Kavin Lam

kavinlam.com

Aug, 2024

Building companies are hard and there’s too much noise about how to do it. You can do it alone, but having a cofounder or team can get you to “success” quicker and with less heartache. Venture studios have been saying they have a secret sauce to getting you to successful exit.

Venture studios are machines for building startups. Some are extraordinarily successful, and many are way too young to have a solid answer. Each have some variation of a “double diamond” methodology (large scope ideation, narrowing concept, designing, and reaching product market fit) to have a process to help founders achieve a “successful” startup.

After spending nearly three and half years learning about their playbooks, working with innovation consultants, and aspiring entrepreneurs, building startups follows a very similar process--regardless if you’re at a studio or building a startup independently.

As a systems thinker, I believe there is a lot to gain from understanding your system and leveraging the right assets to help you build faster and better. As a founder, your system could be your venture studio, professional network, entrepreneurship community, friends, technical skills, or even college you went to.

I think the most important thing for a founder is to articulate their system and zero in on unlocking your constraints.

Quick interruption on venture studios

The biggest difference between building a startup independently and within a venture studio is capital acquisition and the relentless pursuit of scale.

Independent startups often bootstrap or raise small amounts initially. They refine their product-market fit (PMF) over time, gradually scaling operations. Bootstrapped companies have the ability to float in non-venture scale profitability, which through time can unlock or just be a “lifestyle” business.

This patient approach is antithetical to the venture studio model. Studios are under constant pressure to demonstrate rapid, venture-scale growth. Why?

• Capital Intensive Models: Software and hardware startups, common in venture studios, demand substantial upfront investments. These costs are justifiable only with the promise of massive scale.
• Investor Expectations: Venture capital firms invest with the expectation of substantial returns within a 7-10 year horizon. Studios, often backed by VC funds or institutionals, must mirror this timeline by showcasing early signs of venture scale potential.
• Fundraising Cycles: VCs typically raise funds every few years, relying on early startup successes (seed, Series A) to attract new investors. This creates an inherent pressure to achieve significant milestones quickly.

In essence, while independent startups can afford to iterate and learn, venture studios operate in a high-stakes environment where rapid scaling is non-negotiable.

How to think about systems: Theory of Constraints (TOC) approach

Before diving into the venture building context, how do you think about leveraging a system? I learned Theory of Constraints as a consultant at Goldratt Consulting. This is a framework, and not the only framework, for systems thinking. The initial step of any TOC work begins with being able to articulate or draw the system you’re in. What is the first step of the work, how does it look downstream, and how does the final output inform how you start your next body of work?

This methodology involves identifying the system's constraint, exploiting it to its maximum potential, subordinating other processes to support the constraint, elevating the constraint, and then repeating the cycle to find the next bottleneck.

The Venture Building System and Its Constraint

A typical venture building process (system) involves:

1. Ideation: Generating new business concepts

2. MVP Development for your stage: Creating a minimum viable product.

   (This looks different depending on your stage. If you’re just starting out it could be a landing page to build a waitlist, or a prototype, or a food pop-up)

3. Customer Validation: Try to sell, if not get feedback.

4. Scale-up or down:

   1. If you’ve succeeded then double down on MVP development and Sell more!
   2. If you’ve failed, then take your learnings and return to ideation

Venture building system (as gif)