Friday was my last day at Facebook. It was an experience of a lifetime, and I couldn’t be more thankful for it. Here’s the note I wrote to my colleagues.

I was originally going to circulate this to just friends, but with the positive feedback I have gotten I decided to use this venue to post more widely.

Thank You.

As hard as a decision it was to make, September 21st will be my last day at Facebook. Over the last six years, I have worked with a tremendous amount of love and energy on the opportunities this community has allowed me to be a part of.

I am grateful for the projects I have been a part of. I am grateful for every single ounce of progress we were able to make, and every launch we were able to do. I am grateful for the faith that people have put in me, the guidance that I was given, and the opportunities I have received.

Most of all, I am grateful for the bold, talented, tireless people I have had the great fortune of meeting, working with, and learning from.

As there is too much to cover about the last six years, here are some lessons I learned.

1. Figure out what you want to optimize for.

Having impact for the company is your job, but what is the purpose of this job to you? How can you look back and be proud of the time you spent?

For me, I have always optimized for learning. This has put me in some uncomfortable and inefficient situations, but I can honestly look back and say I have learned from every single one.

2. Find your people.

We move fast. This is a hard job. Find your support system, both inside and outside of the company. Find people you can lean on, people that invigorate you, and people who aren’t afraid to be honest. I feel very fortunate to still have strong connections to the people I have worked with throughout my time here.

3. Be patient, yet vigilant.

It is easy to want to get things done fast. It is easy to look at the past half and feel like not enough progress was made. A lot of the roles we take on, and the work we do will only pay off in the long term. So be patient and aim for the prize. However, don’t be apathetic. If you sense that something isn’t right, and you cannot shake it, figure out how to best impact it.

4. Give feedback in the right venue.

Feedback is important. Being honest and calling out potential pitfalls even more so. Be thoughtful about how, and where, you give this feedback. Nobody wins if you call someone out on potential bad behaviour amongst a group of their peers.

Find the right venue to give feedback, and it will likely be more effective.

5. Listening is Knowing.

Don’t make assumptions. Asking questions is the best way to get to know as much as you can. By asking questions, intentionally listening, and analyzing people’s position, you can figure out at what level you should have a conversation. Is this about a detail? Is this about a structural problem? Is this about strategy?

The strongest leaders I have seen move around this company have always observed and asked questions first. And if you don’t feel comfortable asking questions in a meeting, ask them over Messenger, or in a group.

6. Pace yourself.

I learned this one the hard way. There were weeks where I would get on 640AM commute in, and 10PM commute out. And I definitely had the energy for it. But these things catch up on you. So make sure to pace yourself.

Nobody wins when you’re tired, when you’re on edge, and when you’re off balance. Use your PTO wisely, find ways to reduce your commute, force yourself to have lunch away from your screen.

Thanks again for all the great moments and memories. It’s been an honor and a pleasure.

Six Lessons from Six Years at Facebook was originally published in COLLIDER // FKTRY on Medium, where people are continuing the conversation by highlighting and responding to this story.

I came to know of Tsunehisa Kimura after being struck by the cover of Zonoscope by Cut/Copy in 2011. The album artwork features a cropped image of Manhattan transformed into an enormous waterfall captured and startled my imagination with its environmental juxtaposition of nature and human-made. Apocalyptic or serene? I had to feed my curiosity.

I soon discovered that the artwork, entitled Waterfall, was created in 1979 by Tsunehisa Kimura, an influential artist and graphic designer who lived in Japan from 1928–2008 and specialized in surreal collages depicting eerily familiar apocalyptic futures. This particular collage began it’s life on the cover of ‘Parco View 4: Tsunehisa Kimura’s Visual Scandals By Photomontage’ which was published by Parco, Tokyo in 1979.

Within the glossy pages, punk sci-fi compositions are tediously collaged using incomprehensible methodologies pre-dating Photoshop to create jarring images — visual scandals — as seen through the lens of his ‘Kimura Camera.’

Inspiration 2021.01.01 was originally published in COLLIDER // FKTRY on Medium, where people are continuing the conversation by highlighting and responding to this story.

“Business is an area where I see designers falling short the most.”— Kate Aronowitz, Design Partner at Google Ventures

“Design goals should always be aligned with the business goals.” — Didier Hilhorst, Director of Design at Uber

“It’s not enough to understand a user. You need to understand business.” — Jonathan Courtney, founder of AJ&Smart

While there are many resources explaining why designers should learn business they don’t cover what designers should learn. This guide is my attempt to fill this gap. It is based on my experience, working as a business designer at IDEO and creating the d.MBA, a business course for designers.

I would like to point out that I am not advocating for users to stop being user-centric. Users are still our first priority. But understanding business and becoming fluent in business language will make it easier to convince non-designers into user-centric ideas.

The guide is a synthesis of dozens of seminal business books, frameworks, and concepts. We will cover seven topics, which will help us understand the three layers of business:

• Industry level (chapters #1 and #2)
• Company level (chapters #3 and #4)
• Product level (chapters #5, #6 and #7)

Table of contents:

• Industry Analysis: Identify and reimagine industry constraints
• Competitor Analysis: Anticipate your competitors’ moves and outsmart them
• Business Strategies: Create products that make competition irrelevant
• Business Models: Figure out how to make money with your product
• Prototyping with Numbers: Quickly estimate the viability of your ideas
• Design Metrics: Measure value created for users
• Business Metrics: Get fluent in the language of executives to convince them

As this is a comprehensive guide (30+ pages), you can also get it in the PFD format. Click here to download the pdf guide.

1. Industry Analysis: Identify and reimagine industry constraints

“Know the industry that you are in. Know what competitors are doing.” — Kate Aronowitz, Design partner at Google Ventures

Industry analysis is not just a boring business exercise. It helped the founders of Warby Parker create a company worth over $1B. Their analysis showed that the eyewear industry is dominated by a single player, Luxottica, which kept prices of prescription glasses artificially high. A pair was priced at around 300$ even though it cost only $10-$20 to produce.

Through this analysis, founders found a way to create prescription glasses much cheaper ($100) by selling them directly to consumers (bypassing middlemen), designing them in-house (cheaper than hiring external designers), and limiting the offer to only a few models. Today, the company is a major player in the eyewear industry with over 1,600 employees, more than 80 stores, and valued at $1.75B.

The best framework for industry analysis is Porter’s Five Forces. It evaluates five competitive forces, which influence industry attractiveness. The basic idea is that your product or company is not competing just with direct competitors but with everyone in the ecosystem, including customers, suppliers, substitutes, and new entrants. For example, you might have very few competitors but you still can’t make any profit because your suppliers have more negotiating power and so they capture most of the profits.

Here is the overview of Porter’s Five Forces:

• Threat of New Entrants — How hard is it to enter an industry?
• Bargaining Power of Buyers — How easily can buyers drive our prices down? How well can they negotiate?
• Threat of Substitutes — How else can customers satisfy the same need?
• Bargaining Power of Suppliers — How easily can suppliers drive their prices up? How well can they negotiate?
• Rivalry Among Existing Competitors — How many competitors are in an industry? How strong are they?

You can analyze an industry by looking at each of the five forces and giving them a low, medium, or high score. For example, the Threat of New Entrants in the banking industry is low. It is relatively hard to get a banking license and become an official financial institution. On the other hand, the Threat of New Entrants is relatively high for a mobile app game. Just look at the number of games in the app store.

This type of insight is extremely important. If you know that the Threat of New Entrants is high and that your product can be easily copied, you can focus your design efforts on that aspect. What can we do to differentiate our product in a defendable way? What unique features can only we offer? Should we look for partnerships?

Note that we always analyze from the perspective of a company that is already in the industry. We want to figure out how attractive this industry is if you are in it.

2. Competitor Analysis: Anticipate your competitors’ moves and outsmart them

“Understanding a problem well means also understanding your competition, and understanding the systems around which this problem exists.” — Julie Zhuo, VP Product Design at Facebook

In January 2007, Apple has unveiled the iPhone, which eventually killed the giant of the industry — Nokia. How did that happen? Let’s not forget that at the time Apple was a completely new player in the cell phone industry while Nokia was already making €7B in revenue.

When iPhone was introduced, Nokia’s board of directors has decided to ignore it. Truth to be told, iPhone was technologically inferior to Nokia N95. However, they overlooked that iPhone offered a completely new concept of a phone (computer first, phone second). It reimagined the phone’s value proposition and used a different business model (app store). Nokia has conducted a very poor analysis of Apple’s iPhone by looking through a very narrow technological lens. This mistake eventually crushed Nokia’s leadership in the market.

Understanding competitors’ strategy, business model and future plans help us design better products and experiences. We can anticipate how competitors will react to our innovations, and how we can differentiate better (create unique value for our users).

The first step of competitor analysis is identifying competitors. Even if it seems you don’t have any, there usually is some. Even the only Italian restaurant in town has plenty of competition. There are other types of restaurants, there are supermarkets, bakeries, home-cooking, etc. In order to find all our competitors, we need to broaden our thinking.

Competitors can be divided into direct and indirect.

In general, we divide the competition into direct and indirect competitors. Direct competitors are companies that offer the same product (or service) and indirect competitors offer a different product that solves the same problem.

For example, Uber’s direct competitors are taxi companies and Lyft. The indirect competitors are bike-sharing services, public transport, car-sharing services, and walking on foot.

Once we have a list of 4–10 relevant direct and indirect competitors, we start gathering data. In general, I divide data gathering into three buckets:

• Business data (revenue, market share, etc.)
• Product data (product portfolio, features, etc.)
• Customers data (target group, reviews, etc.)

We never know what data will turn out to be interesting and useful so we have to start wide and look at all three buckets. To kick-off your analysis, you can download my Competitor Empathy Checklist with a list of 15 data points for analysis. I always start with these 15 points but then extend the research to other data points, depending on what I find in the first phase.

Here are some sources, you can use to find competitor data:

• Competitor’s website
• Competitor’s ads (Facebook, Instagram, magazines, Google AdWords, etc.)
• Competitor’s Wikipedia page
• Google News (finding recent news about competitors)
• Statista
• Colleagues/clients
• Annual reports (only for public companies)
• Crunchbase
• Reviews on Amazon, Facebook, Google, iTunes

For data gathering, I recommend using a spreadsheet. It is the most flexible and comprehensive way of collecting large amounts of data. It helps structure the process and speeds up the synthesis.

Once you find relevant data, it’s time to draw actionable insights. The best process for finding insights is skimming and color-coding. Go through the data you have gathered in a spreadsheet. Read through it quickly and look for patterns. If you notice that certain data is connected start color-coding it to represent the connection. This synthesis process is similar to synthesizing user research. We just use a different type of data.

By learning about competitors you will start predicting their moves. And you will know better how to adjust your design. For example, if you realize that your competitors are mostly focused on local markets and you want to expand globally, you can start learning how you can localize your product.

3. Business Strategies: Create products that make competition irrelevant

“The essence of strategy is choosing what not to do.” — Michael Porter

In 1995, Amazon's online store went public for the first time. At that time, it was merely an online bookstore. But even back then Jeff Bezos had the vision to create an “everything store”. He understood, however, that he needs to start somewhere where the benefits of an online store would be most apparent.

After careful consideration of more than 20 product categories, he chose books. From the strategic perspective that was a great decision. There were more than 3 million books in print and traditional bookstores could only stock a few thousand because they had limited shelf space. On the other hand, an online store can offer all 3 million books. Creating additional product pages on the online store costs (almost) nothing. So, strategically, Jeff really played on the strength of online stores and optimized the whole experience around that. Today, Amazon is an “everything store” but it all started with the careful decision of what not to do.

In general, business strategies explain how a company tries to beat the competition. In an ideal world, every business decision is aligned with a business strategy. Even design decisions. So, having a basic understanding of your company’s strategy is extremely important.

However, Strategy is one of the most misunderstood concepts in business. “Our strategy is to increase revenue by 20% in 2020.” You can hear similar statements all the time but they are classical examples of strategic misconception. Let’s quickly cover what strategy is and isn’t.

A strategy isn’t:

• a goal (goals only talk about why; a strategy also explains how)
• using best practices such as Design Thinking or Six Sigma (can be implemented by any competitor so they are not trade-off decisions)
• merely a plan (strategy needs to lead to competitive advantage)

A strategy is:

• choosing what to do and what not to do
• a series of trade-off decisions
• a quest for competitive advantage
• about being different (not merely better)
• focusing a company’s resources on the most critical issues

The ultimate goal of a strategy is to help us gain a competitive advantage, which leads to better financial results. For example, Southwest Airlines has had 45 consecutive profitable years in the airline industry, which is known for low-profit margins and bankruptcies. All due to a great business strategy.

Three generic competitive strategies.

One of the best classifications of business strategies was introduced by Michael Porter. In essence, the idea is that every business can compete with (1) cost leadership, (2) differentiation or (3) focus.

Companies that try to beat competitors by offering lower prices are pursuing a cost leadership strategy (Aldi, Walmart, IKEA, Southwest Airlines, McDonald’s, etc.). On the other side of the spectrum are companies that want to win by being unique. These companies can charge higher prices because they are perceived differently (Apple, Whole Foods Market, BMW, Qatar Airways, Four Seasons Hotels, etc.). The third strategy is focusing on a certain customer segment within the industry. Instead of creating an industry-wide product, a company chooses a certain customer segment and prioritizes all activities to become the best in the category (e.g. Porsche, Pepsi, LinkedIn, etc.).

These three business strategies, explain how you compete in an existing market. On the other hand, a Blue Ocean Strategy explains how you escape competition by creating new markets and industries. by combining cost-leadership and differentiation. It eliminates certain competing factors (low-cost aspect) and focuses on those that matter the most to customers (differentiation aspect).

Instead of fighting with competitors (aka red ocean), it is making competition irrelevant (aka blue ocean) by attracting completely new customers to the market. Some prime examples of blue ocean products are Airbnb, Skype, Zappos, Salesforce, and Wikipedia.

In my opinion, Blue Ocean Canvas is one of the most useful tools for designing strategies. It’s also very close to designers’ skillset because most decisions rely on understanding customers.

To create a blue ocean we need to:

• define 5–12 competing factors (bottom of the graph)
• plot a dominant industry line (red line)
• create your blue ocean offer by asking what competing factors can we eliminate, decrease, raise, and introduce.

Make sure that your blue ocean offer is really different, not just better. It should not follow the same basic pattern of the dominant industry line (red line). It must show a completely new way of doing things in an industry. You can read more about the Blue Ocean Strategy in this book.

4. Business Models: Figure out how to make money with your product

“Design is about the customer, not just the user.” — John Maeda

Technological breakthroughs are no longer sufficient for commercial success. In the age of rapid and abundant innovation, focusing just on a product is no longer enough. Research shows that business model innovation has a bigger impact on business success than product innovation.

Think about solar panels. Their price has been going down since the 1970s but the technology finally took off around 2010 with a new business model. Some solar companies started offering zero-down payment, where customers did not have to pay anything upfront for an installment of solar panels. These companies would also take care of the maintenance and management of panels. This completely transformed the value proposition, which meant a much wider acceptance of the new technology.

It’s crucial for designers to start looking beyond products to really grasp how customers get value. User experience is not just how somebody uses a product but also how they pay, maintain, upgrade, and dispose of a product.

My favorite tool for understanding and designing business models is the Ecosystem Map. It consists of four building blocks:

• Actors: Who is involved in creating, delivering, and capturing value (individuals, companies, partners, etc.)?
• Flow of information: How is information flowing among actors? What type of information?
• Flow of goods: How is a product or service flowing from a provider to a customer?
• Flow of money: Who pays whom? How does money travel?

Bellow, you can see the example of the Ecosystem Map for Netflix. You can create such a map by outlining actors in the ecosystem and defining relationships among them.

The map needs to represent three parts of a business model: how a company creates, delivers, and captures value. The value creation part describes how a company creates a product (left side of our map). The delivery part describes how a product gets to customers (the lower part on our map). And the value capture part explains how customers pay for a product (upper right side on our map).

To design new business models, you can use the ecosystem map, capture the status quo and think about possible iterations. It turns out that most successful business models follow similar patterns. Researchers from renowned business school St. Gallen found out that 55 business models are responsible for 90% of the world’s most successful companies. You can download 55 pattern cards here and use them to brainstorm new business model iterations.

For example, one of the patterns is “Pay per use”, which describes a revenue model where customers pay only when they use a product. This could be one starting point for your brainstorming. Could we sell our product as a service where customers only pay for use?

5. Prototyping with Numbers: Quickly estimate the viability of your ideas

“It is advantageous for designers to get really well versed in understanding and breaking down numbers […] ” — Ian Spalter, Head of Design at Instagram

Euro Disneyland was opened in Paris in 1992.

Imagine working on a product that would lose over $1B in the first 2 years? Horrible, right? Well, that is exactly what happened to Disneyland Company when it opened its first Euro Disneyland. Disneylands were a great success in the USA so they decided to expand to the European market. Soon after opening, it became clear something is wrong. It was losing more than $1M every single day!

In planning for Europe, Disney was drawing upon its experience from the American market. American visitors stayed on average for four days, ate in Disney restaurants throughout the whole day, and bought a lot of high-margin merchandise such as t-shirts and hats.

On the other hand, European visitors stayed on average only two nights, they all wanted to eat at noon (Disney restaurants were not ready for midday peak so some visitors had to leave the park to get food), and they didn’t buy high-margin merchandise.

All of that could have been prevented if Disney had surfaced these unconscious assumptions in a financial prototype. And just as designers create visual prototypes to test desirability or usability, businessmen create financial prototypes to test viability.

Such prototypes help uncover potential gaps in our ideas before we invest too many resources. They also inform our product design. For example, if we uncover that our idea is only viable if we raise a price, we have to find a way to position it differently to justify a higher price.

For this process, we can use Discovery Driven Planning (DDP), a method introduced by professors McGrath and MacMillan. It uses simple math to quickly identify risky assumptions and help us systematically test them.

The idea of DDP goes against traditional business planning (used by Disney in our case study) where you make tons of assumptions and hope they are right. Here, we try to uncover assumptions, create prototypes, and test them.

Here is a simplified version of the process, which covers most use cases for designers:

1. Start with the end goal in mind
2. Lay out requirements to achieve the goal
3. Document assumptions
4. Create a testing plan

1) In the first step, we state the end goal of a project. For example, let’s say we are opening a restaurant and our goal is to make $100k in profit per year. To achieve that we assume we will need $500k in revenue with a 20% profit margin ($500k x 0,2 = $100k in profit). This means that we can spend $400k on costs ($500k-$100k=$400k).

2) In the second step, we lay out all assumptions required to make this work. For example, if we want to achieve $500k in revenue, our monthly revenue has to be $41.666 (500k/12months) and daily revenue of $1.388 (41,6k/30days). Furthermore, if an average customer spends $15, we need to serve 92 clients per day (assuming we are open 7 days per week).

Now, we should also calculate the space required to accommodate 92 clients (rent cost), personnel required to prepare and serve 92 clients (staff cost), food costs, kitchen operations, etc. For example, let’s look at kitchen operations. In order to serve 92 clients per day, our kitchen would have to prepare 92 main dishes. If we assume an equal distribution of clients throughout the day and 8-hour workdays, this means the kitchen should be able to prepare 11.5 main dishes per hour (92/8 hours).

This is just one example. When you prepare your own prototypes, do similar calculations for all revenue and cost associated activities (marketing, staff required, etc.).

3) In the third step, we need to document all assumptions. This is a list of all the assumptions we had to make to achieve our goal of $100k profit with $500k in revenue. In our example, it would look something like this:

• Profit margin: 20%
• Revenues: $500k
• Average revenue per customer: $15
• Customers served per day: 92
• Kitchen capacity: 11,5 dishes/hour
• etc. (space required, rent cost, personnel required, personnel cost, marketing cost, credit card fees, food cost, …)

This is just a short list based on a few assumptions we made. As already mentioned, your version should cover all assumptions as indicated in the final bullet point.

4) The last step is creating a testing plan where we create small tests to verify assumptions. For example, we could test the feasibility of preparing 11.5 dishes per hour. We could simply hire a kitchen staff for half a day and track their performance. This is much cheaper than actually opening a restaurant.

Once we run the test, we have to revisit the assumptions document. With every new experiment, we should be getting closer to creating a viable and feasible version of our concept.

To learn more about Discovery-Driven Planning I suggest reading this great HBR article.

6. Design Metrics: Measure value created for users

“To build your credibility focus on measurable parts of design.” — Daniel Burka, Director of Design at Resolve to Save Lives

Most designers shy away from analytics. I think we are afraid that if we get too data-driven, we will lose the very thing that makes us designers: empathy. We fear that we will start making design decisions just for the sake of numbers and forget about humans.

First of all, data is not bad. In general, more data means more informed design decisions. It also helps us avoid opinion-based discussions and unite a team. Having a clear goal helps a team align, focus its efforts in the same direction, and speed up the decision making process. Furthermore, we designers often can’t really prove the value or progress of our work. Quantifiable metrics can also help with that.

You might still be asking: How do I make sure that I am doing the best for users and not just driving business results? Inspired by the great work of Kate Rutter, I came up with the concept of Design Metrics. While most business metrics measure value captured (revenue, profit, costs, growth) design metrics measure value created for users.

You can find your design metric by answering two questions:

1. What does success look like for our users?
2. What is the main action that a user has to take to extract value from our product?

In the first step, we need to identify the product’s main value proposition. For example, Google Calendar’s main value proposition is staying organized and on top of a schedule.

In the second step, we look for key product interactions, which indicate that users got the value from our product. Let’s say that in our Google Calendar example, the most important interaction is creating a new task because it helps us achieve the main value proposition.

Now, we have to turn this product interaction into an awesome metric.

• OK metric: “new events created per week”. This is a potentially misleading metric. It could go up because we are just adding more users but actually, each user, on average, could be creating fewer events.
• Good metric: “New events created per week per user”. It starts measuring user behavior and value created per user but it is still averaged out over the entire user base. Outliers might skew the average.
• Great metric: “% of users who create a new task, per week”. It tells us what percentage of the user base is taking action. Outliers don’t matter anymore.
• Awesome metric: “% of users who create 3+ daily tasks, per week”. It’s an awesome design metric because it has a specific amount of action that users need to take to extract the value from a product. We can also measure and compare it weekly (to see if we are progressing) and it takes individual users into account.

By the way, when shaping metrics, have the following four criteria in mind (as defined by Croll & Joskowitz in Lean Analytics):

• Understandable — You should be able to remember, understand and discuss it.
• Comparable — You can compare it to other time periods, groups of users, or competitors (e.g., “1% increase in sales conversion over the last week” communicates more than saying “we have a 5% sales conversion”)
• Actionable — You know how to change your design based on it. The opposite is a vanity metric such as the number of total app downloads, which can only increase and hence does not give any actionable information.
• Normalized (i.e., ratio or rate) — Compares factors that are opposed (e.g., the ratio of paying vs. freemium user helps understand if we have a good balance of paying customers), which helps understand what we need to work on.

Another tool to help you structure your metrics is Design Metrics Canvas. It helps to find the balance between design and business metrics (covered in the next chapter), identify supporting metrics (additional metrics that help understand the main one), and define counter metrics (measure what could go wrong if we over-optimize for the main metric).

7. Business Metrics: Get fluent in the language of executives to convince them

“There are only five things executives worry about: increasing revenues, decreasing costs, increasing number of new customers, getting more money from existing customer base, and shareholder value.” — Jared Spool

When you present your work to non-designers, you have to use their language. They don’t care about how things look or feel, they care about the effect it will have on the business. And that is expressed in business metrics.

Next time you want to convince executives, try this. First, talk about the design (and users) but then immediately translate the benefits into business metrics. To find out what metrics your audience cares about, simply ask them: “What is the main goal of this project? How is it measured?”. From there on, your job is to show (and prove) how your design can help affect that goal.

To kick things off, we’ll cover some of the most common business metrics.

Revenue metrics

• Return on Investment (ROI) — popular measure for the efficiency of investments. It is calculated by dividing the profit or loss with the money invested. For example, if our company invested $100 million and made $50 million in profit, the ROI would be 50% ($50M/$100M). ROI is a great tool to compare different investments. Generally, we want to invest more resources into projects with higher ROI.
• Monthly or Annual Recurring Revenue (MRR or ARR) — relevant for companies that have a subscription revenue model. It shows how much revenue a company makes per month or per year. For example, if a subscription service has 1 million monthly subscribers that pay $10 per month, its MRR is $10 million.

Costs metrics

• Customer Acquisition Cost (CAC) — the amount of money a business spends to acquire a new customer. You can calculate it by adding together marketing and sales costs and then dividing them by the number of customers acquired. For example, a company that spends monthly $5.000 on marketing, $5.000 on sales, and acquires 100 new customers, has the CAC of $100 (($5.000+$5.000)/100 customers = $100).
• Fixed Costs — costs that don’t change regardless of the number of goods produced. Common examples of fixed costs are rent, utilities, insurance, interest expense, annual salaries (for employees with a fixed annual salary), depreciation of assets, etc.
• Variable costs — costs that do change with the number of goods produced. Common examples include direct raw materials for physical goods, credit card fees, commissions, and shipping costs.

Customer base

• Active users — a total number of active users in a given time frame. Usually in the form of monthly active users (MAUs), weekly active users (WAUs), or daily active users (DAUs). The definition of an active user depends on a product. For Facebook, MAU is a user who logs in at least once a month. For Uber, it is a user who books at least one trip per month.
• Customer churn — a rate at which customers are unsubscribing or no longer buying from a company. For example, if we had 500 subscribers at the beginning of the month and lost 50, our monthly customer churn rate is 10%. Ideally, churn should be as low as possible. A good annual customer churn rate for SaaS companies is somewhere around 5–7%.

This is a short list of the most commonly used metrics. To find out what metrics matter for your company, talk to a colleague from different departments and ask them about their metrics and KPIs. And when you come across a new metric, just look it up on the Investopedia, which provides great definitions with examples.

What’s next?

“Knowledge without action is like having no knowledge at all.” — Ted Nicholas

Here are three things you can do today to start putting this knowledge to use:

• Draw the Ecosystem Map for a business model of your current business or client. How is value created (what is necessary to create a product), distributed (how does a product or service travel from provider to customers), and captured (how do customers pay for a product)?
• Fill out the Design Metrics Canvas (get it here). Find out how you can measure design and how you can connect it with business metrics. You can also use the canvas to present your design work.
• Conduct the competitor analysis (you can get the Competitor Empathy Checklist here) to see who you are competing against. Create a spreadsheet, start by gathering 15 data points from the checklist, and shape insights.

Originally published at www.d.mba.

7 Things Every Designer Should Know About Business was originally published in COLLIDER // FKTRY on Medium, where people are continuing the conversation by highlighting and responding to this story.

Inspiration 2021.01.20 was originally published in COLLIDER // FKTRY on Medium, where people are continuing the conversation by highlighting and responding to this story.

In 2016, we assessed the State of the Digital Nation, exploring industry, agency, and future perspectives in the midst of turbulent change. Two years later in 2018, many of the identified key trends continue to play out and exacerbate. These headwinds have put further pressure on the traditional consultancy model and driven even greater urgency to explore new avenues for the creative class*. In this follow up to State of the Digital Nation (State) we go down the venture rabbit hole. Also, there’s music…

State of the Digital Nation 2020: Venture Road

• Chapter V: Media Crusades & The Death of Agency: Roundup on Consultancies vs Ad Holding Groups, the necessary death of the agency model, changing the stakes, all serve as impetus to explore new paths in venture for the creative class.
• Chapter VI: Venture Pathfinding: Pathfinding in venture for the creative class, real talk on agency-venture work, and taking inspiration from trailblazing creatives.
• Chapter VII: The Startup Studio & Venture Ecosystem: We journey across the divide and take a deeper dive into the supporting ecosystem for startups, an exploration of the evolving startup studio model, and the opportunity within for the creative class.
• Chapter VIII: The Creative Capital Studio Blueprint: Moving beyond the ‘pivot’ model of the Digital Product Studio, taking our learnings into a blueprint for starting afresh… The Creative Capital Studio.

* For the sake of definition, I consider the creative class to not only encompass those who create design, but also those who create code, culture and community.

You don’t need to have read State to make sense of what follows, but if you’re interested you can read chapters I to IV of the saga here. Happy to continue the discussion on social using the hashtag #SOTDN2020, or at @ezyjules.

Preface: This Time It’s Personal

It is rare for dispensed ‘wisdom’ to be untainted by the giver’s human need to validate their life choices and beliefs. So before we go down the rabbit hole, I’m going to break the fourth wall, get personal, and offer some context to why am I even writing this stuff. So please indulge me for a mere few paragraphs as I confess context in what is a deeply personal journey of exploration.

It transpired that State became something of a dear John letter to my profession, and indeed the first half of my life. In early 2017 I disembarked the good ship ustwo, my studio of the last decade, stepping out of the game and into the wilderness. That wilderness was an extremely privileged twelve months, liberated from the closed loop, perpetual, cycle of digital agency life, free to observe and reflect from the sidelines.

Important aside: Fear not, this isn’t one of those lame “how I left [company X], bought a typewriter, and learnt to make handmade paper” Medium pieces. No one with their nose to the grindstone of reality wants to hear it. The only relevance is offering context and perspective. If it’s not your jam, you are free to skip and scroll down to the first scene of death and destruction below.

Harvesting Knowledge

Conscious that I was stepping into the second half of my career (and life), it boiled down to figuring out the answer to a simple question…

what is the optimal application of your energy, experience, network, and knowledge to the next five years of your life?

In perspective gathering mode, with no agenda, I spent time in animated conversation with talented humans from the tech, startup and agency world, with agency and startup studio operators, startup entrepreneurs, VCs and more. Thanks to ustwo’s standing and State unexpectedly doing the rounds, I was very fortunate to be able to do that with people at the top of their game from all over the world. Two things particularly struck me; Firstly, that people were so kind with their time and minds. Secondly, that nearly everyone I was meeting was also thinking deeply on new paths, fuelled by a healthy dissatisfaction with the status quo. To help me get input on my own challenge, I would always flip my own number one question to them…

“If you could start anew, liberated from all professional responsibility and legacy, taking your experience, network, and knowledge with you to the next… what would you choose to do?”

I collected a lot of perspectives, pointers and all important yeahbut’s along the way regarding the mechanics of the industry. This provided me with a rich knowledge base to sift through, most of which has gone into this piece.

Personal Reflections

Layered into that are my own reflections gleaned with real distance from my former life as a studio owner. I landed on a number of personal reflections, the details of which I will spare you (if you really care you can find them here in ‘Halfway reflections at the end of a career in agency’), resolving that:

1. Even with the outrageous privilege of the freedom to do pretty much anything, I knew to remain true to myself would mean staying with my tribe, those who I resonate with above all… the creative class. I wasn’t leaving them or the industry.
2. My obsession with changing the terms of business for my tribe remained. In fact, it burned brighter the more I came to understand the wider ecosystem. I would find a better way.
3. I was done with being paid for time. Done with the linear relationship between time and income that makes you a glorified Uber driver. I would be paid for mind, not for time.
4. I was done with the agency game. With sincere love and respect for my many friends in that game, personally I am dealing myself out. Going forwards I would work on a venture only basis.

With agency life/model done, yet resolved to remain in the ecosystem, all roads lead to venture and startups. So aside from a systematic exploration of various aspects of the digital and venture industry, this is also the journey of a nomad from the creative class looking for the right place to call home. It’s a piece about you, and me. OK then… with context, motivations, and sources on the level, let’s do this…

Chapter V: Media Crusades & The Death Of Agency

Intro: To start this journey we’ll first take a look back at the world of agencies before exploring the future overlaps of venture, design, and the creative capital studio... The war between consultancies and the ad holding groups are now well underway, whilst the ad industry itself takes hit after hit to its very foundations. As the individual agency model comes under increasing pressure, there is good reason to reflect on its viability and on new paths for the creative class. For me, the consideration is whether this a battle worth fighting? If not, then changing the stakes points towards venture…

The macro industry trends highlighted in State have accelerated. Management consultancies are continuing to build capacity and capabilities at a dizzying pace, spawning a relentless flurry of bullshit-word-salad press releases (from which the Pac Man word cloud below is made)…

Accenture, continuing its Borg-like procession through design space, acquired as many agencies in 2017 as it did from 2011 to 2016. The Monkeys, Maud, Clearhead, Wire Stone, Matter, Rothco, all assimilated. Elsewhere Idean, and Adaptive Lab sold to CapGemini, ACNE sold to Deloitte, Sequence sold to Salesforce, Moment sold to Verizon, Instrument sold to MDC, Citizen sold to EY, FRWD sold to Bain, Smashing ideas sold to luxoft. Even the Godfather of UX, Alan Cooper, sold his asylum to DesignIt/WiPro. ‘Design’ has been consumed, nose to tail. Did you know that if you blend the diverse and vibrant palette of the rainbow, you end up with a uniform, chromatic neutral?

Whilst all design capacity is being snapped up by the consultancy groups, for reasons we covered in State, the advertising holding companies have been keeping their Black cards sheathed. With hardly a peep on the acquisition front, they have been deep in merge mania, consolidating and folding their extensive agency networks to prepare for the epic battle over their burning empire. Let’s get a quick data fix for context. Since the 2008 crash (thanks banks!), US GDP has shown solid and stable growth (thanks Obama!). So has the value of the S&P 500, which is at record levels. The economy is booming. Whether this is sustainable or not is beyond my remit (it isn’t!), but the sun is shining so one should be making hay.

Now lets take a look at the relative size of the major consultancies and the ad holding companies (click here for a detailed look at the data table). You can see the revenues of the consultancies are much greater than the ad holding companies. They operate from a position of power, resources, and wealth.

From the data that is publicly available, aside from IBM and Dentsu, during this economic boom, the consultancies have been increasing their profits. At the same time, the advertising holding companies have experienced decreasing or declining profits…

So what’s going on? We explored the ad industry’s existential crisis in Rome Is Burning, and little has changed. It’s been a rough couple of years since we last checked in mid-2016. Let’s get in the ring.

Ten Rounds On the Advertising Industry’s Malaise…

• From a valuation (market perception) perspective 2015 and 16 were peak years for the holding companies, with all sharply declining in value since. WPP, Dentsu and Publicis peaked in 2015, Omnicom in 2016, and IPG spiked mid-2017 before dropping 20%. Given the dramatic downtrends have all taken place amidst a period of unprecedented economic expansion, it presents a worrying picture.
• For WPP “2017 was the advertising sector’s worst year in a decade”, reporting a 0.9 percent drop in 2017 underlying net sales, including a hefty 3.2% drop in North America. 2018 began ominously, with the group losing nearly a third of its market value in 2017/2018. WPP then lost Martin Sorrell, their founder CEO of 33 years after a murky but convenient misconduct investigation. He was already facing a huge pay cut following his 2015, $103M mega bonus. I wonder if he saw the dark clouds on the horizon in his calculus, opting to go out near the top. Either way, who would you rather be? Arthur Sadoun steering the Publicis super tanker through a biblical cyclone, or Martin Sorrell chilling on the yacht in a Mediterranean harbour plotting your next, unencumbered, move
• It’s not good on the client front either. The holding group’s largest clients, the FMCG or CPG companies, are drastically reducing their external spend and agency rosters. P&G, WPP’s largest client, is nearly halfway through reducing their annual $10.7bn budget by $2bn by 2021 — “We used to work with 6,000 agencies around the world and have cut it down to 2,500. We think we can cut another 50 per cent”. Unilever revealed a cost-cutting plan to remove half of the creative agencies and 40% of the consultancies from its roster, claiming to have cut marketing spend by 30% by taking the work in-house. This process hasn’t been all win though. In State I heralded Pepsi as leading the in-house charge. But that resulted in this particular monstrosity…

• Nefarious industry practices triggered a U.S. Department of Justice investigation into bid rigging by Ad Agencies, practices corroborated by ANA’s Production Transparency Report. All four of the largest holding groups have been subpoenaed and there will be jail time (which has to feel like justice to the many sub-contracting production houses that were disadvantaged).
• The ad and consultancy industry’s penchant for ignoring illegal levels of overtime tragically came home to roost with the death from overwork of a Denstu employee. The canary in a coal mine triggered a deeper level of reflection on working hours in the industry. It doesn’t take a global accountancy firm to work out that correcting that exposes an unsustainable business model. Dentsu saw global profits drop in 2017 as a result of reducing working hours. If your business has been surviving by relying on an 80-hour work week and you shift to a ‘benign’ 60-hour work week, you need 25% more employees to get the same done. Ergo your costs go up, and your profits go down, revealing that you might have an unviable business that has relied on illegal working hours and Stockholm syndrome.
• On the supply side, the new generation of entitled millennials appear to value their own wellbeing over the company’s fortunes, triggering outrage with the “in my day” brigade. At PWC a rebel millennial enclave has even been willing to make a stand to effect real change (good on them!).
• For the first time on record, the number of people working in the ad industry declined during an economic expansion. The industry brain drain is well underway.

• Television-advertising sales in the U.S. fell 7.8% to $61.8 billion in 2017, the steepest drop outside of a recession in at least 20 years.

Benedict Evans on Twitter

Three advertising worlds.

• Despite the best efforts of the holding groups to acquire or build their own ad-tech, in 2017 90% of the growth of the digital-advertising business went to just Google and Facebook, screw you very much. This has left the ad holding companies standing outside the party and has starved them of valuable commission revenues.
• Talking of standing outside the party… in Feb 2018, Google launched an update to their Chrome browser, used to view 56 percent of web pages, with a built in ad blocker, that also blocked competing ad trackers. Whilst the cookies crumble, people are wiping advertising from their screen like a smudge. As of 2017, 11% of all global internet users and two-thirds millennials use ad blockers — a 30% increase from 2016. You can see where it’s all headed.

It’s a unanimous decision by the judges — the ad holding groups spent 2017 on the ropes taking a beating. Set in the context of a period of stability and expansion in the global and US economy, it all points towards bloodbath and chaos when the central-bank-pump-primed economy sours in the coming year(s).

Enter Marcel

Sensing danger on the horizon and the need to respond to the consultancy invaders, Publicis Groupe in 2017 announced Marcel. Marcel is their AI-powered professional assistant platform — “a revolutionary tool for collaboration and creation”. The bold intent and aggressive timeline was delivered as a shining testament to the Groupe’s technical and product prowess, their ability to work like a startup and deliver groundbreaking technology. “Fortunately, we are able to do that ourselves because we have a huge technology based enterprise that exists on a wide, global scale.”- Chip Register, co-CEO of Publicis, and Marcel’s architect said at launch. Furthermore, they have vowed abstinence from their awardography addiction, pulling out of Cannes, CES, SXSW, et al to deliver the platform within a year. Watch the inspirational showreel…

“Et voilà? Are you ready?”

…Marcel asks in the aspirational demo reel. Aside from this feeling like a hostage video, where captives are forced to read statements at gunpoint, it exposes a deeper malaise. Nothing more perfectly illustrates the hubris of the ad industry than Marcel. The project precisely demonstrates the lack of the technical and product prowess that could provide passage to safe harbour in the new world.

Apple can barely get Siri to arrange an egg timer on command, and IBM’s Watson is over a decade in development. Marcel is clearly not going to help deliver “game changing business ideas for a Fintech IPO” any time soon. (Although, perhaps they could hard-code “Millennials” as the default response to cover 90% of the agency network’s queries in the meantime). Even a junior product manager would advise it would be utter madness to stand on a platform and promise something like that within a year. They would advise you to promise skateboards rather than hoverboards. If they stick to the award abstinence policy, no one is going to be enjoying Publicis agency bar tabs this side of 2020.

Best In Show, Last In Class

The whole process is illustrative of the very worst of agency sales practices. A salesperson with little understanding of technical implementation, or of the teams delivering the work, sells the client a fantastic vision, on a knowingly impossible timeline, scope and budget. In doing so, they not only sell the project but also sell their own people, upon whose shoulders the problem will sit, down the river in the process. No doubt project Marcel has landed on some poor soul’s desk at Publicis, who was never consulted about timelines and feasibility. Now they are going to nigh on kill themselves trying to deliver the impossible. As someone who has ‘sold’ creativity for most of my career, I find this infuriatingly disrespectful of clients and of your own people. It is truly a scourge upon the industry and the key factor in the unhealthy industry lifestyle.

This time it would appear they played themselves. And royally so. There is no greater truth and test of your abilities and process than when you are building your own product. Six months following the launch they then went to Microsoft to develop the platform. The sad thing is it just didn’t need to be this way. Take it away Jony…

Danny Trinh on Twitter

Jony Ive - from our experience, it's sort of better to do the work and say, "hey, we made this," rather than to announce to everyone, "we are going to do this." https://t.co/K6igsivcyk

The Door Is Closing On The Chance For Change

In early 2018 Publicis announced a hard pivot into “digital business transformation”, targeting consulting work over creative work and focusing on acquisitions to support their capabilities. The Publicis 2020 plan is a 2,617-word study in weapons-grade Newspeak. At a time when clients’ trust in their ability to handle marketing is declining, it is tenuous to ask for access to the controls of clients’ core business. This is an extremely hopeful play.

Ad agencies are undoubtedly the world’s greatest salespeople, bar none. This has been their undoing when it comes to complex product work. Able to paint and sell a vision to secure the work, but continuously unable to deliver beyond the veneer. We have yet to see a meaningful pivot by any of the ad holding groups. Nearly every acquisition of the kinds of shops that could help them pivot out of their marketing stance has been made by their new competitors, the consultancies. Instead, they engage in consolidations and mergers, pursuing efficiencies whilst the big 5 wolves circle.

Big client’s tech or ‘digital transformation’, budgets could save their industry. With trust fading in the marketing industry’s capabilities to deliver beyond campaign work for their clients and into technical products and services, the unfolding Marcel situation will likely serve to further erode trust. Unless they can get their tech chops together to move meaningfully into ‘business transformation’, delivering the product output of strategy, the door will close on them.

Offering both strategy AND execution services represents the future operational model. If Ad holding groups can neither clean house, nor compete with the war chests of the consultancies to acquire the necessary skills to implement product experiences, it poses existential questions about the integrity of their business. The ad industry’s problems are deep-seated, systemic and environmental, so expect things to get much, much worse. Prediction: by 2020 we will be at least one holding group down, either via a merger of two or through sale to a consultancy.

The ongoing crusades between the ad holding companies and consultancies are going to take years to play out, and developments in that saga are for future generations. From the perspective of my own search for a new path, it is a battle in which I have no desire to be involved. So in the absence of any sharp pattern deviations, it is infinitely more interesting to continue to explore the possibilities for the agency model and the wider digital industry’s atomic unit, the creative class (you).

The Necessary Death Of ‘Agency’

Let’s take things down to the agency and agency operator level and look at the client service model itself across the wide spectrum of ad, marketing, and production shops, through to brand, design, innovation, and digital product consulting firms. All across the digital nation, the ‘death of agency’ drum grows louder as the agency model suffers an increasingly hostile climate. It is undeniable that with every financial year, running an agency is becoming universally more challenging. This is due to multiple factors.

Clients are increasingly taking work in-house (and they are getting progressively less worse at it too), constricting the flow of projects to agencies. Consequently, there is a race to the bottom on pricing as competing agencies scramble to fill their drying pipelines. The logical end-game of clients driving rates through the floor, and agencies agreeing to do discounted work, will be to push the price point so low that the requisite quality of output and service is unsustainable. Many agencies have already pulled all the tricks in the book to reduce their operating costs, including offshoring work (Publicis have 8,700 people in “delivery centers” in India, Colombia, Costa-Rica and Mauritius, with plans to increase to 13,000 by 2020. Sweet Jesus!).

With little left to ‘optimise’, and agencies racing to the bottom to compete for a declining pool of business, the model will simply break. It is a desperate, self-fulfilling loop for which all parties bear responsibility: Multi-billion dollar clients calling free pitches, their procurement departments ‘scoring points’ by squeezing their agencies, and agencies continuously conceding ground. It makes zero sense to expect any partner to work at breakeven or a loss and still produce quality output. Nor is it the basis for a healthy relationship. It practically guarantees an acrimonious end.

Trust between clients and agencies is broken. Before we get too pious, let’s not forget that the agency world bears the weight of culpability in the breakdown of trust by so many bad actors having rorted their clients for decades. Building and rebuilding trust takes time and the ever-declining tenure of CMOs, 42 months and dropping, further undermines such efforts. Either way, a long-standing symbiotic relationship, where corporations and major brands nurture and invest in the next generation of creative talent and their host studios, has been broken. The collapsing ecosystem is increasingly inhospitable to new growth.

Retaining talent is becoming a challenge. The plague of agencies mis-selling their work is creating unsustainable conditions for employees. Beyond twenty somethings willing to sacrifice themselves upon the altar of company and career, when it comes to working mothers and parents, it is completely unsustainable, especially in the US market. That’s why, shameless plug alert, we started Pledge Parental Leave to get the industry to self-elect meaningful standards for their working parents.

These conditions mean leading agencies are increasingly serving as finishing schools for tech companies who can offer not only better conditions, but also 25 to 50 percent higher remuneration and superlative benefits. The existing agency model simply cannot sustain packages to compete. On the people front, as a human capital operation, the agency ‘enjoys’ negative economies of scale. So as you grow the business and take on more operational, capital and payroll costs, as well as more risk and stress, your gross margins decline (pure genius isn’t it!).

If you want to ride out the storm, and you’re not looking to shoot up the agency pyramid, these industry conditions are perhaps more appropriate for smaller, more nimble, operations that can engage on a specialised, project-based, level. Check out Faris and Rosie Yakob’s Genius Steals, who have stripped that model to its very essence. Talking of pushing the business model reset button, industry veteran rei inamoto set up his own, funded, new-model-studio and recently issued a call to arms for the industry. He identifies four key areas in which that broken trust can be rebuilt: Process: Restrict viciously, Structure: Peel the layers, Culture: Design for the long term, Leadership: Focus less on fame, more on trust. He speaks the truth, however we also need to address the primary tumor, namely the economic model.

The ‘Paid For Time’ Model Is The Primary Tumor

Many decades ago, in the mists of time, we built ourselves a prison island from which which we never escaped: The ‘paid for time’ client service model that rules the agency economy. Retainer or not, most billing is based on a certain number and type of resources over a certain period of time. With revenue linearly yoked to time, it makes the agency model a fixed odds, limited stakes game. And those odds are getting longer each and every year. This is at the very core of the agency malaise, and it cascades through all aspects of the business, corrupting incentives, efficiency, and trust.

Here’s the rub. Expertise, craft, knowledge, and wisdom, have been arbitrarily abstracted and atomized into units of time — homogenised and commoditised, like ground sausage meat to be sold at market. For rote tasks such as manual labour this is perhaps appropriate. I’m not delusionally arguing that all creative work is profoundly transformative. Some of it is indeed equivalent to the stamping of license plates in a penitentiary and should be charged accordingly. However, the influence of the right advisor, with the right mind, at the right time, can help make or break a business. At stake are many millions of dollars and all the livelihoods a business supports. When the capacity for impact is truly exponential, then we need to negotiate the upside.

With procurement departments at major corporations being resistant to exploring alternative revenue models such as equity payment, co-ownership, licensing, revenue-share, there is little prospect of escape. Locked in, you are able to celebrate at best a 10 to 20 percent gross margin. But the reality is that this is dropping across the board every year. Notably, all of the above means the model would be of little interest to an experienced investor. It is for this reason that we need to uncouple from the yoke of paid time, move along the risk-return spectrum, and explore the venture continuum.

Join The Army, See The World… Then What?

The designer Thomas Petersen, having run the full gamut from agency through to startup tech company, before founding First Principle, refers to agency life as ‘Bootcamp’. A fitting metaphor… join the army, see the world. Building an agency and the agency life is a privilege and provides an unrivalled, deep view into a broad set of industries. It is something to be experienced and there is of course still a viable business in there. There are many successful shops doing stellar work in the market today and those numbers are sure to grow when the second wave of the independent studios predicted in State emerge from post-acquisition earn outs.

Improving The Now

There is a great deal that can be done to improve the situation for all parties within the existing ‘paid for time’ paradigm. However only if you can offer a premium service and charge a premium for it. These ABCs shouldn’t be much of a revelation to the relatively small number of well-run, progressive studios (you know, the ones you can count on the fingers of one hand in each market):

• Creativity is a finite resource. Charge accordingly. I firmly believe that actual human creative output is limited to five hours a day and the rest of the day is dressing around it. On that basis, having teams working 12-hour days is simply the raking of creativity across a field like manure. So charge weekly or monthly for individuals and teams rather than hourly. The same crucially goes for planning resource and timeline estimates.
• Embrace uncertainty and go MoSCoW. You don’t have all the answers, and every project is a leap in the dark. So agree on high level requirements based on ‘Must have, Should have, Could have, and Won’t have’ rather than granular fixed-scope, fixed-cost arrangements which always end in tears and acrimony.
• Agile process breeds trust. Run your engagement with clients under a transparent, lean, agile, process to provide visibility and foster trust rather than dragging your project off to a cave and returning with a misfiring big reveal.

This all comes with the proviso that you’re doing great work in the first place to be able to pull these essential levers. As always, if you’re doing shit work, yeah, you’re extra screwed. Not to mention that you also need to find clients and partners who are willing to perform the same dance, or who are genuinely willing to learn.

Baby Steps Or Giant Leap

There is also of course opportunity to iterate on the agency model. During my time at ustwo we were constantly driven to evolve beyond the consultancy model, eventually coming to blend digital product consultancy, with own-product and venture work. We did so for the experience, the opportunity and of course the revenue model. We made a fair go of it over the years and made a mark in a corner of the industry.

State proposed the ‘Digital Product Studio’ as a blueprint for the evolution of the studio model. This got strong pickup from the global design and agency community and was cited by the venerable John Maeda in his Design in Tech Report 2017.

The Digital Product Studio blends three components: Consultancy, Venture & Own Product. Each feeds and informs the other in a powerful virtuous circle of network, experience, funding, brand, craft, and talent.

Yet the Digital Product Studio, itself is not immune to the forces battering the industry, was a model based on pivoting an existing legacy business. What model might we land on if you were starting from scratch without the constraints of serving a legacy consultancy business?

Is Being Best Enough?

In State, I offered the simple logic that there are more great projects than there are great teams, so studios that deliver to the highest standards will thrive. I laid out the challenge for a creative business to thrive in an increasingly challenging environment:

The real challenge is to evolve, do it all better: capabilities, product development, collaboration, process, and culture, to deliver the irresistible package.

That still stands, but the performance bar is being constantly raised, and you need a whole lot of luck to go your way to survive natural selection and punch your way to a notable size. Aside from a whole lot of skill, passion, and effort, ustwo certainly benefited from a huge amount of luck during the studio’s rise.

But you can’t plan on luck, and by definition only the few can be ‘the best’. Will a slow iteration of the established model be enough to escape the blast wave? The truth is that very few of sound mind, who have grown an agency before, would begin that process again under anything close to the existing model…

You know how to establish, build, and operate a company, recruit a team, fit out office spaces, hustle for business, and cope with the stress of it all. Why would you do that all over again in this climate for gross margins at best limited to 10 to 20 percent a year that decline as you grow because of diseconomies of scale. What the fuck are you thinking son?

Nathaniel Axios on Twitter

Dear Designer, based on the various recently released design reports (@aiga @johnmaeda) and the @IBM @forrester #designthinking TEI impact report, y'all redic undervalued. Truly. Stop being the doormat for others career success.

As you scan your three month pipeline with a degree of clarity that descends into a fog of hope and guesswork with each month out, you need to realise that the agency model is all a gamble. So guess what, you’re already ‘doing venture’. You’ve just chosen the model with the same level of risk and stress, but with the shittiest upside of them all. (I’m not jaded, I’m simply sober).

There is of course, no ‘sure thing’ in business. It’s all a gamble, so raise the damn stakes. Stop playing the fixed odd slot machines in the lobby when you can don your tux or slip on your cocktail dress and play for real stakes in the high roller’s room. The tux, the dress, is the experience, insight, network, trust, goodwill, access, and permission you have earned over your career to date. And if you’ve not got it yet, then go out and earn it — building an agency is just one way to do it.

Changing The Terms Of Business

It all begs the question, should the existing agency model just die and break so that we can properly put our minds to establishing a new model rather than slavishly serving a legacy. Is its’ demise necessary for us to truly take an evolutionary leap? “Dear John, it’s not me, it’s you…”

All along my journey in design/digital/tech, my greatest obsession has been how to navigate the industry to best leverage the opportunity for the creative class. The reason the tectonic shifts in the industry interest us is because we’re trying to figure out “What does this mean for me?”.

Tumultuous industry conditions aside, there is an even greater existential challenge on the horizon that we must face. As we head into the age of automation, machine learning, and AI, human creativity becomes the ONLY difference between us and the machine. Creativity will ultimately be perhaps our only USP. The good news is that for those who practice creativity, the greatest opportunity lies ahead. As such, one thing is crystal clear from all of the above: 👏 we 👏 need 👏 to 👏 change 👏 the 👏 terms 👏 of 👏 business!

An aside… I really wanted to drive the importance and urgency of this call to arms home. So I figured out a way to literally take it home. Super happy to be launching a collaboration with friends over at Good Fucking Design Advice, with whom we share a belief in the true potential for the creative class. Their iconic, inspirational posters adorn the walls of leading design studios all over the world, including Jony Ive’s at Apple. We’ve produced a special edition poster and tee on the theme of changing the terms of business for the creative class…

Outro: Whilst the industry rages with change and the agency platform burns, the viability of the agency model itself in question. For the creative class to achieve safe harbour and prosperity, it is now imperative to explore radically different models of engagement and change the terms of business. For this nomad, having played the agency game within the constraints of the model for half a career, I am no longer satisfied and seek a new model. Uncoupling from the yoke of paid time means exploring the venture continuum, where risk meets the potential for exponential upside. Looking at the state of the digital nation today, what model might you land on if you were to start from scratch? There is plenty of inspiration to draw on as we ask the question.

Chapter VI: Venture Pathfinding

Intro: Searching for inspiration for new business models for the creative class, we move down the venture gradient and spend some time in the halfworld of agency + venture work. We also find trailblazers from the creative class have forged new paths in the world of venture.

Ever since the day that Instagram sold for a billion dollars, agencies have had the hots for the shiny, exciting, world of startup and venture. Let’s take a look at some of the more prominent plays for agencies engaging startup and venture…

Ad Holding Group & Agency Venture Plays

The ad holding group agencies are hanging with the startups and tech world like a parent in high tops at a millennial house party. They know tech is cool, and they go to all the gigs Facebook and Google put on to demonstrate the optimal method of applying their lips to their tech tailpipes. All the while the last 10% of market growth slowly disappears… to Google and Facebook.

They are also very happy to spend their big brand client’s money to try to help them work out how to play startup, ball pit corporate accelerators and all. But, they have bigger fish to fry with the consultancies looking for a piece of their action. Brands and marketing agencies have downsized their presence at SXSW. “It lost its community of innovation” they say… This is perhaps more of a bellwether of brand’s reduced desire to ‘play startup’ as well as of the more pressing concerns of agencies than the health of SXSW and the tech ecosystem itself.

Since we covered The Agency Venture fund in State in 2016, several prominent digital product shops have been taking big strides into the space. R/GA are leading the halfworld pack with their ever-expanding set of R/GA Ventures accelerators.

R/GA have done an exceptional job of leveraging their brand to pivot into venture footing. They have done so again and again to remain relevant since 1977, when they first launched as a video production shop. The genius move here has been to harness their big brand relationships to sponsor their accelerator programmes. This pushes the cost off their own P&L. Their promise is “financial capital, creative capital and client relationship capital to companies who participate”. The reality is that the involvement of the agency’s creative talent in the accelerators is limited and restricted. A true integration it is not. For the creative class, the setup provides a limited scope for engagement in venture work and of course none of the upside. The R/GA accelerators are more akin to brand extensions, and very clever ones at that as it is not easy to pull off.

On that note, let’s look under the hood and have some real talk about the challenges of resolving a consultancy and venture operation.

My Precious…

Those of us who have worked in the agency game know that from the cleaners right on up to the owners, absolutely EVERYONE in the company wants to work on the shiny, startup stuff. For the talent, the venture work represents an opportunity to cover new, refreshing territory and enjoy different challenges. For the leadership and ownership, after a career of grind in the traditional consultancy model, venture represents an opportunity to do something new and potentially pivot the business. And who can blame them? This is a chance to escape what begins to feel like a repetitive Sisyphean tragedy of a working life. The shift in focus brings risk to the business and requires deft transition and clarification of leadership responsibilities to ensure smooth operations.

“Fuck You Money” Required

Venture is expensive. Operating in the venture space with any gravitas has thus far been the domain of larger shops such as IDEO, Frog, R/GA, and ustwo. The reason being that you need scale, a lot of spare cash, and serious intent to spend it in order to play the game. Even if you were running your consultancy business at a healthy 25% margin, it is not easily afforded. With agencies facing costs scaling inversely to shrinking client budgets, the margins that allow permission to play are declining. Venture play becomes a luxury when the bulk of the operations, the legacy business, is under pressure. In that scenario, the economics of risk-based, deferred revenue, venture work is fundamentally irreconcilable with paid for time consultancy work.

The other key issue is that without external funding or a sidecar fund, prorata rights or not, a regular agency can’t afford to follow on in their investments or even their own creations. You truly need that ‘fuck you money’ to be able to ignore the variable profit margins of your consultancy P&L. My prediction is that you’ll begin to see large agencies leveraging their brand to raise micro-funds (sub $100m) to avoid the pressure on the group’s cashflow.

The Agency & Startup Process Is Incompatible

When the mobile app boom boomed, in search of riches and fame by proxy, the agency world rushed to work with startups. The neat narrative was that the agency could contribute its brand, marketing and product building expertise to the startup and together build the next Instagram, Uber, Snapchat, Tinder. [CUT TO: Celebratory post-billion dollar IPO Soylent cocktail party.]

However, as skilled as the agency may be, what works for Verizon doesn’t work for a pre-product startup. Agencies and startups have different blood types. The sad reality is that the trail of agency startup collaboration is littered with not only excitement, hope, and good intention, but also with corpses, disappointment, blown budgets, antipathy, and burnt bridges.

Working Methods

Building a startup business is not the same thing as building a brand or making an app. The processes and methods by which agencies have serviced their corporate clients under expensive time and material arrangements, are not readily compatible with the startup paradigm. Startups need to operate with small, pragmatic, agile teams to get to market fast, iterate, pivot, and generally navigate the rapids. Sometimes you just need to do what the CEO says if she has a hunch. That is a far cry from bloated teams, months-long research and discovery phases, evaluate everything before you leap, considered brand executions and the like.

Poor Dealflow & Evaluation

When it comes to evaluating opportunities, agencies lack the necessary truffle pig skills to filter founders and ideas from their dealflow. In fact they generally lack solid dealflow in the first place. These are two things that VCs have done for a living for a veeeery long time. Agencies have been historically poor in filtering viable candidates to partner with. The unbound optimism and ‘make it work’ attitude with which agencies must respond to a conventional client brief, becomes their undoing on the venture evaluation side. Many ideas were not worthy of the risk, and many startups did not need an agency partner. This often led to engagements with first time entrepreneurs who had never before built a company, let alone a product they were getting assistance with. Invariably it all ends in tears.

It is primarily for these reason that so many agency startup collaborations end in acrimony and mutual blame, with valuable runway blown and “useless” output. Agencies have a tendency to blame the client and not look in the mirror themselves enough. For those relationships to work it will require agencies to fundamentally retool their processes for the startup flow, which is a considerable challenge, if the whole company operates the other way. Agencies will also need to develop better dealflow and evaluate opportunity and teams better.

Incompatible Talent

Beyond process incompatibility between agencies and startups, there is a talent compatibility issue. Even at the leading product focused studios, I would say that only 10% of the talent is capable of delivering instant value to a startup. Another 10% will learn to swim if pushed in the deep end, but that’s going to burn time and runway that the startup can ill afford to lose. And that is at the best shops. From there on downwards you are working with single-digit percentages. The rest of the agency talent pool is simply not suited for the startup terrain and task, the necessary muscles either atrophied or never developed from years of enterprise work. John Maeda set out a list of 28 skills that designers need to understand in business and startups in his 2018 Design in Tech Report.

The fact is that creatives working in an agency environment are rarely exposed to even half of this list. Most of the corporate client stakeholders they work with would not even know where to begin to find this information themselves, so large and fragmented are their organisations. You are not simply going to pick up or develop these skills in a regular consultancy environment. Therefore as an agency, you are not in a position to offer them on to a startup as a service.

John Maeda on Twitter

I've been training myself to become a Product Manager, Data Scientist, and User Researcher these days and the 2018 #DesignInTech Report rollup tells me why.

Before you get your knickers in a twist (don’t worry, I’m not talking about you. You’re not in the 90%), this is not some sweeping damnation of swathes of the agency industry. It is simply a reflection of the years of conditioning that comes from doing enterprise and corporate work. It’s like asking David Beckham to play Rugby or some hunking rugby bloke to play football (of the English variety). Simply different body types offering different kinds of value.

Whilst agencies have flocked like moths to the startup flame, the vast majority of them are innately incompatible with startups from an economic, process, or talent perspective. In that light, the agency will only ever be a half-step towards the world of venture.

The Trailblazers

When many of us unwittingly began our careers in digital/tech/design, it was a pure passion play. We’d excitedly get our hands on whatever primitive tools and limited learning resources we could play with — a far cry from the embarrassment of riches available today — and create. In a twist of fate, whilst others around us took ‘real’ jobs, it just so happened that an industry grew around us that, for better or for worse, would come to transform the modern era. The world has embraced technology and creativity. Today in this game it is possible to see the world, be courted by presidents (for better or for worse) and become a gazillionaire. Told you mum!

Finally ‘Design’ and ‘Product’ is fully acknowledged as a critical factor in business and startup success. Design thinking blah blah blah, digital transformation blah blah blah. Congratulations! We got our seat at the table. Did everyone get their prize in the mail? What are you going to do with it?

For the talent at the top of their game, the industry now presents a dizzying array of opportunities. You could work in-house for a brand or enterprise and help them chase their digital future, work at an agency or consultancy to help said brands chase their digital future by proxy, or work at the sharp end, fully immersed at a tech company. Each option has its benefits and drawbacks and there is no ‘wrong’ choice. However, with our focus on venture, let’s examine examples of trailblazers from the creative community in that space.

• Advise a startup. Successful creatives often consult with emerging startups for a half point or point share of the 1% to 5% equity pool startups usually set aside for advisors. The role involves setting aside a limited amount of time to help with critical/foundational decisions that the startup needs to make, as well as the normal networking and recruitment support. Precisely what is delivered under an advisory agreement is often vague and the arrangement not infrequently leads to disappointment for the startup. This in itself provides an opportunity, helping to shape up the advisory model.
• Join a startup. Let’s simply categorise this as joining an unproven, early stage business. Whilst this used to be the hottest option of the last five years, the luster is fading on this option vis-à-vis less risky brand, agency, startup positions. Going down this path is a topic well-covered elsewhere, so let’s leave it at that.
• Start your own startup. A number of designer founded startups such as Square/Twitter — Jack Dorsey, AirBnB — Brian Chesky & Joe Gebbia, Pinterest — Evan Sharp, WeWork — Miguel McKelvey, Kickstarter — Charles Adler, Etsy — Rob Kalin, have hit the BIG time. Forget the seat, creatives own the table too now. However, it is not all about herds of unicorns roaming the silicon plains towards triumphant IPOs. There are great examples of creative founded startups in Melanie Perkins (Canva), Naama Alon (Honeybook), Designers Sam Hashemi and Tiffany Chu - (Remix). Jesse Genet (Lumi). Willem Van Lancker (Oyster). Rashmi Sinha (Slideshare), which sold to LinkedIn for $119M. Check out designerfounders.com for some inspiration as well as womenwho.design.
• Another route to pursue this interest is to join a fund as a Limited Partner, which gives both exposure to the work of startups and access to investment dealflow. However, this is, of course, a pay-to-play usually requiring a minimum $25k (for a micro-fund) investment into the fund by the LP. This is a level of ‘spare cash’ that few will achieve in their creative careers, or would be an investment they’d have a hard time arguing with a partner about making.
• Join a VC firm. With money no longer being a differentiator, VC firms have looked to enhance their ‘value add’ by adding creative services to their stack. Successful creatives have found home in prominent venture capital firms, assisting their portfolio companies with design advisory. GV have led the field with Jake Knapp, Braden Kowitz, and John Zeratsky enjoying long tenures of over six years. Today they are home to Vanessa cho, Kate Aronowitz, Michael Margolis, and Tom Hulme (general partner with a strong design and investor background). Elsewhere Irene Au (Khosla Ventures), Albert Lee (NEA), Jeffrey Veen (True Ventures), Jason Mayden (Accel) have blazed the trail for the creative class. There are so few people in the role of “design partner”, it is far from codified, which in itself presents and opportunity.
• It’s not all one-way traffic though. What was highlighted as a hot trend a few years ago, appears to be more of a trickle. It remains truly rarified air for the creative class. John Maeda, a prominent prototype for the designer to VC shift, left Kleiner Perkins for Automattic/Wordpress and Daniel Burka left Google Ventures to jump into a not-for-profit at Resolve to Save Lives. Daniel shone some light on the role for me, explaining design partners get to work on “big problems that are important and complex.”, adding “Every designer who has been a partner at a high-level VC fund is really senior. You’re in a position to do just about anything you want in your career. The main attraction to working in VC is not working ‘creatively’… it’s working strategically. You get to work with CEOs, founders, heads of product, on the core parts of their business not just their design and not even just their products.” Evidently the role opens up an irresistible and wide range of career opportunities beyond tenure.
• Raise a Fund. Ben Blumenfeld and Enrique Allen, both former designers, established Designer fund in 2011 to make early stage investments in tech startups that are design leaders. Christina Brodbeck, YouTube’s first designer, established Rivet Ventures.

These examples show that there are no excuses. Paths have been forged, and your only limit is your imagination. There are no barriers or excuses for the creative class to step into the world of venture.

Outro: Due to fundamental incompatibilities, the agency model will only ever be a half step into the world of venture. For many who are simply happy to practice their craft that will be just fine, but it’s not enough for me on my quest. However, trailblazers from the creative class have forged new paths, demonstrating that their skills are valued and transferable, highlighting viable opportunity in the venture space.

Chapter VII: The Venture Ecosystem & The Startup Studio

Intro: In continued search of a habitable planet for the creative class, and a new model to invest ourselves in, we cross the divide and step firmly into the venture ecosystem. We examine the evolution of the startup studio model. What is there to learn that we can make ours?

The supporting venture ecosystem for startups is multi-layered, ranging from angel and seed investors (SVAngels, 500 Startups) to accelerators (Y Combinator, Techstars, Dreamit) and then the VCs themselves (Andreessen Horowitz, Kleiner Perkins, Index Ventures — just to cover coasts, shapes and sizes —Union Square Ventures, FirstMark, Thrive, Greycroft). International friends, please forgive the US focus, it’s simply my particular playpit.

In recent years the startup studio, also known as venture studio, has emerged as a part of that ecosystem. People wiser than I have written about what a startup studio is. Here are some ‘Go To’ articles: this 101 by Royal Montgomery, this by App’n’roll, and this on the differences between venture players by Thibaud Elziere. There’s even a bloody book!

A startup studio deploys its expertise, resources and infrastructure under a platform approach to generate and validate startup ideas, then build and launch them into the market. The studio assigns a founding CEO to grow the companies into independent entities with the studio owning the lion’s share of the equity. The expertise and nest they provide allow them to increase a startup’s odds of survival and success over those of a startup, naked out in the wilderness. They are markedly different to accelerators and incubators, well at least they used to be.

In The Beginning, There Was Bill, And Bill Had A Groove

The venture studio is not a new model; the originator being Bill Gross’s idealab from way back in 1996, which served as an incubator. The first studio to take this concept into the post dot-com crash era as a true startup studio, the Lucy of the lineage, was Betaworks. Their founder, John Borthwick, was inspired by the now defunct venture trailbalzers ICG and CMGi. Later Science and Expa came to help to establish the model within the ecosystem. Today there are well over 100 startup studios across the world, half having been founded since 2013. It is evidently a growing model and a global phenomenon, with well over half in Europe. Here’s a twitter list of notable examples.

I would sidebar Rocket Internet from the Genealogy above based on their ‘startups with proven business models’ approach. Just like that Eames ‘Inspired’ Lounge Chair, those with creative sensibilities will find the Xerox startup model of this Samwer Brothers founded studio somewhat controversial. I do however doff my hat to them for systemising the approach, creating a platform and listing on the Frankfurt stock exchange, becoming billionaires along the way. How that turned out for their investors is another matter, with them delisting six years later. Objectively they are a very impressive organisation. Rocket Internet highlights the benefits of a platform, or productized, approach that creates value not only in the startups they launch, but also in the startup studio itself.

A Varied, Ever-evolving Model

In the opening remarks of the superb 2016 PIE Forum, the only formal gathering of US startup studio operators that has ever taken place, the host Jeff Stewart highlighted that there is not only one flavour of startup studio “founders inform the flavour based on their experiences”. i.e. the DNA of the founding team defines what kind of stack the studio offers. If you dig into the nucleus of nearly every major studio, the DNA is primarily technical, business school, finance, VC.

Furthermore, startup studio operator and Foursquare co-founder, Naveen Selvadurai, said that they consider the studio itself to be a startup. So just like any good startup, reacting to data and the market, you have a great deal of variation in the offering/stack and a lot of iteration of the business model. This is evidenced in several important shifts that nearly all major startup studios have made from their earlier iterations.

The Startup For Enterprise Play

There are a subset of startup studios that intersect with enterprise/corporate clients. Prehype, Founders Factory, and Human Ventures all have programmes focused on opportunity and value creation for corporate partners. The startup studio does the running on the opportunity space, deal sourcing, company, and team building. Within the ‘startup for enterprise’ model there are subtle differences in execution and focus so let’s look at a few of the key operators in the space.

Founders Factory in the UK develops up to 12 startups a year across a wide range of verticals from their London, Johannesburg and Paris offices. These verticals are aligned with the strategic interests and needs of corporate partners who symbiotically support the startups with insights, data, IP, and distribution. Founders Factory build a founding team and take a minority stake in each startup in exchange for the aforementioned support, £150,000 seed round and 12 months of operational support. Interestingly the corporate partners who invest up to the region of “several million pounds” take a stake in Founders Factory rather than the specific startup focused on their vertical. Whilst operating this model at scale, they also operate an early stage accelerator. Their portfolio companies have so far raised £160m.

Prehype, also proponents of the ‘startup for enterprise’ model, have a slightly different approach. They build or reshape startups for and with enterprise partners, with the ultimate objective of integration or acquisition by said enterprise partner. Prehype installs an ‘intrapreneur’ selected from the corporate as CEO and builds a startup fine tuned to the needs of the enterprise partner — the buyer in waiting. That partner has the option to share ownership of the startup or purchase the startup outright down the line, facilitating an early exit for the studio. They are open in highlighting that not every initiative should by default end up turning into a company. For Prehype ‘corporate co-creation’ is only one strand of their operations. They have had success in building and/or exiting their own startups (BarkBox, Managed by Q, AND CO, and Roman), support EIRs in developing their next startup, and invest directly.

Entering the fray in 2019, New York’s Human Ventures established an enterprise arm focused work with Fortune 100 companies helping them ‘accelerate and de-risk entry into new products and markets’. They leverage their operator network and platform to quickly launch companies with/for enterprise sponsors. Those NewCos are either ‘spun in’ (absorbed by the sponsor), or kept as free standing companies with the sponsor retaining a minority stake and potential future acquisition.

This is also a play space for the management consultancies such as BCG Digital Ventures who offer a similar service — acquiring or developing a startup and getting paid 10x per solution by enterprise clients. Though having what is still in essence a management consultancy, agile as a corpse, build a startup feels like insanity. Anyway, this service generates a significant revenue stream for the management consultancy.

The startup for enterprise model reads like a win-win for all concerned. It is a compelling proposition to large and unagile enterprise partners keen to surface opportunity, avoid disruption, or satisfy a mandated innovation agenda. The corporate partner as ride along sponsor, gets access to dealflow, investment opportunities, technologies, all at a fraction of the cost of attempting it themselves. They get to check their shareholder mandated innovation box. For the startup studio serving as an innovation comfort blanket to big corporates, it offers the opportunity to generate smooth and stable revenues to offset the venture studio model’s feast or famine mode, where you are holding your breath for your next liquidity event. The fees involved, very much chump change for a large corporate, are significant funds for a startup studio model, providing a stable foundation to operate from. Location also presents a significant advantage to studios situated in major cities with diverse industries.

Benedict Evans on Twitter

I run the innovation lab. It's like we're a startup, but inside a big company." https://t.co/q3m7XysPNn

However, startups are from Mars and enterprise is from Venus. Meshing with large scale corporate partners brings as many challenges as it does advantages. Many generations bear the scars of meaningless corporate ‘innovation theater’. Startups are already high risk endeavors without the need to simultaneously satisfy a corporate sponsor so let’s consider some of the risks.

1. Cadence. Working with enterprise is slow AF! What feels like light speed for the enterprise partner is actually eons for the startup studio endlessly crafting corporate stakeholder decks 3 months in.
2. Stakeholders. Getting the attention and focus of key corporate stakeholders, for whom this is often a passive interest rather than a necessarily all absorbing obsession, is hard and slows things down.
3. Product. In terms of product development, building for an enterprise sponsor might take you off the path to product market fit, lead to expensive code branches, and distracting custom feature sets.
4. Data. The promise of rich sets of enterprise data to build insights from invariably flounder when the realities of corporate data privacy policies kick in, especially in the financial and insurance sector.
5. Talent. The model attracts quasi startup CEOs, business school types, who want to be a startup CEO in a ‘safer’ environment. At a stage in their career, perhaps with a family, mortgage, and living standard that fosters a correspondingly lower appetite for risk. That’s not necessarily a bad thing, but it’s a factor to be aware of.
6. Lifespan. Once a startup is acquired and integrated by its enterprise sponsor, the medium to long-term prospects of survival are diminished. Unless held at arm’s length by its corporate buyer, it will most certainly die a rapid death because the only reason it worked in the first place is that it did not grow in a stifling enterprise environment.

This subset of the venture studio model is a solid line of business if you enter into eyes open and cater for the compromise and opportunity cost. Cleary to make this work you need to build a two speed operation that can culturally and operationally tolerate the juxtaposition, and maintain a membrane to keep the two from intertwining. This is a space that I can only see as growing in value potential and opportunity. How it all plays out is still to be seen but a number of studios have cast their die.

The Startup For Enterprise Model is perhaps ideal for traditional agencies who can get their act together. However, if they bring the same approach as they do to their enterprise clients, then they are going to fall on their face. Building startups is a very different game. There is a very clear line between the experience in holistic venture building that startup studios have and are staffed for and the abstracted product-focused offering of the agency and consultancy world… Buyer beware!

1/ A Google search would have you believe that every big CPG company has a sound venture strategy. But the CEOs and execs of these companies would tell you something different. Or at least that is what they are telling me....

The “Pre-company” Venture Studio Model

It is a long standing convention for venture capital firms and venture studios to offer a temporary home to startup entrepreneurs who are preparing for their next lap of the startup circuit. The ‘entrepreneur in residence’ system through which the VC/Studio offers a desk, support, and resources, all in the hope that they might get to be the first cheque in said entrepreneur’s next big idea. Two venture studios in particular, Entrepreneurs First (EF), and Antler (not to be confused with branding shop Red Antler), have made that somewhat informal system the basis for their entire model.

EF and Antler operate a matchmaking entrepreneur in residence programme on steroids and at scale, in the belief that a true opportunity lies in investing at the ‘pre-company’ stage in potential founders, and matchmaking founding teams. They see many more potential founders around the world beyond the atypical Stanford and Ivy leave track. They offer a system and support to surface them, and help match them with co-founders, and help them work on their ideas over a half year process. EF takes roughly 10% of the companies they have helped found in return for their efforts. Interestingly, both studios were founded by former McKinsey management consultants, not the typical startup builder pedigree, but as you will see those skills have been applied to make a model work.

EF’s co-founders Matt Clifford & Alice Bentinck (rare and very welcome founder’s diversity in the venture studio space) say EF “pays you to find a co-founder & invests in your company. We’ve helped 1000+ people create 200+ companies, worth a combined $1.5bn.”. Antler calls itself “an international Talent Investor, which supports individuals to build technology companies” with a similar focus of identifying and investing in people ‘pre-company’. Check out this a podcast interview with Matt for a lovely breakdown of the model.

They also share two unique characteristics that their fellow venture studio brethren do not. The first is global reach, as startup studios largely operate in one or two geographies. Both EF and Antler have spread their wings globally. EF was founded in London, and then over eight years expanded to six locations including Berlin, Paris, Singapore, Hong Kong, and Bangalore. Antler was founded in Singapore and in under two years expanded to Amsterdam, London, Oslo, Stockholm, Sydney, New York, and Nairobi.

The second is the funding of venture studios themselves, which has been a challenge historically with investors asking what exactly they would be investing in (studio or the portfolio?) as well as what a liquidity event or exit looks like. But EF has attracted serious backing from LinkedIn co-founder Reid Hoffman, raising $115M in their recent 2019 round. Antler has been backed by Facebook co-founder Eduardo Saverin and raised a $50M round in 2019. Both have proven that the venture studio model, or their take on it, is in itself investable, which is something that previous generations of venture studios have found challenging. That in itself is a remarkable development for the overall venture studio model.

The Startup Studio’s Diminishing Value Proposition

The value proposition has had to shift from the inception of the ‘modern’ startup studio model in 2007. Way back then it used to be prohibitively expensive to launch a startup. Before the cloud hosting era that gave us those awesome, omnipresent, Microsoft Cloud ads, on-premise server costs alone were too high a barrier for the average entrepreneur. As such, a startup studio was a far more compelling proposition for a potential entrepreneur to get their idea off the ground than it is today. That meant, by deploying its infrastructure alone, a studio could attract startups and startup entrepreneurs on favourable terms. However, with it becoming cheaper and cheaper to launch a startup, possibly too cheap, the startup studio model has had to adapt to continue to compete.

Bug Tracking The Startup Studio Model

Whilst Angels and VCs can make multiple investments and spread their risk, requiring a two in ten hit rate, the startup studio can only launch so many companies a year, and each bears considerable risk. It is heavily cash and resource intensive and if you have several unprofitable startups suckling the teat in parallel, the air can get pretty thin for the studio. You might be sitting on tens of millions in equity value. But it might as well be monopoly money unless you can get to a revenue generating round of financing that lets you cash in a slice of your pie. I am sure that major investments into Betawork’s Giphy and the sale of Science Inc’s Dollar Shave Club to Unilever for a cool billion were like coming up for air from a record free dive.

The In-Vitro Founder CEO Paradox

When it comes to launching their own startups and installing the founding team, there lies a paradox at the heart of the startup studio model. A founder of their own startup would enjoy 100% ownership, vested of course for best practice. They need to hand out a slice of their pie with each round of financing and issuance of stock options to the management team. If she is successful in establishing a profitable and valuable business (in the world of tech those are not often bedfellows), except in the case of an early exit, they may go through four(ish) rounds of financing. This will often leave the founder with 10–20% of the business, 20% for the management team and 60% for their investors of all ilks. Cases of course vary, but forgive numbers to illustrate the point. That’s the natural founder scenario, the hidden reality behind the outlier situations for Zuckerberg, Gates and Kalanick who retained significant ownership and majority voting rights as their companies scaled.

The tension in the startup studio model is that the amount of equity an installed ‘in vitro’ founder receives is significantly lower. Rightfully so as the startup studio is taking all the risk and needs to retain equity to recoup its investment. This equity distribution has led to accusations of startup studios being greedy — perhaps a misplaced interpretation as it is simply a necessary characteristic of the model.

Running the model, if the startup goes the full gauntlet, the installed founder CEO may end up with low single digits for practically killing themselves over the 4 to 6 years of their life. This has the potential to trigger an existential crisis in the installed freshman founder when they realise “I’ve got this”, but also that their upside is incomparable to that of a ‘natural’ founder. The pressure is immense, and the founder’s dilemma is real. It risks creating a disincentive to run the full course and could destabilise the startup if key people leave — we have to maintain those all-important narratives. This, in turn, has the potential to affect VC funding, where the preference is to invest in teams ahead of products.

It also means that a startup studio will not easily attract an experienced founder without giving up a significant stake in the business. That does not work for the startup studio model. This reduces the candidate pool of installed founder CEOs to those with potential to develop into the role. However, just like the ‘startup for enterprise’ founder CEO we discussed above, it might be the ideal, risk-appetite appropriate, comfortable fit for many a talented human.

Ideally, this is all a matter for an honest upfront conversation between all parties. Perhaps this outcome is already considered by the venture studio ownership and, if they manage transitions well, they end up with a valuable company and an even stronger equity position.

The Inside-Out/Outside-In* Model

The startup studio model was grounded in acting as a foundry for developing its own startups, working inside-out. However, to improve their odds, many startup studios have extended their services to work ‘outside-in’ with external startups that already have their wheels in motion. This involves either bringing them into their own incubation or accelerator programmes. Naturally, in this capacity, they take a much smaller equity consideration in return for the services of the studio than they would for their own creation. Expa launched its Lab programme in 2017, Betaworks launched their 11-week Camps, and Science their Incubators, shifting the model towards the accelerator model rather than exclusively developing their own companies. *confession: phrase stolen from an Anders Frostenson deck I might have peeked at.

Packing Cash For The Journey!

Another bug in the startup studio system found the studio in the ironic position of being priced out of their most successful creations. When one of their startups would get solid traction and a correspondingly high valuation, they would not have sufficient cash on hand to follow on in each round of financing and get slowly diluted. Yeah, you might have spent 1 million building startup X, but now you own 30%, it’s series C and with a $100M valuation, 5% is going to cost you a cool $5M (just let me check what’s left in my Venmo). This has led to the recent trend of startup studio’s raising their own funds to follow on and stay in the game. It also means that many startup studios are now serving as VC funds, or have migrated completely to the model. In fact, it does not look like any major startup studio does not now have an associated fund. Doesn’t seem like you can have one without the other.

So, What The Hell Is A Startup Studio?

Right?! As you can see, the lines have blurred as to what a startup studio is, with many originators of the model shape shifting into startup studio, cum-accelerator, cum-VC. For example co-founder of Uber, Garrett Camp’s Expa looks more like an incubator VC today and Obvious Ventures, who gave birth to Medium and Twitter, seem positioned more like VCs based on their latest fund. Science has pushed hard into the ICO and blockchain space with their Science Tokenhub ICO.

You’d be forgiven for wondering what defines a startup studio after all this. The point is that the definition does not really matter. It’s a vessel for an assembly of smart people, well-versed in making things and starting companies, working out every and any which way they can best apply their energy, experience, network and knowledge ;).

Seeking Creative DNA?

If you look at the origin and composition of all the main players in the startup studio space, the founding DNA is not creativity. The founding team are usually any combination of a business school, consultancy, finance/VC, crowd. There are however, creative capital exceptions emerging from the likes of Combine, started by Soleio and Adam Michela and Sweet Studio in Stockholm. It will be interesting what we see from them as they find their way.

Outro: The startup studio is not new, but it is constantly evolving. Learning from the evolution of the model, defining a model based on deploying creative capital presents a clear opportunity. For my own search, the journey, rather than the destination, became the source of inspiration. Rich in discovery, conversation, and new traveling companions I was inspired to forge a new path. Come alive! What would a startup studio founded upon creative DNA and its corresponding stack look like?

Chapter VIII: Blueprint: The Creative Capital Studio

Intro: We’ve journeyed across the industry landscape, from the media maelstrom, to the challenges of the agency model, found learnings from agency-startup collaborations and the startup studio world. What vessel can we build to best harness the skills and capabilities of the creative class in the venture space, on OUR terms? Let’s sketch out a blueprint for the Creative Capital Studio…

The Digital Product Studio blends three components: Consultancy, Venture & Own Product. Each feeds and informs the other in a powerful virtuous circle of network, experience, funding, brand, craft, and talent.

The Digital Product Studio was a model based on pivoting an existing legacy business. What if you were starting from scratch without the constraints of serving a legacy consultancy business? Looking at the state of today’s digital nation, and all we have learnt above, what model might we land on? Seeking an evolutionary leap, we’re looking for a model that both properly harnesses the skills and capabilities of the creative class and transforms the terms of business to a funded, risk-based, venture model with the potential for exponential returns.

The Creative Capital Studio leverages the skills, experience, and network of industry-leading creative professionals in the field of tech. Operating on an equity-for-services, venture basis, it delivers a compelling suite of value-add expertise in product, culture and growth to startups and VC firms. The studio also leverages its resources acting as a foundry to its own startup ideas. The operations of the studio are supported by a side-car micro-fund that allows for additional investment in the dealflow the studio attracts in the course of its business.

The Creative Capital Studio Blueprint

We’re going to lay out a model for a Creative Capital Studio; the stack, setup, talent, partners and model — as a new vehicle for the creative class. We are doing so predicated on a few key assumptions.

• We’ve sworn off being ‘paid for time’ as it linearly yokes time to income, locking the business into a game of maximum, fixed odds, returns. That means establishing a funded, risk-reward model that offers founders, employees and investors the opportunity for significant upside, albeit at a risk.
• The Creative Capital Studio is predicated on presenting an offering that is compelling enough for startups or corporations to engage in ‘alternative revenue arrangements’. This means parting with equity, profits, licensing, and no doubt also cryptocurrency and tokens. Our aim is to explore and normalise the alternative.
• Money is everywhere. Mega funds such as SoftBank’s mammoth $100 billion Vision Fund have distorted the landscape, pushing VC firms to raise greater amounts than ever before. Corporate and institutional money is flooding the startup ecosystem. All of this is unallocated capital in search of a home, and its ubiquity makes the dollar’s real value utterly homogenous. Now to get heard, it is about the value add, and creativity is the key.

Let’s do this…

Step 1. The Stack

Any compelling service offering (stack) must be predicated on an understanding of the needs of your market. If our market is startup focused then let’s dive, pseudo-HBR style, into a list of the critical factors in startup success. Yeah yeah, I know lists like these can be found everywhere, for example in this CB Insights report and First Round’s excellent State Of Startups. So just consider this A list rather than THE list.

The Seven Critical Factors In Startup Success

0. IDEA
Idea is everything. What problem are we deeply motivated to solve? What’s the size and growth potential of the market, company growth strategy, and how defensible is it. And that’s all before you marry idea to product.

1. MONEY
Runway is life. Be the source self-funding, debt financing or investment by friends & family, angel, VC or institutional, without the money nothing happens. That’s hopefully a runway taking you to sustainability and product market fit.

2. NETWORK
People and networks. Whether they are advisors, supporters, co-founders, customers, mentors employees, or investors, social capital is as important as venture capital. Your job is to know the people you need to know and help them want to help you.

3. OPERATIONS
The hidden plumbing. Operational and back office functions such as HR, payroll & benefits, office build & management, and all important sage legal counsel are unglamorous but utterly necessary for the front of house to be able to operate.

4. PRODUCT
“cool story, bro”. An idea without execution is nothing, and as (we said) Scott Belsky said in State “It’s not about ideas, it’s about making ideas happen”. That means shipping product to users, requiring design, engineering, product management and process to make the vision a reality.

5. PEOPLE & CULTURE
Humans are complicated. A startup needs to be able to aggressively recruit employees as well as develop and retain them. This means taking care of culture, organisational design, and personal development to support motivation and collaboration.

6. GROWTH
Users baby. Without em you ain’t got nothin’. Beyond the product experience, you need to be able to deploy sticky, viral, and paid growth strategies (fantastic Adora Cheung video on the topic here) to take your user base from ten, to ten thousand, ten million, and beyond.

7. LUCK
Luck is a thing. However hard you work or plan, so much of the journey is way out of your control. From timing, funding, and market conditions, to the right intro at the right time, you need the universe to line up a whole bunch for you. It’s impossible to plan for, but possible to cultivate.

The Creative Capital Studio Stack

So far so good right? Now time to define our stack from that hot mess. We’re going to pass on Money, Network and Operations.

I’d argue that in the area of Money it would be nigh on impossible to fashion a compelling enough proposition to command equity in return. I know that sounds odd (as equity is in theory exactly what you get for investing money), but you need people to accept your money. The fact is that no one, especially a successful startup entrepreneur, could care less about yet another $50M dollar fund. There are literally hundreds of billions of dollars sloshing around the system, looking to be allocated and the stakes are getting higher. There is much more money than there are good startups. So it all comes down to the value add, or you simply don’t get access to dealflow. This homeless capital problem in itself presents a compelling argument for shaping new venture opportunities. Moving down our list, Network and Operations can be widely facilitated, and it would be hard as a new kid on the block to shape a compelling enough offering in this space to be paid for anything other than for time.

Properly leveraging the specific talents of the creative class — our DNA, points to Product, People & Culture, and Growth as the natural stack for a Creative Capital Studio. So let’s dive deeper into what a service offering would look like for each:

4. PRODUCT
“cool story bro”. An idea without execution is nothing, and as (we said) in State, Scott Belsky said “It’s not about ideas, it’s about making ideas happen”. That means shipping product to users, requiring design, engineering, product management and process, to make the vision a reality.

Building high-performing product teams, and shipping product, is hard AF. Bringing together a wide range of disciplines to work creatively at velocity is both a hard won science and art. It is here that we surface the first opportunity for a compelling service offering for the Creative Capital Studio:

• Design: help its startup partners define their core brand and product experience
• Engineering: inform key technology and platform decisions that balance speed to market, scalability and future proofing
• Process: help startups establish best practices and methods in product delivery
• Product delivery: deploy design, engineering, and product management resources to assist its startup partners in the delivery of their product experience

5. PEOPLE & CULTURE
Humans are complicated. A startup needs to be able to aggressively recruit employees as well as develop and retain them. This means taking care of culture, organisational design, and personal development to support motivation and collaboration.

One of the greatest points of failure in a startup is human. Helping people work together towards a commonly understood and clearly communicated mission. A clear North Star, that informs all decisions, is critical. Companies need to consciously design their organisations and foster their culture. Culture is almost impossible to retro-fit, and it must be set and role-modelled by the CEO and founders. Personal development is key to that journey, doing the work to shift individuals from a fixed mindset to a growth mindset. That goes for the CEO and founding team especially, but also for wider teams, supporting both individual and organisational health. In that way, you can scale the human alongside the company. Recruiting is a very necessary and a time-intensive activity — founders spend a disproportionate amount of time building their team. Delays in hiring key staff can burn valuable runway and put the entire mission at risk. Once you have your people, retention becomes key. A nuanced, delicate, but critical area and a very clear opportunity for the Creative Capital Studio to:

• Culture & Org: facilitating work with founders and core teams to surface the startup’s values, vision, and mission. Effectively communicating the vision is key. Often a third party facilitating the process is the only way to extract it from the heart and heads of the founder/s. That, in turn, informs organisational design work, the creation of roles, processes and structures aligned with the startup’s goals. Establishing core and technical skills roadmaps, skills matrices and career pathing to assist with motivation and retention.
• Personal Development & Coaching: help establish a personal development framework for the founders, core team, and wider project teams. Improving communication and feedback, organisational health, resilience. Self-care and mental health is an essential focus area for any healthy company.
• Recruitment, Staffing: with a focus on “hire the right people”, to help recruit operational staff and build teams for the startup across the full range of disciplines. This extends into temporarily staffing or augmenting internal teams to build product, and then transitioning new hires into those roles to ensure self-sufficiency. This is key as the product cannot be ‘owned’ outside the startup as this would risk investor confidence.

6. GROWTH
Users baby. Without em you ain’t got nothin’. Beyond the product experience, you need to be able to deploy sticky, viral, and paid growth strategies (fantastic Adora Cheung video on the topic here) to take your user base from ten, to ten thousand, ten million and beyond.

Growing your user base runs way beyond ‘build it, and they will come’. Growth strategies, data-driven marketing (or growth hacking if you speak tech bro), are thus essential to building your user base. I am going to directly quote Adora Cheung on this front…

“So there are three types of growth. Sticky, viral, and paid growth. Sticky growth is trying to get your existing users to come back and pay you more or use you more. Viral growth is when people talk about you. So you use a product, you really like it and you tell ten other friends, and they like it. That’s viral growth. And the third is paid growth. If you happen to have money in the bank you’re going to be able to use part of that money to buy growth.

Here, expert-practitioners in the Creative Capital studio can advise on, or help execute:

• Sticky growth strategy: improving key metrics such as engagement and retention within the startup’s existing user base through experience design, and technical performance optimisation.
• Viral growth strategy: improving viral growth through product design and the financial modelling and design of referral programs… refer a friend for $X credit.
• Paid growth strategy: advising on performance marketing strategy and ad spend with Facebook, Google and other prominent platforms.

The Platform: Standalone and Complementary Services

The stack described above is, of course, a 2020 vision of a fully established studio. Where you begin should be a reflection of the expertise of the studio’s founding DNA. From there you expand the range of value-add services. The services in the stack are complementary. The studio is able to extend any of the individual services, as well as thread them together into a comprehensive set for truly pivotal impact. Crucially, this happens under a ‘platform approach’ — productising the expertise and process of the studio to be unique, brandable, efficient and defensible. This establishes and builds value beyond the equity portfolio, and in the studio itself, making it an investable vehicle in its own right.

Step 2. The Setup

The corporate structure of the operating group for the Creative Capital Studio needs to be:

• Tax-optimised: Properly leveraging government exemptions and breaks, factoring in short and long-term capital gain scenarios. It must also operate with full consideration for the tax affairs of the individuals who work in the company. Personal note: Not advocating for a nefarious offshore “At X we follow the laws, and if the system changes we will comply.” setup. For me ‘optimisation’ sits within the borders of the nation the studio operates in, rightly paying its dues to the society in which it grows.
• Distributable: Allowing for incentive programmes such as profit share and equity vesting for all employees, to help drive the company forwards with the upside properly shared. There are many ways to do this but exploring the VC firm GP / LP setup and incentive structure is of interest (more on that below).
• Investable: The Creative Capital Studio is a funded model and requires investment – in the US that would mean a Delaware C-Corp. In order to attract investment in subsequent years, the structure will support investment into a set period of the studio’s operation, be it a year, 18 months or more. Additionally, the group structure needs to accommodate a side-car micro-fund (sub $100M), with all the associated due diligence.
• Sellable: A healthy company is a sellable company. There is no shame or cynicism in building a company whilst still being open to selling (or floating) the platform down the line. The structure must reflect that possibility.

Consequently, the group will comprise of three related entities:

• a. A cost-neutral corporate entity for studio operations. This entity will host the talent / expert-practitioners, the creative DNA of the studio. It will also establish and retain ownership of the platform and process IP, creating real value in and of its own right.
• b. A tax-optimised corporate entity for the holding company. This will collect and hold assets collected in the course of business, such as equity, tokens, and other rights.
• c. A sidecar micro-fund (sub-$100M) attached to the studio operations. This will leverage access to the hard-to-get dealflow the studio generates in the course of its business. The fund, leveraging the value-add of the wider studio, will get an opportunity to invest where similar standalone micro-funds would never get the opportunity. The fund can also invest in the startups that Creative Capital Studio’s spins up. This requires a minimum two person team of experienced investment professionals to operate.

The Creative Capital Studio is not a large company play. The studio at full pelt would require a modest team of 20 to cover it’s stack, leveraging the LP network as well as drawing in partners for any higher torque projects. This would require operational funding of anywhere between $1M to $4M million a year as the business scales up.

Step 3. The Talent

So we have quite the stack to deliver on. This requires more than just a run of the mill crew to deliver, especially if it will be at a standard that can command equity in return for services from leading startups. The output has to be premium, literally money-can’t-buy, pivotal in its impact.

So whichever market the Creative Capital Studio operates in, we’re talking about assembling nothing less than the Avengers. The kind of talent we are talking about will likely be working at, or have worked at, some of the world’s leading tech companies and startups. They may well be founders who have exited. They are also in the cream of the mere 10% of agency talent that is capable of delivering value to startups. This ensures not only the necessary skill level, but also the experience and insights that are of so much value to startups earlier in their journey. Crucially, they are all expert-practitioners, able to not only ‘advise’, but also still able to execute on their given craft. After all, otherwise they’d just be another group of management consultants who’ve never actually done anything, wouldn’t they.

That’s a pretty high bar! How on earth are you going to assemble a group of people who are likely at the top of their game and already enjoying considerable privilege? To thread the eye of that needle, the Creative Capital Studio needs to offer the promise of something different, something better…

• Privilege: Already advising startups for a point here or there
  Promise:
  - Access to the very best startups, dealflow they would not see individually
  - The opportunity to work together with the industry’s leading talent
  - Hedging risk-reward across a widely distributed equity portfolio
  - Legal and tax affairs streamlined for them by the studio
• Privilege: Already working at a great tech company and able to secure a job pretty much anywhere
  Promise:
  - Not working at a great big tech company
  - Lifestyle and the freedom of flexible working in a distributed team
  - The option to work across multiple projects and companies
• Privilege: Already enjoying great pay and benefits and wealthy by any measure
  Promise:
  - If they can afford it, a greater risk-reward upside than playing it safe
  - The opportunity to benefit from a potential sale, or a fund maturing
• Privilege: Already enjoying the fruits of an exit or IPO
  Promise:
  - They have likely already earned all they need for a good life - this is the cherry ;)
  - The opportunity to pass on their experience and wisdom to the next generation
  - Engagement with the industry without undergoing a new startup journey
• Privilege: Already could go and become a VC
  Promise:
  - Access to a formidable network by virtue of the brand
  - The opportunity to invest in the dealflow themselves
  - Getting to truly practise their craft, working deeply across a range of projects

Oh lets’ not forget having some good old-fashioned fun again, building something new in unchartered territory. It’s a long list you need to cover and it will come down to finding people at the right stage of their career and life.

The General Partner (GP), Limited Partner (LP) structure of VC firms (good Quora on the setup right here) inspires a model for the Creative Capital Studio to mirror and build on. It maintains a simple and clear two or three-tier structure, with experienced General Partners at the heart. It also offers Limited Partnerships to the extended network of the studio, allowing an outer tier of industry leading experts to ‘join’ the studio, whilst maintaining their current roles. LPs, rather than investing their money in a fund, invest their time in return for participation in the fund and to benefit from the potential upside of the success of the studio.

-General Studio Partner: Full-time commitment, greater returns
-Limited Studio Partner: Part-time commitment, lesser returns

Remember, our studio creates its portfolio through equity for services. This GP/LP structure also creates a super network effect for all aspects of the business; dealflow, promotion, talent, recruitment, emerging tech, and market insight.

Step 4. The Partners

With the talent covered, let’s focus on the Creative Capital Studio’s clients, partners and collaborators, Startup entrepreneurs, and VC firms.

Startups As Partners

There are potentially thousands of startups to collaborate with in any given market. That doesn’t necessarily make it a good business strategy though. The Creative Capital Studio has to operate with the same level of rigor and expertise in generating and filtering dealflow as that of a leading VC firm. VCs are after all the king-maker, truffle pigs, selecting the best of the best startup entrepreneurs and startups to invest in. It’s a game of odds, and you should never fear filtering the lion’s share of the accessible market to develop the strongest of portfolios.

Applying The Filter
The Creative Capital Studio works only with second time entrepreneurs or with teams who have been through one startup founding experience. That filters 90% of the market from the get go. The focus is on taking smaller amounts of equity in return for short-term, high impact, tactical, services rendered. So the studio needs to work on the candidates with the better odds. The risk is high in working with first time entrepreneurs, who are learning not only in the areas of the Creative Capital Studio’s stack, but also learning for the first time to recruit people, administrate a business, build offices, build product and fundraise. Fundraising alone, learning to pitch the business, establish a network of potential investors, and working your way through to the general partners of the firm, is gruelling and hard won experience. This means that the risk of working with inexperienced partners still learning to ride the bike is much greater. The road of agency-startup collaboration is littered with broken dreams and corpses for this very reason. So we’re taking our odds from 1,000 to one to 100 to one.

The World As 100 Startups
Let’s look at the world as 100 startups. We filter 90 of them as they are first time entrepreneurs, leaving us with a market of ten remaining startups. Nine out of the remaining ten filter the Creative Capital Studio, as the dominant mindset of second time entrepreneurs will be that they don’t need help. Having run the full gauntlet before, they do not need external help, and especially would not part with equity for something they can handle themselves. This leaves us with the one enlightened partner… The second time startup entrepreneur, or an experienced team, who are self-aware, who know what they don’t know, and crucially who understand the strategic benefit of taking the right help at the right moment to advance their goals. They do so even if it means giving up a small amount of equity, in the knowledge that it will exponentially increase the value of their remaining equity. That is Startup X, the client partner of the Creative Capital Studio.

VC Firms As Partners

The second set of partners are VC firms, to which the Creative Capital Studio serves as strategic partner. Many VC firms have developed their own set of value-add services to help with dealflow and to improve the fortunes of their portfolio companies. Google Ventures operates probably the strongest design advisory service, but beyond that the ability of most VCs to get their hands dirty in the creative categories, or indeed at all, is limited. This is where the Creative Capital Studio comes in, acting as a tool for VC firms to consult on their portfolio companies, de-risking and improving their chances of success. Our service stack is additive rather than competitive, fostering a symbiotic relationship that incentivises VCs to pull the Creative Capital Studio into their deals. This generates dealflow for the studio from the greatest truffle pigs in the game. Conversely, the studio itself exposes VCs and its own investors to dealflow generated in the course of its activities, by virtue of operating at the coal face of the industry.

Diversity Alert!

Going to briefly break the fourth wall again. All this talk of working only with second time entrepreneurs and teams naturally skews on diversity. Having experienced a modest degree of success, I was struck at how so many in a similar position, people privileged enough to explore new opportunities with time and capital to hand, looked a lot like me. We’re not benefiting from the vast array of outrageous talent and valuable perspectives out there. Our products, industry, and society are poorer for that. I believe it is the responsibility of all of us in industry to break that cycle, truly for everyone’s good. The studio should be working both ends, the experienced teams yes, but it should also selectively invest in the untapped well of talent in under-represented groups who have not had the opportunity yet. Not just because it is ‘right’, but because we will build better services, companies, and societies as a result. The only people who fear a level playing field are those that fear the limits of their own abilities and rely on undue advantage.

Step 5. The Model

We have our stack, talent, partners, and corporate structure lined up. Time to bring it all together. With this pool of expertise and funding, there are two lines for the platform to operate…

Outside-In: Working with external startups in return for equity
Inside-Out: Acting as a foundry, developing the studio’s own startups

Outside-In

The Creative Capital Studio operates as a form of super advisory, delivering value-add services in return for equity or other forms of risk-reward. This serves as an antidote to the broken advisor model, which is increasingly disenchanting startups who give up valuable equity in return for an open-ended and oft-unfulfilled contribution from the advisor. Startups usually allocate between 2% to 5% of their total equity to the advisor pool, so on an individual advisor basis, this usually means between 0.25% to 1%. The employee equity pool is usually between 5% to 10%. The Creative Capital Studio makes a play for between 1% to 10% of equity from the startup — allocated to the holding company of the group. The amount of equity is dependent on the range of services rendered. Other than equity, the studio can collect ‘alternative’ compensation such as royalties, profit share, and licensing revenue. Let us not ignore the new crypto ‘funding’ paradigm – cryptocurrency and tokens, depending on restrictions, allow for almost instant liquidation of stake.

Given the comparatively smaller level of equity commanded, the Creative Capital Studio must work across multiple projects a year. So the task is to gather a wide range of equity from many startups for the portfolio. The studio works on specific tactical needs on a short-term engagement basis, before extracting itself completely. Operating under a developed method and platform, the Creative Capital Studio is able to efficiently get a very specific, important, job done and then transition out. This is in contrast to a typical startup studio working on its own startups, which is consuming all bandwidth managing perhaps a maximum of two to four companies long-term, in parallel. The tactical, mission oriented arrangement is in greater harmony with startup investor expectations. They do not expect to see critical operations such as product or tech ‘owned’ outside the confines of the startup. Let’s look at some example engagements…

Example I — Culture / Org / Development / Recruitment
Startup X is a seed stage company. Yet to achieve product market fit and having grown rapidly, it is time to shape the company for the next stage of its development. Startup X’s founding team works with the Creative Capital Studio to surface the company’s values, vision and mission in order to provide a clear North Star to inform all decisions. Together they shape the corresponding organisational design as well as recruit the talent required for growth. Developmental frameworks and coaching support are put in place for the founder and key members of the founding team to assist them in the journey. The Creative Capital Studio receives equity in return for its services.

Example II — Design / Engineering / Process / Recruitment
Startup Y is a series A stage company. Currently, their product sits on web and iOS only. Customer and investor pressure requires launching the Android version of their experience within six months to be live and ready for their peak season. Startup Y works with the Creative Capital Studio to shift to a dual platform delivery process and team, as well as design and engineer the Android experience. The Android app is delivered within four months, allowing for testing and code base stabilisation two months before the peak. In the course of that process, an android engineering team is recruited for Startup Y, ensuring self sufficiency by release. The Creative Capital Studio receives equity in return for its services.

Example III — Full Service
Startup Z is a well-known, series B stage company. It has enjoyed success, but now needs to demonstrate growth and potential to secure further financing. Their board and lead investor has directed the leadership, who are feeling the strain, to seek outside assistance. Startup Z works with the Creative Capital Studio to facilitate a revised vision and mission for the company as well as supporting the founders and key teams with developmental frameworks. Together they work on an updated product vision and brand. The teams work together on the product experience to ship the 3.0 of the product, whilst new talent is recruited. After a six month engagement, with Startup Z ready for it’s C round, the Creative Capital Studio steps aside, receiving equity in return for its services.

Inside-Out

Whilst the balance of the Creative Capital Studio’s resources are focused on working outside-in with external startups on short-term, high impact, tactical engagements, the studio also has the ability to act as a foundry on its own ideas. It deploys its resources and expertise (product, people, growth) to rapidly develop, iterate, and ruthlessly filter a selection of ideas. A small selection of ideas are then tested for product market fit. Tomes have been written about this side of the startup studio operations, so I will leave it at that.

What about Luck?

Almost forgot that one. You can not plan for luck or good fortune, but you sure as hell recognise it after the fact. You can, however, improve the conditions for good fortune to befall you. Disposition and character undeniably inform what kind of energy you attract from the universe and the simple act of leaving the house each day improves the conditions for serendipity. I can’t tell you what kind of person to be, but I can share that physical space is key to improving your odds. Opening up the ustwo studios to friends and extended network from all over the world was a game changer. Having a space to meet, host, and gather people, undeniably boosted the number of serendipitous collisions we experienced. So open your doors wide (of course with the proper protection of your IP).

The examples of New Lab, and Pioneer Works in Brooklyn, demonstrate the immense power of space and playing host. Betaworks recently announced Betaworks Studios, their member’s club for builders, the aim most likely not being solely to generate revenue from membership dues. The true value is about what happens at and around the space. By positively and authentically cultivating the conditions for serendipity, the universe tends to bend towards you.

All Together Now

For the Creative Capital Studio to be successful requires the threading of the eyes of multiple needles; gathering the talent, developing a compelling stack, funding, and finding the small fraction of the startup market you can work with. All tied together with a compelling investment proposition for seasoned investors and an incentive mechanism for the team that drives the studio and the extended network.

Despite the US focus of this piece, just like the rapid spread of the Startup Studio model, the Creative Capital Studio model can be established in any market. The more competitive the market, the more awesome and compelling the team and the value proposition will need to be. And you will need to be ‘money-can’t buy’ exceptional as you will be competing with the next best, paid option. But hey, I never pretended it was going to be easy, and the truth is that nothing that is truly great is easy.

The Wrap

Anyway, that’s what I would do. It’s not the re-invention of the wheel, and operators in the startup studio space as well as progressive studios will recognise many components of the model. However, it is a path forwards for the creative class. So please take it, break it, steal it, kick it, love it, fix it. Whatever you do, please move the discussion forward.

It is on each of us to change the terms of business for the creative class. In doing so, we can unlock new opportunity and possibility not only for our people, but also for the wide range of partners such as startups, enterprise, private equity, and investors. We must take what is currently considered alternative into the mainstream. In that regard our greatest work still lies ahead of us.

“I MUST create a system or be enslaved by another man’s; I will not reason and compare: my business is to create.” - William Blake, 1808

What about this nomad’s quest for a home? Today, I am setting out on this very path with FKTRY, a first take on the Creative Capital Studio model. I intend to do so under an ‘open source’ business model, sharing insights, learnings, mistakes, documentation, and much more as I build with old friends and new. But that’s all for another day.

See you out there…

Happy to continue the discussion on social using the hashtag #SOTDN2020, or at @ezyjules.

Please Pledge Parental Leave

If you have read this far and are in the creative industry in the US then please ‘Pledge Parental Leave’. For so many reasons, we need to improve the support we offer our working parents and a simple pledge can make the difference. www.pledgepl.org.

Appreciation

Deep thanks to the many I have met with to help unfold these topics. In particular for the generosity of wisdom, time, and mind of: Paul Murphy, Anders Frostenson, Jessey White-Cinis, Lucie Greene, Daniel Burka, Richard Switzer and the TWG family, Ben Blumenfeld, Camille Hearst, Thomas Petersen, Ben Tregoing, James Weiss, Willem Van Lancker, Chris Stephens, John Maeda, Brian Buirge, Steve Bittan, Jackie Xu, Heather Hartnett, Mike Rudoy and Stefan Bielau. Nod to Liam Oscar Thurston, Creative Director at TWG.io, for his wonderful illustration for the Creative Capital Studio blueprint.…

Your Soundtrack (65m:51s) available on Soundcloud

Joy Division — Love Will Tear us Apart (Original) 3:08
La Roux — In For The Kill (Skream Remix) 5:03
Caribou — Melody Day (Four Tet Remix) 4:45
Jimi Hendrix — All Along The Watchtower 4:08
Donna Missal — Hotline Bling (Drake Cover) 3:13
Louis — Pink Footpath (Original Mix) 6:15
Mr Flagio — Take A Chance (Extended 12" Version) 8:05
Major Lazer — Get Free (ft Amber of Dirty Projectors) 4:49
Seba ft MC Conrad — Planetary Funk Alert 9:55
Daft Punk — Around The World — Harder, Better, Faster, Stronger 7:29
Marcos Cabral & Shux — A Lifetime Groove 11:52
Isreal Kamakawlowo’le — Somewhere Over The Rainbow 5:08

Reference/Resource Table

TBD

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State of the Digital Nation 2020: Venture Road was originally published in COLLIDER // FKTRY on Medium, where people are continuing the conversation by highlighting and responding to this story.

— This is an extract from State of the Digital Nation 2020, a wider piece on the digital industry and creative class. It has been revised and updated in 2021 to cover evolving models and new players in the field. Feel free to follow me @ezyjules for more. —

For as long as I have been in the digital and creative space, I have been fascinated by emerging business models. The model I have been the keenest student of is the startup studio model, personally inspired by the work of Betaworks in New York. So I am happy to share the fascinating evolution of the startup studio model. Here’s a twitter list of key players in the space.

The supporting venture ecosystem for startups is multi-layered, ranging from angel and seed investors (SVAngels, 500 Startups) to accelerators (Y Combinator, Techstars, Dreamit) and then the VCs themselves (Andreessen Horowitz, Kleiner Perkins, Index Ventures — just to cover coasts, shapes and sizes — Union Square Ventures, FirstMark, Thrive, Greycroft). International friends, please forgive the US focus, it’s simply my particular playpit.

In recent years the startup studio, also known as venture studio, has emerged as a part of that ecosystem. People wiser than I have written about what a startup studio is. Here are some ‘Go To’ articles: this 101 by Royal Montgomery, this by App’n’roll, and this on the differences between venture players by Thibaud Elziere. There’s even a bloody book!

A startup studio deploys its expertise, resources and infrastructure under a platform approach to generate and validate startup ideas, then build and launch them into the market. The studio assigns a founding CEO to grow the companies into independent entities with the studio owning the lion’s share of the equity. The expertise and nest they provide allow them to increase a startup’s odds of survival and success over those of a startup, naked out in the wilderness. They are markedly different to accelerators and incubators, well at least they used to be.

In The Beginning, There Was Bill, And Bill Had A Groove

The venture studio is not a new model; the originator being Bill Gross’s idealab from way back in 1996, which served as an incubator. The first studio to take this concept into the post dot-com crash era as a true startup studio, the Lucy of the lineage, was Betaworks. Their founder, John Borthwick, was inspired by the now defunct venture trailblazers ICG and CMGi. Later Science and Expa came to help to establish the model within the ecosystem. Today there are well over 100 startup studios across the world, half having been founded since 2013. It is evidently a growing model and a global phenomenon, with well over half in Europe. Here’s a twitter list of notable examples.

I would sidebar Rocket Internet from the Genealogy above based on their ‘startups with proven business models’ approach. Just like that Eames ‘Inspired’ Lounge Chair, those with creative sensibilities will find the Xerox startup model of this Samwer Brothers founded studio somewhat controversial. I do however doff my hat to them for systemising the approach, creating a platform and listing on the Frankfurt stock exchange, becoming billionaires along the way. How that turned out for their investors is another matter, with them delisting six years later. Objectively they are a very impressive organisation. Rocket Internet highlights the benefits of a platform, or productized, approach that creates value not only in the startups they launch, but also in the startup studio itself.

A Varied, Ever-evolving Model

In the opening remarks of the superb 2016 PIE Forum, the only formal gathering of US startup studio operators that has ever taken place, the host Jeff Stewart highlighted that there is not only one flavour of startup studio “founders inform the flavour based on their experiences”. i.e. the DNA of the founding team defines what kind of stack the studio offers. If you dig into the nucleus of nearly every major studio, the DNA is primarily technical, business school, finance, VC.

Furthermore, startup studio operator and Foursquare co-founder, Naveen Selvadurai, said that they consider the studio itself to be a startup. So just like any good startup, reacting to data and the market, you have a great deal of variation in the offering/stack and a lot of iteration of the business model. This is evidenced in several important shifts that nearly all major startup studios have made from their earlier iterations.

The Startup For Enterprise Play

There are a subset of startup studios that intersect with enterprise/corporate clients. Prehype, Founders Factory, and Human Ventures all have programmes focused on opportunity and value creation for corporate partners. The startup studio does the running on the opportunity space, deal sourcing, company, and team building. Within the ‘startup for enterprise’ model there are subtle differences in execution and focus so let’s look at a few of the key operators in the space.

Founders Factory in the UK develops up to 12 startups a year across a wide range of verticals from their London, Johannesburg and Paris offices. These verticals are aligned with the strategic interests and needs of corporate partners who symbiotically support the startups with insights, data, IP, and distribution. Founders Factory build a founding team and take a minority stake in each startup in exchange for the aforementioned support, £150,000 seed round and 12 months of operational support. Interestingly the corporate partners who invest up to the region of “several million pounds” take a stake in Founders Factory rather than the specific startup focused on their vertical. Whilst operating this model at scale, they also operate an early stage accelerator. As of 2019, their portfolio companies have raised £160m.

Prehype, also proponents of the ‘startup for enterprise’ model, have a slightly different approach. They build or reshape startups for and with enterprise partners, with the ultimate objective of integration or acquisition by said enterprise partner. Prehype installs an ‘intrapreneur’ selected from the corporate as CEO and builds a startup fine tuned to the needs of the enterprise partner — the buyer in waiting. That partner has the option to share ownership of the startup or purchase the startup outright down the line, facilitating an early exit for the studio. They are open in highlighting that not every initiative should by default end up turning into a company. For Prehype ‘corporate co-creation’ is only one strand of their operations. They have had success in building and/or exiting their own startups (BarkBox, Managed by Q, AND CO, and Roman), support EIRs in developing their next startup, and invest directly.

Entering the fray in 2019, New York’s Human Ventures established an enterprise arm focused work with Fortune 100 companies helping them ‘accelerate and de-risk entry into new products and markets’. They leverage their operator network and platform to quickly launch companies with/for enterprise sponsors. Those NewCos are either ‘spun in’ (absorbed by the sponsor), or kept as free standing companies with the sponsor retaining a minority stake and potential future acquisition.

This is also a play space for the management consultancies such as BCG Digital Ventures who offer a similar service — acquiring or developing a startup and getting paid 10x per solution by enterprise clients. Though having what is still in essence a management consultancy, agile as a corpse, build a startup feels like insanity. Anyway, whether its actually effective or not, this service generates a significant revenue stream for the management consultancy.

The startup for enterprise model reads like a win-win for all concerned. It is a compelling proposition to large and unagile enterprise partners keen to surface opportunity, avoid disruption, or satisfy a mandated innovation agenda. The corporate partner as ride along sponsor, gets access to dealflow, investment opportunities, technologies, all at a fraction of the cost of attempting it themselves. They get to check their shareholder mandated innovation box. For the startup studio serving as an innovation comfort blanket to big corporates, it offers the opportunity to generate smooth and stable revenues to offset the venture studio model’s feast or famine mode, where you are holding your breath for your next liquidity event. The fees involved, very much chump change for a large corporate, are significant funds for a startup studio model, providing a stable foundation to operate from. The corporates commit to an annual multi-million dollar investment over a 3 to 5 year period. Location also presents a significant advantage to studios situated in major cities with diverse industries.

Benedict Evans on Twitter

I run the innovation lab. It's like we're a startup, but inside a big company." https://t.co/q3m7XysPNn

However, startups are from Mars and enterprise is from Venus. Meshing with large scale corporate partners brings as many challenges as it does advantages. Many generations bear the scars of meaningless corporate ‘innovation theater’. Startups are already high risk endeavors without the need to simultaneously satisfy a corporate sponsor so let’s consider some of the risks.

1. Cadence. Working with enterprise is slow AF! What feels like light speed for the enterprise partner is actually eons for the startup studio endlessly crafting corporate stakeholder decks three months in.
2. Stakeholders. Getting the attention and focus of key corporate stakeholders, for whom this is often a passive interest rather than a necessarily all absorbing obsession, is hard and slows things down.
3. Product. In terms of product development, building for an enterprise sponsor might take you off the path to product market fit, lead to expensive code branches, and distracting bespoke feature sets.
4. Data. The promises of rich sets of enterprise data to build insights from invariably flounder when the realities of corporate data privacy policies kick in, especially in the financial and insurance sector (hello GDPR!).
5. Talent. The model attracts quasi startup CEOs, business school types, who want to be a startup CEO in a ‘safer’ environment. At a stage in their career, perhaps with a family, mortgage, and living standard that fosters a correspondingly lower appetite for risk. That’s not necessarily a bad thing, but it’s a factor to be aware of.
6. Lifespan. Once a startup is acquired and integrated by its enterprise sponsor, the medium to long-term prospects of survival are diminished. Unless held at arm’s length by its corporate buyer, it will most certainly die a rapid death because the only reason it worked in the first place is that it did not grow in a stifling enterprise environment.

This subset of the venture studio model is a solid line of business if you enter into eyes open and cater for the compromise and opportunity cost. Cleary to make this work you need to build a two speed operation that can culturally and operationally tolerate the juxtaposition, and maintain a membrane to keep the two from intertwining. This is a space that I can only see as growing in value potential and opportunity. How it all plays out is still to be seen but a number of studios have cast their die.

The Startup For Enterprise Model is perhaps ideal for traditional agencies who can get their act together. However, if they bring the same approach as they do to their enterprise clients, then they are going to fall on their face. Building startups is a very different game. There is a very clear line between the experience in holistic venture building that startup studios have and are staffed for and the abstracted product-focused offering of the agency and consultancy world… Buyer beware!

1/ A Google search would have you believe that every big CPG company has a sound venture strategy. But the CEOs and execs of these companies would tell you something different. Or at least that is what they are telling me....

The “Pre-company” Venture Studio Model

It is a long standing convention for venture capital firms and venture studios to offer a temporary home to startup entrepreneurs who are preparing for their next lap of the startup circuit. The ‘entrepreneur in residence’ system through which the VC/Studio offers a desk, support, and resources, all in the hope that they might get to be the first cheque in said entrepreneur’s next big idea. Two venture studios in particular, Entrepreneurs First (EF), and Antler (not to be confused with branding shop Red Antler), have made that somewhat informal system the basis for their entire model.

EF and Antler operate a matchmaking entrepreneur in residence programme on steroids and at scale, in the belief that a true opportunity lies in investing at the ‘pre-company’ stage in potential founders, and matchmaking founding teams. They see many more potential founders around the world beyond the atypical Stanford and Ivy leave track. They offer a system and support to surface them, and help match them with co-founders, and help them work on their ideas over a half year process. EF takes roughly 10% of the companies they have helped found in return for their efforts. Interestingly, both studios were founded by former McKinsey management consultants, not the typical startup builder pedigree, but as you will see those skills have been applied to make a model work.

EF’s co-founders Matt Clifford & Alice Bentinck (rare and very welcome founder’s diversity in the venture studio space) say EF “pays you to find a co-founder & invests in your company. We’ve helped 1000+ people create 200+ companies, worth a combined $1.5bn.”. Antler calls itself “an international Talent Investor, which supports individuals to build technology companies” with a similar focus of identifying and investing in people ‘pre-company’. Check out this a podcast interview with Matt for a lovely breakdown of the model.

They also share two unique characteristics that their fellow venture studio brethren do not. The first is global reach, as startup studios largely operate in one or two geographies. Both EF and Antler have spread their wings globally. EF was founded in London, and then over eight years expanded to six locations including Berlin, Paris, Singapore, Hong Kong, and Bangalore. Antler was founded in Singapore and in under two years expanded to Amsterdam, London, Oslo, Stockholm, Sydney, New York, and Nairobi.

The second is the funding of venture studios themselves, which has been a challenge historically with investors asking what exactly they would be investing in (studio or the portfolio?) as well as what a liquidity event or exit looks like. But EF has attracted serious backing from LinkedIn co-founder Reid Hoffman, raising $115M in their recent 2019 round. Antler has been backed by Facebook co-founder Eduardo Saverin and raised a $50M round in 2019. Both have proven that the venture studio model, or their take on it, is in itself investable, which is something that previous generations of venture studios have found challenging. That in itself is a remarkable development for the overall venture studio model.

The Startup Studio’s Diminishing Value Proposition

The value proposition has had to shift from the inception of the ‘modern’ startup studio model in 2007. Way back then it used to be prohibitively expensive to launch a startup. Before the cloud hosting era that gave us those awesome, omnipresent, Microsoft Cloud ads, on-premise server costs alone were too high a barrier for the average entrepreneur. As such, a startup studio was a far more compelling proposition for a potential entrepreneur to get their idea off the ground than it is today. That meant, by deploying its infrastructure alone, a studio could attract startups and startup entrepreneurs on favourable terms. However, with it becoming cheaper and cheaper to launch a startup, possibly too cheap, the startup studio model has had to adapt to continue to compete.

Bug Tracking The Startup Studio Model

Whilst Angels and VCs can make multiple investments and spread their risk, requiring a two in ten hit rate, the startup studio can only launch so many companies a year, and each bears considerable risk. It is heavily cash and resource intensive and if you have several unprofitable startups suckling the teat in parallel, the air can get pretty thin for the studio. You might be sitting on tens of millions in equity value. But it might as well be monopoly money unless you can get to a revenue generating round of financing that lets you cash in a slice of your pie. I am sure that major investments into Betawork’s Giphy and the sale of Science Inc’s Dollar Shave Club to Unilever for a cool billion were like coming up for air from a record free dive.

The In-Vitro Founder CEO Paradox

When it comes to launching their own startups and installing the founding team, there lies a paradox at the heart of the startup studio model. A founder of their own startup would enjoy 100% ownership, vested of course for best practice. They need to hand out a slice of their pie with each round of financing and issuance of stock options to the management team. If she is successful in establishing a profitable and valuable business (in the world of tech those are not often bedfellows), except in the case of an early exit, they may go through four(ish) rounds of financing. This will often leave the founder with 10–20% of the business, 20% for the management team and 60% for their investors of all ilks. Cases of course vary, but forgive numbers to illustrate the point. That’s the natural founder scenario, the hidden reality behind the outlier situations for Zuckerberg, Gates and Kalanick who retained significant ownership and majority voting rights as their companies scaled.

The tension in the startup studio model is that the amount of equity an installed ‘in vitro’ founder receives is significantly lower. Rightfully so as the startup studio is taking all the risk and needs to retain equity to recoup its investment. This equity distribution has led to accusations of startup studios being greedy — perhaps a misplaced interpretation as it is simply a necessary characteristic of the model.

Running the model, if the startup goes the full gauntlet, the installed founder CEO may end up with low single digits for practically killing themselves over the 4 to 6 years of their life. This has the potential to trigger an existential crisis in the installed freshman founder when they realise “I’ve got this”, but also that their upside is incomparable to that of a ‘natural’ founder. The pressure is immense, and the founder’s dilemma is real. It risks creating a disincentive to run the full course and could destabilise the startup if key people leave — we have to maintain those all-important narratives. This, in turn, has the potential to affect VC funding, where the preference is to invest in teams ahead of products.

It also means that a startup studio will not easily attract an experienced founder without giving up a significant stake in the business. That does not work for the startup studio model. This reduces the candidate pool of installed founder CEOs to those with potential to develop into the role. However, just like the ‘startup for enterprise’ founder CEO we discussed above, it might be the ideal, risk-appetite appropriate, comfortable fit for many a talented human.

Ideally, this is all a matter for an honest upfront conversation between all parties. Perhaps this outcome is already considered by the venture studio ownership and, if they manage transitions well, they end up with a valuable company and an even stronger equity position.

The Inside-Out/Outside-In* Model

The startup studio model was grounded in acting as a foundry for developing its own startups, working inside-out. However, to improve their odds, many startup studios have extended their services to work ‘outside-in’ with external startups that already have their wheels in motion. This involves either bringing them into their own incubation or accelerator programmes. Naturally, in this capacity, they take a much smaller equity consideration in return for the services of the studio than they would for their own creation. Expa launched its Lab programme in 2017, Betaworks launched their 11-week Camps, and Science their Incubators, shifting the model towards the accelerator model rather than exclusively developing their own companies. *confession: phrase stolen from an Anders Frostenson deck I might have peeked at.

Packing Cash For The Journey!

Another bug in the startup studio system found the studio in the ironic position of being priced out of their most successful creations. When one of their startups would get solid traction and a correspondingly high valuation, they would not have sufficient cash on hand to follow on in each round of financing and get slowly diluted. Yeah, you might have spent 1 million building startup X, but now you own 30%, it’s series C and with a $100M valuation, 5% is going to cost you a cool $5M (just let me check what’s left in my Venmo). This has led to the recent trend of startup studio’s raising their own funds to follow on and stay in the game. It also means that many startup studios are now serving as VC funds, or have migrated completely to the model. In fact, it does not look like any major startup studio does not now have an associated fund. Doesn’t seem like you can have one without the other.

So, What The Hell Is A Startup Studio?

Right?! As you can see, the lines have blurred as to what a startup studio is, with many originators of the model shape shifting into startup studio, cum-accelerator, cum-VC. For example co-founder of Uber, Garrett Camp’s Expa looks more like an incubator VC today and Obvious Ventures, who gave birth to Medium and Twitter, seem positioned more like VCs based on their latest fund. Science has pushed hard into the ICO and blockchain space with their Science Tokenhub ICO.

You’d be forgiven for wondering what defines a startup studio after all this. The point is that the definition does not really matter. It’s a vessel for an assembly of smart people, well-versed in making things and starting companies, working out every and any which way they can best apply their energy, experience, network and knowledge ;).

Seeking Creative DNA?

If you look at the origin and composition of all the main players in the startup studio space, the founding DNA is not creativity. The founding team are usually any combination of a business school, consultancy, finance/VC, crowd. There are however, creative capital exceptions emerging from the likes of Combine, started by Soleio and Adam Michela and Sweet Studio in Stockholm. It will be interesting what we see from them as they find their way.

Outro: The startup studio is not new, but it is constantly evolving. Learning from the evolution of the model, defining a model based on deploying creative capital presents a clear opportunity.

This is an extract from State of the Digital Nation 2020, a wider piece on the digital industry and creative class. Feel free to follow me @ezyjules for more.

This story is published in The Startup, Medium’s largest entrepreneurship publication followed by 333,253+ people.

Subscribe to receive our top stories here.

The Origin and Evolution of the Startup Studio was originally published in COLLIDER // FKTRY on Medium, where people are continuing the conversation by highlighting and responding to this story.

Explaining what digital product and digital product work is, in language that even your parents will understand.

This little ditty is an extract from a wider piece on the state of the digital industry originally published on the Marvel Blog, now available here. Below is a slightly edited extract attempting to bring some definition to Digital Product and Digital Product Work? Why you ask? Well pretty much everyone is talking about digital products these days so… because.

What is ‘Digital Product’? In as human speak as possible — in the style of trying to explain to my mother what I do — here goes…

A Digital Product is a software enabled product or service that offers some form of utility to a human being.

Real world examples: Your favourite car service app such as Uber or Lyft, your mobile banking app with Chase or Barclays, your shoppable H&M or Nike app, the digital dashboard in your Tesla car (lucky you), the interface of your consumer electronics devices such as your phone or smart watch, the controller app for your Sonos speakers, or an investment bank broker’s trading platform. Some products and services are made up mostly or entirely of software such as your Facebook messaging or Tinder ‘dating’ app. This is the software that is eating the world as almost all businesses come to be digitised and run on software.

The digital touchpoint through which a human interfaces with said product or service can sit on many types of platforms and devices. Those can include web, mobile, auto, wearables, VR and beyond. Things are slowly moving beyond the visual interface towards the more natural form of conversational interface. Such examples are speaking with your Amazon Echo or accessing services in written conversation in your messaging app. As you are interacting with the product it does more than simply display information, as say a marketing website does. Complex interactions take place between the part you use (the front-end) which is connected (integrated) into the wider system that runs the service in its entirety (the back-end). This means software is core to it all.

‘Digital product’ or ‘product’ work is the delivery of the digital touchpoints of a product or service.

Delivery can involve end-to-end concept, design, and engineering of the digital product, bringing it through to market launch and beyond. Delivery can draw on multiple disciplines of not only design and engineering but also business strategy, product management, data science, and marketing.

There are multiple players involved as well as not inconsiderable cost. So the aim is to make the process as holistic as possible in order to get the product to market efficiently. So the method by which you deliver the product becomes as important as the product itself. Well-established best practices of product development include integrated teams, Agile (not waterfall), SCRUM, Lean, and Continuous Delivery methodologies. All of this makes digital product delivery an expensive investment. Engagements can run over many quarters and even years, commanding a high premium and margin. The budget for this kind of work usually comes from places other than the marketing department, which usually makes shorter-term, campaign-based investments.

The point is this... All client’s businesses are becoming heavily software driven. So client demand has shifted towards the actual delivery of digital products and services into market, rather than just the strategy behind or marketing of them. In addition Design has become recognised as a critical factor in creating successful products and services. All of this has placed a premium on those skills and the relatively few companies that can offer it. Thus the red hot M&A market for studios who can offer those capabilities and a whole lot of posturing by those who can’t.

For those who wish to nerd out on the topic, here’s pretty great stab at What is Digital Product Design by Paul Devay.

If you want to read the piece where this came from, check out ‘State of the Digital Nation 2016’. Grab yourself a flask of coffee and a few packets of smokes as it’s a good old fashioned ‘long read’. Peace.

WTF is ‘Digital Product’ was originally published in COLLIDER // FKTRY on Medium, where people are continuing the conversation by highlighting and responding to this story.

In 2013, we explored the state and future of the digital consultancy industry, posing the question “How, When and Where Will The First Truly Great Digital Design Studio Emerge?”. Three years later in 2016, enough time has passed to discern patterns from trends. In that time the industry has experienced seismic shifts and a sweeping wave of consolidation. So let’s take another look at the state of the digital nation and why, for the bold, great opportunity lies ahead. Indulge me on a four course stream of consciousness on the business of digital. (This piece was originally published on the Marvel App blog in May 2016.)

State of the Digital Nation 2016: Shift Tectonic

• Chapter I: Industry Perspective: A look at the what, who, and why of consolidation, Digital Product explained, what lies behind advertising’s existential crisis, and the brewing clash of the titans between Ad Holding Groups and management consultancies.
• Chapter II: Agency Perspective: The red hot agency market, the reality behind buying and selling, calling bullshit on the ‘end of consultancy’, the designer’s delusion, and the second coming of the independent studio.
• Chapter III: New Perspective: Escaping the agency cycle, finding inspiration and perspectives in the startup studio model and in the venture and own product initiatives of progressive agencies.
• Chapter IV: Future Perspective: The blueprint for the next evolutionary step for the studio model… the Digital Product Studio.

There’s plenty of additional reading in the links for those who want to go down the rabbit hole, as well as a reference table at the end. Happy to continue the discussion on social using the hashtag #DigitalNation at @ezyjules.

Chapter I: Industry Perspective

Intro: A sweeping wave of acquisitions has decimated the ranks of independent agencies and formed two clashing clans. On the one side are the giants of advertising and marketing and on the other the titans of management consultancy. Meanwhile the market over which they are fighting is in the midst of a multi-faceted existential crisis.

The Great Consolidation

Over the last four years the design consultancy industry has experienced an unprecedented period of consolidation, building to a frenzy in 2015 with yet another flurry of acquisitions. 2012 and 2013 saw the big fish ad holding firms WPP, Omnicom, Publicis, Interpublic, and Dentsu buying up digital marketing agencies. 2014 and 2015 heralded the era of the big 5 management consultancies such as Accenture, Deloitte, McKinsey, and KPMG snapping up independent design consultancies (a trend foreshadowed by Accenture’s acquisition of Fjord in 2013).

Some highlights of the 2014 / 2015 shopping list…

• Chaotic Moon sold and Reactive sold to Accenture Interactive
• Lunar Design sold to McKinsey Digital Labs
• Mobiento sold to Deloitte Digital
• Seren sold to Ernst & Young
• Sapient sold to Publicis Groupe for $3.7 billion
• Adaptive Path sold to Capital One
• DesignIt sold to WiPro
• Tactel sold to Panasonic Aviation
• Pivotal Labs sold to EMC in 2012 and EMC sold to Dell in 2015
• bucking the trend Teehan+Lax opt for a dignified dissolution

Brief pause for breath… and into the 2016 new year sales

• The App Business (TAB) £22M and Solstice Mobile $36M to St Ives
• Code & Theory sold to Stagwell
• Aperto sold and Resource/Ammirati sold to IBM
• Creative marketing agency Brooklyn Brothers sold to IPG
• IDEO sold a minority stake to Japan’s Hakuhodo DY Holdings
• Fahrenheit 212 sold to Capgemini
• Heat sold to Deloitte Digital
• VeryDay sold to McKinsey & Company
• Karmarama sold to Accenture

Warming up 2017

• Sequence sold to Salesforce
• Idean sold to CapGemini

That’s a whole lot of design legacy, revenue, and talent being assimilated. The reasons behind it mean that we need to preface our journey with an important definition.

WTF is Digital Product?

What is ‘Digital Product’? In as human speak as possible — in the style of trying to explain to my mother what I do— here goes…

A Digital Product is a software enabled product or service that offers some form of utility to a human being.

Real world examples: Your favourite car service app such as Uber or Lyft, your mobile banking app with Chase or Barclays, your shoppable H&M or Nike app, the digital dashboard in your Tesla car (lucky you), the interface of your consumer electronics devices such as your phone or smart watch, the controller app for your Sonos speakers, or an investment bank broker’s trading platform. Some products and services are made up mostly or entirely of software such as your Facebook messaging or Tinder ‘dating’ app. This is the software that is eating the world as almost all businesses come to be digitised and run on software.

The digital touchpoint through which a human interfaces with said product or service can sit on many types of platforms and devices. Those can include web, mobile, auto, wearables, VR and beyond. Things are slowly moving beyond the visual interface towards the more natural form of conversational interface. Such examples are speaking with your Amazon Echo or accessing services in written conversation in your messaging app. As you are interacting with the product it does more than simply display information, as say a marketing website does. Complex interactions take place between the part you use (the front-end) which is connected (integrated) into the wider system that runs the service in its entirety (the back-end). This means software is core to it all.

‘Digital product’ or ‘product’ work is the delivery of the digital touchpoints of a product or service.

Delivery can involve end-to-end concept, design, and engineering of the digital product, bringing it through to market launch and beyond. Delivery can draw on multiple disciplines of not only design and engineering but also business strategy, product management, data science, and marketing.

There are multiple players involved as well as not inconsiderable cost. So the aim is to make the process as holistic as possible in order to get the product to market efficiently. So the method by which you deliver the product becomes as important as the product itself. Well-established best practices of product development include integrated teams, Agile (not waterfall), SCRUM, Lean, and Continuous Delivery methodologies. All of this makes digital product delivery an expensive investment. Engagements can run over many quarters and even years, commanding a high premium and margin. The budget for this kind of work usually comes from places other than the marketing department, which usually makes shorter-term, campaign-based investments.

The point of this massively distracting aside is this. All client’s businesses are becoming heavily software driven. So client demand has shifted towards the actual delivery of digital products and services into market, rather than just the strategy behind or marketing of them. In addition Design has become recognised as a critical factor in creating successful products and services. All of this has placed a premium on those skills and the relatively few companies that can offer it. Thus the red hot M&A market.

For those who wish to nerd out on the topic, here’s pretty great stab at What is Digital Product Design by Paul Devay.

¯\_(ツ)_/¯

So what’s with all the M&A action? From a revenue perspective, Ad Holding Groups have been going from strength to strength in recent years. With their amassed wealth they have have been busily buying up digital agencies. They have done so to cover capability gaps and round out their all-encompassing client offering. This was all about ‘doing digital’ in a world going fully digital and sweeping up any remaining significant non-group affiliated players and their clients/revenue.

Digital represents an ever increasing greater share of their revenues, topping 40% for the first time in 2015. The fresh-off-the-press Ad Age Agency Report 2016 shares some juicy stats: Over the last six years digital’s share of US agency revenue in jumped from 25.8% in 2009 to 41.3% in 2015. For Publicis Groupe, digital represented 51.9% of worldwide revenue and for WPP 37.5%. The point is that the Ad Holding Groups are responsible for a huge portion of the digital industry and what happens there affects us all.

Looking at these figures, you’d think doing digital in ad-land is like making hay while the sun shines. You’d be wrong. The weather is about to turn and the industry, heavily centred on ad tech and the execution of digital marketing, is ill-prepared. Whilst the big names in advertising have made many ad tech and agency acquisitions and postured heavily in trade publications, they have failed to meaningfully commit to the field of digital product. The consequences for their failures here are profound; they are standing on a burning platform, and they lack the right skills and DNA to build a new one (figuratively and literally). In short: The ad industry is tipping into an unprecedented existential crisis.

Rome is Burning

It may seem bizarre to claim that a $50B a year and growing industry is in peril. But whilst executives quaff rosé at the self-congratulatory circle jerk that is Cannes, Rome slowly burns. Multiple fires have been smouldering away over decades with more starting every year: service commoditisation, low technical competence, failure to grapple with digital product work, death of linear TV, ad blocking, robots, data judgement, the end of AOR, a people and lifestyle problem, a talent drain, and… a new gang in town out to steal their turf.

The rapid commoditisation of the services the industry offers will continue to erode profit margins. As mobile engineers slowly become as ubiquitous as web engineers the premium on skin deep mobile marketing work will disappear. Margins will go south the same way of once bountiful web marketing work. We have seen that pattern play out on platform after platform.

People are deleting advertising from their lives. Many simply don’t like or want it and now for the first time they have a choice in the matter. With the shift to streaming, the so-called ‘millennial’ has abandoned linear TV and, in turn, the ads that grace it. (Who can blame them? Have you tried watching an episode of anything in the US without developing ADD from all the ad breaks). Higher-income consumers are more able to afford an ad-free existence by paying subscriptions for ad-free service experiences such as YouTube Red, Hulu+, or Spotify. This further erodes the pool of young, upwardly-mobile consumers that the ad industry so covets. In the future, only older, poorer people will experience advertising.

The industry found hope in Nielsen’s 2015 ‘Global Trust in Advertising’ report. It heralded millennials as showing “the highest levels of trust in online and mobile formats.”. But a 2016 KPMG study found that the very same group was most likely to block ads with 60% of 16- to 24-year-olds planning do to so in the next six months. It also found that wealthier consumers are more likely to block ads. In the US alone an estimated 45 million are using ad-blocking technology and eMarketer predicted that 15 million people in the UK would begin using ad-blockers by the end of 2017. Clearly the issue of trust is meaningless without like or want (I trust my dentist, which doesn’t mean I want to unnecessarily spend time with him). This presents a serious challenge to an industry which has principally relied on these channels since inception.

The robots are coming! Software is going to eat a large majority of non-creative agency roles in the coming years. With great irony, like turkeys selling thanksgiving, the advertising industry is excitedly pushing the very robots that will ultimately replace them (programmatic anyone?). In the brave new world bots will communicate with millennials in a ‘relevant voice’ in their channel of choice about a product/service they are, according to data, likely to purchase. Dystopia here we come!

The shift to digital channels has delivered a data-rich world of less imperfect information. So the actual impact of what effectively constitutes shouting into the ether (legacy advertising) can now begin to be measured. TV advertising has long been considered effective, but for how long if it becomes measurable or people are not watching it? As consumption of viewing and advertising moves to the internet, quantifiable data means accountability and judgement. That should scare the hell out of agencies and publishers which have, outside of TV advertising, thus far survived and thrived on at best cloudy metrics.

For example a display ad is considered as ‘viewed by the visitor’ if “at least 50% of its pixels were displayed on the visitor’s browser for at least one continuous second”. The bar is clearly low. Kalkis Research recently released an End Of The Online Advertising Bubble report foreboding a beautifully coined “sub-prime crisis” in ad tech. It is well worth a scan. Gabe Leydon, founder of Machine Zone, buys a lot of ads and a lot of TV spots (you know, the ones with Kate Upton and Arnie in them). He gave an epic takedown of the agency/media industry at code/media 2016, characterising “almost all brand advertising as nothing more than a slush fund that feeds lazy advertisers, publishers and networks, who want to avoid accountability.” Ouch! It’s a must-watch if you are in the ad or media industry or if you like watching slow motion car crashes (seriously, the Q&A is like a post-coital cigarette… “Desire is an art and advertising is art and science!” someone forlornly pleads).

The era of the Agency of Record and retainers is coming to an end. I have met with many client-side teams and senior business decision makers at leading brands over the last year. I can tell you that the value and returns on comfortable, long-held agency of record relationships are in question. Feeling gauged and exploited, they are also asking the same of the many millions spent on bloated retainers over many years. The age of mega-retainers is coming to an end and the big brands such as Pepsi are calling it. As a new generation begins to take the helm, brands and clients are seeking out more open relationships than those of the AOR era. That shift presents a significant structural risk to the largest agencies who have grown fat on these arrangements. Everyone will need to figure out an operating model in a post-AOR world.

The ad industry has a talent, lifestyle, and purpose problem. Behind the generation of career-coasting marketers maintaining business as usual sits a frustrated, hungry, product focused, and purpose driven generation of progressives. For anyone working in and around agencies and brands those generational fault lines are clear to see. With so many options this talent is not hanging around. Many are emerging from a career-long bout of Stockholm syndrome, the self-justification for the all-hours, all-sacrifice lifestyle of the industry. Some agencies are beginning to act on the damage such as Wieden & Kennedy London trialling limits to work hours and email curfews for its staff. The fresh young talent that used to fuel agencies is increasingly altogether eschewing the industry despite desperate cosmetic makeovers.

It may be a case of too little, too late to change the tide. For more and more the question arises of what’s the point of putting up with all this? Confronted by his mortality following inoperable esophageal cancer, Linds Redding, a New Zealand-based art director who worked at BBDO and Saatchi & Saatchi put it like this…

“I think you’re all fucking mad. Deranged. So disengaged from reality it’s not even funny. It’s a fucking TV commercial. Nobody gives a shit.” — Linds Redding

Where once the talent was trickling from the leak in the dike, talent is now flooding out of the industry. Many are finding roles in tech companies with better pay, better conditions, and greater meaning and fulfillment in the work. From the top down, the very people that could save the industry are leaving it. Rei Inamoto leaving AKQA to open a business invention shop or pretty much all the product-focused talent at Huge leaving to set up the product-focused agency Work & Co are two of countless examples. All of the above means that attracting talent, especially engineers, is approaching the impossible.

The script flips further. Tech giants such as Google and Facebook were once simply vendors and channels for the ad industry. However, both are now taking their talent and offering quantifiable performance marketing services directly to their clients. The parasite has become the host.

There is clearly a real impetus for change and none of this is new. Someone should do something right? Unfortunately the industry suffers from a false sense of security and lack of urgency. This has been fostered by the billions still being generated through a generation or two of marketers who are fully invested in maintaining the status quo (I suspect in order to ride out careers, pensions and mortgages). The fact is that both agency and client side have been complicit in selling and buying things to and from each other that no one cares about because it’s what has always been done.

A macrocosm of exactly this pattern is cloud advertising. Actual human beings give zero fucks about the cloud aka just someone else’s computer. Yet this untargeted, expensive and pointless noise that exactly this generation has sold to each other is plastered absolutely everywhere: TV, online, stations, billboards, outhouses, sporting events, and ensuring utter global inescapability in practically every major airport on the planet. VR is undoubtedly next as the “I need VR” becomes the new “I need an app” and branded VR content from vodka brands floods our consciousness.

The party is not going to end any day soon. But the industry will continue a slow and inevitable march to redundancy unless it responds to the many forces at play. There is another industry that went from nearly $40B a year to under $15B due to failure to grasp digital. This was the global recorded music industry which was decimated in just over a decade.

Digital product work with its margins, purpose, and engagement is one of the paths that could save the industry. With the writing on the wall for so long, why is the ad industry still not in the game?

The Great Pretenders

There was time when the ad industry had influence over more than Promotion, one of the Four Ps in the traditional Four Ps of marketing (Product, Price, Place, and Promotion). Way back in the Mad Men era so celebrated by the modern advertising industry they heavily informed Product. But as their clients in the 70s and 80s established in-house capabilities for those skills (doesn’t that sound familiar!) they were increasingly limited to Promotion. Decades later, the golden opportunity to reclaim the lost P and properly integrate digital product capabilities and culture is being spurned. The focus appears to be on rebranding existing capabilities to posture as business-building product shops, or even somewhat delusionally as startup disruptors…

TBWA\Chiat\Day NY on Twitter

"This agency is like a well-funded start-up, and the killer app is Disruption." - @Schwartzie14 #HumansOfTBWA pic.twitter.com/UDXgjqT3JX

Scan the positioning, websites, and decks of design, advertising, marketing, and branding agencies and you will see that everyone is now talking about building products and businesses. Old case studies have been repositioned in a new ‘product’ context. Has everyone transformed themselves into product organisations? No. They’ve mostly painted stripes on their horse to make a zebra. But it’s still a horse. To bastardise Dan Ariely’s beautiful Big Data quote, a lot of people are putting on a good show…

“Digital Product is like teenage sex: everyone talks about it, not many know how to do it, everyone thinks everyone else is doing it, so everyone claims they are doing it…” — (sort of) Dan Ariely

Ad holding group agencies such as BBH, Huge, Rockfish, Wieden & Kennedy & Ogilvy et al all established innovation ‘Labs’. Based on evidence that’s yet to be discovered, they have thus far proven to be marketing and client seduction efforts. They have shown little in terms of real world product output… repeat after me “A Digital Product is a software enabled product or service that offers some form of utility to a human being”. These labs do not reflect a true intent or investment in building a product for the world — indeed the Ad industry’s lack of intent was epitomised by Ogilvy shutting down their lab in August 2016. The dust-gathering 3D printers, soon to be joined by dust-gathering VR headsets, are symbolic. This wonderful piece on agencies and products from 2012 still stands strong today.

Why Agencies Can't Create Products - Digiday

Despite the many acquisitions of digital shops, the ad industry is still characterised by a low level of technical competence in digital product. It has yet to effectively structurally, or culturally integrate digital within its walls. There are simply so few examples that demonstrate success (before you wheel out RGA and Nike Plus, please… that was launched four James Bonds ago). The industry has struggled to effectively deliver beyond web marketing and e-commerce work into mobile software development. It is hard to see how it will command emerging technologies such as VR or wearable tech let alone complex digital product work.

This is precisely where the industry’s failure to grapple with digital product work, which commands a much higher premium and margin, will have consequence. If digital advertising and not products and services are to be commoditised and if ‘The future of marketing is to be useful’ then there should be no greater impetus for the industry to drive towards the delivery of digital products and services. Brand clients, nearly all of whom are becoming software oriented businesses, will ultimately seek out partners who are able to deliver digital product work. Within the confines of a confine of digital, the ad industry will be left to operate in the low end of the market. It is here that margins and profits will dry up. (Maybe then the focus will shift again on selling brands by making, well… advertising).

All in all the evidence points towards an Ad agency having as much experience in building businesses or digital products as chimpanzees do in space travel. Yes, chimpanzees have been in space, but that doesn’t mean you should let them fly the spaceship. So should a startup let themselves be advised by people who have never launched a startup themselves? That’s why tech companies and startups will let ad agencies market their core consumer facing products but won’t let them work on the products themselves.

The Ad Holding Groups have made an art form of establishing relationships with global brands. They have had the ear of the business decision makers more than any other vendor. I would venture that few do it better. However, with every fumbled product initiative another decades-old bridge gets burnt. As George Walker Bush said “Fool me once, shame on … shame on you. Fool me… You can’t get fooled again!”.

Clients need to question how honest a partner is incentivised to be if their agency delivers on only one part of the process. If you’re married to only one part of the process, selling purely strategy, design, branding or media, you’re most likely going to make that as big and expensive as you can as that’s how you make money. In contrast, being responsible end-to-end for getting a product to market, promotes honesty and efficiency as you’re invested in the outcome and post-launch iteration.

It begs the question of whether, like supertankers trying to navigate rapids, the big ad firms are too big to function in the new world of digital product. For the 500-plus person vessels sailing the marketing seas I am not confident the patient would survive the necessary surgery, nor their holding group masters allow it. But hold tight, we’re not done yet because adding to all of the above, shit just got real…

Enter the Big Five / Four

Management consultancies have entered the arena through a glut of digital consultancy acquisitions. They have done so for reasons both similar and different to the Ad Holding Groups. They already have C-suite access and accounts from which they are generating tens or hundreds of millions of dollars a year per client. Now they are slip slidin’ along the value chain to sell them more stuff and they have their eye on the ad holding group’s slice of the pie.

“It’s not about ideas, it’s about making ideas happen” — Scott Belsky

They are also responding to market demand. Much as visions of 2030 spur the imagination and inform strategy, they don’t impact more immediate business cycles. Increasingly their clients (and the world) are slowly edging away from buying ideas in multi-million dollar, 300-page powerpoint decks towards actually making ideas happen. In the same vein that the value of AOR and retainer relationships are being questioned by clients, the same is being asked of the strategic engagements of management consultancies. Their clients have become increasingly focused on a meaningful and actionable return on their not inconsiderable investment.

“Management consultancy… The art of stealing someone’s pocket watch and telling them the time”. — anon

A broadening of services from idea to encompass execution was required. By ‘buying’ design, management consultancies could now sell ‘design’ through their newly minted, execution focused storefronts; McKinsey Digital Labs / Accenture Interactive / Deloitte Digital / Capgemini Digital Customer Experience / IBM iX etc. They have ready buyers in existing clients, whose businesses are becoming digitised and running on software.

Now they have creative credibility by acquisition, digital chops, and a new and very large product and service design banner to wave to their clients. Something we need to see play out, given the sheer size of these client accounts, is whether design and digital product delivery will be central to or an afterthought in their relationship with the client. This will have a telling impact on the environment in which that work is carried out.

Clash of the Titans

All of this has the behemoths colliding. The old school T-Rex ad holding firms are now fighting over prey with the genetically engineered I-Rex management consultancy design groups (sincere apologies if you haven’t seen Jurassic World). Let’s take a look at the 2015 revenues of the big management consultancies versus the Ad Holding Groups:

• IBM $81.7B, Deloitte Consulting $35.2B, Accenture $31.0B, Capgemini $13.2B*, McKinsey $8.3B (2014)
• WPP $17.5B*, Omnicom $15.1B, Publicis Groupe $10.7B*, IPG $7.6B

*Revenues crudely adjusted to USD from their reported local currency

Make no mistake these are absolutely giant companies fighting it out and the battle will be epic!

Outro: The impact of these seismic shifts in the industry are yet to fully play out. Will the management consultancies entering the market be able to escape the forces plaguing the Ad Holding Groups? Will either be able to shape compelling and sustainable digital product propositions for their clients — the ability to ‘actually make ideas happen’? Will they be able to hold onto the talent they have gathered up via expensive acquisitions?

The answers to those questions we will only know a few years down the line. But right here right now amidst the fray, independent digital consultancies, mere pissants when you consider the numbers above, are a hot commodity. At the same time ‘design as a service’ is by all accounts in critical condition. So next we’re going to zoom in on the little guys amongst all this madness and explore what’s going to be left when the smoke clears.

Chapter II: Agency Perspective

Intro: In chapter I we focused on the digital industry at a tumultuous macro level. This sets valuable context in which to explore the situation at the consultancy and agency level that many of us call home. In this red hot market, agency valuations have never been higher. But the truth is that selling is the death of the company you know whilst the buyer ends up with a mere facsimile of what they paid good money for. Despite the consolidation and growing trend of in-house teams, there will always be a market for great consultancies as long as they are prepared for a new reality. So get ready for the second coming of the independent studio.

Jackpot!

CONGRATULATIONS!!! Your firm with a global footprint and a few hundred staff, which would have fetched upwards of $75M USD in 2013, will now command closer to $100M in 2016. There is no better time than now to sell your agency with so many well heeled suitors. In fact the market is so hot right now that agencies are being sold based on multiples of between 3x, 4x and in some cases even 5x revenue (not EBIT). Factors such as size, numbers of studios in key markets and client list dictate where in that threshold you sit. Here you go, dream a little…

Buyer (and seller) Beware!

Selling one’s company is of course completely OK and is any owner’s right. The true motivation for a large majority of the aforementioned deals is no-doubt cashing out with retirement on the far horizon. When confronted by the reality of a repetitive Greek tragedy of a professional life in its closing cycles, a handsome offer for one’s life’s work is surely hard to resist. Certainly, scanning the Microsoft Word acquisition template press releases… “wider, scale, expand, access, yada yada yada” from the range of the companies who have sold in the last few years it is hard to discern any authentic non-financial motives (of course money is never mentioned).

All good right? Except the vision they sold to their people along the journey certainly didn’t include being sold. Despite their declarations, they did not start out in the design industry dreaming of selling to a management consultancy, a global accounting firm, or a credit card company. They know it and their people know it. As such telling the world and more crucially their people how great this is going to be for ‘us’ is not all good.

Adaptive Path gave an incredulous spiel following their sale to the credit card company Capital One, declaring “It kind of feels like where we were headed all along.” 19 months on it would be interesting to see how many of those souls are still vibrating.

Scott Sullivan on Twitter

@ezyjules our collective soul is vibrating at a frequency where we are able to pass through the shallow tunnels of popular banking opinion.

Keeping It Real

I’d personally love to read a from-the-heart announcement…

“Hey folks, As many of you will be aware someone came in with a great offer for our life’s work. We reflected long and hard and came to the conclusion that this is the right time, that we’ve taken this thing as far as it can go. We fought for the best possible deal for our people, so if most of us stick it out and get stuck in for a few years everyone will be looked after (and to be transparent we will maintain our earn out). Things are going to be different moving forwards. It will become something new. So we’d like to acknowledge and celebrate the end of an era and all the hard work you put into making this happen. Let’s accept it for what it is, make the best of it and all earn our keep as we ride this one out.” — said no one. ever.

Teehan+Lax went well beyond this standard not just in word but also in action by opting for a dignified dissolution of the company rather than a sale. The partners and the employees that would and could moved on to Facebook. This path uniquely preserved the T+L legacy. Exhibiting great self-awareness and honesty, they spoke of failing to break their cycle…

“If Teehan+Lax was to be successful going forward, we would need to find, what Geoffrey Moore calls, Escape Velocity. Escape Velocity is the work and investment required for established companies to break patterns in their business to find new levels of growth and sustainability.” T+L 2014

Agencies Scattered On Dawn’s Highway Bleeding

The truth Teehan+Lax recognised is that selling your agency is unequivocally the end for the company you knew. You are no longer master of your own destiny. It’s death by spreadsheet. Once assimilated, your company is now a cell in another company’s spreadsheet in which there are no columns for culture. Most crucially the collective spell, which kept the talent that makes up the sum of the parts doggedly committed to the cause beyond all reason through hell and back, is broken. You’re culturally holed below the waterline. If the agency is lucky they will feature in the following well worn conversation for a generation or two before being forgotten.

A: “do you remember <insert agency name>?”

B: “yeah, they were great weren’t they. What happened to them?”.

The tragic thing about the denial, the self-delusion or worse the outright lie to your people — telling them that selling is not the end but the great next step in the journey — is that no one gets a closure experience. When someone dies you hold a funeral or a wake for people to come together. They mark the occasion, reflect, cry, laugh, celebrate, and commiserate. It is a fundamental human need that allows us to honor what has been and begin the process of moving forward properly. I suspect the Teehan+Lax closing party was just that and the bond between their family, wherever they scatter, will consequently endure.

By not marking the end of what things were, the passing of an era, the company slowly dies. The earnout incentive and timeline is to all intents and purposes a march towards a desert mirage. One by one the people, its very life force, fall away as does its legacy. The founder of Fjord, who sold to Accenture in 2013, recently wrote an article on ‘Can Corporate and And Creative Cultures Ever Truly Merge?’. It speaks of protecting culture, open-space studios and design methodologies in a sale, yet is tellingly thin on the protection of its people. If a company is its people, then what’s the point if virtually no one you took the journey with arrives at the destination with you? It’s like scoring the Presidential suite at the Bellagio… on your own. It has to feel somehow empty.

We’ve seen death by acquisition over and over. You’ll see nearly all the companies who have sold in the shopping list at the top of this piece wrestle with their predicament, bleed talent, fade, and end up as zombies — mere facsimiles of their former selves.

Ship of Theseus

“This old brooms had 17 new heads and 14 new handles in its time” — Trigger

What will all the ad holding firms and management consultancies end up with from their shopping spree a few years down the line? If an agency is acquired and 70+% of the people, the very soul of that company, leave in the months and years that follow, does the buyer actually end up with what they paid for? It’s a brain teaser Greek philosophers (See ‘Ship of Theseus’) and cockneys have wrestled with over millennia.

The End Of Consultancy

There has been a great deal of noise made about design firms stagnating and the disappearing business of design. This has been driven by the sales and consolidation, the growing trend of internal design departments, and a few prominent shops shuttering studios — such as Smart Design’s SF studio, more due to shifting strategic focus than P&L. Don’t panic. We’re not seeing the end of design as a service. The underlying business model of design as a service remains strong and will continue to exist for many reasons:

There are more projects than there are good teams. Consequently there will always be work for companies that do good work. If you do shit work you’re going to get less work and attract shit projects (i.e. you’re done for). If you do great work you are more likely to get more work and attract great projects. It’s a rather obvious virtuous circle many agencies don’t seem to appreciate.

Any client, be it a startup or global brand, is hedging risk when they work with a consultancy. The cost of failure to meet market, board, or investor expectations around a critical product release heavily outweighs the comparatively high premium of retaining a consultancy. Many clients simply neither have the skills or talent in house or the permission or affordance to build a team. They therefore need to work with consultancy partners to deliver.

Even for brands with internal design departments the field is rife for collaboration and opportunity for consultancy. The inescapable goldfish bowl existence of in-house team robs a company of vital perspective, with the outside world turning exponentially faster than their own. The banking sector is especially affected with regard to product development lifecycles that run in years rather than months. Vital outside market perspective and agility are the panacea that the digital consultancy can offer. Health warning: for the uninitiated studio, the inertia of diving into work with a big organisation can be all like…

Whether in-house or in a consultancy, building and running high performing design and engineering teams is extremely difficult. Really! That shit is super fucking hard. You could hand pick a team made up of the very best players from any league of any sport and still have a team that stinks compared to a cohesive, well-drilled team. On top of that, achieving a truly product oriented ‘one team’ approach with tightly integrated designers and engineers is even harder. (Any team that has engineering on different floors, buildings, states or even countries to design is building weakness into the system). All the money in the world cannot buy getting that right and there are innumerable dysfunctional in-house and agency teams that stand testament to that.

So if a consultancy can offer the above, something that even some of the world’s wealthiest companies can not pull off, then you’re going to get business even if there are internal design departments in place. Design as service is far from dead.

When Teehan+Lax referred to Escape Velocity, a failure to break the cycle to achieve the next evolutionary step for their company, they brought the true challenge for the studio model into sharp focus. How do you achieve orbit in your business if you don’t want to sell? The real challenge is to evolve, do it all better: capabilities, product development, collaboration, process, and culture, to deliver the irresistible package. We’re set for a second wave of new independent agencies that will aim for just that under the product studio model.

But before we go there, we interrupt this transmission for an important message…

The Designer’s Delusion

The design industry has had its ego stroked hard over the last few years. This has resulted in what I refer to as the ‘designer’s delusion’ — the naivety and arrogance to think that an industry can be disrupted simply by making an app. That beautiful material design EMR alone is not going to ‘disrupt healthcare’ because it is only one tiny piece of the gargantuan effort required to even make a dent. For some perspective, beyond pixels that effort can involve lobbying government and taking cities to court.

Sebastiaan de With on Twitter

I label increasingly nonsensical images with 'UI' and 'UX' and hope they get used in serious presentations

The design industry has been guilty of self-indulgent navel gazing, debating the difference between UI and UX, chin stroking on ‘design thinking’ or trying to capture the essence of what ‘Design is…’ in 140 characters. Muscles have atrophied from years of consultancy work for giant organisations with five floors of lawyers (NO you cannot spend eight weeks on registration flow!). Every day that we continue to pontificate and indulge in the abstract a dangerous gap widens between us and startupland and techworld where time and methods relentlessly accelerate. It’s time to speak like humans, get grounded and get real.

It is vital that designers be equipped for this ‘real’ world. When a board is reaming you over volume of users, user retention and revenue models, that storytelling campfire bullshit doesn’t cut the mustard. In this world the hierarchical setups, rigid process and stratified walls between disciplines are falling away. Interaction design, visual design, service design, design research et al are all origin stories for the new breed of Product Designer who is honing her multi-disciplinary skills and studying data, business, and technology to move up the value chain with authority.

The Second Coming

Anyway… Many decades old studios have disappeared. But whilst we’re undoubtedly experiencing a contraction in the number of independent consultancies, we are far from the end of times. The talent has been assimilated into ad group holding companies, management consultancies, and startups over the last several years.

The question is whether they can retain the talent. Unless these environments prove to truly satisfy they will not be able to. Designers and engineers are are idealistic folk who want to make things that count. As long as they can afford to be idealistic, they will ultimately place what they are putting into the world above the money they are taking from it. They also fear stagnation. Their inner voice constantly seeks purpose and in time it almost always wins. That reality has been manifesting itself in the talent drain from the advertising and marketing industry over the last five years.

By way of acquisition, the management consultancy industry has swept up a lot of the talent. We’re still to see how it’s going to play out in that domain. Doing great product work within the confines of the management consultancy industry presents its own challenges.

It is a deeply political environment that requires a massive operational overhead just to be able to do your job. This is a million miles from lean and agile and it places a heavy burden on individuals and teams. We’ve yet to see whether design is viewed as a core or bolt on client offering by the consultants who rule their client fiefdoms. This will dictate the level of stakeholder access that teams will be able to secure and in turn the quality of collaboration and of the end-product. If a high percentage of the work is on projects that do not see the light of day, working in abstract, then this will erode the talent’s interest. How will the culture clash play out between the tattooed ‘design guys’ who are rolled out by the pressed pants ‘consultant crew’ to ‘do’ some design. Grab your popcorn folks!

As for the owners and the most senior talent from companies acquired by ad holding companies and management consultancies? The majority of those companies will kick their final cultural death throes in the coming years and, with earn outs complete, those people will want out. The inner voice just has a little more resistance to overcome. These are exactly the kinds of people inclined to start new consultancies, kickstarting the second wave of the independent studio.

The intoxicating allure of the startup world has attracted so many designers and engineers in the last decade. However, markets are correcting their inflated valuations of tech stocks and the funding for startups is drying up. As that reality bites, the talent is sobering up. Everyone is realising that the gold in them there hills is just as hard to mine as it is anywhere else. There are no sure things — the laws of nature ultimately apply to a tech startup just as much as they do to other companies. We are going to see more horror stories about long-term employees with common stock getting burnt in the coming months and years due to the ratchets and liquidity preferences for investors built into new rounds of financing. The case of the unicorn Good Technology opting to sell to Blackberry rather than for an IPO is a cautionary tale for those who opt for stock over salary.

I am not saying that any of these silos for talent are better or worse than the other, except for advertising in its current state. They each present their own challenges and the talent is increasingly sober to that and evaluating options between them all.

In the coming years a LOT of the talent that has been holed up will blow like dandelion seeds in a fresh spring breeze. By 2018 the second coming of the independent studio will be in full force as waves of designers and engineers leave ad land, management consultancy, and startups to start or join new digital consultancies. A thriving new independent agency community will emerge with a sharper focus to their work, resolved to do things differently under a new and progressive business model.

Outro: A great majority of the industry’s agencies and talent has been churned by the strategic expansion of Ad Holding Groups and management consultancies. But from the carnage and fallout a new and evolved breed of digital agency will emerge that understands and engages with the new world and seizes upon the opening in the market.

Chapter III: New Perspective

Intro: In chapter I and II we explored current digital industry and agency perspectives and the quandary which talent finds itself in. We’ve also heralded the second coming of a new breed of studio. Iterating on the old agency model is vital or you’ll be condemned to repeat history. The evolutionary avenues are already being explored by the startup studio, as well as by progressive agencies engaged in venture and own product initiatives. But you need to approach the game wisely or you could lose it all!

Cracking The Code

The digital consultancy business is a game of highs and lows. There is adventure, friends, fun, creativity, and plenty of variety as you get to work on a range of problems in a diverse range of industries. Rock ‘n’ roll!

But it can also be a complete pain in the arse. You live and die by the whim of clients, budgets, and the economy — oh the uncertainty. The outlook can go from 72 and sunny to end-of-days and back again within the course of a month. Your services suffer an endless and increasingly faster downward spiral of commoditisation. In the typical vendor-client relationship shit flows downhill right where you are standing with the shovel. The work can at times seem pointless and unmotivating. The hours can be insane and crap all over your work life balance. The bigger the company gets the more furiously everyone has to scramble. It relies on humans who have needs, feelings, and emotions — unhelpfully, all kinds of different ones at different times— that need to be considered and cared for. Then after putting up with all that, one day the company you work for gets sold to a credit card company, or as an owner, you get sick of the life and sell to one. All of that can mean it’s not much fun at the bottom, middle or top of the pile in the consultancy game, whatever the payoff.

Hamster Wheel or Rocket Ship?

Whether you’re considering starting a new consultancy or pivoting an existing business, you have a fundamental decision to make. Do you want to build A: a giant fucking hamster wheel or B: a rocket ship and explore the galaxy.

The hamster wheel represents the consultancy business as usual. It’s a model that relies on a linear relationship between effort and revenue; you sell your consultancy services on the basis of units of time. To make more money you need to make the hamster wheel bigger. To get to ‘bigger’ and maintain it, everyone including you needs to run furiously faster. When they are sleeping the company does not make money. Those incidentally are the conditions in which an owner is more likely to get tired and sell and those in which employees are going to disengage. Does anyone who has the choice really want to live that life again?

A 500 or 1,000 person marketing agency for example is a giant hamster wheel. I bet most people in them from early on are bewildered with what it has all become. In this age it is evolve or die for the consultancy model. But at that size all your vital organs rely on the dying model of marketing work. You may not survive the surgery required for the transformation.

There has to be a better way. I’ve referred a lot to escape velocity, breaking patterns, evolution, doing things differently and hinted at the need for a new and progressive business model. How can we change our fate, compensate for uncertainty and take control of our destiny?

In what direction can we diversify in order to escape the apparent laws of nature of the consultancy ecosystem? For some inspiration for what the rocket ships could look like it’s well worth looking at the emerging startup studio model and some of the venture and own product plays that progressive digital studios have been making in the last few years.

The Startup Studio

The startup studio is a relatively new model of company that’s focused on developing tech startups internally. They keep their fledglings warm, fed, and safe until they are ready to fly the nest. Not exactly a fund or a typical incubator, they might develop their own startup, back a founder or buy a company — all the while nestling them in their warm ample bosom.

New York’s Betaworks are arguably the baby daddy of the model. They acquired and revived digg and bitly, gave birth to Giphy ($55 Million Series C At A $300 Million Post-Money Valuation), Dots (spun out with a $10 million Series A round from Tencent) and Poncho ($2M seed round hot off the press). One way in which they seed new startups is by backing founders through a Hackers in Residence program that brings in and enables talent. Whilst they are not a fund, they do make small seed investments of between $100k to $200k in companies that they ‘think will make our network stronger’. The crew over at Betaworks shared the content of their 2015 shareholder book, which gives you a great insight into the setup and philosophy. They are super hooked up in the fund and the startup community, which gives them strong deal flow and access to investors.

Other notable startup studios include New York and San Francisco based Expa. Their focus is to ‘partner with founders to create new products and services’. They create the environment to help them scale as independent companies through shared services (back office) and resources (space). That allows the startup’s team to focus on product and business. We’ve yet to see how their piglets Kit, Reserve and Drip will fare in the world. Expa recently raised $100m in funding and took a step into the incubator space by launching Expa Labs to incubate early stage companies with $500k of seed funding and 6 months of office space. The CEO and founder is Garrett Camp, co-founder of Uber and StumbleUpon. They have also attracted partners such as Foursquare co-founder Naveen Selvadurai. They have an absurdly strong network and access to money and investors.

Science, based in Santa Monica in LA, is another player focused on internal investments and partnerships. They incubate by ‘developing a thesis, testing the concept, and then bringing in like-minded talent to help execute and scale.’ as well as make minority investments. They had early success leveraging their toolset with Dollar Shave Club (raising $50 Million Series C round in September 2014, now serving 8.8% of the US men’s cartridge market with over a million members) and DogVacay (raising a $25 million Series B round in November 2014). They’ve put a lot of chips on the table over the last few years and have yet to see a significant exit that would replenish the coffers and prove the model works… Scratch that… NEWSFLASH: Dollar Shave Club sells to Unilever for a cool Billion. Seems like they do have something going there ;).

The startup studio model is still relatively new. The barriers to entry to creating a startup such as space, tech, and operations are becoming lower each year. So the startup studio arguably becomes a less compelling and unique proposition for startups. Whether for evolutionary or reactive reasons the leaders in the space are continuously revising their approach and offering. Money and network alone are not enough to guarantee success. Nevertheless the startup studio highlights an opportunity in and around the early-stage technology startup space. I would argue that the ability to execute product has allowed Betaworks to make the greatest headway.

No doubt fuelled by rampant valuations and news of herds of unicorns roving the Californian plains, everyone has been drawn towards the startup and venture space like moths to the flame. However, it is a very different game to services and not something you can simply stroll into.

The Agency Venture Fund

Bigger, older companies with spare cash investing in smaller, younger companies without cash has been happening since the beginning of business time. However in the last six years we have seen agencies enter the venture field. They have done so under formalised venture fund arms which invest cash into early stage technology companies.

The giant Ad Holding Groups have always been busy investing their riches. Notably WPP Ventures (Crunchbase), the investment arm of WPP Digital for whom investments include a 2015 $50 Million series D Investment in Refinery29. They made $50 Million from their $5 Million investment in Buddy Media when it was sold to Salesforce for $745 Million. Interpublic (IPG) (AngelList), which owns Deutsch, Huge, McCann Erickson, and R/GA, bought a half-percent stake in Facebook in 2006 for less than $5 million. In 2011 it sold half of its shares and netted $130 million in the process. They are sitting on their remaining .25% stake, valued at $212 Million. Fair play, that was a stupendous coup. In 2016 French advertising agency holding group Publicis Groupe launched the Publicis90 fund to invest €10 Million ($10.9 million) in 90 startups. The process by which they are selecting their investments looks like some kind of Facebook-Likes-regional/national-America’s-Got-Talent-clusterfuck, a million miles away from how funds behave. The lucky startups will also benefit from mentorship from senior management who’ve never launched a startup. Good luck with that.

However, this is lifestyles of the rich and famous territory. These guys are minted, are giants and their lifestyle choices are far removed from ours. So where is this kind of activity taking place at the atomic level in ‘smaller’ companies?

Back in 2011 there was a lot of noise about agencies setting up funds including the $16 million BBH Black Sheep fund and Method Inc rounding up $30 million. This represented a false start as many announced funds failed to pan out. The lesson seems to be that once you are acquired you also give up your ambitions of making cash venture investments. Your new masters want you focused on making cash rather than spending it (Viva la independencia).

One of the few agencies that sits in a holding group that has maintained its ability to play in the venture space is RGA. Their investment arm RGA Ventures (Crunchbase) has been highly active. That activity is principally driven through their RGA Accelerators in which they begin with $120K investments for up to 6% equity. They also invest greater amounts and follow on, working not just at seed, but also Series A/B, mostly in line with a lead investor. They are able to present themselves as a unique strategic investor by bringing not only cash but also their services, resources, and a deep and wealthy network to the party — an apparently virtuous circle.

All of this activity relies on having spare cash to invest, which only happens at a certain scale. A new agency would have to put a few years of hard work in to build enough reserves to afford to diversify into investing. There are however other ways in which smaller companies are getting some startup equity action and that is by getting paid in equity rather than cash.

Services for Equity

The practice of companies being paid for their services in equity rather than cash by clients is nothing new to commerce or to the tech sector.

The practice has been a near constant in the industrial design field. Ammunition Group took equity in Beats back in the day and Fuseproject is well known for its venture design-based business model that greatly reduces cash fees in return for a royalty/equity arrangement. Fuseproject notably took an equity stake in Jawbone (admittedly not-so-hot stock right now). Smart Design has been associated with OXO since 1990, having arranged a 3% royalty that generates a double digit percentage of its profits, and has done equity for services deals. Smart founder Davin Stowell notes “Investing in physical product is tough business — even if you have a great product, AND distribution, AND initial success, scaling becomes a challenge”.

During the dot com boom Silicon Valley lawyers would on occasion take equity in exchange for their services. But when the bubble burst in the noughties plenty of fingers got burnt and the practice petered out. However, it’s becoming a growing trend in the digital consultancy space, a sign of renewed confidence (or forgotten history) in the tech sector. The barter can solve both parties needs. For startups who don’t have the cash, bartering provides access to the help they need to get to market. For the service provider who does not have the cash spare to invest it gets them a seat at the early stage technology startup venture game.

It makes a lot of sense as service providers often get to see companies way before VCs at a stage where equity is early enough to be meaningful. As such, to harness that opportunity a number of reputable design focused consultancies have formalised their services for equity propositions.

In 2014 Frog established FrogVentures (Crunchbase). Positioned as a ‘growth partner to entrepreneurs’, they exchange their design services for equity in early stage startups. Also in 2014 their perennial competitor IDEO established their venture arm IDEO Futures (AngelList) to ‘help new ventures soar’. They act as a seed fund, incubator, and run a startup in residence program through which they take a nominal minority stake in companies they mentor.

At ustwo (AngelList) we’ve directly invested in, incubated, and engaged in services for equity deals with early stage tech startups since 2014. We invested in the prototyping tool Marvel App, co-founded DICE, a zero booking fees mobile ticketing service. In 2015 we formalised ventures arm ustwo adventures to manage our growing portfolio.

DesignIt, who sold to WiPro in 2015, worked on the supplier management tool Tradeshift under a services for equity deal and ended up making $3M on the stock in the process. Branding consultancy Red Antler (AngelList) has partnered with startups and early stage companies since being founded in 2007. For select early and late stage venture-backed companies, Red Antler takes equity in addition to fees. Famously they took equity in then unknown e-commerce mattress company Casper which in its latest funding round reached a valuation of $550 million. Nice!

Even videographers are in on the game. Sandwich Video, Silicon Valley’s favourite video maker, established a venture arm in 2015. For select clients they would front the full costs of a video — usually around $100k- in return for $100k of equity. They did not have that setup in place when they did the Twitter and Uber videos, but did score Jawbone stock. And who doesn’t want to be David Choe, the artist who painted Facebook’s first office back in 2005 and got paid in stock rather than $60k in cash. That stock that is now worth $200 million. Jammy sod!

There was also the interesting case of a consultancy called West Studios that came out of Square’s IPO filing which benefitted only from a consultancy fee but also an option to purchase 375,000 shares of Square’s common stock. This was seen as a little controversial at the time as then CEO Jack Dorsey was an also investor in the consultancy.

Why has the services for equity deal been focused largely on early stage startups and not large brand clients? Alternative compensation arrangements such as equity or revenue share are extremely hard to pull off with big brands. Whatever the intent of the stakeholders you’re working with, the very idea tends to blow the fuse when the proposal hits procurement or legal. You may as well be proposing the trafficking of children. Rule of thumb is that for each floor of lawyers your client has, your odds are exponentially longer. All of this means that the services for equity opportunity is largely restricted to startups who can be more flexible.

All in all there are many indicators of significant intent in the consultancy space to begin to diversify by changing up the terms of business. It is still early days and we’ve not seen many results yet. But be careful not to be seduced by a fairytale. Investing in early-stage technology startups requires patience and long term perspective. It is important to note that for nearly every company above, services for equity is the exception not the rule. Most firms have established and staffed separate companies or divisions to manage these arrangements. They do so for good reason…

Stacked Odds

So drop $100k or so of cash or services into a future unicorn at seed stage and cash out in between 4 to 7 years later in an IPO or exit. Simples right? Not so fast. However you got a seat at the cap table you need to understand that you are no different to any other investor. The golden rule of investing from legendary stock picker Peter Lynch holds true to investing in startups, just as it does to its cousin gambling…

“Never invest money you can’t afford to lose.” — Peter Lynch

Services for equity deals usually take place at the very early seed stage. With so little proven or defined in the business the chances of failure are high. How high? A lot of stats get thrown around such as that 90% of startups fail. Most of us are familiar with the rule of thumb that experienced investors rely on: that of 10 startups in their portfolio, three to four will fail, another three to four will break even and one or two will bring home serious bacon. A 2012 study by Shikhar Ghosh, a senior lecturer at Harvard Business School, found that three in four startups fail to return investors’ capital. Whichever of these statistics are right, it is clear that you are dealing with long odds. You’re essentially playing an expensive round of roulette. So be prepared to lose every single penny and never ever under any circumstances bet the farm.

The journey takes patience. A ‘liquidity event’ that would return a significant multiple of the original investment could take anything between 4 to 7 years. This is precisely why, for many of the companies I’ve highlighted above, this kind of deal is the exception not the rule.

You also need to get smart to venture investing. A typical agency team knows as much about startups as a garage mechanic knows about Formula One cars. So why on earth would you think you are going to do better than seasoned investors and VCs? You need to approach with caution, humbly and with eyes open. Understanding that early stage tech investing is a different game to consultancy, many of the aforementioned companies have established dedicated divisions staffed by investment professionals. The setup still does not mirror that of a typical venture firm, but they have become visibly better equipped in the last few years.

And the ‘spare cash’ with which we can place some bets? The thing about gambling is that you need to be able to afford a seat at the table. Profits secure you permission to play. The ad holding group’s permission to play comes from their formidable network and the fact they have very deep pockets. For a smaller company to get into the game they need to be generating significant margins and build the reserves from which the excess can be drawn to invest with. That informs the type of work that the agency needs to do, and their ability to charge a premium for it. Major Key: Investing is highly risky and you‘ll need to generate ‘spare cash’ to be able to do it.

Own Product

Yes, that’s it! Why don’t we use our skills and resources to build our own products! We can make money whilst we’re asleep by generating passive revenues and finally break free from the linear relationship between effort and revenue. Enterprise SAAS products offer the prospect of building stable subscription revenues and consumer apps offer the prospect of bell-shaped revenue windfall. Since the inception of the instant global market of the app stores and stories of teenagers making million dollar apps over one weekend, agencies of all guises have been building their own products… “A Digital Product is a software enabled product or service that offers some form of utility to a human being”.

Outside of barren holding group agencies, who has successfully brought a product into market? Let’s rise above success being purely defined by how much money was raised in round X or Y as that is money is invested to grow the company rather than an exit. Let’s broaded out to any of: attracting a significant user base or investment, a big exit, continued media attention or simply as having moved the needle or impacted our digital lives. In crude chronological order, and I am sure people will come at me with what I missed or what success is, here are notable digital products coming from agencies:

• 37 Signals, originally a web application company, founded in 1999 stopped consulting work in 2005 to focus exclusively on Basecamp. [agency ceased operations]
• Davidville, a small software consulting company, started work on Tumblr during a two-week gap between contracts in 2007. We all know how that story goes with it’s 2013 sale to Yahoo! for $1.1 Billion. [agency ceased operations]
• Digital services agency Invoke Media span out Hootsuite in 2009, raising US$165 million in Series B in 2013. [agency still operating]
• Check-in app Gowalla was spun out of the founder’s agency Firewheel in 2009. [agency ceased operations]
• Hipstamatic, the godfathers of mobile photography, were a Chicago based digital services agency called Synthetic Infatuation before dropping client services to go all in on the photo app in 2010. [agency ceased operations]
• The top selling text editor iA Writer was first shipped in 2010, an own-product from European client service agency iA. [agency still operating]
• The task management tool Flow is an own-product released in 2011 by interface design studio Metalab and is still run within the confines of the company. [agency still operating]
• Magento, sold in 2011 to eBay for almost $200M, was built out of an e-commerce agency called Varien. [agency ceased operations]
• Branding consultancy Moving Brands nurtured motion comic book platform Madefire into life in 2011, before their CEO broke it out, raising a $1.1M seed and $5.2M in Series A in 2013 [agency still operating]
• Seattle based Product design and development company Artefact, without outside investment created the resource planning tool 10,000ft, achieving month-to-month profitability within a year (Respect!). They span it out to a sister company in 2012. [agency still operating]
• Vine came from the founders of New York design studio Big Human, selling for $30M to Twitter before its official launch in 2012. In Dec 2015 it had 200 million active users. [agency still operating]
• London’s Mint Digital created an instagram fridge magnet printing service StickyGram which they then sold in 2013 for £5M to £10M, after which they split the studio divided operations between client and own product efforts. [agency still operating but in an altered state]
• Tokyo based UI design shop Goodpatch launched prototyping tool Prott as an own product in 2014. [agency still operating]
• At ustwo we shipped Monument Valley in 2014, winning some awards, generating 18M downloads and $14M in revenue. In 2016 we established a dedicated games company in the group. We also launched the NFP Wayfindr, a vision-impaired navigation solution. attracting a Google.org grant. [agency still operating]
• Scandinavian digital studio Bakken & Baeck launched Wake in 2015, attracting over $3.5M of investment from First Round, Designer Fund and others. [agency still operating]
• Product Innovation shop Made By Many got into the hard to navigate world of consumer electronics in 2015, releasing interactive programmable ball Hackball. [agency still operating]

There you have it. Client service agencies are capable of shipping their own products. We don’t know how successful all of these efforts are ultimately going to be. A round raised is money given by investors to grow the business, not to put in the founder’s pockets. What these examples do prove though is that it is possible to launch a product within an agency. What they all have in common is that nearly all these products came from smaller independent shops. Just like venture investing and services for equity arrangements, the opportunity of investing in own-product disappears once you are acquired. Your new masters are not interested in you taking that kind of risk. So when you take the cheque you can kiss those dreams goodbye.

The other interesting thing to note is that in the ‘olden days’ running the product operation meant the consultancy side of the business ceasing operations. For a small agency with all resources invested in the product effort this is an inevitability, you can’t do both. This is a function of the size of the agency at the time of the product initiative. As for when is the right time, it’s a matter of how many vital organs are shared between the agency and the product operation and whether the conjoined twins would survive the separation.

No one wants to blow their one big chance in life. So wouldn’t it be wonderful if we could create many big chances? More and more we’re seeing agencies maintain both the consultancy and own product sides of the business rather than betting all their chips on the product. In order to enable both you need to consider the timing and conditions under which you push into own product. Major Key: You want to be building a shipyard, not a ship.

Outro: There is every reason to try to avoid the well worn path of the agency lifecycle. However it takes steely resolve across the company to do so. Whilst there is no magic bullet, there are numerous examples of companies breaking the mold and shaping their own destiny through venture and own product initiatives.

Chapter IV: Future Perspective

Intro: Over chapters I, II and III we’ve run through the conditions for industry, agency and talent as well as highlighted the evolutionary avenues being explored by the most progressive. Now let’s bring it all together in a blueprint for the next evolutionary step for the studio model… the Digital Product Studio.

The Digital Product Studio

The Digital Product Studio blends three components: Consultancy, Venture & Own Product. Running through each like letters on a stick of rock is a structural, policy, and cultural framework that binds them all together. Each feeds and informs the other in a powerful virtuous circle of network, experience, funding, brand, craft, and talent.

I/III Consultancy

The focus of the Digital Product Studio’s consultancy work is purely on the delivery of digital products. To repeat…

A Digital Product is a software enabled product or service that offers some form of utility to a human being. ‘Digital product’ or ‘product’ work is the delivery of the digital touchpoints of a product or service.

The Digital Product Studio has the strategic, product management, design, and engineering talent that is capable of taking a product through to market launch and beyond from meeting #1. That capability means it earns its keep by getting products to market rather than exploiting any one stage of the process. That keeps things honest and outcome oriented.

The Digital Product Studio completely eschews digital marketing work, which suffers from perpetual commoditisation (Seriously, don’t go near it, it’s like crack cocaine. You’ll get hooked and it will be hard to get off it). Product work is less sensitive to economic downturns. The decision to cut a seasonal campaign marketing budget is ten times easier than the decision to cut a product and service development initiative that runs over many years.

The Digital Product Studio is ‘platform agnostic’ by virtue of having engineering talent that covers multiple platforms. That engineering talent understands software, QA, integration, and embedded systems and it can shoot the breeze with the technical team of any major company. Well beyond web and mobile, it is ready to engage with emerging platforms such as wearables, VR, and beyond to stay at the forefront of digital product (“Screens? Where we’re going, we don’t need screens”). In doing all of the above it stays ahead of the technology and platform commoditisation cycle by being able to ‘move to the next’ in a timely fashion.

The Digital Product Studio focuses on putting work of the highest possible quality and standard into the world. It knows that poor quality output will ensure certain doom and that in a virtuous upward spiral, a proven track record of delivering quality products to market will attract opportunity.

The Digital Product Studio charges a premium for its services. That’s not because it simply slaps a high price tag on its work, but because it offers a valuable commodity that is not readily available on the market. That commodity is the ability to design, engineer, and launch digital products for and with partners. Without the ability to get a product to market and into users’ hands, even the greatest idea, funding, and network are nigh-on meaningless. This is the thing that companies with almost infinite resources greatly covet. The Digital Product Studio serves as the missing piece, the essential component. This premium offering is not sold in hourly units of time, but by the day and week to shift the focus on the delivery of value rather than of time. A high percentage of the market does not understand the value it delivers. The Digital Product Studio is OK with that and works with select clients that do.

The process by which the Digital Product Studio executes is as important as the output. This is the never-fixed, ever-evolving toolbox of methods; integrated teams, agile, SCRUM, lean, continuous delivery etc. Imparting these methodologies to clients and partners forms part of the offering. Facilitating knowledge transfer sets a path towards self-reliance and ultimately handover. Beyond that, if a client wants to continue working together it is because they want to rather than that they have to.

The Digital Product Studio seeks out partnerships with clients rather than the antiquated shit-flows-downhill vendor client relationship. It steadfastly avoids abusive, non-reciprocal relationships. It will work with, but not through, third parties to work with clients as it will not endanger the quality of access, process, and communications necessary to build good products. Teams take on the same emotional commitment to the product’s success as the client — we’re all in it together.

The Digital Product Studio mirrors the team, skills, and methods of world-leading tech companies. Tech companies and startups are understandably precious about letting anyone work on their core consumer facing products and services. Tech clients have existing teams in place and don’t want to give away their most exciting work for some agency to drag away to a cave. The only partners they will allow to do so are those who reflect the best of their culture, understand their world and who at a minimum produce to their standards. The Digital Product Studio integrates and collaborates with existing client teams to form ‘one team’ for the engagement. It is for these reasons that tech companies and startups will grant access to their hallowed, core consumer facing products. It is also the reason that non-tech clients, who aspire to the standards and methods of the tech sector, want to work with a Digital Product Studio.

The Digital Product Studio needs to do it all better than its predecessor model: capabilities, product development, collaboration, process, and culture, to deliver the compelling package. That premium proposition generates valuable cash reserves. These reserves are the rocket fuel for diversification into venture and own product work.

II/III Venture

The Digital Product Studio is actively engaged in the venture space, managing a portfolio of early stage technology company investments. It builds that portfolio through ‘services for equity’ deals and through direct cash investments in early stage startups. It measures its investments carefully to protect a minimum level of runway for the cash generating consultancy arm of the business.

The Digital Product Studio has a dedicated venture team with investment experience that oversees the portfolio and that seeks out and validates new opportunities for the company. It leverages the product expertise, market insight and proximity of the consultancy arm of its business to early stage entrepreneurs and technologies to support these efforts and generate deal flow.

The Digital Product Studio knows what it brings to the table of early stage technology companies — the ability to take a digital product through to market launch. It is grounded, humble, and understands that its role, albeit essential, is just one of many necessary for success.

For services for equity partnerships the Digital Product Studio seeks out experienced partners. It understands that any industry worth ‘disrupting’ is a high walled garden. It does not engage Jack and Jane who have an ‘app idea’ and granny’s inheritance. It seeks out partnerships with industry veterans who understand the opportunity, risks, and pain points of a sector. These veterans have the knowledge, access, and contacts necessary to improve the chances of success. The Digital Product Studio serves as the enabler for that partner who will put their material existence on the line for the endeavour.

III/III Own Product

The Digital Product Studio deploys its internal resources to engage in own product initiatives, exploiting the instant global marketplace of the web and app stores. It does so in order to both generate passive revenues as well as to raise awareness of the studio. This serves as a form of ‘marketing through doing’. These initiatives serve as a testing and training ground for its teams and technologies, helping the studio refine its ways of working (after all, nothing keeps you more honest that making your own stuff).

Not all of The Digital Product Studio own product initiatives are focused on creating revenues, nor is their intent on creating the next Facebook. As such, these initiatives come in all shapes and sizes and under the fail fast and fail often ethos, many of them will not see public launch. What is important throughout is learning, progress and fuelling passion.

Just like venture activities, there is risk associated with own product initiatives. They both have the potential to depress the revenues of the consultancy arm. So the Digital Product Studio measures its investments carefully to protect a minimum runway for the business as a whole.

The Digital Product Studio is setup as a shipyard rather than a ship. It gauges when it can invest its people and time into an own product initiative. Initially it seeks to establish a parallel and independent team until it wishes to push the product out of the nest as an independent but federated company with its own leadership. Should it then ultimately wish to sell the own product company it does not mean the end of the ability to create further products. From one shot to many shots.

The Magic Numbers

The old adage that you need money to make money very much applies to the investment game. Your profit and cash reserves are the rocket fuel for investing in startups, for enabling equity for services deals or for investing in your own products. Let’s say you don’t want to take on investment yourself and you want to self-finance this activity. When and how do you safely begin to accrue cash to engage in risk based venture activities? The rule of thumb in the agency game is to maintain minimum three to four months operating cash, aka Time to Die, at all times. If you got dropped by every single one of your clients in one week this would be how long you have to live without having to change a thing or do nasty stuff like firing people. As such a very crude and idealistic model based on 20% margins, 35% corporation tax and sustaining 3 months runway would look a little something like this…

As you can see, if you’re starting fresh you’re going to have to put a few years in before you’ve stockpiled the ‘surplus cash’ shown in green. Only then can you afford direct investments or services for equity activities that depress revenues. That is unless you take investment that does not challenge your independence (if there is such a thing). Once you hit $5M or so you’ve built yourself a nice but modest investment pot without betting the farm. At $20M revenues you’ve got some decent angel investor sized cash to splash. Naturally if any of your bets delivers a return over the years then you can grow your investment pot, double down or ‘diversify’ your portfolio. Just remember, you need to be ready and able to lose every single cent of your investment pot. Ladies and gentlemen, place your bets!

Make Money Money

The blend of ascending sine wave of consultancy service revenue, passive own product income (either bell curve one-time payment or ascending subscription payment) and peak and trough venture exit windfalls should look a little something like this. Obviously this illustration is rather Hollywood. We’re overlaying three models here, each of which is hard to pull off and all of which are even harder to combine. But hey, if this was easy then anyone could do it and the most inspirational movies are “Based on a true story”.

The Wrapper

Without going all HBR on you, wrapped around and running through all of these three components are several other key characteristics. The Digital Product Studio is…

• Digitally Native. Let’s pretend I did not write those two words, but to point out the bleedingly obvious, the company, and its people have to be digital first. That’s nothing to do with age and everything to do with mindset. Get anyone holding onto the past the hell out the way.
• Purpose Driven. Make sure you have a purpose. You need everything pointed at something of human worth otherwise it will all become ‘just work’ and not be sustainable. Besides, you’re not going to get any of those pesky and idealistic millennials to work for you without a purpose. Remember you’re competing with Google, Facebook et al for talent who are all going to pay so much more.
• Resolutely Independent. The odds of you having permission to engage in the risk of pulling any of this off unless you’re independent are 10,000 to 1. Remain fiercely independent because if you sell the dream is over.
• Sharing Success. Through a profit share mechanism, share a percentage of profits from the consultancy, venture, and own product business to bind everyone together. This way you can provide the ‘stability’ of an agency package with a taste of the upside that a startup can offer.
• People Investing. The sooner companies realise that a human can produce six, maybe seven hours of quality output in a day the better. The alternative is to rake it like manure over late night and weekend sessions and reduce output quality and employee engagement in the process. The studio of the future will foster a culture that respects work life balance, human need, and it will honour commitment as a two way deal. That means flexible, output-focused working policies, and support for working parents. This is the glue that keeps your community together through thick and inevitable thin.
• A WIP. The moment that you think you’ve got it all worked out and present your ‘process’ in seventeen simple steps on a beautified keynote slide it is the beginning of the end. When it comes to ways of working, consultancy doesn’t have it right and startups don’t have it right. The studio will not work different ways on consultancy, venture or own product engagements. It will be working along one path that is non-prescriptive, always learning, and always evolving.

The Wrap

It is perhaps appropriate to have closed on the topic of being a WIP. Just between you and me, it even applies to this very model. After all, life is what happens whilst you’re busy making other plans. In that context any ‘plan’ is simply a North Star to navigate against along your journey into the unknown. You most likely won’t make landfall where you set out for. So in reality the journey is the only thing that is real. Remember to enjoy it.

We are living in humanity’s most exciting age and it’s only going to get exponentially more so as technology and computing rapidly evolves. For those of us in the industry, as the most enabled, empowered, and creative generation ever seen, we have the opportunity to shape the future in some way. This is the real dent the universe territory. So please do something difficult. Please do something that has purpose. The Digital Product Studio is just one such vehicle. Sure, 100,000 things could go wrong before you achieve escape velocity and get into orbit. It’s undoubtedly hard, but so is anything worth doing.

Besides, someone‘s got to figure it out and fortune favours the bold.

I also contribute to general nonsense on twitter at @ezyjules. For those interested I’d love to continue the discussion on any of the above on social using the hashtag #DigitalNation.

Disclosure Bullshit

Because something or other at this stage I need to tell you

1. I am an investor in Marvel and in DICE.
2. I am an owner at ustwo. You can find out about us on the internet somewhere.
3. If you have read this far and are in the creative industry in the US then please ‘Pledge Parental Leave’

Reference Table

1 How, When and Where Will The First Truly Great Digital Design Studio Emerge? / Medium /Jules Ehrhardt
2 Why Software Is Eating The World / WSJ / Marc Andreessen
3 What is Digital Product Design / Medium / Paul Devay
4 Better Than Human: Why Robots Will — And Must — Take Our Jobs / Wired / Kevin Kelly
5 Google : End Of The Online Advertising Bubble / Kalkis Research / Kalkis Research
6 Watch Machine Zone’s Gabe Leydon Freak Out a Room Full of Media People (Video) / recode / Peter Kafka
7 Pepsi Executive Is Not So Happy With His Agencies / Adweek / Patrick Coffee
8 Wieden & Kennedy trials limits to working hours / Campaign US / James Swift
9 Ad Agencies Need Young Talent. Cue the Beanbag Chairs / New York Times / Sydney Ember
10 IT’S NOT WORTH IT’: Ad exec’s brutal rant before he died of cancer is absolutely chilling / Business Insider / Jim Edwards
11 What the Marketing Agency of the Future Will Do Differently / Harvard Business Review / Mitch Joel
12 The music industry has hit its rock bottom / Quartz / John McDuling
13 Why Agencies Can’t Create Products / Digiday / Jack Marshall
14 The future of marketing is to be useful / Gerry McGovern / Gerry McGovern
15 Inside Deloitte’s $1.5 billion ad agency / Digiday / Shareen Pathak
16 And Now, For Our Next Act / teehan+lax / Jon Geoff David
17 Ship of Theseus / Wikipedia / Wikipedia
18 Why Are Design Firms Stagnating? / Fastco Design / Thomas Lockwood
19 The Rapidly Disappearing Business of Design / Wired / Robert Fabricant
20 Dear Startups: Here’s How to Stay Alive / heidiroizen.com / Heidi Roizen
21 This Tech Bubble Is Bursting / WSJ / Christopher Mims
22 When a Unicorn Start-Up Stumbles, Its Employees Get Hurt / New York Times / Katie Benner
23 Investing In Betaworks — the 2015 Shareholder Book / Medium / John Borthwick
24 Could A Change In Business Model Win Designers A Place In The C-Suite? / Fastco Design / Cliff Kuang
25 Service Providers See Gold in Shares of Startups / WSJ / Telis Demos
26 Meet Sandwich Fund, The New Venture Arm of Silicon Valley’s Favorite Video Maker / Forbes / Ellen Huet
27 Is Giving Away Equity Worth the Risk? / Inc. / Graham Winfrey

State of the Digital Nation 2016: Shift Tectonic was originally published in COLLIDER // FKTRY on Medium, where people are continuing the conversation by highlighting and responding to this story.