As a manager of an innovation department or a corporate innovation lab, you are dealing with more and more disruptive ideas. These ideas open totally new grounds that have a high potential for your business but you are struggling to implement them internally. As Eric Ries argues in his book “The startup way” the hardest part for most organizations is to know what to do when the ideas have potential. This does not come as a surprise. Truly innovative ideas question the established business models of the organization and its decision-making processes resulting in a high level of resistance by established organizational structures. Moreover, the ideas are not necessarily aligned with the current company’s strategy and therefore, might result in endless steering committees with slow decision-making processes.
Startup studio is external company builders for ideas with high potential. Can company builders help you develop innovative ideas? If yes, in which cases?
These are precisely the questions that members of our Innovation studio* – a community of practice open to innovation managers, directors, CIOs – deal with daily. Given these challenges, we have organized a dedicated session on this specific subject: “company builders – startup studio”. Our main goal was to shed light on why corporates should use the help of startup studios and in which case.
Start-up studios: what is it?
Startup studios are company builders that aim to build several companies in succession. A variety of different models exist: investor, incubator, builder and corporate excubators. For example, investor type studios like GV, Science, theFamily bring early-stage external startups and help them grow. They provide both funds and expertise. Incubator type studios like Founder, Spartastartups get equity in exchange for their intensive work with each team. At Founder, every year, 50 of the most innovative startups from universities are selected and each team is awarded up to $100K. After 12 months of extensive work with each startup, they invest in the most promising ones.
While investor and incubator studios mostly invest in the existing (even early stage) startups, builder models like Idealabs, App’n’roll, Barefoot & Co, Wefound focus on creating companies from scratch based on ideas generated internally by the studio or proposed by other actors. The latter is often called the excubator or corporate excubator. Excubator develops ideas coming from corporate clients or co-developed with them where corporates finance the development of these ideas. In the following, we will focus on builders and in particular on excubators.
What startup studios do?
Builders have a business focus on creating start-ups in partnership with corporate clients or solo, they follow the repetitive process and they generally aim to build an infrastructure that enables an efficient venture building process. Company builders share risks with clients and take shares in return. They offer a variety of different services. For instance, Barefoot & Co – a Belgian based corporate studio & accelerator mutualize assets to stimulate the development of ideas. They take charge of all the resources and tasks regarding HR, finance, communications, IT infrastructure, etc. This creates a great opportunity for corporates to experiment with highly uncertain ideas and avoid time-consuming internal validation processes (e.g., possibility to talk to potential clients, using the company brand for uncertain ideas, installing & experimenting with non-authorized software, looking for non-traditional competencies outside the company, etc.)
What is especially interesting about company builders is that they aim to co-create the startup with the corporates. As Gilles Debuchy of Wefound argues, studios “enable a corporation to build productive, long-term relationships with Startups, thus empowering it to conquer new frontiers”. Corporates are usually better positioned to identify business problems given their expertise and knowledge of the market. Startup studios aim to combine this knowledge with their agile way to create a solution and explore the market in a fast and iterative way.
Company builders aim to co-create the startup with the corporates
When should I use the company builder? For which projects?
Startup studios offer great advantages for projects with high business focus, i.e. the ones that deal with a new type of business model or the ones that challenge the existing value chain. They are especially relevant for projects that explore new markets for the company or try to understand their final users & customers better. Company builders allow to obtaining potential customers’ feedback on the immature idea without putting in danger the image of the corporate company behind. Market tests results are often less biased when the big corporate brand is not associated with the idea in the first place.
Generally, builders appear as a great alternative to deal with non-core business ideas so there is no one in the company to claim the ownership of an idea yet and the competition with the existing business units is not a risk. In this case, it is less risky for a company to share their insights with the external actor and they can gain new insights on the business area that is not familiar to them. Yet, internal sponsorship needs to be ensured to be able to finance the exploration and ensure the appropriation of the results in case the company will decide to build this idea internally later (i.e., creating a spin-off, new or existing business unit) – see Figure below.
When should I use the company builders and for which projects?
Most of the innovation studios focus on building digital businesses that can be profitable in a rather short timeframe and has a high potential for scalability. Yet, their offer appears to be limited when technological development is at stake (at least today). This exploration often requires expensive equipment and skilled engineers that can deal with the fundamental aspects of technological development along with market exploration. Most of the corporate studios claim that they will start to make money in 12 months’ max from the first time they meet the client. This is a great advantage but might result in the novelty bias: builders often privilege ideas where the value is easy to reach and they have already done something similar. In this case, truly novel early stage or complex ideas will be naturally avoided.
What are the pros and cons of working with startup studios?
There are countless benefits to using company builders. For example, companies are often subject of lots of inertia and longer decision-making cycles. Builders can create a favourable exploration environment and perform the iterative learning in real conditions. They bring a critical external perspective on the idea and an entirely different mindset. Given their expertise in testing markets in a fast way and finding product-market fit, it saves lots of time and money for corporates and helps them learn new entrepreneurial mindset from the seasoned entrepreneurs.
What turns as the most attractive feature of startup studios is their risk sharing model. It is an enabler of trust between different parties and ensures the client that the builder will do whatever it takes to bring the idea forward as fast as possible or to kill it as fast as possible. This changes their position entirely. Indeed, before engaging with the corporates, most of the builders conduct the feasibility study where they keep the right to decline the idea.
It appeared important for our members to work with studios that appear legitimate (or perceived as one) to bring the project forward. Moreover, it is crucial to have a good team to test the idea. Generally, this is one of the pain points for company builders: they need to be sure that the right team (in terms of competences & attitude) is gathered to work on your startup. Finding the entrepreneurs with the right skills is often challenging.
Finally, working with this type of actors lead to a possibility of creating a different perception, notoriety for the corporate. Are you ready to accelerate your innovative ideas with the company builder?
* We have launched Innovation Studio in 2015 to connect leaders from different organizations who wish to learn, share and act together to make their companies the new standards of innovation leaders. Nowadays members of innovation Studio include companies such as Schneider Electric (Eric Marty), RATP (Stephane Cobo), Turbomeca (Antoine Drachsler), Renault (Lomig Unger), Thales (Dennis Bonnet), Valeo (Patrick Sega), TechnipFMC (Jean-François Duroch) and Safran group (Romain Thiriet) ….
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