By Andrew Amann, CEO of NineTwoThree Venture Studio, a two-time Inc. 5000 Fastest Growing Company. Andrew and his team have created 50+ products and 14 startups.
Any entrepreneur forming a startup stands a better chance of success by partnering with an organization with a history of developing new businesses. It’s one of the main reasons for the growth in popularity of the startup studio. These companies combine industry domain expertise, technical chops and business development experience to effectively serve as a factory for creating startups. However, the best digital agencies also boast business sector experience and strong technical capabilities that can help entrepreneurs transform a great idea into a thriving new business.
In the past, the distinction between agency and startup/venture studio was clearer. Digital agencies provided web or mobile app development services for an agreed-upon fee. Startup studios then arose as an organization designed to launch and grow startups using shared resources and repeatable processes.
However, digital agencies are now taking a page out of the startup studio handbook by offering more leadership, administrative support and business model understanding. Meanwhile, startup studios are helping external startups grow in exchange for equity or even simple service agreements.
My company has lived on both sides of this line at different points in our 10-plus years of business. While we have launched startups—like a traditional startup studio—we now primarily focus on using our software development and business-building expertise to help other businesses launch their digital ventures.
So let’s take a closer look at this blurring line between a typical digital agency and a startup studio.
What Does A Digital Agency Or Startup Studio Have To Offer?
If you are considering working with a startup studio for your next business idea, note that some digital agencies are now providing many of the same benefits. You gain access to leadership with the right mix of business domain knowledge and experience, which can be particularly helpful if you’re just getting your business off the ground. Additionally, experienced software engineers and other technology professionals provide the chops to craft top-shelf mobile apps, interactive websites, IoT systems and more. Digital agencies may also boast leaders with management experience in the industry your startup hopes to target, and without fully understanding its target market, any startup ends up flying blind.
However, trying to hire all this talent on a permanent basis greatly increases your startup’s burn rate. This is especially the case when considering a technology job market that still favors candidates. You need to offer a generous salary and benefits package (and potentially stock options) to attract interest from top-shelf tech talent. In short, engaging a staffing process in the current economy remains a costly process fraught with risk.
The greatest benefit of partnering with an agency or studio is gaining a business development “product in a box” service to avoid many of the challenges of trying to grow with a large staff. This type of service provides all the development talent, ideation, market research and leadership needed to fully take a digital venture from concept to fully released product. This really highlights the amount of work launching a new product requires and the benefits of not trying to bring all those functions and capabilities in-house.
Development services and tech talent are important, but the most important value businesses can gain from a venture studio is experience choosing the right business model. Understanding which business model fits best with a particular product is an art. And while traditional digital agencies are order takers, the new venture studios prioritize business models, revenue streams and product-market fit prior to developing code. This can mean the difference between bringing a product to market and bringing a product to profitability.
What Should You Consider When Launching A Digital Agency Or Startup Studio?
Entrepreneurs considering the launch of a startup studio might want to consider forming a digital agency instead. In fact, there are more than a few parallels between an agency and a studio operating as an agency builder. Both perform project work for third-party companies, earning revenue while gaining critical market expertise. This experience provides value when partnering with startups targeting the same industry sector.
As noted earlier, the major difference between the two approaches involves an agency generally receiving payment in a traditional fashion as opposed to a studio receiving equity in the startup. Additionally, digital agencies also rarely incubate their own in-house business ideas. Instead, they offer the previously noted “product in a box” business development services to entrepreneurs and their startups.
However, digital agencies also enjoy a significant measure of flexibility in the services they provide their clients. The most successful ones tailor their service offerings based on the specific needs of each client. This includes the technology and software development component, potential strategic leadership and even the relevant target market itself.
In conclusion, whether you’re an entrepreneur looking for a partner to grow your business or an entrepreneur considering starting your own digital agency or venture studio, it’s important to consider both and how they may cater to your individual needs.