If you have read our previous article on the power of the Startup Studio model, you know that studios are essentially a factory for startups, achieving economies of scale by building multiple startups using a shared network of resources, staff, investment, and management.
Every factory follows a standard recipe for success. And a good recipe requires the right ingredients and the right instructions. So get your apron ready and follow along to learn how to cook up the ideal Startup Studio.
The basic recipe for a good startup studio consists of the following ingredients:
- A team of seasoned entrepreneurs and/or co-founders
Having an experienced team that works well together is essential for a successful startup studio. Whether your studio has its own ideation process or brings aboard co-founders with their own valid business ideas, make sure they have a strong track record and a good network of partners. Not to mention people who aren’t afraid to get their hands dirty, aren’t afraid to fail, and who share a common passion. At Mamazen, we are all “digi-holics” and love all things digital. And we are all salesmen to the bone!
- A group of visionary funders
If you came from an exit with some money to reinvest, then you’re off to a good start. But if not, having the support of visionary early-stage venture capital firms or committed business angels who align with your startup studio is crucial. The risk of running out of money is always around the corner with any enterprise, so find funders who believe in your ideas and who aren’t afraid of taking risks to realize your vision.
And remember, as with any recipe, the better the quality of the ingredients, the better the outcome.
Having the right ingredients is only part of the process. Following the right instructions is also an important aspect of creating a good startup studio. Here is our take:
- Take your team of seasoned entrepreneurs, shake well, and squeeze out some amazing ideas (optional if your studio has co-founders with a valid idea)
Having a solid ideation process is an important first step for studios that build startups from scratch. The ideation process should use a fast and effective method for developing and validating ideas. There are many resources online that provide various methods to generate startup ideas, and as you use them you will start to develop your own ideation approach. Therefore, it is important to build useful assets that will help shape your ideation approach and streamline it in the future.
- Take your group of visionary funders to get financial support to develop your ideas
Ideas will only remain ideas unless they are executed, and for that you need some capital. If you have the financial support of visionary venture capital firms and business angels, utilize their investment and more importantly their network to help develop your ideas into minimum viable products. Make sure your investors understand the power of the studio model over traditional startups, and its ability to launch multiple ideas at once with the same set of resources to give them greater confidence in reducing their investment risks and improving their returns.
- Cook up several MVP from your ideas in parallel, throw away the failures, and reassign the team to what works well
By allocating resources efficiently, studios can test multiple ideas and minimum viable products to see which ones work best. However, the catch is to not be afraid to throw away and let go of things that don’t work. Unlike startups where a failure typically means the entrepreneur has to start from scratch, with studios failed ideas can still allow the team to learn from the experience and shift their time and effort to the other ideas that do work.
- Spinoff and scale up the idea with an independent team and additional funding
With the ideas that succeed, shift the burden away from your core startup studio team by spinning off the idea and putting it in the hands of an independent team. As with the studio’s core team, it is important to recruit team members that have a strong track record and ability to take the MVP to the next level. As the spinoff gains success, it will be easier to gain additional funding from your visionary funders as well as other VCs and investors, so use these additional funds to scale and grow the startup.
- Exit and constantly repeat to keep the fire burning and the studio cooking
When ready, exit the startup and reallocate your core team and resources to repeat the ideation process. Exits are crucial for your visionary funders and additional investors to get their returns, so that should be the main priority. Elite studios can have exit rates as high as 30-50%. Unlike traditional startups, the studio model relies on economies of scale as we described in our previous article. Therefore, it is important that the startup studio constantly ideates and generates new startups that can be exited in the future.
There are variations of this recipe and sometimes the final dish doesn’t turn out the same in every situation. But the recipe certainly works. Studios like Idealab have launched 150 companies from 1996 to today and have 45 successful exits and very profitable acquisitions, others like Betaworks boast a 50% success rate from their studio model.
Of course, it’s far from easy, but hopefully this recipe provides some pointers to guide you in cooking up your own startup studio.