From Idea to Traction to Exit- How Startup Studios Run

Updated: Apr 13, 2020

Startup studios are startup creation entities. Their main goal is to create and launch startup ventures one right after the other. Unlike accelerators, studios don't involve a curriculum , a fixed period of time, a cohort, or a seed investment. Instead, studios as staffed by 3 or more full-time entrepreneurs (“the core team”). The core team engages in a period of ideation which is followed by their work on building the venture from scratch.

The point of a Startup Studio is to create a new venture, test it, validate it with the market, prove that it has legs, and get some traction behind it. Once the studio team reaches that critical product-market-fit stage, they “spin-off” the new venture to a new group of people (the “external team”) whom they recruit specifically to run the startup they've just created.

There are many benefits of this process for both entrepreneurs and investors, here are a few:

  • Less risk for investors because they know the core team.

  • Less risk for investors because economies of scale kick in when the studio begins re-using resources to create startups. This is especially true when the team is focused on a certain industry like biotech- they don’t need to go out and buy new equipment every time they want to launch a new venture and they already have connections/knowledge from the last biotech venture they launched. This lowers risk as well.

  • Increased speed to market which increases the probability of success.

  • The new team gets the support and resources of the core team’s creation.

How it Works

I advise startup studios as part of my job. The number one question I get is: “how can my team know it’s time to spin out the venture from the studio to an external team?” I love this question because it means the entrepreneurs are thinking in the right direction. The other end of that spectrum is entrepreneurs on the core team who are determined to create, launch, and run the startups themselves. The point of the studio model is to create and spin-out ventures so the core team can get back into the lab and cook up another- if the team is wasting their time on launching and running the startup, they're going to be out of resources quickly.

After much research of the model and successful studio trajectories, this (below) is the map I’ve come up with that helps explain each stage in the process from the creation of the startup within the studio to moving the startup outside of the studio by giving it to a new team.

Studios most often get started when a group of entrepreneurs want to launch multiple projects that they’re passionate about. These entrepreneurs are do-ers meaning they're ready and willing to jump in and get their hands dirty. These individuals are not startup advisors/ mentors looking to help existing ventures launch and/ or scale- they're founders with a big picture vision of what they can accomplish if they implement the studio model.

Next, the newly formed studio founders talk to investors. They need money to fund operations and to actually execute on building startups. New ventures are surprisingly inexpensive to start, but they're expensive to validate. and launch.

Once the studio has secured a fund from investors they will be able to use that to create and test startups. The team will either start workshopping their own ideas or take some ideas from outside the studio and work on them. The hope is that one or two of the ideas gets a good response from the market so they can move ahead with really building it.

When a startup idea looks like it’s going to succeed in the market, it’s time for the internal startup studio team to assign some human capital to the venture. It’s important to note that everyone on the core team should not be in charge of running the new venture. The team should collectively pick 2–4 members to take on the responsibility of the new startup with the understanding that they will give the rest of the team regular updates and take advice from key stakeholders.

The next phase involves execution and testing. Now the 2 -5 members of the team must actually build the startup. This includes tech objectives like building an MVP and non-tech activities like user research, developing A/B tests for landing pages, and business planning.

Side note: many ventures are “killed off” at this stage. If the core team finds that the startup isn’t gaining market traction or won’t survive for some other reason, they should stop working on the idea and just drop it.

If the startup performs well and starts picking up traction (which means that customers are using it and the business model seems to be working) it’s time for the core team to start looking for their replacements. Recruiting a new founding team takes a lot time and effort, but those are resources well spent because the new team will either make or break the venture.

What Happens Next?

The newly recruited team takes over and gradually transitions into running the startup full time. Many studios prefer to remain involved with the startup beyond this phase but some do not. Since studios are a relatively new concept, there is no clear data on which is better from a financial standpoint but if I had to guess, I'de say the studios whose core team slowly transitions the new startup to the external team have a better shot at success.

Here is a visual depiction of the next (and final) stages in the startup's life cycle:

The above chart represents the flow of events from the moment the external team takes over running the startup to when there is an exit event. The real hope from the internal team and from investors who funded the studio is that the startup will either sell or get acquired for a lot of money. A successful exit event means that all shareholders make their money back plus some. Investors rely on the core team's ability to get better and better at creating and spinning-off ventures over time, perfecting the model with each iteration.

Hope for an exit event has been the revenue model for startup studios thus far and while we see this trend shifting less toward equity partnerships more toward creative innovative deals, this is still the model most studios are operating with right now.

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