A Startup Studio or Company Builder is an organization whose task is to establish independent companies using a professionalized, repetitive founding process. Such companies are mostly based on internally developed startup ideas. The Company Builder acts as an investor holding a considerable share of equity capital.
But you may wonder what the difference is between a Startup Studio and an Incubator or Accelerator program.
Köhler & Baumann in their 2015 study developed a conceptual approach on how company builders can be distinguished from existing incubators and accelerators on the basis of an in-depth case study on Rocket Internet. They consider both forms of organization to be hybrid organizations and compare them on the basis of the following four key dimensions:
- Ownership Structure
In the case of incubators and accelerators, founders transfer a small percentage of their company shares to the incubator.
On the other hand, Company Builders transfer company shares to the founders and usually also hold a majority stake.
- Adaptation Mechanism/ Decision-making
The startup business ideas arise outside the incubators and accelerators, and the startups are also autonomously responsible for their implementation. Incubators and accelerators just help with the implementation.
On the other hand, the business ideas of Company Builders are developed internally. The decision-making process is top-down and the resources are allocated for the portfolio companies in a centrally, hierarchically and authoritatively manner
- Incentive Regime
Incubators and accelerators pay little or no salary to entrepreneurs. Monetary recognition and rewards are strongly output-oriented.
By comparison, the salaries of the entrepreneurs in Company Builders are relatively high. Nevertheless, the output-oriented remuneration system allows waiver of salary and equity in the event of poor performance by the entrepreneurs.
- Time Horizon
Incubators and accelerators have a time-limited cooperation focus that relates, among others, to early-stage phases of startups.
In Company Builders, the time focus is flexible, but pursues a clear exit strategy.
These 4 dimensions provide a scale across the market-hierarchy spectrum. This is a concept in economics that highlights whether activities are coordinated based on the using services from the market or based on creating a hierarchy or a more organized structure. Using such a concept, it is possible to see the key differences between incubators and accelerators, and Company Builders.
As the figure above shows, incubators and accelerators behave similar to the market in all key dimensions, so startups are incubated and scaled purely based on bringing together a variety of services to support the entrepreneur. On the other hand, Company Builders are true hybrid forms of organization in which they behave similar to the market in some respects – incentives and time horizon – and similar to the hierarchy in others – ownership structure and decision-making process.
Thus, Company Builders take the best of both worlds, creating an organized structure for creating startups, while maintaining some of the market-based features of incubators and accelerators. As a result, Company Builders are able to ideate, develop, and scale in a more structured and standardized manner.
This article is a summary of a larger research report on Startup Studios by Dr. Tobias Gutmann. The full report has been translated from German into English. If you are interested in reading this report, you can download it here.
Köhler & Baumann 2015
Mocker & Murphy 2014
Szigeti 2016, p. 12
Funk 2015, p. 21
Drucker 1993, p. 161
ABOUT THE AUTHOR
Dr. Tobias Gutmann
Dr. Tobias Gutmann is a post-doctoral researcher at the Dr. Ing. h.c. F. Porsche AG Chair of Strategic Management and Digital Entrepreneurship at HHL Leipzig Graduate School of Management in Germany. His research interest is corporate entrepreneurship with a special focus on corporate venturing activities in established companies. He has extensive work experience in innovation management and corporate venture capital and holds degrees in electrical engineering and information technology and international management.