The 4 Top Reasons Startup Studios Fail

Startup studios (also known as venture studios) are a relatively recent concept within the entrepreneurial community. Effectively “virtual” factories that serve to form and bootstrap new businesses, their growth in popularity relates to the reduction of risk when building a new company from a great idea. Ultimately, the studio approach leverages maturing, repeatable processes to improve the chances of success.

However, just like the new businesses they form, startup studios also run their own risk of failure. The reasons for this uncertainty include one obvious example – the lack of sufficient seed funding for both studio operations and forming new startups. Difficulty sourcing enough talent with technology smarts and business acumen also hampers many venture studios. A lack of expertise in the market a new studio targets also increases the chance of failure.

In the end, forming startups remains a risky proposition on its own, let alone building a new company to incubate them. As such, failure remains a familiar concept throughout the entrepreneurial world. So let’s take a deeper dive into some of the main reasons startup studios fail to improve your own studio’s chances of success. 

A Lack of Capital 

As noted earlier, the lack of seed capital remains a crucial risk for both a startup studio and the new businesses they form. Studios use these funds for internal operations as well as forming new startup concepts. Office space, salaries, virtual server rentals, and other IT costs all come into play when considering the expense ledger of any studio.

The importance of hiring talented technology and business professionals becomes a critical piece of startup studio operations, as highlighted above. With the current demand for technology talent at a near historical high, expect to pay exorbitant salaries and signing bonuses to recruit the necessary personnel. You also need to provide these tech all-stars with state of the art computing horsepower – laptops, smartphones, etc. – to perform their magic. Because of this need, any venture studio runs an acute risk of failure without sufficient funding.

To handle this scenario, consider operating your startup studio using the Agency Builder model. This approach involves the studio also doing project work for third-party businesses in tandem with forming startups. In addition to providing a crucial source of capital, it also allows the studio to gain valuable expertise in different business sectors. 

This strategy ultimately broadens the scope of the studio, enabling to effectively form new businesses in multiple sectors. You also keep your tech professionals and project managers busy throughout the year, improving the studio’s operational efficiency. 

An Inability to Source Sufficient Technology and Leadership Talent

We just mentioned the current difficulty sourcing talented and experienced software engineers and project managers. Assuming your startup studio focuses on forming new businesses based on a transformation technology idea, you need top-shelf design and development talent. Crafting game-changing enterprise mobile apps or interactive websites without the technical knowledge and project leadership remains essentially impossible. 

Simply stated, your studio needs to bend over backwards to compete for modern technology talent. Having a sharply-defined set of policies and procedures in place – including a modern software development methodology – definitely helps when recruiting software engineers. The best developers want to work for a shop with a compelling vision for the future and the know-how to achieve those hopes. 

Sourcing project managers experienced with today’s process of building apps and websites also matters. Try to find PMs with an entrepreneurial spirit, as they tend to make great CEOs for freshly incubated startups. Once again, operating as an agency builder lets your developers and managers keep busy throughout the year on third-party projects; all while gaining valuable experience. 

Little Understanding of The Targeted Business Sector 

A startup studio boasting little to no experience in the industry sector their startups target also invites failure. This knowledge gap makes it difficult to truly understand the specific pain points of that market. It also adversely affects any marketing efforts once the startup’s app or service goes live. 

This is another case where operating as an agency builder exposes a studio to potentially multiple business markets. It provides critical experience and expertise, informing studio operations in a positive manner. You also gain access to technical and managerial talent that might want to join your studio. 

Failure is Part of The Process

Of course, failure – for whatever reason – lurks right around the corner for any startup studio. In fact, considering the percentage of new business failures, just forming a new business itself remains a risk-prone proposition. But failing need not mean the end of the hopes for this business opportunity. Leverage any lessons learned to take a more informed approach the next time. Studies show venture studio startups achieve successful exits in half the time compared to new businesses formed externally. You are on the right path by taking the startup studio approach. 

If you want to learn more about startup studios and the agency builder model, connect with us at NineTwoThree. A thought leaders in the entrepreneurial scene, we provide useful insights to help keep your studio on track. Reach out to us at your earliest convenience.

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