Navigating your way through the world of innovation can be confusing and overwhelming. You might want to create an innovative product or start a new venture to stay ahead of your competition and up to date with modern technological developments. In this case, partnering with innovation specialists could be advantageous to achieve your innovation goals. Maybe you have heard of the terms product studio and venture studio, but which type should you partner with to take steps forward in your innovation journey and what sets product and venture studios apart?
In the pursuit of innovation
First, let’s have a look at innovation itself. There are many ways to be innovative. Sometimes innovation can be close to your core business and sometimes you may want to explore a whole new market outside of your core business.
At INC Innovation Center, we follow the golden rule of innovation and growth: The 70-20-10 rule. It dictates that you should invest 70% of your innovation resources on projects in your core business, 20% of the resources in projects close to your core business, and 10% outside of your core business (that’s where the fun begins).
Projects in the 70% and 20% categories will ensure that your business is up to date and keeps up with today’s ever-changing world. This is mostly done by improving an existing product, introducing a new one, or targeting new customers or markets. The projects in the 10% category are the ones that build your business of the future. You can explore and challenge today’s views and shape the industry of tomorrow. In this category, innovation is mainly achieved through building new ventures.
Another factor is your innovation maturity level (IML). It displays how well you are set up for innovation projects. Companies with a high IML have extensive expertise and knowledge in the innovation domain and want to be set up in a wide range. They cover innovation in their core business and beyond whereas firms with a lower IML are innovating more in the core business.
Most companies however have a low IML, which means that getting outside competencies can de-risk their projects, lower the time-to-market and improve cost efficiency. In that case, having strong innovation partners by your side is crucial for your innovation success. These partners can be product studios and venture studios, who help customers reach their innovation goals. But who is the right innovation partner for you? And what exactly are they?
What is a product studio?
Simply put, a product studio is a service provider. Located in the 70% and 20% categories of the golden rule (core business/close to core business), product studios assist in many stages of a product development process. Starting with product ideation and market analysis, they help set up a strategy, develop the product, help with change management, develop a go-to-market strategy, and support business development and business model innovation. In addition to that, product studios offer a consulting component with insights and market experience to successfully place a product on the market. A product development firm (f.e. software developer), in contrast, only focuses on the development phase of the process. They stick to the specifications of their customers and deliver on those. Not more, not less.
What is the added value of a product studio?
Working with a product studio is beneficial for a couple of reasons:
- their holistic expertise
- the complexity of a project
- the product is central to the company’s success
- the product makes up a major part of the company’s portfolio
In those cases, working with a product studio is the way to go. But as we know innovation projects are risky. Sometimes more, sometimes less. Working with a product studio can enhance your chances of getting it right from the beginning, even though the price tag is usually high due to the many competencies a product studio offers. A product studio can also be financially invested in the product’s success, resulting in a lower fee for its services. It is up to you to decide which option better suits your strategy.
INC product studio story
Here at the product studio of INC Innovation Center, we recently set up a digital product for a customer in the polymer (plastics) industry. Their goal was to digitize the order process for polymers and provide all necessary documents in a centralized platform. Our customer is a major player in the polymer industry with established processes. Especially large entities can struggle with introducing innovative products or services, as it disrupts their normal way of doing things. With this project, we noticed that the internal as well as external stakeholders were not ready to digitize their processes. They liked the “business as usual”.
One of the main learnings is that setting ambitious goals and targets is important, but innovation takes time and substantial change does not come overnight. Knowing the right pace and development steps is key, to ensure that the changes are accepted internally and externally.
For that reason, we decided to gradually introduce small portions of the product. One step at a time. That way the company has time to adapt to new processes and their customers can be educated on features and tools to use in the future. Product studios can help you navigate these changes and implement them at the right pace. Maybe you intend to build up a new innovative entity to target a larger and growing market outside of your core business. In that case, a venture studio could be the innovation partner you are looking for.
What is a venture studio?
A venture studio is an organization that creates ventures (start-ups), either by incubating their own ideas or those of their partners. Unlike accelerators, venture studios don’t invest in existing start-ups. They build ventures in which they take a larger portion of the venture`s shares. Building a venture is usually a part of the 10%-category of the golden rule (outside of the core business). It enables you to explore new markets, target different audiences, and future-proof your business in the long run.
Venture studios have a lot in common with product studios. In addition to the expertise of a product studio, a venture studio has substantial knowledge in the “scaling phase” of building a business. That includes expertise in business development, setting up a team and organization, validation of MVPs (minimum viable product), early-stage sales as well as planning a successful go-to-market.
What is the added value of a venture studio?
Building a venture is not an easy task. It requires competencies outside of the daily business of any company. According to a study by the Global Startup Studio Network (GSSN), ventures coming out of a venture studio have a 30% higher success rate than other ventures.
Working with a venture studio is also beneficial for many other reasons, some being:
- The entrepreneurial talent and mindset needed to create a venture
- Innovation experience
- The use of established processes for venturing
- Quick validation of venture ideas
- Shared resources and optimized allocation.
The advantages of working with a venture studio are why many companies start using their abilities for innovation projects. But building new ventures also takes investment and is subject to the risks of building new entities. Working with a venture studio offers great benefits and advantages for your company.
Not only is the chance of success higher with a venture studio, but structures like joint ventures allow for a shared risk between your company and the venture studio. That ensures that both partners are invested and interested in the venture’s success.
Building a venture is a risky endeavor and is arguably riskier than introducing a new product with a product studio. On the other hand, ventures have to potential to grow, become large entities, and be the future of your business to generate a long-term return.
Joint Ventures split risks
An optimal use of the shared competencies is a central aspect when working with a venture studio. That’s why, at INC Innovation Center, we prefer to create innovation in joint ventures. Joint ventures are particularly interesting and are created by the studio together with a partner company. Both, the company as well as the studio, share the risk of the venture. Both partners hold a spread of the shares and both profit from the venture’s success.
Joint ventures are built to gain an unfair advantage in the market with a scalable product. Your company contributes market and customer access, while the venture studio adds venturing knowledge, such as early-stage sales, business development, venturing mindset, culture, and many more. Therefore, the venture studio often provides the initial team of a new venture, until team members from your company or new hires join their forces.
INC venture studio story
One of our joint ventures is the digital laboratory software LabV. Together with a leading player in the mechanical engineering industry, we created this venture to use both our expertise and gain an unfair advantage in the market.
As INC, we contribute over 10 years of experience in technology-driven innovation, while our partner’s market knowledge and experience create the perfect DNA for this venture. We gathered a lot of learnings from this venture alone. One of our key learnings from this venture is the importance of having an early MVP to show key features to potential customers and validate the product. Another is to validate the product with unknown customers, otherwise, you create a product-family & friends-fit, and not a product-market-fit.
Finally, we learned how important the founding team and first employees are. They contribute extensively to the company’s culture and vision.
This underlines, that having the competencies of a venture studio by your side can improve your chances of success from the beginning. Especially the early stages of a venture are tough to navigate.
At INC Innovation Center, we learn from every project and every venture, so that we can offer the best support for our customers in the innovation landscape.
After all, the differences between venture studios and product studios are numerous. They target different innovation goals in different categories of the golden rule. Product studios work with you to achieve innovation in or close to your core business, while venture studios work with you on building a future business outside of your core business. The competencies differ between the studios as well. A product studio contributes expertise and consulting in areas such as product development, business model innovation, marketing, and aftersales. On the other hand, venture studios contribute additional expertise like venturing mindset/culture, early-stage sales, MVP validation, and business development.
Projects with product studios are generally more short-term projects (6-12 months), while projects with venture studios are long-term business decisions (3-5 years).
As such, the investments needed to work with a venture studio are higher than those with a product studio.
Understanding, if your project is in your core business, close to the core business, or outside the core business, gives a clearer view of what the path to success should look like.
We encourage you to use the golden rule and find out where to place your own innovation targets. That will give you a deeper understanding of which form of innovation is best for you. Our team consists of experienced specialists for innovation and products as well as venture building.
- Success Rate Venture Studio: https://www.gssn.co/media