Forming any business remains a process fraught with risk. An entrepreneur might have a great idea, but without talented employees, inspired leadership, sufficient market research, and -- most importantly – enough capital, failure lurks right around the corner. In the end, the entrepreneurial spirit by itself simply lacks enough of critical pieces needed to transform the spark of an idea into a thriving new company.
With a goal of reducing the risk inherent in the process of incubating new businesses, the concept of the startup studio gained popularity. These businesses turn the effort of forming companies into something that’s repeatable, efficient, and ultimately more successful. They rely on a continuous improvement approach, turning any previous mistakes made into valuable lessons learned. In essence, the top startup studios effectively serve as modern factories for creating new organizations.
If you want to learn more about the studio concept, check out this list of some of the top frequently asked questions on startup studios. Use these insights to inform your own efforts at creating a new company. Basically, if you want the best shot at forming something that thrives, partnering with a top startup studio makes perfect sense.
What headcount do you need to right-size a startup studio?
When forming a new startup studio, a common question focuses on the number of employees the studio needs for efficient operations. Right-sizing this amount becomes critical, as too many employees leads to a higher burn rate. At the same time, a too small staff makes it difficult to support the process of business incubation.
A wise approach involves starting with a small team, and gradually increasing the number of employees as the studio grows. However, venture studios following the agency builder model, which earns other revenue doing work for third-party clients, can more easily support a larger staff. In either case, following a manageable growth strategy makes the most sense for success over the long haul.
What is a typical structure of a startup studio?
Any startup studio benefits from having a CEO to serve as the face of the organization. They play a critical role in everything from ideation to attracting talented employees to join the studio. That latter point being especially crucial in a difficult market for recruiting technology professionals. Also consider employing a COO to manage the studio’s internal operations.
In addition to that small executive team, hire someone to manage the studio’s HR and recruiting function. Additionally, someone in a sales role might be needed to attract interested entrepreneurs with compelling startup ideas. At this point, hiring a few technology professionals becomes critical, assuming the startups your studio incubates focus on technology innovations. Marketing, product development, accounting, and legal professionals also need to be onboarded. Consider outsourcing these functions as your startup studio begins its operations.
Where are new business ideas developed?
Any startup studio needs to be flexible as far as where the ideas for new businesses get developed. Of course, the studio’s leadership might be known for brainstorming compelling ideas, especially when they boast expertise in a specific target market. At the same time, they need to be open to great ideas arriving on their doorstep from a third-party. Agency builders benefit from this scenario when doing work for other business in different business sectors.
Should we formulate a thesis for our studio?
A startup studio thesis effectively serves as the mission statement for the new business. Having a clear vision makes it easier for the business to attract both talented professionals and great startup ideas. It also provides the critical operational focus to make studio operations more efficient during its early stages. In fact, developing a thesis needs to be one of the first acts of the startup studio founders.
What happens after a startup leaves the studio nest?
Of course, the goal of any startup studio involves creating successful independent businesses. However, the “spin out” process doesn’t mean the emerging company is completely on its own. Studio ownership typically retains a stake in the business and takes an active hand in its early operations. In fact, research notes that 60 percent of startups still receive funding from their parent studio.
How does a studio generate revenue?
Ultimately, startup studios make money when they exit from a successful new business they incubated. The typical period from launch to exit is around one year, but it varies based on the market impact of the business. Exits usually take the form of a merger, an acquisition, or a direct sale.
As noted earlier, agency builder startup studios also generate revenue by doing external projects. This approach boasts other significant benefits, including learning new technologies like machine learning and gaining expertise in different business sectors, as well as keeping the studio technology fully engaged throughout the year.
If you want to learn more about startup studios, or if you have a compelling business idea, connect with the team at NineTwoThree. As a mature venture studio operating as an agency builder, we boast a unique mix of technical chops and business acumen. We look forward to hearing from you.