Late Checkout
Why the future of startups are studios
Deep Dive

Why the future of startups are studios

by Greg IsenbergDec 11, 2020

Startups are risky, risky business.

As you set out to build the next big company, the path is littered with the logos of fallen comrades. You are trying to thread a needle in a wind tunnel.

Founders take on this crazy risk because the possible reward is huge. Startups that make it through the gauntlet are some of the best businesses in the world, with high margins and practically unlimited growth potential.

But what if there was a way to eliminate much of the risk without losing out on the possible reward?

My prediction: product studios will breed major outcomes for founders.

🧬 What is a studio?

A product studio is a lab for generating and testing ideas, then turning them into businesses.

You can think of the studio model as a powerful de-risking machine. The main way it de-risks is through diversification. Studios improve their chances of success by taking a bunch of shots on net rather than just one.

Because studios become experts at rapidly generating and testing ideas, the cost of each attempt is much less than it would be for a normal startup.

A killer studio can hit product/market fit with multiple products each year.

🔬 Focus

The studio model can seem unfocused, since studios move quickly from idea to idea. In reality, the best studios are very focused, their focus is just at the meta level.

If you want to win with the studio model, choose either a vertical, category, or psychographic to go deep on. At Late Checkout, our focus is internet communities.

Here are some example focus areas you could build a studio around:

  • Golfers (vertical)

  • AR (category)

  • Streamers (vertical)

  • Older adults (psychographic) → Alive Ventures

  • Professional networking (category)

Focus is crucial because it allows you to get better with every new idea you explore. If your studio has a strong focus, you get to apply the learnings from one experiment to the next. It’s network effects 101.

Instead of going from Charmander to Squirtle to Bulbasaur, you go from Charmander to Charmeleon to Charizard.

💰 How do you fund a studio?

Doing experiments is great and all, but how do you make money while you hunt down your first winning ideas? Sustainability is key for studios.

There are two main ways to bring in capital before your first successful products:

  1. Run a services business

    This can be either consulting or contracting.

    For example: Late Checkout does 30 day design sprints with leading companies looking to transform their companies to community companies. It’s a win for us because we learn, create impact and get a margin, and win for them because they add major value to their businesses.

  2. Raise VC

    This increases risk by increasing the requirements for success, but it makes sense in some cases. Since the studio model de-risks, you may be able to afford adding some risk back in.

  3. Acquire a profitable business

    You can use your own capital or someone else's for the purchase. Since the business acquiring is already profitable (i.e. not very risky), bank loans/debt financing are an option.

After creating a couple successful products, you can use their revenue to fund the studio. That's where the studio model really shines.

🦋 Turning ideas into companies

The core function of a product studio is to create awesome businesses. To do that, you need a process to put ideas through.

Think of your process as a series of challenges that every idea must overcome to become a business. If an idea fails any of the challenges, scrap it.

Here's an overview of the Late Checkout process:

Generate an idea: We get ideas by immersing ourselves in subreddits, Facebook groups, Discords, and anywhere else internet communities gather.

Flesh out the idea: Once we've had an idea, we do a product design sprint. A sprint is a mix of research, product concepting, user testing, and design prototyping. This lets us refine the idea and come up with an experiment to test it.

Launch an experiment: We launch the experiment to get data on the idea. Late Checkout tries to do at least one experiment every month. An experiment can be anything from a landing page to a Discord server.

Create a project: If the experiment goes well, we start building product. The focus here is to create an MVP that will let us test out distribution. We want to see if the product connects with the market.

Create a big company: The first four steps let us build up our conviction around the idea. If it makes it through wringer, we know it can become a big company. At this point, we spin it off from Late Checkout into its own entity. The new company, owned by Late Checkout, operates just like any other startup. Studio employees that are passionate about the project can choose to join the new company in key roles.

🏄‍♂️ What about going all-in?

Some people worry that the studio model could keep them from going all-in on any one business.

You hear stories of founders ramming into enormous roadblocks, where everything seems hopeless, and coming out the other side as unicorns. Would they have persevered if they had other bets to fall back on?

Those stories are inspiring, but full of survivorship bias. The truth is that most founders who hit those kinds of roadblocks lose their companies.

The studio model doesn't keep you from going all-in, it just lets you check the road for roadblocks before you do - that's what your process is for. Travis Kalanick was involved with Uber from the jump, but he didn't join the company full-time until seven months after the official launch.

He built up his conviction before taking the leap.

⏰ Why now?

Product studios aren't a new idea (Idea Lab is one famous example), but I think we're entering into a studio golden age.

That's because, over the last few years, experimentation has become absurdly quick and easy. Developer tools have gotten crazy powerful, and no-code tools have given non-developers to ability to build. You can literally drag and drop an e-commerce website into existence using an app on your phone.

These new technologies have changed the equation for how to build technology efficiently. The opportunity cost of running experiments is now tiny.

If you're the Flash, you don't have to guess what trail to take, you can test them all first.

There's never been a better time to start a studio. And for employees thinking about joining a studio, try it. Jumping from project to project, startup to startup makes everyday fresh and interesting.

Welcome to the golden age of the studio.

Stay Awhile

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