s not how much money you have but how you use it. By finding experienced entrepreneurs (or even non-entrepreneurs) with whom to collaborate and bounce ideas off, you could save yourself a lot of time and money by avoiding past mistakes.
4. Finding people who can execute (properly!)
While being able to generate innovative ideas is great, they also need to be allowed to mature and evolve. This can only be done at speed with a talented team that believes in the idea. To really know whether an idea should be killed or nurtured takes a combination of good intuition and a methodical process. Feedback from users/stakeholders is important but you need to balance getting early feedback with demonstrating a prototype of the “right” fidelity. Spend too much time over engineering a product/feature and you could end up late to market or even worse building the wrong thing. Release something too early and you’ll probably confuse early adopters and worse still get a bad reputation.
Different flavours of Startup Studio
Nick Marsh nicely synthesised the ideas of the day into 3 potential models for a Startup Studio. Here’s my take on his ideas:
1. Operator-led studio
This is the Makeshift model. A team of talented people come together (funded by an exited entreprenuer) to experiment on and deliver multiple product ideas to see which has wings. The upside of this approach is that the “the talent” generate the idea and have a deep understanding of the problem. They also have the skills to quickly prototype, refine and then, if necessary, kill/build out the idea fast. The possible downside is that objectivity can be lost as the idea is held too close to the chest. This can result in a greater resistance to pivot event though the wrong signals are returned from testing.
2. Agency-led studio
This is the Mint Digital model. While the core business is client focused, excess capacity can be harnessed to explore new ideas at relatively low risk. Like with the operator led model, the talent are the entrepreneurs and so ideas can be validated faster. However, if an idea takes off then product work starts to compete with client work and balancing the need to maintain cash flow against the potential gain of building a successful startup becomes a tricky challenge. On the flipside any successful products can then become great marketing tools for the agency and could lead to more client work. The problems start to occur when a product starts to scale. This was nicely summarised by Tim Morgan from Mint Digital when he said “a successful product is actually more costly than a failed one”.
3. Investor-led studio
This is the Forward Partners model. I’m less familiar with how this model works but I’ll have a go at describing it in my own words. Essentially the organisation is an investment vehicle but rather than just giving entrepreneurs money they also provide resources, contacts and mentorship. This is all in exchange for a big chunk of the business (I assume). I see this approach as being a hybrid of the first two models where you have an agency like engagement but the payment is in terms of equity, and because of that more control is given to the “studio”. An upside to this approach is that idea generation is not restricted to the studio and therefore a broader breadth of interesting opportunities can be discovered. Also there should be a greater degree of objectivity that would help with discovering the true value in the idea. However, since the idea doesn’t necessarily come from the studio itself I’m not sure how much passion can be ignited. And given this model is based on finding a return for investors I’m not sure how the appetite for risk compares against the previous two models.
The Fourth Way…
At Spook Studio we work predominantly with startups. We are an agency like Mint Digital but have a similar approach to Forward Partners in that we work on other people’s ideas. We don’t offer funding, we don’t take equity, we purely provide an acceleration service to help entrepreneurs get their ideas off the ground fast. We experience some of the challenges listed above (and others that I’ll explore in another post) and we’re still exploring the best model to apply to our business. But the things we have learned, and what I think is part and parcel of being a Startup Studio, are:
1. Focus is a challenge
Tackling multiple ideas is great for creativity and discovering opportunities but at some point you need to double down on an idea and know when to focus on one thing.
2. Entrepreneurs are too protective of their ideas
Ideas are cheap, execution is where it’s at. If you’re too protective over your idea you’re giving it less chance for it to grow. Connect, don’t protect, your ideas.
3. Collaboration is king
The best ideas come from discussion and debate rather than a single visionary dictating from above. Being able to bounce your ideas around with others can make it even stronger.
4. Working on multiple projects can be a plus
Collaborating with multiple clients on different projects means that we can cross-pollinate ideas and approaches across seemingly unrelated projects. This benefits everyone.
5. Creativity comes through play
To be truly creative you need to be in an inspirational environment coming up with ideas that aren’t constrained by the need for monetisation or scale.
6. Optimise for passion and purpose, as well as profits
If you don’t believe in an idea you’re not going to do your best work. However, blindly believing that you can make a business out of a passion is delusional. You need to deliver value as well demonstrate passion to be sustainable.
However our industry ends up defining startup studios I believe that they offer a rich source of innovative products and services. In a world where niche businesses and small teams are achieving global reach and increased success the startup studio is well placed to be part of this entrpreneurial revolution. These global small businessss are just as interested in building positive company cultures and being driven by purpose as they are in creating profit and value. In a fast moving digitally driven economy it will be the passionate, creative, purpose driven businesses that will survive.