Why your organization should embrace the venture studio model

Starting a new business from scratch can be a daunting task, and the statistics indicate that only a small minority of new ventures achieve success. A Harvard Business School study reveals that 75% of venture capital-backed start-ups never gain traction, while the total figure for failed startups is closer to 90%. The reasons for this disheartening failure rate are well known: lack of skill set, mindset, and market need, cash flow shortages, as well as competition and pricing issues, to name a few.

Enter the venture studio model, a relatively new approach to entrepreneurship and innovation that has been gaining popularity in recent years. Venture studios, also known as startup studios or corporate venture builders, are organizations that create and launch innovative new businesses in-house, using their own resources and expertise.

Venture studios enjoy an unusually high success rate. Globally, these firms are achieving a 34% exit rate, compared to 21% for accelerators and 19% for the average venture industry. Similarly, venture studios provide higher investor returns – about 55% versus the industry average of 21%.

A major advantage of the venture studio model is its streamlined approach to entrepreneurship. Instead of having to go through the arduous process of raising funding and building a team from scratch, organizations that work with venture studios can benefit from the latter’s resources, talent, infrastructure, and – perhaps most importantly – hard-won cross-industry experience, all of which are already in place. Let’s explore it further.

The venture studio model of entrepreneurship

An emerging model for startup creation and investment, venture studios bring together a team of experienced entrepreneurs, developers, designers, and commercialization specialists. This team works together to grow multiple startups in-house, from ideation to launch and beyond.

By taking a portfolio approach to startup-building, venture studios also maintain nimble, efficient principles and emphasize the importance of pivoting early when new facts emerge. In addition, the common data infrastructure, as well as the common product and design frameworks, that venture studios bring to the table allows them to achieve higher levels of efficiency, data interoperability and optimization.

Here are the key principles guiding the venture building process.

Concept creation

To begin, the venture studio generates and validates ideas for new startups, either from within the team or from external sources. These ideas are then assessed for product-market fit. Once an idea is validated, the team begins the process of building the startup from the ground up.

When you identify a real-world problem, you are essentially identifying an opportunity, not only to build something new, but to add measurable value to people’s lives. This is important because people will only pay for something that solves a problem they are experiencing or fulfills a need they have.

For more on this, see our interview with product guru Dan Olsen for his crucial distinction between “problem space” and “solution space.” In problem space, the focus is squarely on understanding market needs. In solution space, attention turns to potential products that might fulfill those needs.

To delve into the problem space effectively, a multifaceted approach is necessary, which involves identifying market shifts, understanding customer pain points, and establishing a clear definition of the needs, desires, and aspirations that a new business could address.

The studio then creates an opportunity list that involves identifying potential opportunities from ideas and generating a prioritized list of opportunities. This process includes reviewing the problem space, collecting and refining ideas, prioritizing idea spaces, defining criteria for prioritization, conducting research and internal interviews, and regularly presenting and iterating on ideas. The team uses feedback to refine and finalize solution spaces/ideas before conducting prioritization exercises to generate a final ranked list of opportunities.

Next, the team conducts a series of customer interviews to gather more insight into their needs and preferences. This is followed by the creation of a prototype for initial customer discovery. The concepts can then be ranked based on research, user feedback, and experience, resulting in robust, well-defined concepts that are ready for further validation and market testing.

Market validation and testing

When validating a concept, the goal is to define who your customers are, what their needs are, and whether your new venture meets those needs. Market validation is the process of testing assumptions about the target audience, the problem you are solving, and the feasibility of your solution.

Venture studios can help you ask the right questions by breaking down the process into clear steps. For instance, you must test assumptions based on desirability, viability, and feasibility.

Desirability assumptions ask "do they?" questions, such as whether the market wants what you are building, and what evidence of customer interest you have right now.

Viability assumptions ask "should we?" questions, such as whether pursuing this market is worth the time and investment, and whether there is a practical path to profitability.

Feasibility assumptions ask "can we?" questions, such as whether you can execute on this business, and whether the necessary resources are available.

U+ has created a four-week process for validating a business concept through market research, customer discovery, and prototype development.

• In week one, we research the relevant market, analyze available data, and hold use case workshops.
• In week two, we workshop and brainstorm for potential propositions, assess the market, and develop prototypes and customer journeys.
• In week three, we focus on customer discovery and prototyping workshops, as well as user stories and persona development.
• Finally, in week four, we refine the value proposition, establish positioning and differentiation strategies, and conduct wireframe testing and legal checks in preparation for market testing.

Outputs from this process include identified markets and customer groups for testing, defined value proposition, final personas and customer journeys, and a market testing plan.

After that comes an eight week market testing plan, which involves using smoke testing techniques to gather insights from real users about the future product.

• In week one, we finalize wireframes, develop microsite copy, create branding and UI design assets,develop campaign strategy, and define media spend.
• In weeks two and three, we set up campaigns, prepare assets, develop T&C and PP, test and develop microsites, conduct customer interviews, and develop survey scripts.
• In weeks four through seven, we launch the microsite, continue testing and reporting, iterate on pricing, brand, and communications, develop an MVP prototype, and provide further customer insights from interviews and surveys.
• In week eight, we organize final workshops and presentations, prepare for the MVP build, and optimize the B2B sales script.Outputs include smoke testing launch, MVP high level prototype, MVP scope and functions, GTM strategy, and customer insights.

Tech build

Once you have validated your concept and refined it through testing, the next step is to build out your technology. Depending on your business, this could include developing a website, an app, or other software solutions.

Well-resourced venture studios typically have the talent, experience, and tools in place to develop a functional minimum viable product.

U+ has identified two important steps for this stage:

First, we ensure a smooth development process by defining the backlog, setting up environments, and establishing a meeting cadence. Outputs here include an MVP development roadmap, architecture, specification and scoping, as well as UI design for the target group and market.

Then we begin the first three months of Agile development, which includes environment set up, product roadmap development, backlog prioritization, UX/UI design, sprint process definition, ongoing development, demo and feedback workshops, and go-to-market planning.

Outputs include successful delivery of the MVP product, established backlog for ongoing development, initial go-to-market plan and campaigns, and agreed partnerships.

Go-to-market strategy

A go-to-market strategy outlines how a new business will be introduced and marketed to potential customers.

The success of a product launch depends largely on the commercialization and go-to-market strategy. To ensure success, several activities need to be undertaken. These include continuous customer behavior analysis, ongoing customer surveys, and interviews to collect user feedback. The team makes user experience iterations, including the customer journey, based on this feedback. They continuously review and iterate the messaging and copy used in campaigns and on the website to achieve optimal conversion rates using A/B testing. They also make iterations to the brand positioning and pricing elasticity.

In addition, the team builds the sales pipeline in advance of the MVP launch and optimizes content and social media management for community building. They refine the customer onboarding and support frameworks and hold workshops and presentations with the team.

By continually refining and optimizing these activities, businesses can ensure a successful product launch and continued growth in the market.

Commercialization and go-to-market activities result in several outputs that contribute to the business's success. Ongoing smoke testing iterations and optimizations lead to improvements in pricing, brand, and communications. The team refines the GTM strategy and uses customer insights from interviews and surveys to enhance the product. They also improve the customer support system to enhance the overall customer experience.

Engaging early adopters leads to an increased sales pipeline, while a more finalized microsite version for the MVP launch is created, and the final ad versions are identified. The team calculates the CAC and LTV to form a business case, providing valuable insights for future growth and development.

Scaling

Once you have launched your product, the next step is to scale your business. At this stage, you should have a plan for how to continue innovating and staying ahead of the competition while also maintaining profitability.

With a venture studio’s guidance, you can identify new markets to explore, expand your product lines, strategize new revenue opportunities, and form strategic partnerships. Equipped with the latest tools of market research and data analytics, venture studios can also provide you with the necessary information to make informed decisions about future growth opportunities.

The scaling stage, as practiced at U+, involves two important steps: product iteration and platform development. During product iteration, the team continually develops and positions the product to achieve maximum conversions. This includes ongoing customer insights gathering, iteration of the MVP product, development and iteration of the brand, and analysis and reporting of customer behavior and campaign results.

The output of this stage includes a final product definition, a complete customer lifecycle map, a portfolio of marketing assets, a closed feedback loop, and a measurement framework.

The team continues technical development of the platform in weekly sprints, jointly defining priorities with the client. They perform agile development of the front and back end of the product platform, continue the back office interface with specific functionalities, automate customer interaction points, thoroughly test the platform, and seek opportunities to leverage the new platform to support core client offerings. The output of this stage is a technically bug-free front and back end product platform, a documented development process, and a product backlog.

Portfolio management

The venture studio manages a portfolio by overseeing and supporting multiple startups simultaneously. Typically, the studio will build a portfolio of startups to diversify and mitigate risk for the client. The team takes ownership of this portfolio by providing hands-on support for every business it contains, including through regular check-ins, training, mentorship, and access to resources such as legal and financial advice. This involves providing a range of services and resources to help each startup succeed, including mentoring, funding, and strategic planning.

To effectively manage a portfolio, a venture studio typically follows a structured approach that involves:

Selection: The studio carefully selects promising startups that fit within its strategic focus and investment criteria.

Investment: The studio invests in the selected startups and takes an active role in their development, typically by providing resources such as office space, legal and accounting services, and access to a network of experts and advisors.

Support: The studio provides ongoing support to its portfolio companies, including coaching, mentorship, and access to funding and other resources.

Monitoring: The studio closely monitors the progress of each startup in its portfolio and provides guidance and support as needed.

Exit: The studio works to maximize the value of its portfolio by guiding its startups toward successful exits, such as mergers, acquisitions, or IPOs.

Overall, a venture studio's success in managing its portfolio depends on its ability to identify promising startups, provide the necessary resources and support to help them succeed, and execute successful exits to generate returns for its investors.

Exit strategy

When startups within a venture studio’s portfolio achieve a certain level of success, the studio may opt for an exit strategy, which could involve selling the startups to other companies or floating them on public markets. The specific approach taken by a venture studio will depend on a number of factors, including the stage of the portfolio company, the industry it operates in, and the overall market conditions. The benefits of such a strategy are two-fold: it provides returns for investors and resources to foster the development and scaling of new startups.

Some common steps that a venture studio may take to manage an exit strategy include:

Identifying potential buyers or investors: The venture studio may work to identify potential buyers or investors for the portfolio company, either through its own network or through external advisors.

Preparing the company for sale: The venture studio may work with the portfolio company to prepare it for sale, which could involve improving financial performance, addressing any legal or regulatory issues, or building a strong management team.

Negotiating the terms of the exit: The venture studio may negotiate the terms of the exit with potential buyers or investors, with the goal of maximizing returns for its investors.

Closing the deal: Once a buyer or investor has been identified and the terms of the deal have been negotiated, the venture studio will work to close the deal and ensure a smooth transition for the portfolio company.

Managing the post-exit process: Finally, the venture studio will work to manage the post-exit process, which could involve distributing proceeds to investors, winding down the venture studio's involvement in the portfolio company, or supporting the company's continued growth under new ownership.

Overall, managing an exit strategy is an important part of a venture studio's role, as it allows the studio to realize returns on its investments and generate value for its investors.

Conclusion

Organizations looking to take an efficient, multi-faceted approach to securing future business models will benefit from the venture studio model. Combining the processes and principles of a traditional startup with the portfolio-level strategy of a VC firm, venture studios are currently leading the pack when it comes to turning ideas into revenue.

The U+ Method uses venture studio principles to efficiently and effectively build innovations across sectors. To date, we have used this method to bring 100+ products to market, creating over $2 billion in value for Fortune 1000 companies. Check out U+ success stories here.