Startup Studios. Are they a thing?

The other day I sat on a panel with some smarter people than me at NESTA to discuss whether startup studios are a ‘better way to build tech businesses’.

Left to right - Me (Makeshift), Reshma Sohoni (Seedcamp), Mike Butcher (Techcrunch), Tim Morgan (Mint Digital) and Nic Brisbourne (Forward Partners) at NESTA

This was pretty exciting for me, as I’ve been thinking about the idea of startup studios for some time and have been hoping NESTA would pick it up for the past year or so.

When we started Makeshift we also started organising some informal meetups between founders of some of London’s startup studios, in particular ourselves (Makeshift), Forward Labs, #1Seed, Mint Digital and Just Add Red.

The conversation was wide ranging and very useful. Everyone was trying different ways of getting businesses off the ground and had different experience to bring to the table. But naturally we concentrated more on story telling and examples and we weren’t doing a rigorous comparison of models. (This may also have been connected to the amount of beer being drunk.)

So it was very exciting when we finally persuaded NESTA to take a look at ‘startup studios’ as a model for developing new products and businesses a few months ago.

The question: Is a ‘startup studio’ a thing?

Around that time I wrote a ‘brief’ for NESTA explaining my thinking to date. I started by saying:

My current view is that startup studios are different from incubators, accelerators, agencies and in-house product dev teams for big companies. The characteristics of a Startup Studio we’ve identified so far are:

  • focused on building multiple products / startups simultaneously
  • generally own the majority of all the things they work on from an equity perspective
  • generally have full time staff working on design, dev and marketing
    attempting to make their process additive - i.e - more value from each thing as you do it
    -“ lab" is frequently used to describe a startup studio because they conjure up a "digital workshop" more so than an agency or accelerator. They're a place to tinker away on different ideas and build multiple things at once.

And that the research questions we were hoping to answer were:

  • What's a useful definition of a startup studio? How do they vary from existing models such as incubators, accelerators, early stage investment funds and other types of studios (e.g game studios)?
  • What are the operating models of these businesses? How do they vary?
  • What are the business models? How do they vary?
  • What level of success has been achieved to date?
  • What lessons are there for new startup studios? What works?
  • What are the implications for entrepreneurs and investors?
    -What do the owners of these studios see happening in the next 2-5 years?

The result was yesterday’s session - a structured workshop and a panel discussion, aimed at broadening the debate and capturing a wider set of views into what a startup studio is, or isn’t.

The answer: Maybe it’s three things?

I can’t report back on what the workshop revealed as I don’t have the analysis yet. Instead, I’ve simply noted some thoughts down around stuff that jumped out at me, especially from the panel discussion and the conversation we had in the workshop group I was in (big props to Vinay’s contribution here).

My main takeaway was that whilst there’s clearly huge variety in the types of companies and teams calling themselves ‘startup studios’, I think there are three broad classes that seem to be emerging, that each probably warrant further study in their own right.

These models share a lot at an operational level - shared resources, multiple projects - but differ quite widely at a business model and motivational level.

There’s lots to say about how to optimise these operational aspects. All the models have something different to contribute to that question. The major topics seem to be how to make parallelism work, and how to manage and incentivise the people who make up the ‘shared resource’, but that’s for another post.

Below I’ve started to explore these three models at the level of business logic and motivations. I’d love your feedback on Twitter!

Studio model #1 - Operator-led studios

First, there seems to be a class of startup studio, led by operators, that exists to help those operators find their next business idea. For these people, the studio model is a useful starting point to allow time for experimentation and small failures, before picking a winner.

They are normally self-funded by entrepreneurs who have exited and have the resources to spend some time searching for the right ‘next thing’ and the studio setup is temporary - the aim is to become a ‘normal’ startup at some point, and grow a big business from there on in.

Some examples of these types of studios are Obvious Corp in the states, Just Add Red here in the UK, and (perhaps) Makeshift.

It’s worth pointing out that often the original holding company does build a lot of brand value, especially amongst other operators, so they don’t always disappear completely. Obvious Corp has become an investment vehicle for example.

I think we’ll see more and more of these types of organisations emerging, and lots of nuance in how they work, and what happens to them after they find a big project.

Studio model #2 - Agency-led studios

Second, there seems to be a type of startup studio that emerges from some creative digital agencies in response to spare capacity or spare cash. These studios exist alongside client services businesses that are normally building digital products, and delivering digital projects for clients, so they already have most of the production skills available.

These studios vary in their levels of ambition - at one end they are simply a way of collecting ‘spare time’ projects together, in the middle they are valuable marketing assets, and at the other they make very significant contributions to the balance sheet of the agency.

Some notable UK agencies exploring venturing are Mint Digital (on the panel with me at NESTA), ustwo, and my old agency Sidekick Studios.

The kind of startups or products favoured by this model seem to be smaller, more manageable (and ‘exitable’) business ideas, generally e-commerce plays or games / apps.

There are significant challenges in running these hybrid agencies / venturing companies, that I understand first hand from my time at Sidekick Studios. The culture and methods required to deliver excellent client services are often at odds with the hustle needed to get a startup going, and the capital requirements vary hugely.

Having said that, it can be done, and it has been done for a very long time before digital products came along. Some of the most successful early consumer product designers such as the Eames combined self-initiated product work with client services, and more recently you could argue that people like Terence Conran have done similar things.

Studio model #3 - Investor-led studio

Finally, there seems to be a new kind of hands-on investment firm that falls somehow into the ‘startup studio’ mindset.

These are generally early-stage investment houses that offer a very high level of service to the entrepreneurs they invest in. They provide them with capital, office space, developers, designers, recruiters, and other professional services, in return for a higher equity stake in the startup.

The standout example here in the UK is Forward Partners, formally Forward Labs, who help entrepreneurs discover their next business, and then build their team. In the US, organisations like Science Inc, and aspects of Betaworks fit this mould too.

You could perhaps argue that Rocket Internet fits this mould, although to call them a studio would be weird. At the extreme end, this model is simply a modern VC firm. Indeed, Andreesson Horowitz, one of the largest US funds model themselves on the Hollywood talent agency model.

So with the investment-led approach, its less clear where the ‘studio’ aspects begins and ends. But if you go to Forward Partners, it feels like a studio - several projects in one room, with shared resources.

What’s next?

This is a crude summary, but in my view it’s a step forward, and I look forward to hearing what NESTA’s view is after their debrief and getting more feedback from friends and colleagues who came to the event.

My own view is that there’s an obvious contender for further study from NESTA and others, and that’s model two - the venturesome agency.

As software becomes ever quicker to develop, and marketing ever cheaper to do we will inevitably see more studios trying their hands at ‘startup’.

I know from experience that a lot can go wrong at a business and cultural level when client services and startups mix.

Figuring out how much to invest, when, in what kind of products is tough. Explaining the value to, or even joint venturing with, clients is complex. Keeping staff happy, and individuals incentivised correctly, on both sides of the agency/startup divide is very hard indeed.

Helping other agencies get it (more) right as they take this step would be very valuable - especially here in the UK where we have some of the best agencies in the world - and it feels like something NESTA (and maybe others like the Design Council) should very justifiably spend more time investigating.