The Startup Studio Effect: How Hollywood's Movie Model Applies to the Startup World
Last year, 2016, was a record-setting year for Hollywood -- financially, at least. According to Headlines & Global News, the film industry ended the year with more than $11 billion in domestic box office sales, buoyed by heavy hitters like Rogue One: A Star Wars Story, Deadpool and Zootopia. It was a lucrative time to be a Tinseltown player.
While the recent Oscar nominations tell a different story, the box office disparity between the highest-grossing studio film and the highest-grossing independent film was staggering. Hell or High Water, for instance, was the biggest independent box office draw of 2016, raking in about $27 million domestically.
That might seem impressive until you hear how Captain America: Civil War grossed $408 million domestically. In fact, half of the top 10 grossing films of the year came from Walt Disney Studios -- which hauled in $3 billion in domestic box office, Disney reported.
In short, the studio approach to filmmaking is a far cry from the ragtag process many independent films follow. Movie studios invest in scripts and concepts, then hire production companies to use their resources to create those films. They handle logistics like financing, production and distribution to make things easier on the creative minds behind the films.
What does this have to do with entrepreneurs? In fact, a model similar to that of the movie world has emerged in the startup world, offering an alternative to accelerators. Say hello to the concept of the startup studio, from which multiple people work to launch multiple startups, providing them product-development advice, support and capital.
A spreadsheet created and maintained by eFounders lists more than 100 startup studios that are sprinkled throughout the world, providing capital and product development support to ventures instead of the capital and domain expertise often delivered by accelerators.
Startup studios provide a great option for domain experts -- or authorities in specific business categories -- who want to build internet companies but might lack the coding experience required to get into a traditional accelerator.
The strength of a studio
My own path to the startup world was somewhat indirect. I began working at Coplex five years ago, back when that company focused primarily on digital product design and development services for small businesses, enterprises and startups. Several opportunities we had to work with early-stage ventures showed promising results, so we decided to experiment with the market. We focused on investing in, and building, early-stage ventures, eventually completing our transition to a startup studio.
For us, that model works because we get to harness the lessons we've learned from building almost 300 startups; and we continue to improve the process. Now, I don’t claim that startup studios are better than accelerators; I simply think accelerators leave a lot of opportunities on the table. Reason: They focus on teams that have technical acumen rather than domain expertise.
In the same way that a film studio can help a person with an incredible screenplay navigate the logistics of making a movie, a startup studio assists domain experts who might have a solid concept but aren’t as strong on the coding side.
Dollar Shave Club, one of the best-known startups in the country, used a startup studio to propel its own growth. The success of Dollar Shave Club is undeniable, and it wouldn’t have been possible without the company’s partnership with Science, the Los Angeles-based startup studio also behind MeUndies and FameBit.
Working without a studio would have forced the company to acquire and nurture many additional resources and people. Instead, its studio partnership provided Dollar Shave the resources necessary to hit the market as quickly and solidly as possible.
Selecting a studio
Thinking about partnering with a startup studio, then? Not all startup studios are created equal. They vary in levels of involvement and resources provided, so selecting the right one is key for anyone looking to secure an advantage. Here are a few things to keep in mind:
1. Find the right mix of support. Startup studios typically bring product development, user-acquisition support and capital to the table. If those things complement your needs, a studio might make sense. If I were a coder with a marketing background, I might find too much overlap between my own skills and the benefits a studio could provide. In that case, a Techstars or Y Combinator accelerator might be a better fit.
Attila Szigeti, COO of Drukka Startup Studio, recently crunched the numbers on 42 of the biggest and best companies to emerge from startup studios and accelerators: He discovered that startups that had partnered with accelerators raised more capital and employed more people than their studio brethren.
But Szigeti also found that the startups coming out of studios were more cost-efficient and grew more quickly. The average Mattermark Growth Score -- a measurement of how quickly a company is gaining traction -- for studio companies was about 26 percent higher than the average score for accelerator companies.
2. Look for a cultural match. Joining a startup studio is like accepting a job at a new company: If the two parties have different priorities and cultural nuances, the relationship will be strained. So, know the in's and out's of any potential studio, including its strengths, weaknesses and specialties. A studio that excels in finance won’t be of much service to someone focused on building the next Snapchat.
Each startup studio also has its own unique focus. The partnership between Science and Dollar Shave Club succeeded because the two companies complemented each other. Science likes companies that demonstrate organic growth and then strengthen that growth through marketing. Dollar Shave Club’s subsequent $1 billion sale to Unilever was no fluke: Science helped steer that ship, but the earlier viral advertising success of Dollar Shave Club demonstrated the cultural cohesion between the companies.
3. Be open to feedback and changes in approach. Every studio comes to the table with its own set of methodologies. Some studios have local teams, while others outsource. They all develop differently based on experience with what works and what doesn’t. So, if you're considering approaching one, take the time to understand how each studio works, who specifically will be working with you, what resources those people will offer and how they will guide you through each growth stage.
Startups must understand their own responsibilities in the relationship, as well. Entrepreneurs may struggle with this model if they aren’t open-minded, or there isn’t alignment with the studio. Like any other co-founder or investor relationship, startups need to realize that conflicts will arise.
The underlying message here is that the startup boom is far from over -- we live in the age of innovation, ubiquitous internet access and loads of free capital. The result is that technical co-founders are scarcer than ever.
That's where the studio model comes in: It provides a sensible alternative to going it alone for entrepreneurs who need a little help taking a concept to market. So, entrepreneurs who need product development, support and capital should consider vetting multiple studios to see whether any of those studios might be able to take their startup from an indie darling to a Hollywood blockbuster.