Startup Studios
latecheckout.substack.com
latecheckout.substack.com
Most of the successful startups are based on a pure, authentic vision of a founder who is absolutely convinced about their vision for the future. Unfortunately, this element doesn't exist in a studio environment, and the artificial placement of a "CEO" won't do this magic especially in the early stages. More often than not, this is an essential organic process because all of the other subcomponents such as product, hiring, culture etc. are determined by the CEO who is motivated by something other than metrics.
Secondly, if a studio plans to work on something more complex than a tiktok for dogs kind of app, a certain level of domain expertise needs to be present. This goes back to the founder-CEO problem where the founding team has already established some curiosity and knowledge in the domain.
Nonetheless, the article misses to pinpoint some very imperative limitations of the studio concept, I have outlined just few from my own experience.
Read this a while ago, before I observed the dichotomy myself. [1](https://a16z.com/2010/04/28/why-we-prefer-founding-ceos/)
This is true for the unicorn startup type: you don't create a Google, Facebook or Microsoft with a startup studio but there are many opportunities in other startup types. I would add the deep tech[1] concept that complements some of the weakness of the general startup studio.
Perhaps, rather than a studio, this is why we see incubators like YC; helping a ton of startups grow and finding funding for the best ideas.
Maybe we will see a movement further down the chain: finding entrepreneurs or "proto-founders" - founders before they become founders - and coaching them on idea generation and developing their passions. I suppose an example of this was Thiel's scholarships and the various "founder schools" that we see.
Innovation is hard to teach, but it's not impossible. Perhaps these trends will continue, and I wonder what we will call the organization format that this leads to.
edit: formatting
Is this that different from how film studios work? Many successful films are based on a pure, authentic vision of an auteur after all?
I also don't know if your assertion is necessarily true either. I've been at a modestly successful startup and I have to say most of our early successes came from all the people around our Founder who pushed back against, and checked his more impetuous and self-destructive tendencies. I think the Founder story is, as often as not, an act of self-aggrandizing myth-making. In my company's case, our Founder's best skill was having a nose for talent, but his notions of how to build good software were wildly off-base.
It is akin to the "Great Man" theory of history or even the auteurship theory around filmmaking that erases all the surrounding actors and the interplay of forces that drive the eventual outcome.
I've been around a relatively large number of studios (more specifically, people who have founded studios), and from my experience, this post doesn't match up to reality.
From what I've seen, there are categories (often deep technical, bordering on academic niches) where studio-ish approaches work--which is why research labs and similar models have existed for a long time. The studio model, however, doesn't seem to confer any automatic benefit to businesses in general. Most studios I've seen have been full of sort of "meh" SaaS's and zombie startups.
At the same time, I've seen friends have a lot of fun running a studio, even if it didn't lead to a slew of giant exits. One man I worked with had successfully exited his business after 15 for a very large sum, spent a long stretch doing angel investing and some advising, and realized he just loved the early stage environment and helping out founders, even if he didn't want to personally build another startup. The studio he founded, which has been mildly successful but not at the level that someone in VC might aim for, has brought him an immense amount of joy and continues to, and the community that has emerged from it is full of some really amazing people.
So, yeah, I don't believe we're entering a golden age of studios in which products developed within them will dominate every niche--with the exception of niches where studio-like models have always dominated--but I do think studios can still be fantastic in a social/personal sense even if they aren't producing Google's.
This is pretty much why I am pursuing the creation of something like this in my hometown.
1) Generates and tests ideas but within the scope of the professor's expertise and vision (what the article calls the "focus"). An automatic moat if the idea is something the research lab has been working on for years and knows all the research on it.
2) Despite the challenges of grant funding, university research labs generally fail from lack of funding at a low rate over 20 years. Especially compared to the runway of a typical angel/VC funded startup.
3) Has the ability to commercialize at the right time and immediate access to an amazing employee pool (like Qualcomm, Google, Tableau, Duolingo, VMWare, Coursera), trading off some of the financial upside for reputation.
Of course, many research labs opt to run like paper publishing factories instead, but it's up to the professor.
There is a place for studios, but there's also a reason many founders want majority control. Instead of "I have a vision, let the market see if it's viable", it turns into "take it to the committee, and the committee is steered by the studio CEO and then by the investors and whoever else".
Zuckerberg: "If I didn't have complete control of Facebook, I would have been fired"
Say whatever you want about Zuck, but you don't want to get fired from your own idea. Let it burn with you. A studio will probably not enable that.
The studio brings together the necessary talent and sets them loose on a well-defined project (with a deadline, a scope, and a budget).
The best studios, under this model, know that the most important thing for their success is finding the right top talent. (In films, that would be your writer, director, and starring cast. In tech, the typical hacker+designer+marketer trio of project leads would probably be the closest equivalent.)
When viewed in this light, I think the studio approach makes an awful lot of sense. It's similar to VCs and incubators, yet different in a crucial way.
A studio looks primarily for talent, and trusts that when they have the right people, the right ideas and execution will follow.
The VC model, as best as I can tell as a distant observer, is focused first on identifying the winning ideas, and then securing the right team as a secondary item.
Both approaches care about both the idea and the talent. It's an order of priority thing. Are you banking on your ability to spot winning ideas or winning talent? Studios spot talent and then evaluate ideas. VCs spot ideas and then evaluate the talent.
I see the exact opposite.
I keep hearing that (early stage) VCs care about the team a lot more than the idea. The idea is necessary as a way of knowing that the team can come up with a concrete idea but not more than that. Later stage VCs focus on other things but those aren't close to a film studio.
By contrast, movie studios keep lots of people on staff or on rotating contracts, often with no idea of what the film will be. They hire people on the assumption that those people will figure out the idea.
I have invested in founders where I thought their initial conception of the product wasn’t likely to find PMF but I believed that the team had good instincts and the necessary skills to iterate to a different product.
Is this the model you would apply? What are the parameters that are key to founders beneath the idea itself?
I know several people on both sides of this equation.
Pretty much the first thing you learn as a startup looking for funding is too keep quiet about any consultancy that your company does.
Did you omit "provided they live in silicon valley"?
Cup half-full: our studio reduces risk by providing shared services, resources and expertise to our startups. Our studio makes our startups stronger. We're able to leverage the investor and business relationships we have to accelerate our studio companies. We've seen situation X before and are perfectly equipped to guide our startups through it.
Cup half-empty: Risk is being aggregated into the studio. The weaker studio companies are consuming resources that would best be used to fuel the successful studio companies. On top of that, distractions and non-essential requirements are being injected by the studio. On top of that, if big investor gets pissed with someone at the studio, future funding is in doubt for all.
Reality: Both views are true and accurate and at times, the positives are in play, and in other times, the negatives.
I can only see this approach working at places that have raised a lot of capital that allows them to outsource these projects. Consultants will get paid with your investors money, deliver the codebase, and you get to blame them in the next board meeting after you fail to attract a single customer.
Aside from enforcing draconian non-compete, non-solicit and IP ownership rules, I don’t see why that pattern wouldn’t reassert itself. Great teams budding off when they find a rhythm. Outsiders picking off your best using the increased compensation focussed attention can afford.
Are there examples of unambiguously successful studio-launched start-ups?
On the other hand, Cogo hasn't had any exits since 2011: https://www.cogolabs.com/incubation
It's not really a motivational thought, though.
It doesn't really allow you to fully concentrate on your product and put the 110% effort required into quickly iterating on product/market fit.
Eventually what most of the time ends up happening is dropping the ball on the client work and failing to launch a successful product.
I'm now a bit more pragmatic about this whole thing and I'm helping clients deliver on their vision of a product by providing solid dev work and tips/consulting from my start-up experience.
I had a promising start with a consumer travel startup about 10 years ago, but stepped back from that about 6 years ago as it wasn't taking off and I was experiencing severe burnout.
I've since worked on projects in ag-tech, travel, medical services and commercial real-estate.. All of them are showing some viability and could become very successful if properly funded/staffed. I've also identified some new opportunities that I'm keen to explore, particularly relating to health and personal growth, after my own journey to overcome burnout. And, I still haven't fully scratched the itch of the original travel startup.
I'm uncomfortable with the idea of committing exclusively to any one of these concepts, as several of them are compelling, both as commercial opportunities and the potential to havre a positive impact for the people they serve. I'm also now a father and mortgager, so I'm not in a position to bet everything on a single idea the way I was 5+ years ago.
Whilst the industries/markets I listed might seem very disparate, I'm confident there are common aspects of the way these companies could be built and run, that could mean it could be beneficial to build several of them out of the one studio.
I've been turning the idea over in my head for a while, with part of me feeling like it makes sense and could work really well, but the other part of me thinking "nobody has made this work before, everyone will say you're unfocused and noncommittal..."
So, it's just nice to see others thinking along similar lines.
If anyone can point to any examples of this kind of thing working really well, I'd love you to share them.
Isn't this just describing an R&D type department inside something larger?
When we get to "How do you fund a studio?". Things start to sounds bit 'job canon' or 'be radio head' like.
Acquire another business and Run a service business sound just like ... doing what you're trying to do anyway, run a business... and just getting to the point of just doing that seems like a hell of a lot to 'just do', let alone now start up this studio on top of all that.
As for VC money, aren't we talking about a startup again?
I am thinking about funding my own startup using a model where I lend my startup personal capital with no interest and the startup uses that as an investment/trading vehicle to earn income and trading profits. My theory is that if a person is a capable visionary founder (sees the future, understands consumer trends, whats missing, etc) and has a solid plan for how to enter the market with a new product in the next 6-12 months, they probably understand the product tech market in that time frame as well. The "thinking time" could be shared between investing and building product. The actual work time goes completely to the startup, since buying and selling securities just takes clicks. this could fund a payroll for a founder for years while they build, without having to give time to an employer or consulting client. Of course, this requires lots of upfront capital (~100k-1M). But you could give that capital back in 2-3 years. the startup just borrows it.
A scaled up version of this model could be an endowment fund at a university. However this is a much more aggressive and smaller version of that.
Curious what people think of this before I dive in :)
- You only want to watch a movie or play through a game once. Even if you watch a movie several times, you'd prefer watching another movie that's just as good. As for multiplayer games, I actually wonder whether startups focused on one game will become more successful, though see the next point.
- A movie or game competes with every other movie or game, which requires a huge upfront investment.
- A startup can expand to cover entire categories. I find it hard to understand how a studio focused on creating communities makes more sense then something like reddit, which lets users create their own communities.
I had a bunch of hacker houses that I wanted to turn into a studio model, but I couldn’t figure out how to assert equity rights. The normal path for successful founders was for them to come to the house, experiment, meet co-founders, move out, ... funding. Any equity agreement made at the outset (SAFE) would be worthless. New project. New people. Or maybe they could be enforced, but not easily, not like Erlich. Those were the successes. Most would just get discouraged and start full time job hunting. So I couldn’t find a way to make it sustainable even when home runs graduated out of it.
Reading the article, the author seems to assume that you already are in a capacity to set up your own studio. Either by having an existing business or being able to acquire an existing business and redirecting revenue streams, or by raising external capital (VC).
But those aren't the only ways to acquire the funds to set up a "studio" that separates the operational aspect of product development from the financial rigours that come with founding a business.
Such "studio's" can be found in research environments (academic, military, pharmaceutical, telecommunications, technology,...) Bell Labs, Fairchild, Intel,... come to mind as examples that started out as studio's before spinning off as independent businesses. Other examples would be public funding e.g. via programs managed by departments such as DARPA, NASA, SBIR (https://www.sbir.gov/), or via licensing, procurement, research grants and so on.
Those examples are far from inclusive. The author already asserts that the idea isn't new either.
The bigger problem I have with the article is that it's unclear who it's intended audience is. I don't think it's founders since the very essence of bootstrapping assumes spinning up a new business as fast as possible.
Investors then? The author claims how studio's "de-risk" by being able to diversify and rapidly pivot between ideas compared to independent start-ups. For instance:
> Because studios become experts at rapidly generating and testing ideas, the cost of each attempt is much less than it would be for a normal startup.
The author doesn't back up this claim. And what about other risks which are innate to studio's? Setting up a studio is still a sizeable investment in time and resources. And creating spin-off companies is never a goal in itself, it's only something that happens if there's a clear strategic advantage or incentive in doing so, depending on the relationship between the different stakeholders.
There is a class of business that has capital to be a customer for this, but it's pretty rare. I'm thinking a small/medium business that has generated reliable cash flow for a decade+ that gets inherited by a family member without expertise, so they go to market for a growth strategy. Tool and die makers, auto parts, law firms, residential real estate development, etc.
It reminds me of "interactive agencies," "creative design firms," and other hybrid marketing+dev services shops we have today.
The biggest unknown for me is having enough data to understand what's really going on there. Are startup studios successful? If so, how much? How much funding is going there? etc.
Finding that data is way harder than finding data about either startups or VCs.
New Bamboo got acquired by ThoughtBot some years ago.