1. November 24, 2015
Report by: Cachaça Consultancy LLP
Daniel Feeman
Tom Riddle
Linsey Jaco
Margaret Avery
Chris Hess
Chirag Patel

2. Acknowledgements
We would like to thank all outside contributors to this report and our data collection
efforts, particularly those studios who were active participants in our in-depth
interviews and survey requests.

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Table of Contents
Executive Summary.......................................................................................................................2
Milestones ................................................................................................................................2
Data..........................................................................................................................................2
Market Opportunity ..................................................................................................................2
Industry Norms.........................................................................................................................3
Way Forward ...........................................................................................................................3
Research Objectives.....................................................................................................................4
Overview.....................................................................................................................................4
Methodology ..........................................................................................................................4
New Venture Landscape and Performance Indicators .......................................................6
Commonalities........................................................................................................................6
Differences...............................................................................................................................7
Performance Metrics for New Ventures..............................................................................8
Current Trends of Startup Studios................................................................................................9
Demographics...........................................................................................................................9
Players in the Market..............................................................................................................9
Studio Product Trends.............................................................................................................11
Competitive Landscape......................................................................................................... 12
Key Success Factors................................................................................................................12
Basis of Competition............................................................................................................ 14
Operating Trends in Startup Studio 2.0................................................................................15
Future Opportunities in the Market........................................................................................ 18
Opportunities ...........................................................................................................................18
Challenges ...............................................................................................................................18
Conclusion ....................................................................................................................................20
Appendices .............................................................................................................................. 21
Appendix A – Survey........................................................................................................... 22
Appendix B – Survey Results..................................................................................................24
Appendix C – Interview Guide.............................................................................................25
Appendix D – Summary of the Differences Between Incubators, Investors and
Accelerators.............................................................................................................................26
Appendix E – Basic Recipe for Startup Studio....................................................................27
Appendix F – Porter’s Five Forces...................................................................................... 28
Appendix G – Blue Ocean Strategy................................................................................. 30
Appendix H – Portfolio Analysis.............................................................................................31

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Executive Summary
Cachaça Consultancy seeks to conduct market research and data analytics for the
development of an industry overview report as the final product for completion of
American University’s requirements for Masters in Business Administration. As a part of
the engagement, Cachaça Consultancy has performed the necessary background
research on the startup industry pertaining to studio models, structures, and strategy,
in order to provide an industry overview report which includes the following:
 Industry and market research and findings
 Opportunities for future studio models
 Areas of focus for future studio models
Milestones
 Assignment of Industry Report as Final Deliverable (10/15/15)
 Report Format Selection & Sign-off (10/23/15)
 Report 1st Draft - Internal Submission (11/10/15)
 Report 2nd Draft - Internal Submission (11/17/15)
 Internal Final Draft Completion (11/22/15)
 Final Report Submission to Client (11/24/15)
Data
Cachaça Consultancy collected qualitative and quantitative data using a two-
prong approach: a questionnaire and targeted direct interviews. For the
questionnaire Cachaça Consultancy reached out to numerous studios through
various platforms (Twitter, LinkedIn, cold-calling, and email) to collect operational
and strategic data through a collaboratively developed survey. Upon participation
by existing studios in the survey, a follow-up item included a phone interview,
during which studios had the opportunity to provide supporting details. This data
allowed us to identify industry trends using quantitative analytics and verify our
hypotheses against the qualitative data.
Additionally, we received data from another researcher, Attila Szigeti, who conducted
research on 51 studios and 212 of their portfolio companies. We vetted our hypothesis
and findings against Attila’s research to identify trends over time and validity of results.
Market Opportunity
Startup studios are a relatively new idea (five years in the making), meaning there is
tremendous opportunity for newcomers. However, this also means that there is no
standardized model, as each studio is created uniquely depending on the resources
available to the particular studio.
Opportunity is ever-present, and the industry is capable of handling flexibility in
strategic vision (selective thesis) and diversity in size (the number of portfolio
companies that a studio can handle at once), therefore it is difficult to make a
specific recommendation on the development of a new startup studio and its
operations. That being said, from our research we have identified the below criteria
which should be addressed to create a sturdy foundation for a studio:
 What are the sources of funding?

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 What is the end goal? (spinoff, sell off the portfolio companies, hire another
company to manage them, etc.)
 How many products can ideally be worked on at any one given time?
Industry Norms
From our research, we found that trends existed in three main areas within the
industry, (i) thesis, (ii) region, and (iii) founding.
Majority of studios had a well-developed market-driven thesis which functioned as
the studios guiding principle. Studio followed the thesis as if it is a written law. The
thesis identified their target market and vision. Those studios which had loosely defined
thesis learned the consequences of being too broadly focused and tend to not hold
a strong position in the market.
Regionally, we found that majority of the studios are located in the United States and
Europe. However, studios are spread throughout the world and continue to rise up in
different countries such as South Africa, Russia, China, and others. A recent trend, has
shown several universities, such as UT Austin, Harvard, and the University of Chicago,
are developing startup studios that follow in line with the trend of universities
developing programs dedicated to the incubator or accelerator model.
One of the biggest finds from our research was that the majority of relatively successful
studios follow one of two foundation models which follow the methods used by
Tesla and Edison. This notion is based on the research laboratories each man founded
Nikola Tesla with Wardenclyffe Tower, and Thomas Edison with Menlo Park (discussed
in detail in the Competitive Landscape section).
Way Forward
Cachaça Consultancy will present the results of its research in a usable report for
American University. While a specific recommendation regarding founding and
operation of a startup studio is difficult to make considering the maturity of the
industry and a significant sample size of data, this informational report should serve as
an overview of the new venture industry as a whole highlighting common practices,
industry trends, and potential areas of opportunities specific to startup studios.

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Research Objectives
Overview
Our team consisted of 6 members, all MBA students at American University’s Kogod
School of Business. The project was part of our capstone class, Strategic Decision
Making, taught by Professor Parthiban David. We were led by Daniel Feeman, the
Project Manager. Tom Riddle served as the Assistant Project Manager. The remaining
members, who served various roles throughout the project, are Margaret Avery, Chris
Hess, Linsey Jaco, and Chirag Patel.
Our team was assigned to perform an in-depth study of the startup studio industry.
Tasked with this analysis, it was necessary to gather both quantitative and qualitative
data. To do this, we employed a two- pronged approach: a survey and an in-
depth interview regarding operations with startup studios. Gathering this data would
allow us to identify trends using quantitative analysis and verify our hypotheses
against the qualitative data. We would take the quantitative data from the surveys
and run various analyses. Using regression analysis and other techniques, we would
identify industry trends, which would be the basis for several hypotheses about the
industry. Specifically, we hoped to identify the optimal conditions for startup studios to
succeed.
Initial research on the industry was gathered from existing sources. Specifically, we
utilized several databases and tech journals, most notably Tech Crunch, Seed-DB,
and the Seed Accelerator Research Project, as well as various articles about and
websites of startup studios. However, there is one important point to note regarding
our data gathering attempts. Highlighted in the Small Business Administration’s paper
on the industry, “As the data landscape survey suggests, the available data upon
which new metrics might be developed is limited. Open source data are not
validated and validated data are often restricted for use through regulations or
cost1.” This is primarily due to several factors. First, the vast majority of startup studios
are privately-held companies, meaning there are no official filings available to the
public. Another impediment is that the industry itself is still emerging, so there is no
comprehensive history or analysis that truly captures the industry. Lastly, as the paper
also cites, the information given by the databases is not “for the purposes of informing
public policy or academic research.2” As a result, we recognized the need to
generate our own data about startup studios.
Methodology
We were initially had a comprehensive list of startup studios in the United States, as well
as well-known studios in Europe. This data contained mostly demographic
information, such as the names of the studios, the years of formation, their physical
locations, website addresses, and names of their founders and CEOs. It also
contained some data regarding the number of portfolio companies that they had
created, the amount of funding they had received, and the number of employees
that they had. This information was vital in providing us a broad understanding of the
industry and learning about some of the major players. Most importantly, it provided
us with the contact information necessary to send out our surveys to the studios.
The survey (found in Appendix A) was created by several members of the research
team with the intention of gathering both qualitative and quantitative data. The
survey was also designed to identify potential studios that would be interested in our
1
Innovation Accelerators: Defining Characteristics Among Startup Assistance Organizations by
Demwolf, Auer, and D’Ippolito. Optimal Solutions Group LLC.
2
Id.

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follow-up interview. Using the contact information provided by the client, we sent out
survey requests to approximately 95 studios. Our hope was that we would have at
least 50 responses from the studios, which would draw a good representative sample
to build our quantitative data base around. Unfortunately, we did not receive the
desired response from our initial offering. Thereafter, we pursued an aggressive
campaign to get more results, namely through the use of Twitter, LinkedIn, and other
platforms. However, we eventually determined that the effort put into getting the
survey responses did not adequately provide the results we hoped they would. In
total, we received only ten survey responses. A summary of those responses can be
found in Appendix B.
At that time, we knew we would be unable to perform the quantitative analysis that
we desired. Instead, we would have to identify trends from the limited data we
received and validate them against the qualitative data gained from the interviews.
One boon we did receive from our social media efforts was that we were able to
identify several studios that were willing to provide interviews. Using the interview
guide found in Appendix C, all team members participated in securing and
conducting interviews. In total, we performed 5 interviews, which helped us gain
deeper insights into the current state of the market. Still, the information provided was
limited by the desire to keep proprietary information private, as well as the fact that
there was little to no information available to validate the claims made by the
interviewees.
Perhaps the best information received was given by Attila Szigeti, a Hungarian native
who works at Drukka, an agency/startup studio in Budapest. In addition to taking the
survey and giving an interview, Attila provided us with raw data he had been
collecting on the startup studio sector of the new venture industry. While it did not fill
in all of the gaps we had hoped to achieve with the survey, it certainly gave us
sufficient data to delve deeper into the trends of the industry, particularly relating to
launches and funding. Reviewing this data, we were able to formulate theories
regarding two methods for succeeding as a startup studio. The theories of the Menlo
Park Method and the Wardenclyffe Tower Method, are detailed later in the
Competitive Landscape section of this report.

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New Venture Landscape and Performance Indicators
Before delving deeper into the startup studio sector it is important to have a base
understanding of the startup or new venture landscape as a whole. This report looks
at new ventures from the perspective of technology based ventures from startups
that are seeking out internal or external funding and/or other startup assistance
resources.
From the emergence of startup ventures various forms and methods on how best to
fund, build and grow a new venture have been utilized. Needs such as capital
requirements, access to networks and mentorship are just a few examples of the
different types of resource assistance that play a key role in how any startup venture
decides to grow their product and/or company. Through all stages of startup
development the various factors as reflected in the Porter’s Five Forces Analysis found
in Appendix F must be considered. In early stages of development, startups seek out
investors depending on what type of resource assistance the startup needs most. The
major investor players in the industry include venture capital firms, angel investors,
incubators, accelerators and startup studios. Each player offers a slightly different mix
of resources to the startup or is best positioned for different stages in the startup
development as depicted in the graph below and is described in more detail later in
this section. Graph 1 reflects that overlaps do exist among the scopes of the different
type of investors which means it is extremely important that the startup identifies the
right mix of resource assistance needed.
Graph 1 - Startup Early Stage Investor Resource Matrix
Source: https://www.quora.com/What-is-the-typical-business-model-of-a-Startup-Studio
Commonalities
No matter the type of investor, all endeavor to grow the initial idea into a successful
product or company that will produce an attractive return on investment by
providing some mix of resources. Resource assistance can materialize in the form of
financial capital, human capital, or operations support. Some investors achieve this

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by sole investment others by creating environments where the venture can succeed
thanks to collaboration among experts and other assistance resources. Others take it
a step further and combine all these attributes together to provide a comprehensive
environment that provides the new venture with capital, expertise, networking and
shared resources in an effort to grow it to a scalable success.
Differences
Over time the needs of startup ventures have changed and so the industry must
evolve. It has done just that, especially, in the light of the cost of experimentation
falling. The various types of investors for startups share various commonalities but their
differences are what highlight their core competency as well as justify why one form is
better than another in specific scenarios. A side by side comparison of investor
attributes is depicted in Appendix D - Summary of Differences among New Venture
Investors. Details of each and their distinct attributes are fleshed out below:
1. Venture capital firms are commonly known as the most traditional form of new
venture assistance and provide financial resources which are normally large
investments for early to mature startups.
 Differentiation factors:
o Provide large investments
o Implement strong governance to include requisite board seat and has
influence on subsequent financing rounds
o Lack of resource synergies due to one product/company focus
2. Angel Investors are common at very early stages of startup growth and provide
financial resources which are normally in the form of small investments. In some
scenarios angel investors also provide a minimal level of advice to the outside
entrepreneur.
 Differentiation factors:
o Limited influence on strategic direction of portfolio firms
o Lack of resource synergies due to one product/company focus
3. Incubators are organizations that provide business support services such as
physical space, internet service, etc. at below-market prices and at times provide
small amounts of initial seed capital to facilitate growth and success of startups.
This type of investment can be found both in the private and public space most
notably in universities in the latter.
 Differentiation factors:
o Philosophically their objective is to nurture new ventures by sheltering
them from outside market forces and giving them room to grow.3
4. (Seed) Accelerators are organizations/programs that combines elements of
investors and incubators aka financial and human capital resources. They are
limited-duration programs that help cohorts of entrepreneurs with the new
venture process by providing small amounts of seed capital, working space,
networking, educational and mentorship opportunities and access to qualified
investors at the end of the intense program through the “demo day” event. Over
time the majority of accelerators have evolved from having a generalist-like focus
to becoming industry-vertical focused programs4. Y-Combinator is the most
commonplace accelerator example in the United States. Accelerator programs
are becoming more and more popular in the university setting as they gain
notoriety for being successful in the private space.
3
Cohen, Susan, and Yael V. Hochberg. Accelerating Startups: The Seed Accelerator Phenomenon.
SSRN Electronic Journal SSRN Journal.
4
Id.

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 Differentiation factors:
o Philosophically their objective is to speed up market interactions in
order to facilitate the ability to adapt and learn quickly for new
ventures.5
o Focused human capital education program for outside entrepreneurs
to understand the success factors in building a startup venture
 Cohort based network
o Fixed duration program vs. continuous nature of incubators, angel and
venture capital investments
5. Startup studios are the most recent evolution of startup venture investors. Studios
are companies that aim at repeatedly building portfolio companies in parallel.
The building process is based on a reusable infrastructure of resources and a
cross-disciplinary core management team. See Appendix E for a visual depiction
of the basic recipe for startup studios.
 Differentiation factors:
o Shared infrastructure allows studios to capture economies of scale.
o Building portfolio companies in parallel takes advantage of network
effects for market traction as well as future investment options.
Performance Metrics for New Ventures
Whether a new venture is looking inward and monitoring the performance of its own
portfolio companies or looking outward and considering the addition of a new idea
or portfolio company there are a few general performance metrics that all new
ventures and their potential investors consider key.
General key performance indicators of startup ventures6:
 Financial metrics include monthly revenue growth, revenue run rate, gross and
net margins, burn rate and runaway.
 User metrics highlight the key factor in any business’ success, the user. They
provide insights into the proportion of mobile traffic, understanding user
engagement or decay (cohort analysis or churn) and measure user growth
rate by word of mouth instead of by paid acquisition (k-value).
 User Acquisition and marketing metrics reflect the level of significant resources
being utilized to acquire a customer and the respective payback period. Net
promoter score is used to measure the level of satisfaction of your customer
and their likelihood to recommend the product or service.
 Sales metrics such as magic number, order velocity, average sales cycle and
long term value help the venture understand the efficacy of sales channel
efforts.
 Market metrics accentuates the potential of the limited time and resources of
the target customers through total addressable market metric and average
wallet size.
5
Id.
6
Crichton, Danny. The Complete Quantitative Guide To Judging Your Startup. Tech Crunch. Jan. 31,
2014.
(http://techcrunch.com/2014/01/31/the-complete-quantitative-guide-to-judging-your-startup/)

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Current Trends of Startup Studios
Demographics
Based on our research and assessment of the startup studio sector, we found that a
majority of the studios are located in the United States and Europe. However, studios
are spread throughout the world and continue to rise up in different countries such as
South Africa, Russia, China, and others.
Uniquely enough, there is a new trend within the industry that is taking place on the
university level. The current trend of innovation has led several universities, such as UT
Austin, Harvard, and the University of Chicago, to create programs dedicated to
incubators and accelerators. Many of these programs are dedicated to fostering
innovation and assisting current students and alumni with their startups. These
programs are dedicating resources, legal counsel, and space to further promulgate
startups and business ideas.
The core support of these programs includes management expertise and technical
expertise. Each program is built around an environment of shared resources that
provides startups with access to capital, networking connections, human resources,
marketing, developers, design and sales.
Harvard Business School's Rock Center for Entrepreneurship recently announced that
it will form the HBS Startup Studio this December. The focus of this studio will be on a
select few alumni venture program. This program will require that at least one team
member be an alumni of Harvard and be located at the programs New York City
office. Additionally, the selection will also be based on several other criteria such as
growth potential, funding and revenue streams. 7
In the “Anatomy of Startup Studios” Attila conducted research on 51 studios and 212
of their portfolio companies. From this research he found the following trends:
 From 2010, the funding of these portfolio companies has increased by 48%
percent year-over-year
 These studios have raised roughly $4 billion in venture capital since 2008.
 These studios have created 15% more companies
 14 portfolio companies have been acquired at approximately 3 years
after creation.8
Players in the Market
Table 1 details the major players in the startup studio space. The top three companies
in terms of funding are Rocket Internet, Science, Inc. and Idea Lab.
Rocket Internet, based in Berlin, Germany, has founded roughly 22 companies since
its founding. A majority of these companies operate as B2C (business to consumer).
Their model has been based on the "borrowing" or, rather stealing of proven
businesses ideas. In obtaining these, ideas, they grow the companies and stay out of
countries, such as the United States, that have strict intellectual property laws. Of all
the studios, they have the largest source of funding at $2,577,900.9
7
Vanni, Olivia. Harvard is Taking on NYC with its Upcoming HBS Startup Studio. BostInno. 10/08/15.
8
Szigeti, Attila. Anatomy of Startup Studios: A behind the Scenes look at how successful venture
builders.
9
Szigeti, Attila; The Big Startup Studio Study, Part 1: Number Crunching.

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Science, Inc, is a Los Angeles, based digital media and commerce startup studio. The
business gained notoriety for its portfolio of companies which include Dollar Shave
Club and DogVacay. It's portfolio companies have primarily been modeled around
B2B (business to business) and B2C. Since its founding, the company has developed
16 companies primarily focused on the retail space. Additionally, the company has a
track record of only developing ideas that have a proven ability to efficiently use its
revenues to facilitate its expansion and growth after initial rounds of funding.10
Idealab is a Pasadena, California based startup studio founded in 1996 by Bill Gross.
Of all the studios, they are one of the oldest, having been in operation for over 20
years. Their average funding per year is $3,640,000. Their model is based on the
scaling of small/local businesses to become major players in the market. The company
has developed 10 companies over the years in a variety of different sectors and
of different models. 11
Table 1- Top Three Startup Studios in Various Categories
TOP 3 BY COMPANIES (TOTAL) TOP 3 BY FUND/CO
STUDIO COs FUNDING STUDIO COs FUND/CO
Rocket Internet 33 $2,577.90 HFV 2 $ 171.50
Science.inc 16 $ 314.90 Rocket Internet 33 $ 78.12
IdeaLab 10 $ 72.73 Archimede Labs 3 $ 38.55
TOP 3 BY FUNDING (TOTAL) TOP EXITS (TOTAL)
STUDIO COs FUNDING STUDIO COs EXITS
Rocket Internet 33 $2,577.90 IdeaLab 10 4
HFV 2 $ 343.00
Science.inc 16 $ 314.90 TOP 3 BY EXITS (%)
STUDIO COs EXITS
TOP 3 BY CO/YR Disrupted 2 50%
STUDIO CO / YR FUND / YR Founders 2 50%
Rocket Internet 3.67 $ 286.43 RedStar 2 50%
Science.inc 3.20 $ 62.98
Boot Ventures 3.00 $ -
TOP 3 BY FUND/YR
STUDIO CO / YR FUND / YR
Rocket Internet 3.67 $ 286.43
HFV 0.67 $ 114.33
Science.inc 3.20 $ 62.98
10
Id.
11
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Studio Product Trends
Table 2 reflects the trends found in product categories the Szigeti’s portfolio analysis
of 51 studios. The most frequently developed product line pertained to E-Commerce.
From 2005-2014, we observed that 35 out of 212 products, or 17% of the products
developed, were of the E-Commerce type. The next most prevalent product type
was “Mobile,” mobile software, advertising, media or payments. Of the products in
the data set, 26 were of this type comprising 12% of the developed products.
Following this was Sotware, Meida, fashion, Apps, Big Data and travel respectively.12
Table 2- Startup Studio Product Categories
PRODUCTS
NUMBER OF PRODUCT
LINES
PERCENTAGE OF
PRODUCTS (out of 212
products)
E-Commerce 35 17%
Mobile (software, advertising,
Media, Payments) 26 12%
Software 25 12%
Media (PR, Social, Digital,
Advertising) 19 9%
Fashion 10 5%
Apps 9 4%
Big Data 9 4%
Travel 8 4%
Games 7 3%
Music 6 3%
Financial 5 2%
News 3 1%
Transportation 2 1%
Recruiting 2 1%
12
Id.

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Competitive Landscape
Key Success Factors
There are inherent problems associated with measuring a startup studio’s
performance solely with a set of observed characteristics, individually or as an industry.
Even using outcome metrics based on open-source or non-obligated reports creates
issues. Amongst other problems, these metrics often do not measure what is important
to the individual studio, the products/companies, or subsequent investors, especially
in situations where funding is entirely private. With that in mind, the list makes two key
assumptions: that these measurements are internal to a startup studio, and the
information can be accurately collected and tracked.
Funding
Funding is the key question in all ventures because no matter what the idea or work,
without funding, there won’t be any movement forward. There are two critical time
periods where funding questions need to be addressed:
 Initial: The studio must identify whether it has sufficient funding to pay for
office space, the core team of employees, and the ability to generate
and foster ideas.
 Follow-on: The point at which outside funding from a VC is needed; the
studio must also assess whether it has the capabilities to secure funding.
Location
Location is vital because the physical location can affect the ability to recruit talent
and resources. Specifically, the startup studio must decide whether it should be
located where other studios already exist, or whether it should venture into new
territory with a beachhead location. The Small Business Administration saw this point
as one of the most important factors in the innovation ecosystem because studios
react so differently based on what location they begin in. Clients, needs, and talent
can all depend heavily on location. For instance, if the client base or idea base is
meant to service Level I Trauma Centres, it is unlikely to be successful in Nevada or
South Dakota, the two most isolated locations for Level 1 Trauma Centres.13 Thus it is
important to ask the question “Where?” early on in the founding process.
Studio Structure
The method used to found a given studio is a critical decision, as this will greatly
affect the structure of the studio. The two main methods that we have identified are
the Menlo Park Method and the Wardenclyffe Tower Method. An in-depth analysis of
these methods will be discussed later. Once the method has been determined, it
must be paired with the appropriate model based on the structure, as well as available
resources. These models, detailed in this section, are the Builder, Investor, and
Incubator models.
13
University of Pennsylvania, Access to Level 1 – 2 Trauma Centers.
http://www.traumamaps.org/Trauma.aspx Accessed on November 14, 2015

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Strategic Partnerships
Are you a VC, is there a VC partner available or is there a school you can attach to?
Building strategic partnerships is one of the most basic business tools in any industry.
The use of a partnering strategy is important because it will supply the studio with two
important inputs: funding and ideas. Without these inputs, the studio won’t be able
to produce and will fail. Therefore, startup studios should either include a VC in their
formation or identify a potential VC partner to work with. One variation involves
building through a university, such as the Harvard Innovation Lab.
Name Recognition
Name (or brand) recognition often refers to the founders, but it could also be the use
of a company that has ex post facto moved into the studio industry. Two notable
examples of this are Uber and Expa, which launched startup studios after the
companies became successful. This is important to measure, as it can relate to past
successes of a founder or to the field the studio will be working on. In either case, it is
paramount that the studio not overestimate their position within a field or
overestimate the name recognition of a founder. Often times, it will be a successful
company, not a founder, that has name recognition and the founder may not have
the legal ability to lean on that company’s name recognition.
Focus
Most startup studios must decide whether their business focus will be B2B, B2C, or
SaaS. This can then be drilled further into certain industries/markets. Some studios
refer to this as their “thesis”, but it actually speaks to what their strengths will be. If
mentoring is the strength of a studio, then an incubator model may work best. If
passion for a specific field (Trauma Centre efficiency) is the strength, then a builder
model may be best.
Output
The output of studios varies wieldy and depends heavily on the method and model of
the studio. The basics of output come down to how much can be produced and
what resources are needed for production. The balancing comes down to resource
allocation, which in turn requires an acute understanding of the requirements for
ideas and the ratios a studio can afford. This will shape the studio’s goals for ideas
going to market.
Success rate
How many ideas do you need to make that output realistic, what is the survivability
rate? Startup studios must determine how many ideas are needed for a realistic
success rate, as well as the survivability of that rate. In simple terms, this is the ratio of
ideas to successes. The level of what constitutes a successful ratio is a definition that
management and strategic partners will need to decide for each studio depending
on the structure and model of the studio.
Success
Defining success is one of the most difficult questions presented to a studio, as it will
have an impact on the founding method required and the operation model the
founders select. A success can be defined in any number of methods – sold off, spun
off, or kept as a small profit producer. The studio could choose to be geared towards

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quick exits if the funding isn’t available for sustaining an idea over a long period of
time, or keep it in-house if sufficient resources can be allocated to it.
Basis of Competition
Direct competition in a secretive industry is often a difficult question, but the simple
answer is yes. In 2014, Susan G. Cohen and Yael Hochberg published one of the first
pieces on the startup studio industry - Accelerating Startups: The Seed Accelerator
Phenomenon. They noted that, depending on the definition used by researchers of
the industry, there were at least 300 and possibly more than 2,000 such entities on six
continents.14 The aim of the paper was not necessarily to explain the competitive
landscape, but rather to seek an understanding of the dearth of research and
available data while explaining (in short) what startup assistance organizations do.
To the question of competition, Business Dictionary refers to a competitor as –
“Any person or entity which is a rival against another. In business, a
company in the same industry or a similar industry which offers a similar
product or service. The presence of one or more competitors can
reduce the prices of goods and services as the companies attempt to
gain a larger market share. Competition also requires companies to
become more efficient in order to reduce costs.”15
The startup studio industry competes for talent, ideas, and funding. There should be
no mistake that studios are competing with each other beyond the stated tangible
items above; ideas are the life blood of the startup studio market. In this way, they are
not unlike GE and Kenmore as they attempt to solve issues with microwaves. Ideas
tend to be solutions to everyday problems such as hailing a cab, funding a project, or
getting beer delivered to your office. Recognition of these problems and finding a
working solution is itself a competition. Being the second studio with an idea gets you
labelled as a copycat and could lead to an all-out failure of a good idea. The
function of a studio, at its most basic level is to limit risk of a startup failure by
spreading and sharing resources; original ideas are vital to preventing failure.
The future of competition in the industry may very well hinge on the availability of
data and the changing landscape of regulation. Recently, academic institutions like
Harvard and the University of Texas have started studios, allowing for people to
donate to the school (as a tax write-off). These schools then use the funds in the
studio in exchange for equity in the idea. While this may not mark a catalyst shift in
the industry, it demonstrates the fluid nature of the industry and the soon-to-be
available research output from those institution. The startup studio industry is relatively
new, but it is gaining attention from researchers and regulators alike. It has been less
than 18 months since the Small Business Administration’s first published attempt at
understanding and measuring the industry. What can be safely assumed moving
forward is that more data will become available both from academic research (as
more universities use the studio models) and from regulatory bodies such as the SBA,
the Department of Commerce, and the IRS.
As the data begins to emerge regulators will likely react to what is reflected in that
data. Attention from regulatory entities could mean new taxes, more/less tax breaks
or just regulation on operations and reporting data. Both at this time are complete
unknown impacts on competition – what we can safely assume is that the nature of
14
Cohen, Susan, and Yael V. Hochberg. "Accelerating Startups: The Seed Accelerator Phenomenon."
SSRN Electronic Journal SSRN Journal.
15
Businessdictionary.com

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competition in the industry will likely change in the coming years, meaning new
studios will need to be agile enough to respond to those changes.
Operating Trends in Startup Studio 2.0
Founding
While conducting interviews and research into the founding of startup studios, a two-
pronged hypothesis occurred to the researchers: Tesla vs. Edison. More to the point,
the hypothesis refers to the research laboratories each man founded; Nikola Tesla
founded Wardenclyffe Tower while Thomas Edison founded Menlo Park. Each
research lab produced work that to this day impacts our lives, but from the founding
to the day-to-day operations, they were very different.
The founding of Menlo Park came from Edison selling his quadruplex telegraph to
Western Union. The money he received allowed him to build a research laboratory
and attract other scientists and engineers to work under him in the lab. While working
at the Menlo Park research lab, workers were offered the opportunity to work with
Edison, although not always directly. The benefit of working in the lab was that they
could pursue their ideas without worrying about funding, bench space (office space
today), or a lack of other like-minded people to trouble shoot ideas with. The downside
was that Edison’s name was on every patent that left Menlo Park. In other words, the
employees received his credibility and he received equity. We observed that several
studios used a method similar to that of Menlo Park. The Menlo Park Method is so
named to identify those startup studios where the founders were previously successful
in their own right and then decided to launch the studios. For example, Idea Lab
came after Bill Gross founded GNP Audio in 1977 after a project at Caltech in which
he found a new way to design speakers.16 Another example is Expa; the studio
founded by Garrett Camp (the founder of StumbleUpon and Uber.)17
The founding of Wardenclyffe Tower by Nikola Tesla was very different. He had ideas
of the work to he wanted to do but funding was nearly non-existent. In the past, this
method has been referred to as bootstrapping, but this term is more appropriate
when discussing a traditional startup rather than a studio. The key difference is the
dynamics that change between the investors, founders and produced ideas.
Wardenclyffe Tower funding was ultimately secured through J.P. Morgan, who was
granted 51% of all patents that came out of the research laboratory. Tesla still had to
work on other projects to keep funding for the research lab at Wardenclyffe. Although
the tower ultimately succumbed to financing problems, it is a good representation
of a studio without a founder who already has substantial funding (or the ability to
readily obtain funding). The Wardenclyffe Tower Method also serves as a cautionary
tale. Several studios use consultancy work to fund the studio side of their operations
and attempt to provide all of their own funding, although those interviewed have
received funding from venture capitalists on a few companies/products.18 Studios
organizing under this method aim at being able to fund projects from idea to seed
without help from outside ventures.
Operating Models
Beyond the founding of studios, the operations of these methods tend to vary,
although they often intersect. The current market loosely defines three operating
16
Bill Gross, Bio, eCorner Stanford University Entrepreneurship Corner.
http://ecorner.stanford.edu/author/bill_gross Accessed November 8th. 2015
17
Tsotis, Alexia. Garrett Camp Distills His Uber and StumbleUpon Expertise Into New Holding
Company Expa. TechCrunch. May 2, 2013
18
Interviews conducted with studios.

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models for startup studios – Builder, Investor, and Incubator. The models have
emerged from the observational community (i.e. journalists such as TechCrunch).
However, according to a 2014 study by the Small Business Administration, the terms
actually all boil down to “startup assistance organizations”, which are typically
privately-held and not obligated to release any information.19 The operations of these
studio are often closely held because the ability to vet ideas and move them to
viable companies is considered one of the most basic forms of competitive
advantage in the market.
As SBA realized when researching and defining the startup studio industry, the models
listed below are actually part of an “innovation ecosystem”, where each studio (or
“startup assistance organization”) operates just slightly differently from the next. The
distinctions between these organizations is often blurred because the studio’s design
is meant to assist in fitting and meeting local conditions, whether or not the studio is
defined as an incubator, a venture development entity, a corporate accelerator, a
social accelerator, or any other type. There is also an inherent issue with researching
the models listed below. The issue again revolves around each studio not being public
entities, so even those who discuss their operating models are not doing so
under legal obligation. They are therefore unlikely to expose what they believe to be
their winning formula; it could even be advantageous to mislead academic or
economic understanding of the industry to preserve their competitive advantage.
Below is a brief summary of the models and examples of studios that employ them:
 Builder Model Focuses on creating and developing companies, mostly
from internal ideas, and providing critical resources (Rocket Internet,
eFounders).
 Investor Model Brings in early-stage external startups and helps them grow
by providing both funds and expertise (Betaworks, Science).
 Incubator Models Focuses on developing external companies by
providing mentoring and operational guidance (Spook studio and
Founder.org).
Operations
The operations of a studio can be boiled down to three basic factors; capital, core
management structure, and funding. Founders need to have funds available for their
studios, which can come from personal wealth, partnerships, or agency work.
However, a lack of funding is a complete non-starter. Even working in a garage
creates bills and a studio will need a method to pay those bills. A good idea will
never become a good company/product without the requisite funding.
The core management structure within studios varies wildly, but the importance of
that management structure can’t be emphasized enough. The management
structure will set the tone and framework for the entire studio. For example, the
decisions made to move ideas forward, deal with unsuccessful attempts, manage
human resources, and operate other areas of the business will ultimately relate back
to the core management structure within the studios.
After securing funding and crafting the management structure, the studio will need to
focus on how many ideas they are capable of producing in a given time period.
Each idea is a draw on resources; the portfolio analysis in Appendix H outlines how a
19
Dempwolf, C. Scott, Jennifer Auer, and Michelle D'lppolito. "Current State." In Innovation
Accelerators: Defining Characteristics Among Startup Assistance Organizations, 7 - 9. College Park,
MD: SBA Office of Advocacy, 2014.

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management team can evaluate the viability of an idea prior to committing
resources for exploration. Such portfolio analysis methods are important, particularly
for a new startup studio with limited resources.

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Future Opportunities in the Market
Opportunities
When, where and how to create a successful startup studio is dependent on the
resources available to each particular studio. A trend among successful startup
studios is that one of the founders has already succeeded. This trend makes the
environment not particularly promising to those entering the market without any prior
experience. However, there are new startup studios created regularly and many
founders of these studios haven’t previously succeeded in the business, they just have
to find the right niche.
Since the idea of a startup studio is a relatively new idea, the industry in five years will
include a significant amount more of startup studios than there are today. There will
also be more studios that open in Europe and abroad, in the type of atmosphere
where entrepreneurism can flourish and grow. The startups that have had prior
success will continue to create products that are successful and well received.
Of all the different types of analysis we took a closer look at in class, Blue Ocean
Strategy would be the hardest to implement in the current startup studio environment.
Creating uncontested market space and making the competition irrelevant are
two main areas where any startup would struggle. Since there are no true pre-
requisites to creating a startup, anyone (who has the funding) can start a studio
and test their luck in the environment. Of course there are those that have had
previous success and will continue to be well known in the market and therefore hold
a bit of the market share but there isn’t one single studio that will be capable of
eliminating completion entirely.
In order to identify the best path for a startup studio to take, they should address the
following high-level questions:
1. What are the sources of funding?
2. What is the end goal? (spinoff, sell off the products, hire another company to
manage them)
3. How many products can ideally be worked on at any one given time?
4. Who are these products intended for? Make sure not to just focus on the potential
buyer/long-term audience, the near-term customer is just as important for buy in and
to help shape/mold the product
5. How can the current gaps in the market be utilized to do something new? Focus on
an area that other studios have yet to focus on yet (see example Blue Ocean
Strategy in Appendix G).
Challenges
As already mentioned, one of the barriers to success in the startup studio environment
is that gaining a competitive advantage is extremely challenging. With new studios
constantly being formed and the on-going, ever-evolving creation of inventive
products, getting ahead of the curve is possible but can be very short lived. In
addition, having a founder who is known in the startup studio world and who has had
previous success is a huge advantage. Those studios who aren’t bringing a successful
founder to the table can succeed but will have to work harder to do so. Just as is
true with any business strategy these new studios need to identify any current market
gap and do their best to fill that void either based on cost or quality differentiation.
Doing so will involve a lot of up front research and preparation so that they can get
going quickly once the studio is formed.
As can be expected, startup studios fail. Other than those who have decent funding
and have had prior successes, becoming a studio that is very profitable is an up-hill

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battle. Unfortunately, the failure rates of studios is hard to identify because all
information is self-reported and even throughout the conducted interviews, the studios
were not particularly forthcoming with this information.
Another challenge in the startup studio is available funding. The VC landscape over
the next five years is hard to predict, if the market continues to do well (or at least
stabile) there is the likelihood that VCs will invest their money in slightly risky projects
such a startup studios. If the market starts to pull back then there’s the risk that VC
money will no longer be a possibility.

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Conclusion
The startup studio sector is certainly a sector to be followed over the coming years,
particularly as it continues to grow as an emerging sector in the new venture industry.
While information is not easily attainable due to several factors, we believe that we
have gathered enough qualitative and quantitative data to provide an overview of
the industry and make several assumptions of its operations. We supplemented our
analysis by focusing on new ventures as a whole to understand the relationship
between factors such as capital (both human and financial), the generation of ideas,
the classification of firms within the industry, and performance metrics. This allowed us
to set the stage for further analysis.
From the general framework of new ventures, we delved deeper into the startup
studio sector. Our analysis included insights into the demographics of the sector, the
major players currently at the top, and what some of the critical factors were in
determining whether a firm was successful or not. We also identified the wide array of
products and services that startup studios engaged in, identifying 14 different
categories which was comprised of various products. This understanding then led us
to investigate the competitive landscape.
Within the competitive landscape, we focused on several key success factors:
funding (both initial and follow-on), location, structure, partnerships, name
recognition, focus, output, success rate, and success. Each of these factors play a
critical role, and startup studios must examine each one individually and how it
relates to the aggregate strategy of each firm. We then analyzed the basis of
competition, as well as current trends in the industry. This led to the formation of our
major classification on how startup studios are founded – the Menlo Park Method
versus the Wardenclyffe Tower Method. We then studied how these two different
methods would have an effect on the three operating models: Builder, Investor, and
Incubator. This analysis presented a clear framework of the sector in its current state,
leading to our final analysis of future opportunities.
With the sector at such a young age, there are a lot of questions to be answered
regarding what shape the sector will take, and many of these questions will be
decided by the major existing startup studios. The primary goal is to identify the best
method for growing the success rate of the studio, but this hinges on the method of
founding, the operating model, and the emphasis placed on the other success factors
detailed above. However, our findings indicate that it is difficult to establish a
true competitive advantage at this stage in the, so each firm must determine the best
method to marry its structure to the relative importance of the various success factors.
While no comprehensive answer exists concerning the best way to found and
operate a startup studio, we hope that our analysis provides sufficient insights into the
industry so that a studio can understand the various methods, models, and factors to
be considered in their drive to found Startup Studio 2.0.

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Appendices

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Appendix A – Survey
We are a team of MBAs doing research on the growing trend of 'startup studios' for
our capstone project at American University. To further understand the nuances of a
studio we would greatly appreciate your input in the following 10 minute survey. We
understand that some of the questions may include information that is sensitive in
nature. While the results will be completely confidential individually, we will only take
aggregate data to identify trends and potential gaps in the industry. We kindly ask
that you only answer the questions that you feel comfortable answering. We would
rather have some responses than no responses!
Kindly note that we are referring to any new projects or companies that are being
built, invested in or incubated within a startup studio as “projects” in the following
survey.
We are happy to provide the anonymized data to any studio who is interested, once
it is available. If you have any questions or comments please feel free to contact our
team member Linsey Jaco at lj1669a@student.american.edu.
Ideas/Opportunities
1. How do most of your projects originate?
2. What is/are the most common method(s) for sourcing ideas and
opportunities in your studio?
3. What are the top three criteria that your studio uses to vet potential
projects?
1.
2.
3.
Test/Evaluation of Product Concepts
4. Do you have a max number of opportunities you will take on at one time?
5. What is the average timeframe to jumpstart projects?
1. 1-4 weeks
2. 2-6 months
3. 7-11 months
4. One year or more
6. What is your annual volume target for launching products?
Scalability
7. What are the top three criteria used to determine if a project is worth
scaling?
1.
2.
3.

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Funding/OperationalStrategy
8. Which of the following best classifies your strategy:
1. Build
2. Incubate
3. Invest
9. How many people comprise your management team / chief decision
making committee?
10. Do you use external experts or consultants to help create or steer
concepts? If so, in what manner?
11. Which of the following capital contributions do you currently employ:
1. Human
2. Financial
3. Infrastructure
12. Which of the following is the ultimate goal:
1. IPO
2. Selling off the company
3. Spinning off under the helm of an employee
13. What is the typical equity split between the studio and outside investors?
Is it the same for every project or do different structures exist based on
estimated project potential project?
14. What type of geographical constraints exist for your studio operations (i.e.
sharing resources)? If constraints exist, how do you overcome them?
15. Does your studio have a specific target for volume of projects annually?
Additional Questions
16. What would you describe as your competitive advantage in the studio
market?
17. Would you be interested in communicating with us directly to further
increase our understanding of both the studio industry and your company
specifically?

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Appendix B – Survey Results
See redacted summary of responses to survey in separate attached pdf.

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Appendix C – Interview Guide
General Questions:
1. Can you describe your studios culture or value system in one sentence?
2. Does a vertically focused thesis or a broad focused thesis fit your studio? Why?
a. Follow up question: Which is preferable for your studio? Source core
management talent with different backgrounds or source talent that
matches closely with the thesis?
b. Follow up question if thesis is broad: what approach does the studio
take to assess multiple external landscapes/competitive landscape?
3. What is the average number of support staff you have? Are they direct
employees or contracted?
a. What strategies does your studio employ to ensure that viable projects
have adequate resources to grow at an accelerated pace.
4. What are the top three factors used to valuate projects? Do you use one of the
traditional valuation frameworks for startups20: (1) multiple methods (2) bottoms up
5. What performance metrics does your studio have in place to evaluate projects in
the short-term, mid-term, long term?
6. How would you describe success for a project/portfolio company and the studio
itself in the short term, mid-term and long term?
Trying to understand the SWOT breakdown of the studio:
1. Beyond best talent describe top 3 strengths/areas of improvement for your
studio?
2. In consideration that the concept of startup studios is relatively new (2007), how
do competitors impact your approach and how do you expect the competitive
dynamics to change over time?
3. What are key lessons learned on how you operate from failed attempts of
portfoliocompanies/projects?
For those operating outside of their native country:
1. What strategy do you employ to counteract the challenges of operating in
different regions?
2. What successes have you seen from an operations stand point in the opportunity
of crossing into emerging economies?
Recognized Future Obstacles:
1. In general the studio gets a higher portion of the division of equity. In your
experience, has this been a deterrent or an obstacle when fundraising for a
viable project?
2. It seems to be common that a studio loses key talent when spin-off opportunities
arise. Does this hold true in your experience? If so, how do you combat the exit of
good talent in spin off projects
20
Different valuation frameworks for startups. https://www.quora.com/How-do-I-value-my-startup

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Appendix D – Summary of the Differences Between Incubators, Investors and
Accelerators
Attribute Venture
Capital Firms
Angel
Investors
Incubators Accelerators Startup
Studios
Involvement
Duration
Ongoing Ongoing 1-5 yrs 3 months 1-3 years
Cohorts No No No Yes No
Business
model
Investment Investment Rent; non-
profit
Investment; for-profit
& non-profit
Investment
Incentives Equity Stake Equity Stake No Equity
Stake
Equity stake Equity Stake
Selection
frequency
Competitive,
Ongoing
Competitive,
Ongoing
Non
competitive
Competitive,
Cyclical
Competitive,
Ongoing
Venture
stage
Early or
Intermediate
Very Early Early or
Late
Early Early or
Intermediate
Education
offered
None None Ad hoc, fee
based
HR/Legal
Seminars/Mentorship Shared
Resources
Venture
location
Off-site Off-site On-site Usually on-site On-site
Mentorship As needed
(dependent
on investor
capacity)
Minimal,
Tactical
Intense, Peer and
Expert-based
Collaboration
as Co-
founder
University
Affiliation
No No Option Option Option

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Appendix E – Basic Recipe for Startup Studio21
21
Szigeti, Attila . The Big Startup Studio Study: Part 1 Number Crunching. 2015.

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Appendix F – Porter’s Five Forces
Assumptions: New Venture industry includes startup businesses facilitated by venture
capital investors, angel investors, incubators, accelerators and startup studios.
Supplier Power – can suppliers drive up prices?
 Industry Perspective
o Entrepreneurs who cannot or do not want to bring the startup
operational on their own
 Analysis: although a lot of entrepreneurs exist the likelihood of
success is low therefore they are seeking out the resource
assistance investors
 Startup Studio Perspective
o Subset of above: CEO and CTO co-founders with entrepreneurial spirits
 Analysis: Individuals that have the entrepreneurial spirit and are
willing to get on board with equity division and overall
operations structure are a unique breed
Buyer Power - can buyers drive down prices?
 Industry & Startup Studio Perspective
o Investors
 Analysis:
 Investors have high power since they determine the
valuation of startup which could drive down the “price”
of the startup
 Initial investment for equity in startup could be seen as a
high switching cost
o Individual consumers and business consumers (individual product
level):
 Analysis:
 Can vary by product/service area but in general
startups are trying to break into the industry based on
price or quality differentiation
 Low switching costs
Rivalry – how many competitors can do what you do?
 Industry Perspective
o Although some overlaps exist among investors, each competitor in the
new venture landscape offer a slightly different mix of resource
assistance and/or prove to be useful at different stages of a new
ventures development
 Startup Studio Perspective
o Claim their overall talent resource is what sets them apart from their
competitors and the speed at which they can scale an idea.
Substitutes – ability of consumer to find alternative to do the same thing
 Industry and Startup Studio Perspective
o Each competitor in the new venture landscape can act as substitutes
for each other to an extent since overlaps exist in the mix of resource
assistance offered
o Standalone existing companies offering similar products

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Threat of New Entrants
 Industry and Startup Studio Perspective
o Risk and cost of building a scalable startup alone acts as a natural
barrier to entry
o As confidence in different type of investor models increases the
barriers of entry will slowly reduce as the shared economies
infrastructure creates economies of scale and network effects. Rivalry

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Appendix G – Blue Ocean Strategy
Startup studios who are new to the industry could utilize the Blue Ocean Strategy to
identify particular attributes that can be combined to identify new strategic positions
and to fill in gaps where other startups have yet to make any progress. See examples
below:
Boundaries of Competition How to Grow
Industry Create products/services in areas that
other startup studios have yet to focus on
Strategic Group Combine strategic groups to create a
product that no one else in the industry has
yet to offer
Buyer Group Don’t focus solely on the potential buyers
of a product, who else could be an
influencer (i.e. people who use the
products)?
Scope of Product or Service
Offering
Potentially develop products that span
across and combine different service lines
Functional-emotional orientation
of an industry
How can the products invoke emotion in
the user? Don’t just focus on functionality
Time Time is tricky in this example, perhaps the
studio could focus on their timing of
product delivery or the amount of time it
takes for them to create new products

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Appendix H – Portfolio Analysis
Portfolio Analysis Background
The strategic plan has come and gone in an organization and they have begun work
on new ideas with the hopes of making them into companies. Now, how do you
develop a model within the business operations to best serve success to the
overarching framework? Every product or service has a constituency and a claim on
resources, each one draws something whether it is a winner or a losers. Portfolio
analysis has been devised to help bridge the gap between strategy formulation and
strategy implementation. In other words, it helps you make the hard choices of
where to put your money. Studios aim at repeatable successes through the use of
shared resources and repeatable models. Depending on the operations model and
the founding method the studio will use the tool in different ways. As the analysis is
discussed here, the assumption is that the studio must produce revenue if not profit in
order to fund future ideas. The assumption is important because a benefactor could
float poor ideas for any number of reasons from humanitarian to pet projects, thus
skewing the analysis.
What Portfolio Analysis Is
Portfolio analysis is a systematic way to analyze the products and services that make
up a studio’s business portfolio. Through interviews and research is was found that few
studios utilize a portfolio approach to spinning up their ideas. This guide is meant to
allow studios that opportunity within their means. Within the studio there are
companies which make up the portfolio. Those companies start as ideas within the
core group with the goal being that those ideas become standalone companies.
As a general rule the goal of a portfolio analysis is to establish where any organization
should spend their money – or any resource. Traditionally there are two evaluation
metrics in a simple portfolio analysis; Market Growth and Market Share. The analysis is
the separated into four quadrants that make up the analysis; Dogs (low share/low
growth), Question Marks (high growth/low share), Stars (high growth/high shares), and
Cash Cows (low growth/high Share). While this analysis is a useful tool for established
companies or firms with multiple products or services it can be complicated to use for
a startup studio. However, if we re-categorize the quadrants we can see that the
relationship and analysis become helpful for studios. Even assisting with a product
development flow.

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Studios break away from the normal dynamics of established companies or even
standalone startup companies. The goal of a startup studio is to replicate the ability
to build companies. In order to do this the studio has to recognize early on in the idea
phase what the potential of any idea is and what its relationship is to the source
funding available to the studio. A Wipe out could cripple a studio and take up
precious funding from potential unicorns and exits. It is also important to realize the
ability for an idea to move fluidly from a unicorn to an exit or directly to an exit.
Advantages and Disadvantages of Portfolio Analysis
Portfolio analysis offers the following advantages:
 Encourages core management team or individuals to evaluate each of the
studio’s ideas individually and to set objectives and allocate resources for
each.
 Stimulates the use of externally oriented data to supplement intuitive
judgment.
 Raises the issue of cash flow availability for use in expansion and
growth.
Portfolio analysis also has its limitations:
 It is not easy to define potential for any one idea.
 It provides an illusion of scientific rigor when some (if not many) subjective
judgments are involved.
Considering both its advantages and disadvantages, portfolio analysis should be
regarded as a disciplined and organized way of thinking about resource allocation.
It is a subjective tool and is not a substitute for the judgment of the core
management in the studio.
10 Steps in Portfolio Analysis for Studios – A Guide for Startup Studios
Step 1: Identify Lines of Ideas Possibilities
The first step in portfolio analysis is to identify the lines for producing ideas and what
level those ideas are likely to achieve. The guideline to keep in mind is this: if we were
a corporation instead of a studio, which products or ideas would be logical to be

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grouped together as possible. This step could be simplified if the studio only creates
ideas within a focused segment or industry.
Step 2: Group Lines of Ideas
There are typically lines of business in large company however studios don’t fit the
same molds as many companies do.
The first is core business which are the vital creation of ideas which lead to the
creation of companies. These are the ideas that directly support the objectives in the
strategic plan and have a priority claim on resources. In essence the core business of
a startup studio is the method by which they produce and test ideas. This typically
cannot be sold off, rented out or otherwise used to generate revenue.
The second line is support functions that make it possible to deliver the core business
benefits to members. In a startup studio these could range from office space to
computers. Things that could be rented out, sold off or otherwise used to generate
revenue. It is important to limit the drain these has on resources need for the core
business. Thus the studio needs to avoid being an office manager for space and
computers.
Step 3: Compare Core Businesses with Strategic Plan
Once the studio has separated out core businesses, compare those ideas to the
strategic plan. An idea must directly support the goals that are defined in the
strategic plan. Evidence for the idea should be directly related to moving the idea
into a unicorn or exit position. If an idea does not support the strategic plan, it should
be discontinued or phased out and its resources transferred to support other core
businessesopportunities.
Step 4: Define Products and Services in Each Line of Business
Once ideas have been tested for relevance to the strategic plan, the next step is to
subdivide those that are relevant into their component products and services; such as
B2B, B2C, or SaaS. Each idea would then be compared to the other ideas within
that segment. This step won’t apply to all studios as many are focused on one
segment or only on passion, when this is the case segmentation and defining product
line becomes less of an issue.22 However, understanding that the draw on resources is
still there and that similar ideas can still become complements is important for the
studio.
Step 5: Apply the Evaluation Matrix
The evaluation matrix is a graphic device that simplifies the process of analyzing all
the ideas in the studio’s portfolio of products and services. In running its ideas through
the evaluation matrix, the studio makes several assumptions.
Assumptions
1. Since the need for resources is competitive, particularly in a studio, they must
view the problem of securing resources in a competitive context.
2. It is preferable to provide good companies to a focused market than to
provide mediocre or poor companies to a large a market.
3. Depending on the studio there is a need to review the ideas for potential or
passion. Several studios base this step on essentially only pursuing ideas
passion from the core team. So this guide assumes a passion for the idea.
22
Based on interviews with five studios there are some who are segmented and others who follow
passion and do not segment their products in this matter. It will vary widely by studio.

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Evaluating Program Characteristics
The evaluation matrix helps a studio determine the answers to the following questions
about each idea in their portfolio:
1. Is it a good fit with our other ideas?
2. Is it easy to implement?
3. Is there poor alternative coverage in the marketplace?
4. Is our competitive position strong?
5. Are we passionate about the idea?
6. Can we garner market traction for the idea?
For a program to survive the competition for the association's resources, there should
be a positive response to all these questions. No program is in a strong position unless
it is superior to all ideas in that category. If it is not, it should be classified as being in a
weak position.
The effect of these generic strategies is to serve the client base with a small number
of strong, excellent providers rather than with a larger number of fragmented
providers competing for limited dollars.
Step 6: Determine Idea Fit
Using the Program Evaluation Matrix, the first step is to determine whether the idea
under review fits the studio’s strategic plan and priorities. The screens for good fit are:
1. Congruence with strategic plan and purpose of the studio.
2. Focus on core concerns that are of vital interest to the studios target
customers/market.
Step 7: Determine Ease of Funding and Implementation (Is this an easy idea?)
The criteria for determining whether an idea has the prospect of relatively easy
funding and implementation are:
1. High appeal to groups capable of providing current and future support.
2. Stable source of funding. (This should be a question for all studios even before
this point)
3. Market demand from a large, concentrated, growing client base.
4. Appeals to strategic partners.
5. Measurable and reportable results.
Step 8: Determine Availability of Alternatives
This is the first step in a competitive analysis but it will be key in the decision to allocate
resources. Determining alternatives means asking the studio if anyone else is
offering similar products or service to the proposed idea. Ideas should be classified
according to two alternatives:
1. Low coverage: If there are few comparable similar products or service
elsewhere.
2. High coverage: If many similar products or service are offered elsewhere.
Step 9: Assess Competitive Position of Product or Service
The following criteria should be considered in determining whether an idea is in a
strong competitive position. Competition is not limited to other companies or studios.
Companies can and do compete directly or indirectly through the delivery of many
products and services which may cover the idea proposed. Criteria for a strong
competitive position are:
1. Dominant market share or strong prospects for achieving market dominance.
2. Better quality/value/service than competitors.

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3. Superior ability to produce and market this program.
4. Cost-effective delivery options.
5. Strong match between the idea/company and the future needs of customers.
Step 10: Determine Fit
Ideally, the studio will have two types of ideas:
1. Well-fitting, easy ideas where the studio has a strong position and competes
aggressively for a dominant position.
2. Well-fitting, difficult ideas with low coverage that the studio has the unique,
strong capability to provide to important stakeholders.
Applying these steps will reveal the studios current portfolio situation. The ideal would
be to have a portfolio that has primarily winners (i.e. unicorns or exits), and contains
enough winners and profit producers to finance the growth of other potential
winners. In reality, however, there will probably be ideas that never progress past the
idea stage and even perhaps a small number of wipe outs.
Summing Up
Portfolio analysis is an important aid in a studios quest to identify its specific
competitive role. This role should be so well suited to the studios external and internal
environments that other studios or companies are unlikely to challenge or dislodge it.
In today’s competitive world, successful studios will have three characteristics in
common, and portfolio analysis will have an important role to play in helping studios
achieve them.
1. They will innovate as a way of life.
2. They will compete on value in meeting customers’ needs, not on price.
3. They will achieve leadership in related niche markets.