Early in 2013, my brother Josh and I, along with our business partner Mike Benna, exited Strangeloop Networks after its sale to Radware, a Tel Aviv-based application delivery and security company. Stressed and exhausted, we were all ready for a much-needed break. The plan was to take a year off, but sometime around the six-month mark, I started to feel a nagging urge to get back to work.
So, once or twice a week, Josh, Mike, and I would meet up at the Vancouver Convention Centre and take a 90-minute walk around Stanley Park to talk about the things we loved about our last business, what we hated, and what we should do next.
Do what you don’t hate.
During those conversations, the one thing that we all agreed we didn’t like was the lack of optionality we had working on just one business at a time. Once a company had grown beyond 50 employees, we would find ourselves in executive roles focused almost entirely on keeping the business alive and healthy. This meant we had just one bet on the table, and blinders on to other opportunities.
I personally felt that I became the company’s “CPO” (Chief Psychology Officer). Whole days were consumed by one-on-one feedback sessions, resolving conflicts, or working on annual and semi-annual performance reviews. This was okay, but I preferred the early days of the business when the problems seem simpler and I still harboured that romantic dream of changing the world.
We all agreed that it was our side projects (board seats, mentoring, EIR positions, etcetera) that gave us the most joy. We loved spending time with entrepreneurs discussing their plans for solving problems. They would talk about the market they wanted to disrupt, brief us on competitor products, and show us how their economic models would change the industry. These meetings felt like going to a coffee shop and having deeply satisfying intellectual conversations.
It was this fast paced-and dynamic environment we wanted to replicate in whatever we did next. We all have diversified portfolios from an investment perspective and we wanted to carry that approach over to time management as well. So the challenge was, how could we keep the flexibility of our CEO roles — go where we want, when we want, network — and still serve as operators and ideas people who get to solve real problems and work with early-stage entrepreneurs in the trenches?
A VC or Angel operation would fulfill some of these criteria, but there were a number of pitfalls we wanted to avoid:
- Having everyone constantly pitching you.
- Listening to bad idea after bad idea.
- Always saying “no” to people.
- Not being part of a team and feeling like an outsider.
- Trying to be smart and get fair deals when there is so much dumb money in the market.
- Slow payback time.
- Too little control early on.
- Diluted returns on successful ventures.
- Sitting on the sidelines and taking ownership for success while blaming management for failure.
- Investing in other people’s dreams and ignoring our own need to create new companies.
After much consideration, we settled on launching a startup studio. It not only met all our requirements for building a satisfying path forward, it avoided many of the pitfalls of a traditional VC or angel operation.
What is a startup studio, anyway?
A startup stuido is similar to incubators and accelerators, except a studio invests in entrepreneurs, not in teams with their own ideas.
Accelerator programs offer entrepreneurs resources and mentoring to help them quickly bring their ideas to market in exchange for a small amount of equity. Typically, accelerators operate under tight schedules and culminate in a demo event where the best ideas are selected for further support. Incubators provide entrepreneurs with a well-equipped workspace, as well as resources and mentoring to help them get their ideas to market, without setting a fixed date for when a startup will exit the program.
The problem with both these models is that they fail to achieve a rate of success that is significantly higher than the typical 90% failure rate of most startups. This is due, at least in part, to inherent flaws within the accelerator and incubator programs themselves, including:
- Failure to thoroughly vet ideas for product/market fit.
- Lack of founder management experience, which can’t be offset by a few hours of mentoring.
- The beauty pageant-like process for selecting candidates, which may result in a distorted reflection of their qualities.
- The small amount of equity taken at the beginning of the business that gets significantly reduced over time.
We believe the startup studio model compensates for these shortcomings and is the next logical step in the evolution of the start-up funding ecosystem.
So here’s our plan…
We find the best entrepreneurs, provide them with thoroughly vetted ideas, and bring our considerable experience as operators to bear on helping them launch successful companies. We give entrepreneurs the space they need to learn and grow, but we help them speed through all of the time-consuming minutiae that can trip them up as they iterate toward building a profitable business.
In doing so, we get to do all of the things we do best, help develop the next generation of entrepreneurs, and give ourselves the joy of seeing our ideas take form. We understand this is risky, and we certainly don’t have all the answers, but we are all excited about the opportunity. We are also excited to blog about the experience in an open and transparent way. Please stay tuned.