Startup factory — A New Model to Entrepreneurship
Startup factory. Venture builder. Startup studio. Startup foundry. These are the many names to the “parallel entrepreneurship” business model. There are even more definitions associated to this model depending on who you ask.
Since I made the decision to quit my job and go on a year of self-discovery, I’ve bumped into this multiple times over the first half of this year and finally had an opportunity to have a run at one. Here is what I learned.
The basic idea of a startup factory is one where, a group of individuals agree to pool resources together and build multiple startups.
Often people confuse startup factories with incubators and accelerators. Unlike incubators, startup factories do not take applications from founders for mentorship or funding. The factories build the startups themselves using internally controlled resources (their own development teams as an example). Unlike entrepreneurs however, they build many, many startups.
Very quickly, we arrive at the question of why.
The main principle behind this business model is twofold — specialisation and diversification.
Specialisation
Depending on the type of startup factory, the process starts from an ideation phase, one where the team methodically churn through startup ideas typically through a pre-determined methodology, then through to a process called rapid testing and then to launch. (I will write a post on the exact steps in a separate post.)
Individuals in the team eventually develop specialisms improving the efficiency and effectiveness of each step of the business creation process as it is repeated over and over again. In other words, unlike a typical entrepreneur who would only start a business once or twice during their lifetime, startup studios benefit from quick feedback loops, which, in theory, means they can create better startups.
Diversification
A startup factory offers (would be) entrepreneurs a chance to minimise risk. Starting a business is an inherently risky venture, whether you have done it once or multiple times. The studio model appeals to entrepreneurs who do not want to sign up to a “spend a decade on one thing and risk it all” mentality, sharing both upside and downside risks with other entrepreneurs.
Summary
What I find interesting is that although this sounds entirely foreign initially and at times gimicky (afterall, a factory for startups? Really?), the behavourial driver behind this is pretty simple — Risk sharing. It is exactly this behavour that created some very common stuffs that we accept and understand in today’s world, e.g. insurance and business partnerships.
As more of us embrace the opportunity and challenges of startups and self-employment, new ways of managing entrepreneurship risks will emerge naturally. In fact, we are beginning to see startups founders coming together as collectives after they have launched their businesses (case point — Collective Equity Ownerships). These types of collectism business model is here to stay and an important next step for us all is to figure out ways on which we can learn to manage this inherently complex web of relationships.
Examples of Notable Startup Factories
- Rocket Internet — Bringing successful online retail business models to a different part of the world (American startups to Europe as an example). Notable startups: Zalando, HelloFresh
- Founders Factory — Launched by Brent Hoberman and Henry Lane Fox as part of a bigger “Founders” series (Founders Intelligence, Founders of the Future etc). Based in the UK.
- Efounders — A Paris based foundry. Launched Mailjet, TextMaster, PressKing, Mention, Front and Aircall.
- IdeaLab — One of the oldest startup factories launched in 1996. They’ve had more that 30 exits on around 70 companies created.
- Betaworks — NYC based. Doubles as an early stage investor.
This post is part of a series where I document learnings from my year of self-discovery.
