Managing a Startup Studio. What I Would Say to Myself from 3 Years Ago
Our production of digital businesses Admitad Projects (venture builder) turned 3 years old. This is both the end of yet another cycle and a retrospective analysis of everything we went through.
Here are 3 factors that I deduced for myself. I wish I had known about them in 2018; it would have saved me and my coworkers lots of grief. That’s why I share them with you, hoping they will come in handy. If someone works their way faster and better than us, then it was worth it.
Startup studio business model
You can divide business models into 3 big blocks:
- 1. creating projects for the market (investors),
- 2. creating projects for the market (dividends),
- 3. creating projects for inner customers (corporates).
In the first case, the key thing is — you are making a business to raise investment rounds and then sell it at some point.
In the second case, this business must quickly reach self-sufficiency and profit.
In the third case, the goals can be very different. Corporations don’t always need projects for money. Instead, they might be investing in a team with expertise in a particular market field or add-ons for existing businesses (something that increases the usage time and quality of their goods). Also, corporations are often looking for insights from the market they explore or consider for their other products. Finally, there are classical corporate tasks: capitalization growth, increasing the share of income from digital products in the total P&L, etc.
Why is it important? I don’t recommend combining business models. You should decide which one suits your studio’s design best. And then, from the point of this positioning, you need to put various emphasis on the team and services that you provide to your projects.
The most preferable output volumeLet me make something clear first. The studio might have no services or just a minimum amount, i.e. it only offers consultations without taking on operational functions. However, it’s a more cost-effective option. You can hardly call it a digital production or a business factory that we are talking about in this case.
When talking about large-scale production, in my experience, the magic number is 5–7 new seed-stage companies per year (with first regular sales, MVP, and a team).
If the number is shorter, the studio’s cheat code — which is dividing back-office expenses into several (5–7) projects — stops working. It’s much more convenient and profitable when you have 1 accountant for 7 projects, 1 architect for 7 projects, 1 general counsel, HR, etc.
On the other hand, if the number is higher (8+), you need a more substantial back office. But these are extra costs, and the quality gets weaker due to the heavy load. Attention per project gets reduced, which is harmful in the early stages.
The main reasons to keep an eye on the volume of output:
- It will be difficult if 10 companies at once require fundraising.
- Even if 3–4 projects out of 10 are growing the fastest, each new stage significantly increases the entropy.
- Too many things start to happen. You might waste time, lose focus, move to more strategic management, and it’s (again) harmful for early-stage startups.
Therefore, when choosing between the mass production of companies and a boutique version, I still recommend you open a boutique. It means the most optimal portfolio size, no more and no less, with maximum attention to each project.
If you have a large corporation that needs different output volumes, then make 5–6 studios to cover all directions instead of leveling up a single studio to an enormous size.
Remember about the production cycle
Warren Buffett said, “You can’t produce a baby in one month by getting nine women pregnant.”
It takes time for a project to succeed. Usually, you need 15–20 months to go from an idea to a business that’s more or less established. The project must accumulate a critical mass of problems it solved within its market, product, and team. Something is always happening, so the core forms in 15–20 months when everything is already behind.
Why is this important and what did I myself fall for? When you plant apple trees, they’ll eventually grow apples, that’s how things work. But sometimes the strategy changes and you find yourself in stark need of tomatoes instead of a pples. That marks the beginning of a new 15–20-month cycle.
Many innovative teams trip over this mismatch. Say, they agreed on and started doing one thing, but then something changed, be it a strategy, a mandate, or a team of decision-makers. What grows on the apple trees is no longer interesting, so you need to plant something new. It means… well, you can see it above.
That’s why I wouldn’t recommend the startup studio format to those companies where the strategy is frantic. But it works both ways: if you are consistent about it, the startup studio will be your super tool since you’ll be able to improve in iterations, working for the same market, segment, or industry.
Here’s a lightning round of other suggestions.
- Focus and difference. There are lots of studios, so try to have something distinct, find your specialization. This way, you will raise the chances of success, and it will be easier for people to decide which studio on which topic it is better to contact.
- From the first day, keep a financier nearby to keep reports in a correct format for the market.
- If you can work as separate legal entities that are not tied to the main (large) business, then do it.
- It is convenient to see the product with the lens of Product, Conversion, and Distribution. To be successful, you only need one part that is better than your competitors’. The other two parts might simply be at the market level, and that’s okay.
- The idea is important, but the team is essential. A good team pulls off a bad idea, while a bad team ruins even brilliant ones.
- You need to interpret shares correctly. For example, if you have 80% in the company, the question “What is our responsibility in the project’s success?” has the only correct answer: 80%.
It seems we’re around the turn of our next page. Admitad is reorganizing for a new goal, revising its strategy and focus. What we used to call a startup studio will now grow in every direction. The software that we developed to manage our portfolio of created businesses is scaling up to a single company dashboard to overlook “the new” (digitized corporate entrepreneurship).