Updated: Feb 7
Startup studios are startup creation entities. Their main goal is to create and launch startups one right after the other. Unlike accelerators, there is no programming and no call for external innovators to bring outside startups into the mix. Studios as staffed by 3+ full-time entrepreneurs (I will be referring to these individuals as “the core team” and “the internal team”) and these entrepreneurs work on building startups 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 reaches that critical product-market-fit stage, they “spin-off” the new venture to a new founding team (which I will be referring to as the “external team” and “the new team”) to run the startup as if it were their own creation.
The benefits of this process are:
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 do you 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 want to create, launch, and run the startups themselves. This is not the point of a startup studio and that model begins to make it look a lot more like an incubator than a startup studio.
This article seeks to answer the question: how do you know it’s time to spin out the venture from the studio to an external team?
After much discussion and interviewing of startup studio founders/ directors, this is the map I’ve come up with that helps explain (at a high level) 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 start because a group of entrepreneurs wants to launch a venture that will allow them to work on multiple projects that they’re passionate about. These entrepreneurs are do-ers meaning they want to jump in and get their hands dirty. They are not startup advisors/ mentors looking to help existing ventures launch and/ or scale.
Next, the newly formed studio founders talk to investors. They need money to fund the studio in order to start building startups. New ventures are surprisingly low cost to start, but they take money to validate.
Once the studio has secured a “fund” 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 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 pick 2–5 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.
Next is execution and testing. Now the 2 -5 members of the team need to just go and build the startup. This includes tech objectives like building an MVP and non-tech objectives like marketing the concept, developing A/B tests for landing pages, figuring out what works and what doesn’t for this market.
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 can take time and effort, but those are resources well spent because the new team will either make or break the venture.
What Happens Next?
The above chart represents the flow of events from the time the new team takes over the startup to when there is an exit event. The real hope from the internal team and from investors who fund the studio is that the startup will either sell or be acquired for a lot of money. That’s been the revenue model for startup studios previously and while we see this trend shifting less toward equity partnerships and getting more innovative, this is still the model most studios are operating with right now.
Check out my YouTube channel for full-length explainer videos where I break down various topics from the Startup Studio sphere!