The Rise of Startup Studios
In the past decade, startup studios have made quite a name for themselves by breaking through the traditional model of entrepreneurship. Otherwise known as startup factories, company developers/ builders, or foundries, startup studios differentiate themselves from traditional accelerators in one significant way: identification of the opportunity.
Companies such as Dollar Shave Club (launched from Science), Zylo (launched from High Alpha), Reserve (launched by Expa), Bitly (launched by Betaworks), Aircall (launched by eFounders), and Hims (launched from Atomic) were all launched by studios and have since become some of the fastest growing startups in the past five years.Overall, venture studios have exploded in popularity, recording an estimated 625% growth in the startup market over the past seven years.
What Is a Startup Studio?
A Startup Studio is a structure that creates a series of startups from the ground up, frequently in quick succession or by working on multiple projects simultaneously. They are organizations that have their own funds, in-house experts, and resources to dedicate to building startups. These organizations disrupt the traditional entrepreneurial model by leveraging their unique infrastructure and resources to support founders and their teams throughout the entire process.
Overall, startup studios enable founders to focus on developing every aspect behind their business idea while studios are dedicated to minimizing any challenges or roadblocks that come along the way.
Studios take a much more hands-on approach compared to the other startup support models within the venture ecosystem. Typical accelerators tend to provide resources to startups that have already launched, while studios build companies and first synthesizes new business ideas, then finds founders to run them.
Overall, studios conceive, validate, and invest internally at the beginning stages.
History of Startup Studios
In 1996, the original startup studio, Idealab, was founded. Much of Idealab’s work has paved the way for succeeding studios. Over the last two decades, Idealab has launched more than 100 companies, 5% of which have become unicorns.
Since the 1990’s, this model has evolved from the initial incubation model in order to fit various markets, needs, geographic locations, and goals. As of now, there are just over 560 startup studios globally, of which almost 50% have been created in the last 7 years.
Why Startups Fail
Statistically speaking, the odds are stacked against startups. However, startup studios are systematically designed to reduce the risk of these businesses failing by providing critical support to startups as they work to build out their company. Below is a shortlist of the primary ways that startups have faced failure in the past.
No Market Need
One critical problem that many businesses run into is failing to achieve product-market fit. CB Insights reports that 35% of startups fail because they fail to achieve product-market fit. While a product or service can answer a pain point, oftentimes they lack a compelling value proposition to cause a transactional purchase. Additionally, CB Insights states that 13% of startups fail because the market timing is not aligned, and the idea is too far ahead or behind of its time.
Lacking The Right Team
While the ability to produce innovative ideas is important, it’s only half the battle. It’s crucial that founders are also able to mature and evolve — something that can only be accomplished with a talented team. Having that said, 23% of startups fail because the team lacks chemistry and do not hold complementary skill sets. Startup studios use a combination of sharpened intuition, experiences, and methodical processes to craft the ideal team for a startup.
Failure To Pivot
A startup pivot takes place when a company alters its business strategy to accommodate changes or advancements within their respective industry, customer preferences, or other external factors that impact the bottom line. Pivoting can come in many forms, from scrapping an idea completely, rebranding, or changing its primary market.
Benefits of a Venture Studio
Growth and Access to Capital
A significant amount of planning and research goes into the selection process within a startup studio, resulting in highly honed startups for market penetration. Additionally, these startups often receive much higher funding levels that give them longer runways and the ability to expand faster.
Not every company will have the needs for a startup studio to be involved. However, from a statistical standpoint, startups that have gone through studios have seen faster scalability and provided better returns to investors. According to GSSN, the average studio startups go from day zero to seed round in 10.6 months — less than a third of the time it takes for non-studio startups to raise a seed round, and from Seed round to Series A in 14.5 months. Because startup studios have connections with like-minded investors, they’re able to accelerate the speed of funding.
source : GSSN — Disrupting the Venture Landscape
Methodology and Processes
If your startup is brought under the wing of a startup studio, then it is likely that you will receive extensive resources, methodologies and supervision at every step of your development from testing your ideas to going to market. The most successful studios have systemized the process of building a company and ensuring its growth. From the ideation process to company launch, the steps are clearly outlined and roles allocated.
Valuable Human Capital and Network
Additionally, networks are critical in order to build your business. Founders rarely have the right person in their digital rolodex. At startup studios, however, partners are well-connected in various networks. Studios are able to connect co-founders with potential partners, mentors, and investors. All of this helps accelerate growth within a founder’s respective business vertical. When getting involved with a startup studio, they aren’t simply developing a business, they’re developing the individuals as well.
source : GSSN — Disrupting the Venture Landscape
How to Pick the Right Startup Studio
Picking a startup studio to work with doesn’t have to be confusing. There are many different avenues to take based on your interests and needs.
According to a GSSN survey, the average startup studio takes a 34% equity stake in the startups they co-found, with the highest equity percentages hovering at around 80% and the lowest at 20%. To ensure founder and business success, studios take an active role in founder recruiting, mentoring, and fundraising.
When looking at the various startup studios, research their portfolio, as well as their mission statement. Most studios will work within one industry or vertical. This allows them to better serve their founders, raise funds, and offer quality mentorship and guidance. Additionally, they’re able to create methodologies that work in their unique space and scale in a more efficient manner.
Main US-Based Startup Studios (source : Indigo)
Local or Remote
Many cities offer startup studios designed to stimulate the local economy and bring in entrepreneurs. These are often not revolved around certain industries, but instead focus on a geographic location. As a result, they can offer less specialized knowledge and resources to their founders. However, they can leverage a local community and connections to rally around an idea.
By contrast, digital or remote studios are much more specialized since they serve a greater area. Instead of stimulating one local economy, they can focus on branching out and building global businesses. Additionally, they tend to be bigger in size and have more connections they can quickly leverage for their founding teams.
The organizational culture can differ from studio to studio. Some studios take bigger risks, while others tend to stay on the conservative side. Certain studios may leverage more processes, while others follow an open door approach, making the entire team available to support founders. Different startup studios value their ecosystem at different levels: some studios may specially curate mentors and training for their founders, while others may split training and support to train non-qualified founders and work with universities to teach material.
To get an understanding of which type of model works for you, reach out to venture teams for one-on-one meetings. You should try to get a sense of the company and their values from their team and the portfolio of work they put out.
Startup studios — regardless of the model they operate under — are leading the entrepreneurial revolution. Studios strategically anticipate the pain points every business faces and develop teams — not only to support the vision of the company — but to create stronger founders through mentorship and educational resources.
In a swiftly moving digitally-driven economy, it will be the passionate, creative, and purpose driven businesses that will survive. Having that said, it seems pretty clear that studios will be leading them.