Startup Studios have become a fascination of mine as they’ve evolved over this decade. I am not enchanted by them for traditional reasons, though. I don’t find them compelling because of their high unicorn potential or even because of the incredible innovation they unleash. I’m so interested in them because their business models are so unique.
I have always been fascinated by the “big picture” of things. Just as the oxygen produced by plants in the deepest depths of the ocean power the ozone layer that floats above the Earth shielding us from attacks by the sun- every tiny element of a startup is uniquely connected to every other element within its ecosystem.
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Business models are tricky to define but easy to differentiate. For example, you may not know how to describe Amazon’s business model or know the inner workings of Costco’s business model- but you can say without a doubt that they operate in two different ways. One sells only online, the other sells only offline. One sells individual items, one sells items in bulk. People impulse shop on Amazon, people purpose shop at Costco. There are more specific differences but for the most part, business models are pretty straightforward.
Startup Studio Business Models
Startup Studios, which are also called Venture Builders, are fascinating to me because they are all similar in what they do at their core, but almost every single entity has a unique business model.
Some of the differences are major, like Studios operating in one specific space rather than opening up their opportunities to a variety of industries- but others are minor like offering a specific amount of money per milestone or limiting funds to one large investment for the founders to use as necessary.
In thinking about Startup Studio business models, I find it extremely helpful to use a “lever system” model. The categories used in this lever system model are borrowed from one of the most influential papers written on Startup Studios (called Startup Studios- Innovating Innovation by Enhance founding team Alper Celen & Ritesh Tilani). The paper breaks down the elements of the “Formula of Success” for Startup Studios.
I’ve charted these factors and their definitions on the graph below:
Knowing what ingredients are necessary to make a successful Startup Studio is only the first step. I like to use a baking analogy to think about the way that these elements come together. For example, if you mix the same 5 ingredients in a certain way, you’ll get a cake. If you mix them up in a different way, you’ll get a cookie. The same applies for Startup Studios.
If you put in a lot of one element you’ll get a different entity than if you withdrew a significant portion of that element or added a lot of another.
To put this in context, let’s say a Startup Studio is heavy on “The Guild” element and low on “The Funding” factor- this Studio is going to be super hands-on but not supplying much in terms of financial capital. Conversely, if the Studio is heavy on “The Funding” factor but weak on “The Guild” element they’ll look more like a Venture Capital firm than a Startup Studio.
The following is a visual demonstration of this lever system at work:
Once you see a visual understanding of the ingredients and their measurements at play in the ecosystem, you really have a sense of how different each Startup Studio model is from one another.
Some Studios source ideas from the internal team only. This means, if you’re a startup founder with an idea you want to validate, you can’t knock on the door of these types of Studios and expect them to help you test your hypothesis. On the other hand, if you’re an ambitious entrepreneur with experience or a very specific skill-set, you can apply to these types of Studios because they invest in human capital heavily.
Knowing the differences between Startup Studio business models is important so that you don’t waste your time or theirs. Finding the best fit for your needs is the result of research but in order to conduct useful research, you have to know what you’re looking for. The above criteria for Startup Studio foundation elements coupled with the lever system model help make it clear where you should be investing your time as an entrepreneur.
I am currently working on a full list of Startup Studios and Venture Builders in the US. I would like it to be the most up to date and accurate list on the web. As such, I’ve put an intense amount of research behind finding every Studio in the nation and adding them to the list only if they meet all 6 criteria of a Startup Studio. This list will grow a lot faster and be of more use if it’s public- so please feel free to add Startup Studios to it as you find them.