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The Power of Startup Studio Model

By: Shyaam Ramkumar | Date: March 4th, 2019 | Categories: startup studio, startup studio model, risks, build and scale,

Creating and running startups is incredibly difficult. Entrepreneurs and their investors take huge risks when building a startup, spending significant time, money, and effort to build and scale their idea. And yet, 9 out of 10 startups fail, largely due to a lack of product market fit [1]. Despite this, many entrepreneurs try to make their idea work instead of trying to shift their focus or use insights from their failures to abandon invalidated ideas [2].

It’s the classic case of sunk cost fallacy from behavioural economics [3]. When you account for the time and effort put into developing business plans, attracting investors, registering with government bodies, paying for lawyers, notaries, and accountants, getting equipment and office space, hiring staff, all while trying to build a customer base and start generating revenues, entrepreneurs are going to try their hardest to make their idea work, even if they know it won’t.

However, this isn’t so much a problem with entrepreneurship, as much as it is a problem with the approach to entrepreneurship. The way people have been building startups is akin to the way products were produced before the Industrial Revolution. Surely then, in the same way that companies in the Industrial Revolution managed to achieve economies of scale by increasing their output and optimising their production model, there must be a way to reduce the average cost of creating a startup by increasing the output of startups and optimising startup development.

Enter the startup studio model, also known as the venture builder, startup factory, startup foundry, company creator, or company builder model. Think of it as a factory for startups. Instead of trying to create a single startup, a startup studio tries to achieve economies of scale by building multiple startups using a shared network of resources, staff, investment, and management. And unlike accelerators, incubators, or venture capital firms, startup studios don’t support the growth and scaling of existing startups, they largely develop their own from scratch.

This dramatically reduces the costs of creating a startup. Startup studios centralise the process and administrative costs of funding and investor contracts, government registration, legal and accounting fees, equipment and office space, and staff. And these costs are spread across all the startups that the studio creates.

Moreover, the startup studio model also increases the success rate of startups. By building and developing multiple startups using a shared pool of resources and reducing their costs, there is a greater incentive to focus and shift resources on the startup ideas that have a good chance of success rather than continuing to develop ideas that likely won’t work. As a result, startups created by startup studios grow and exit faster, need less human resources, and more effectively use cash and funding.

The results speak for themselves. From 2011 to 2015, the output of startup studios has risen by 15% each year, with increasing number of exits and successful spin-offs after an average of 3 years. The startup studio model has attracted a growing number of investors, as investments have increased nearly 48% each year from 2011 to 2015 with more and bigger rounds [4].

Though the startup studio model is not new, it has only recently begun to become a rising movement. The startup studio model seems to have originated with Bill Gross and idealab back in 1996, and was further refined after the dot-com crash through Rocket Internet and Betaworks in 2007 [5].

Today, there are over 300 startup studios globally [6] with the majority having been founded after 2013, and with many different approaches to their development of startups. Europe in particular has seen an explosion in startup studios. Nearly half of the over 300 startup studios in the world today are located in Europe [7] with many more starting up.

In order to develop a comprehensive database of existing and emerging startup studios in Europe, and to bring them together to get connected, share ideas and best practices, and attract investors, we at Mamazen, a leading startup studio in Italy, have created StudioHub Europe.

We hope to support the growth of the startup studio model throughout Europe and accelerate the ability of startup studios to create successful startups.

About Mamazen

Mamazen is a leading venture builder in the Italian market with the vision to be one of the leading startup studios in Europe. At Mamazen, we aim to increase the success rate and mitigate risk of our startups through our unique startup formula.

  1. https://www.cbinsights.com/research/startup-failure-reasons-top/
  2. https://www.forbes.com/sites/neilpatel/2015/01/16/90-of-startups-will-fail-heres-what-you-need-to-know-about-the-10/#42cc0c136679
  3. https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/sunk-cost-fallacy/
  4. http://www.startupstudioplaybook.com/
  5. https://medium.com/global-startup-studio-network/the-origin-and-evolution-of-the-startup-studio-3e442c35d21
  6. https://medium.com/le-studio-vc/the-300-startup-studios-taking-on-the-world-6e3c44b52d20
  7. http://arcticstartup.com/startup-studios-emerging-trend/
Shyaam Ramkumar

Shyaam Ramkumar is currently the Network Coordinator for StudioHub Europe. He is also a PhD Candidate in Economic Sociology at the University of Milan. Shyaam has been involved in various startup initiatives and programs as a mentor and adviser. He was previously the Knowledge and Innovation Manager at Circle Economy in Amsterdam, responsible for keeping up-to-date on various startups and innovations related to sustainability and the circular economy.