THESIS PAPER
The Startup Studio as a form of Business Model Innovation. A comparative study on the case of Founders Copenhagen as a Startup Studio, compared to more traditional models of Venture Capital Funding.
Abstract The purpose of this research paper is to assess the value of a relatively new form of venture capital funding, The Startup Studio, which offers a new approach to financing and supporting ventures in their early stages. In order to gain a comprehensive analysis of the new form venture funding compared to traditional models, this research adapts theories of Business Model Innovation, Pluralistic Leadership and Innovation Management, as a way of showing the value-adding benefits of the Startup Studio model. Using the case study of Founders, a Danish startup studio based in Copenhagen, this research will show, through primary data gathered at the company, that the startup studio business model offers young ventures a much more stable and attainable form of support, in the processing of launching a startup. The reader will see that traditional models of funding are not only unattainable for many early stage startups, but also that their extreme growth models can be considered damaging to venture longevity. David Michael Jackson [email protected] Table of Contents 1 Introduction ...... 3 1.1 Problem Area And Motivation ...... 5 1.2 Problem Formulation ...... 6 1.3 Background of Founders ...... 6 1.4 The Founders ‘Platform’ ...... 7 1.5 Thesis Structure ...... 9 1.6 Project Criticism ...... 10 2. Methodology ...... 10 2.1 Methodologic Approach ...... 11 2.2 Research Philosophy ...... 11 2.21 Hermeneutics ...... 11 2.22 Classical Hermeneutics ...... 12 2.23 Modern Hermeneutics ...... 12 2.24 Reasoning for the Modern Hermeneutic Approach ...... 13 2.25 Implications and approach of adopting a Hermeneutic Approach ...... 13 2.3 Research Design ...... 14 2.3.1 Nature of Research Design...... 14 2.3.2 Methodological Choice ...... 15 2.3.3 Strategy ...... 16 2.3.4 Time Horizon ...... 17 2.4 DATA COLLECTING METHOD ...... 18 2.4.1 Primary Data ...... 18 2.4.2 Data Collecting Process (primary data) ...... 19 2.4.3 Secondary Data ...... 20 2.5 Quality of Primary Research Data ...... 20 2.5.1 Quality of Secondary Research Data ...... 21 3. Conceptual & Theoretical Framework ...... 22 3.1 An overview of the Traditional Venture Capital Model ...... 22 3.2 Overview of The Startup Studio ...... 24 3.3 Business Model (BM) & Business Model Innovation (BMI) Theory ...... 26 3.3.1 Business Model Theory ...... 26 3.3.2 Business Model Innovation Theory ...... 29 3.3.3 Drivers of Business Model Innovation: ...... 30 3.3.4 How Business Model Innovation Occurs In Practice:...... 31 3.4 Pluralistic Leadership Theory ...... 32 3.5 Innovation Management Theory ...... 35 4 ANALYSIS ...... 37 4.1 A comparison of the Value-Added Benefits of the traditional Business Models of Venture Capital funding and the Startup Studios Business Model...... 37 4.1.1 The Value-added benefits of traditional VC funding ...... 37 4.1.2 The Value-added Benefits of the Angel Investor Model ...... 39 4.1.3 The Value-added Benefits of the Startup Studio Model ...... 40 4.2 Business Model Innovation. From Investment to Involvement: the shift in form of VC Funding leading to the birth of the Startup Studio Model...... 42 4.3 Founders ‘Pluralistic Leadership’ Model...... 45 4.4 Innovation Management at Founders ...... 47 6. Discussion ...... 49 7. Conclusion ...... 51 References ...... 54 Appendices ...... 58 Appendix 1 – Stages of Venture Capital Financing ...... 58 Appendix 2 – Founders Business Model (Founders 2018) ...... 59 Appendix 3 – Startup Studio Basics (Quora, 2015) ...... 60 Appendix 4 – Interview with Sebastian ...... 61 Appendix 5 – Interview with Talika ...... 80 Appendix 6 – Participatory Observations – ’Beers and Cheers’...... 97 Appendix 7 – Study Progress Description ...... 101
1 Introduction
Due to today’s fast paced and turbulent startup climate, one in which Forbes claim a startup failure rate of around 90% (Forbes 2015), entrepreneurs developing hi-tech innovations are faced with a multitude of challenges, most importantly, the challenges of acquiring funding, the strategic execution, as well as the expertise necessary in the process of taking a novel idea into a viable business. Because of these challenges, innovative models of venture capital funding have shifted from pure funding with limited strategic guidance, to models such as the ‘Startup studio’ which offers a higher level of involvement, rather than pure investment. As although funding is deemed as a crucial factor affecting the success of a new venture, what can be considered as equally important is the strategic influence of those providing the capital injection, and the role that their influence plays in adding value to the organization. This element is crucial, as much of the current research shows that the success of a startup is based on, for example, 20% ideas and 80% strategic execution (Kikan 2014). Understanding the role that private equity and other types of venture funding play in shaping an organization’s innovative capacity, as well as influencing its success, has considerable practical importance, as the shapes and forms of the Business Model (BM) of venture funding in today’s startup environment are abundant and continually changing through Business Model Innovation (BMI)(Dutta & Folta 2016: 40).
The traditional methods of acquiring venture funding and expertise has primarily been through private equity channels, such as Venture Capital and Angel Investor funding, however, in today’s venture funding ecosystem, the ‘Venture Builder’ or the ‘Startup Studio’ has begun to emerge as an innovative business model of venture funding, with the number of these studios rising sharply in recent years. Alongside the traditional forms of venture funding, the ‘Startup Studio’ uses its existing infrastructure of resources and expertise, and in most cases develops a venture, or multiple simultaneously, internally from the ground up, to help overcome the challenges of the digital economy and improve the chances of the startup’s survival. The Venture Builder through Pluralistic Leadership thus become co-founders with the entrepreneurs, in a kind of incubator/VC hybrid, using their knowledge and organizational infrastructure as leverage in conducting its various core activities, such as developing business ideas through adaptation and replication of existing models, building professional teams through inhouse or external networks, raising capital, and of course, strategic and innovative management (Liuzzi 2016). As the more traditional models of venture funding are becoming more difficult for tech entrepreneurs to acquire, with increasingly stringent financial requirements usually being needed to be met before investment, the Startup Studio model is appealing in this regard, as this innovative business model of venture funding couples both provision and assistance with securing capital, as well as a pre-existing infrastructure to assist and develop products, marketing strategies, human resources, legal and finance, and other crucial elements that contribute to the survival of a startup. The pluralistic nature of the leadership structure in the Startup Studio is also attractive, as it has been suggested that early stage innovation projects are prone to what is known as ‘path dependency’, and that leadership that embraces strategic openness is an essential criteria and most advantageous in early stage ventures (Fagerberg 2005:10).
An additional element that will be explored in this paper, is the effect that Startup Studios, as a form of venture funding, have on maintaining the integrity of the organizations ability to be continually innovative, and whether the issue of agency, or the replicative strategic design of the Startup Studio poses a threat to the organizations innovative capacity. A repercussion of implementing a business strategy that essentially codifies the process of building a startup venture from scratch, and then applying this strategy over several simultaneous ventures, runs the risk of a kind of ‘innovative stagnation’, as the exuberant nature of startups can potentially be influenced by established networks of expertise and infrastructures, unless the Startup Studio actively manages innovation (Lapowsky 2014).
Using primarily data collecting from the Danish startup studio ‘Founders’, based in Copenhagen, this paper will compare the value-added benefits startup studios provide to the early stage startup, to those of the more traditional models mentioned previously. Whilst the traditional definitions suggest that the Business Model (BM) is the “design or architecture of the value creation, delivery, and capture mechanisms” of a firm, applying Business Model Innovation (BMI) theory to the comparison of the startup studio model to more traditional BM’s, will highlight the positive influence that innovative business models, like that of Founders, have on the entrepreneurial firm, even under more hectic environmental conditions such as the tech startup environment (Foss & Saebi 2017:201). The research will also address the issue of innovation management, and how venture builders are able to actively manage entrepreneurial innovation when internal resources are spread across different ventures.
1.1 Problem Area And Motivation
As the failure rate of startups is so prolific, with around nine out of every ten ventures failing, researching the causes of this failure could see this rate reduced in the future, if deeper considerations into these causes are taken on board when making the decision to start a new venture. Today’s startup ecosystem has evolved from what it was a decade ago, with the solutions to opportunities in the market (the potential products) being much more difficult to capture. Entrepreneurs who create products or services that address market problems must be agile in their approach and develop cutting-edge technologies and products faster than competitors in order to be successful. They also face considerable risks in the innovation process whilst exploring technological feasibility, the credibility of their business model, and the product or service’s viability. In a report released by CB Insights (2017), which analyzed ‘post mortem’ reports from the founders of 101 failed startups, the top five reasons startups fail came down to:
1. No Market Need 2. Ran out of Cash 3. Not the right team 4. Get outcompeted 5. Pricing Cost Issues
With these areas in mind, understanding the role that venture financing plays in the survival of a startup can be considered as of high importance, as it addresses some of the root problems that startups face throughout the course of their life. With the number of financing options available on the market increasing in recent years, understanding the different offerings that each form of finance has in regards to adding value to the venture, as well as assuming some of the risk previously mentioned, can guide those seeking support to making the most appropriate decision for their venture.
As the accessibility of the more tradition models of VC funding is becoming less viable to early stage tech ventures, whom usually lack the concrete financial and pre-funding traction that are required before gaining VC funds, other sources of funding and support have appeared in recent years as attractive alternatives. These alternatives address other problem areas of traditional financing such as the high equity stake demanded, usually a controlling proportion, which can be unattractive to entrepreneurs who can lose control over their innovation to VC firms that push for extreme growth at all costs. The appearance of the Startup studio in recent years proposes an interesting business model that seeks to address the concerns of entrepreneurs developing early stage ventures, whom require not only financial backing for their projects, but also backing that encourages the agility necessary to launch new ventures in a turbulent market.
1.2 Problem Formulation
More specifically, what is the business model of traditional Venture Capital financing? How does the Business model of the Startup Studio differ from this?
And, why has it become urgent to change the concept of the traditional Venture Capital financing and implement the idea/concept of an Startup Studio? What is changed in the need, situation or ecosystems of startups and entrepreneurs that justify the change in concepts and (business) models?
These reflections lead to a third question: What are the challenges to organizational innovation that the Startup Studio model pose? What strategy do Founders implement to overcome these challenges?
1.3 Background of Founders
Founders is a Startup Studio based in Copenhagen, which started in 2013. Since then, Founders have built 11 companies out of Copenhagen and Berlin, together with more than 80 employees from around the world. The company is managed by six partners, of whom are each responsible for the execution, management, creation, validation, design, and technical aspects of each project, as well as the management of the core business. Founders have also the financial backing of investors Kirkbi (owners of Lego), Anders Holch Povisen (owner of Bestseller), and the Oticon Fund (William Demant). The majority of their product ideas are tech ventures, that are developed internally, from the Founders core team or their hackers and entrepreneurs in residence, claiming that they are ‘Founders’ and not ‘Funders’, and believe in only building companies that they believe in and want to exist in the world, rather than looking at their portfolio of companies as ‘bets’ (Founders.as, 2018). Founders believe in launching early and iterating fast, claiming that failing is just a way to find out what doesn't work in the development of a new venture. Aside from the internal development of products, Founders also partner with early-stage entrepreneurs or entrepreneurial teams working on a problem/solution that they are passionate about. When this kind of collaboration happens, Founders become what they describe as ‘true’ co-founders, putting their own structural platform and ‘playbooks’ to work and providing hands-on help across product, growth, recruiting and all other critical areas in the early days of a company's life.
Founders identify three main problems in building successful companies (appendix 2);
1. It has become easier to start, but harder to build companies 2. Investors, accelerators and angels are moving away from the earliest phase and struggle to scale their operational expertise 3. The unique experience that an entrepreneur builds up in the early phase, is hard to take proper advantage of next time
In addressing these problems, Founders uses what they describe as the ‘Founders Platform’, which is a platform which is based on their experiences in the 15+ companies that they have built, and is characterized as having three different elements including Expert Teams, ‘Super Powers’, and Funding (appendix 2). Using the foundations of the platform as leverage, Founders claim to be able to more confidently build companies from scratch, basing decision making on past experiences and processes and developing conviction driven teams.
With the platform as the fundamental building block in the development of new ventures, Founders work along an iterative framework from the exploration of market opportunities, to the generation of problem hypothesis, then the discovery of solution hypothesis, and finally to the validation of problem/solution and product/market fits, the entire process aimed at a period of around 18 months (Appendix 3). Currently, Founders’ portfolio includes 12 active companies, as well as a variety of different online playbooks and tools, which include companies such as Pleo (financial technology - Fintech), Kontist (Fintech), Son of a Tailor (Online Fashion), and SnappCar (Carshare) to name a few.
1.4 The Founders ‘Platform’
In addressing the key problems of building a successful venture mentioned previously, Founders have developed and use what they call ‘The Founders Platform’, which is a platform based on the experience of building over 15 companies. Founders claim that this model enables them to co-found successive companies on a single platform that gets smarter and adapts with each success and failure, using iteration to increase the likelihood of success (Founders.as, 2018). Although not all of Founders’ ventures have proven successful, employees at Founders firmly believe in the positive aspects of failure, in that ‘failing is just a way to find out what doesn’t work’.
The key characteristics of the platform include;
1. Expert Teams – Design and Product, Development, Communication, HR, Finance and Operations 2. Super Powers – Experiences, Playbooks, Processes 3. Funding – Founders budget for bringing a company from ‘zero to traction’ is 500k EUR – 750k
The use of this ‘single platform’ as a tool in the creation and co-creation of new companies, revolves around the adaptation of each aspect of the platform to the circumstances and individual characteristics of the projects. For example, each department or ‘Expert Team’ continually learns from the results and outcomes of developing new companies, the introduction of new legislation, and the internal/external development of new practices, in implementing strategy in future projects. The ‘Super Powers’ of the different teams are characterized by the development and implementation of the different processes and playbooks, which are developed based on current trends and practices, but also on the previous experiences of projects, in the hope of providing vital strategic guidance in the creation of new projects.
1.5 Thesis Structure
1.6 Project Criticism
During the planning process of the project, I as the researcher attempted to gather as many sources for primary data, though was only successful in gaining the help of Talika and Sebastian for semi- structured interviews. This was primarily due to the time constraints of the other partners and members of staff, but also in order to gain critical distance in the gathering of data I only asked for the help of employees I had no previous history with, personal or professional. Having a wider perspective from other members of the Founders core team, as well as of course employees from Founders portfolio companies, would have enriched the research papers wholeness, as well as provided a more equal portrayal of the involved parties in the startup studio’s management and innovation process.
What is also important to disclose is my own relation to the company Founders as the researcher in order to secure critical distance. I as the researcher have been employed by the company Founders from August 2017 – August 2018 in the role of Financial assistant, and although I was not involved with the development or creation of new projects, I did gain insights into the processes, as well as developed personal relations with employees and directors of the company, having the potential for readers to question the credibility of the data gathered. However, this being said, my selection of interview respondents as well as my positioning as a participant observer was carried out by selecting respondents I have no personal or professional ties with, in an effort to secure critical distance from the data I was gathering.
Finally, this research paper has only used primary data in relation to a single startup studio, namely Founders, and opted to rely on predominantly secondary data in the assessment of traditional models of venture capital funding. This was due to the fact that I had no access to individual VC funds in the form of gathering primary data, as well as of course time restraints. Having access to data from other startup studios as well as VC funds, would have given me as the researcher a greater point of reference in the critical analysis of the different models, as well as in their description.
2. Methodology
The following section describes and reflects upon the methods used for the collection of empirical data that will be analysed throughout this research paper. The philosophy of science and then the research methods will be introduced, followed by an assessment of the quality of the research data gathered.
2.1 Methodologic Approach
In this research paper the hermeneutics approach has been adopted. Also, the project is empirically based on the collection of two qualitative research interviews, as well as observations of specific events at the Startup Studio Founders. More specifically, the use of these ‘Semi-Structured’ interviews, as well as ‘Participant Observations’ has assisted this research in describing the relatively new business model of the Startup studio in relation to more traditional models (Saunders et al. 2012: 283). In the following section, an outline of hermeneutics will be provided, along with a historical overview of the approach, as well as the reasons behind its adoption as a scientific position in this research paper.
2.2 Research Philosophy
2.21 Hermeneutics
Hermeneutics when adopted as a scientific position is characterised by the notion that the primary role of social sciences is to achieve understanding (Holm, 2013:84). Therefor, the fundamental question put forward by hermeneutics is “What is understanding?”(Holm, 2013: 84,85). A key element of hermeneutics is the concept of hermeneutic circle (Holm, 2013:85), which characterizes understanding as a circular process (Holm, 2013:87). The hermeneutic circle represents the view that understanding depends on the context, as Holm states (2013: 86)
“we understand the whole on the basis of its constituent parts, but at the same time we understand the parts because they are elements of this whole”
Hermeneutics is also concerned with responding to three philosophical questions about the hermeneutic circle and understanding. The first question investigates at what point can one argue that true understanding has been achieved. The second question attempts to define what understanding actually is, and the third question inquires as to how one can enter the hermeneutic circle (Holm, 2013:87). In answering the first question about how true understanding can be achieved, most hermeneuticians can agree that true understanding cannot be achieved through human and social sciences, as it is not the focus of interpretation (Holm, 2013:86). However, the answers to questions two and three have led to the development of two different approaches to hermeneutics, being the classical and modern approach.
2.22 Classical Hermeneutics
The foundations of the classical approach to hermeneutics are based on the views of Schleiermacher and Dilthey, who attempt to define the meaning of true understanding. Schleiermacher postulates that a text is understood when a researcher can fully grasp what the author intended to express through a specific text. In entering the hermaneutic circle, Schleiermacher claims that this can only be done by making a ‘qualified guess’ of the meaning of the text, or its understanding (Holm 2013:87). Dilthey on the other hand claims that true understanding is only achieved when the researcher takes the place of the author and is able to perceive the world through their eyes (Holm 2013:89), and that we can only enter the hermeneutic circle when we reflect on our own experiences which are connected to the phenomenon or text we are attempting to understand, such as attempting to understand what is truly happening in the ‘beers and cheers’ events at Founders, or by interpreting the meaning behind the Founders platform (Holm 2013:89).
2.23 Modern Hermeneutics
The German Philosopher, Hans-Georg Gadamer puts forth another method of reflecting on the question of ‘how re-experience could be achieved’. Gadamer dismisses the classic approach to hermeneutics which sees understanding as a method, rather claiming that understanding is re- experience (Holm 2013: 90). According to Gadamer, researchers do not have to find a way into the hermeneutic circle, as they are already inside of it. This is because we are already a part of the culture which is trying to be understood and we understand our interaction with the outside world as we are a part of a particular tradition (Holm 2013: 91).
Gadamer also makes the claim that it’s impossible for researchers to be entirely rational and without prejudice, as our prejudices come from our belonging to a cultural tradition, and the handing down of these prejudices is exactly what makes ‘understanding’ possible (Holm, 2013:91). Gadamer describes his interpretation of understanding as a dual process of the ‘Fusion of Horizons’ (Holm 2013: 93): “The foreignness of the text handed down from the past is acknowledged; hereafter, the textual work itself creates a new horizon of understanding in which the text’s past horizon and the interpreter’s contemporary horizon form a synthesis.”
His emphasis of the aspect of application in interpretative work means that from this view understanding is not about the reproduction of meaning, but rather about producing new meaning (Holm 2013: 94).
2.24 Reasoning for the Modern Hermeneutic Approach
As a researcher, I am aware of the fact that in choosing to use Founders as the reference point, or case study in the assessment of the business model of the Startup Studio, that my previous involvement with the company as an employee in the finance department has positively influenced my opinion of the business model. I therefor recognize my pre-existing prejudices when beginning to research the value of this model compared to traditional models of venture funding. Also in light of my pre-existing prejudices about the model, my selection of candidates for the gathering of primary data was carried out in a way that I chose candidates whom I had no previous connection with, with the aim of being as neutral as possible.
2.25 Implications and approach of adopting a Hermeneutic Approach
Applying hermeneutics in my research means that I have selected hermeneutics as the science- theoretical approach. The implications of the approach are that when I, as the researcher, work hermeneutically with the literature, I must be aware of my pre-existing understandings. These pre- existing understandings must be then put in context, in accordance with the information that was gathered from the semi-structured interviews and participant observations. In the process of gathering the primary data, I had to be particularly receptive and open to the information that was disclosed to me, both in the interviews, as well as through my observations.
In interpreting the transcripts from the interviews, and the notes from the observations, as well as the secondary data, my hermeneutic approach will be evident as when I make these interpretations, as I will be continuously considering the context in which the data was gathered; the surroundings, the moods and the general flow of the questioning. Thus, there will be a ‘fusion’ of understanding, which will be based on my pre-existing prejudices of the Startup Studio model, as well as the understanding of the model from the interviewees as well as those participating in the participant observations. This fusion of understanding will therefor lead to the creation of new meaning.
2.3 Research Design
Before undertaking a research project, it is crucial that the researcher examines their own philosophical assumptions and those at the core of their research questions before selecting the appropriate data collection methods, or research design (Wright et al 2016:97). The main function of the research design is to provide a logical sequence of procedures that facilitates the research process and problem formulations of the project (Saunders 2012: 118).
The framework of the research process, includes the following interconnected areas (Wright et al 2016: 07):
• The Philosophical level (ontology or the nature of reality) • The Epistemological level (the nature of knowledge) • Methodological Level (which comes as a result of aligning the researches worldview – their Ontology & Epistemology) • Research Methods and Techniques
The following chapters of the research project will be discussing the Methodological level, which outlines the research process, including the nature of the research, strategy as well as the time horizon.
2.3.1 Nature of Research Design
The nature of research design can be categorized into three areas: Exploratory studies, Descriptive studies, and Explanatory studies.
Firstly, Exploratory studies is useful in discovering ‘what is happening; to seek new insights; to ask questions and to assess phenomena in a new light’ (Saunders et al 2012: 133).
Descriptive studies is described by Saunders et al (2012:133) as:
“portraying an accurate profile of persons, events or situations” Finally, Explanatory studies establish causal relationships between variables, where studying a situation or a problem is undertaken to explain the relationship between two variables (Saunders et al 2012: 134).
The nature of the research design in this project combines each of the categories in various ways. Firstly, in order to gain a better understanding of how the Startup studio/Founders innovated the business model of traditional venture capital financing, a descriptive analysis of Business Model and Business Model Innovation theory was undertaken. This can also be said for the leadership approach taken by management at Founders, which by providing a descriptive analysis of Pluralistic Leadership theory and connecting it to the case of Founders, was able to shed light on the phenomenon through a practical case. The descriptive analysis of these phenomena has helped draw conclusions about the innovation of business models proving value to the organization, using Founders as an example.
Searching through the literature related to the Startup Studio, as well as conducting the collection of primary research through observations and interviews, has proved vital in aiding the process of explaining the nature of modern venture funding and the gap that this business model is filling with regards to the evolving needs of tech ventures. This use of exploratory research has identified and confirmed many of the claims made in the secondary data collected regarding the phenomenon of the Startup studio, Pluralistic Leadership and Innovation Management, which in the end has helped narrow the focus of my research in addressing the research questions.
Finally, in order to get a clearer view of the relationship that leadership has on the success of new ventures, as well as the causal relationship that innovating the business model has on adding value to the organization, explanatory research methods have been utilized to allow for these relational evaluations. This was achieved primarily through the use of the qualitative data collected through interviews and observations, which allowed me as the researcher to draw my own conclusions about the variables of the relationship.
2.3.2 Methodological Choice
The data gathering process can be described as a set of activities which can be divided in three main categories (Kuada 2012: 117) :
• The qualitative approach, which is concerned with developing explanations of social phenomena through the ‘how, what & why’; • The quantitative approach, which primarily uses deductive logic, where the researcher starts with a hypotheses and then collects numerical/statistical data which can be used to determine whether evidence to support that hypothesis exists; • A mixture of the two methods, being the mixed research method.
This research project has adopted the mixed research method as the best approach in addressing the questions in the problem formulation. As some research questions are best answered using different methods, I have used the mixed method in the approach to this research, as in order to address the research questions, data had to be collected both in the form of precise numbers and measurements, taken through predominantly secondary sources, however, as the primary sources of data used in this research were in the form of words and observations on transcripts, interpretation through qualitative measures was appropriate (Kuada 2012:118).
2.3.3 Strategy
The research strategy of a project can be generally described as the ‘plan of action’ and is important to consider when conducting research. In the case of the Startup Studio model, using Founders as the case study, I have naturally decided to adopt the case study techniques, as well as the ethnographical techniques set out by Saunders et al (2012: 135), in order to better connect the qualitative and quantitative dimensions of the research project.
The case study strategy can be defined as (Saunders et al 2012: 139):
“a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence”
In adopting this strategy, it has allowed me as a researcher to gain a rich understanding of the context of the research and the different processes being observed, and also helped me develop the answers to the “why”, “what”, and “how” questions that my research puts forward (Saunders et al 2012:139). Moreover, in adopting the case study strategy in explaining the phenomenon of the startup studio and innovation, this has allowed me to ‘frame’ the phenomenon from an internal standpoint, and also at the same time better understand the multi-layered nature of the environment that Founders is in.
The ethnographic strategy’s purpose is described by Saunders et al (2012: 142) as: “to describe and explain the social world the research subjects inhabit in the way in which they would describe and explain it”
This strategy has been adopted as it relies on researching the phenomenon within the context it occurs, using data collection techniques that do not oversimplify the complexities of everyday life (Saunders et al 2012: 143). As one of my data collection techniques was participant observations, this technique helped me gain insights into the effects of the ‘beers and cheers’ meetings, from the perspectives of the participants, which has helped me explain the social world of Founders, thus helping me answer some of the questions put forward by my research about the value offerings of the startup studio mode (Saunders et al 2012: 143)
2.3.4 Time Horizon
The time horizon of a research project responds to the important question which must be considered when planning research. This question is put forward by Saunders et al (2012: 148):
“Do I want my research to be a “snapshot” taken at a particular time or do I want it to be more akin to a “diary” and be a representation of events over a given period?”
The “snapshot” approach mentioned by Saunders et al refers to the ‘Cross-Sectional’ time horizon, which is the study of a phenomenon at a particular time, whereas the “diary” approach is referred to as the ‘Longitudinal’ time horizon, which focuses more on the study of change and development over a period of time (Saunders et al 2012: 148).
Due to time constraints, and the nature of the research questions employed in this study, it was only possible to carry out primarily a cross-sectional study, which describes innovation and the nature of the Startup Studio business model at a particular time. As the business model in question is relatively new and almost in a state of flux, only current insights and trends in one form of the startup studio business model have been used to describe the phenomenon as a whole, as research found there to be no one universal model. Also, as the organizational members from Founders whom were interviewed and observed were only limited as far as availability and time, this study only obtains a snapshot of the views of two members of the organization from two very different departments, describing the phenomenon of their business model at a particular time, procuring the data through multiple, single interviews.
Only a very limited amount of longitudinal research was able to be recorded, this was done through the observations of the ‘Beers and Cheers’ meetings, which allowed me to study the change and development of the current problems faced by different projects over a short period of time. Although observations from only three meeting were taken, this was done consecutively, allowing me to research the effect that problem interaction has on the development of issues within startup projects.
2.4 DATA COLLECTING METHOD
2.4.1 Primary Data
Primary data is defined as data collected for the purpose of the research taken into consideration, and can be collected in a number of ways, such as through interviews, questionnaires and observations (Saunders et al. 2012: 112). In order to obtain the necessary data, a number of semi- structured interviews were carried out with the employees and partners of Founders, in order to gain insights into the business model and a strategic overview of the startup studio. In semi-structured interviews, the researcher has a list of topics and possible questions to be covered, which may vary from interview to interview. The researcher may also decide to omit some questions or topics in particular interviews and the order of questions may also be varied depending on the flow of the conversation (Saunders et al. 2012: 112). The decision to use semi-structured interviews as one of the main sources of primary data was due to the claim that gathering insights and data from interviewing can enhance the ability to demonstrate and describe a phenomenon (Kuada, 2012: 96); in this case, data gathered from interviews at Founders enhanced my ability to describe the nature of business model innovation and innovation management using a specific case study.
Participant Observations, where (Saunders et al. 2012: 283):
“the researcher attempts to participate fully in the lives and activities of subjects and this becomes a member of their group, organization or community” have also been used to gather insights of how Founders promotes and manages an innovative culture within the organization through its “Beers and Cheers” initiative. Actively participating in these events has enabled me as a researcher to share the experiences of the Founders members, by not merely observing what is happening, but by also feeling it (Saunders et al. 2012: 284). The ‘Beers and Cheers’ initiative takes place every Friday in the offices common area, and invites all portfolio companies residing in the office, as well as current projects, to sit together and discuss all the current issues, successes, and general status on each of the companies/projects. Participants are encouraged to provide feedback and support to each other, in a relaxed atmosphere with a ‘Friday bar’ feeling. Actively participating in ‘Beers and Cheers’ as an observer was able to give me valuable insights into Founders efforts regarding innovation management, as well as insights into the functionality of one of the key aspects of the ‘Founders Platform’.
2.4.2 Data Collecting Process (primary data)
In gathering data for the semi-structured interviews, non-standardized interviews were used to gather the data, with the purpose of producing qualitative data for the analysis. The semi-structured interview method is recommended when the research questions can be considered complex as well as open ended in some cases, also where the order and logic of questioning varied between the respondents (Saunders et al. 2012: 316). For the research, I was able to carry out 2x 1 hour interviews with one of the managing Partners at Founders, Sebastian (Head of Design), as well as the Human Resources Manager at Founders, Talika. The location used for the interviews was a small quiet café where there were little distractions. A total of 17 questions were formulated, however, depending on the interviewee, not all were used if deemed irrelevant for that person. These 17 questions were split into 3 of the following categories:
• Founders Business Model Questions • Personnel Attributes • Innovation Management at Founders
For both of the interviews, the order of questioning followed a similar pattern, although more emphasis and detail were placed on questions relating to the Founders Business Model and technical aspects of innovation when interviewing Sebastian, who as head of design was able to provide more relevant and precise information regarding these areas. In contrast, more emphasis was placed on the questions regarding atmosphere within the organization between its members, when interviewing Talika, who as head of HR was able to provide more holistic responses over things like recruitment and desirable attributes of entrepreneurs.
The data gathering process for the Participant Observations required through my presence at 2 of the 1.5 hour meetings, to carry out a ‘descriptive observation’ in order to develop a ‘narrative account’ of what was taking place (Saunders et al. 2012: 290). As a researcher, I carried out the descriptive observation of the meetings by taking notes regarding the physical setting, the key participants and their activities, particular events and the sequence of their occurrence, the general processes involved of all those attending, and the visible emotions I could sense (Saunders et al. 2012: 290). By gathering and developing my primary & secondary observations, then subsequently developing experiential data regarding these aspects of the meetings, I was able to create a narrative account of the events which has helped me develop and address my research questions (Saunders et al. 2012: 290).
2.4.3 Secondary Data
Saunders et al. (2012:248) characterizes secondary data as information that has been collected by other parties for specific purposes, which can be both quantitative and qualitative and used principally in both descriptive and explanatory research. The secondary data collected and utilized in this research has primarily been the use of academic articles, trade journals, books, organizational documents and web sources. These resources have been used to gain insights on the phenomena that has been researched in this paper, but also to provide a base to the theoretical framework, problem area formulation, and analysis.
2.5 Quality of Primary Research Data
In order to assess the quality of the primary and secondary data gathered for the purpose of this research, a number of data specific issues were considered. In gathering the primary data from the semi-structured interviews, a number of data quality issues can be identified, including (Saunders et al. 2012: 317):
• Reliability • Forms of Bias • Validity and Generalisability
As the process of conducting semi-structured interviews can at times lack standardization, concerns about data reliability can occur when questioning whether or not different researchers employing this method would reveal similar qualitative information in the process, or whether the lack of standardization in the collection process could lead to different outcomes depending on the researcher (Saunders et al. 2012: 318). In order to address the issue of data reliability using the semi- structured interview approach, the questionnaire used to gather the data was formulated in a way that the questions and research areas they were addressing could not be interpreted in many different ways. I also, as the researcher, attempted to stay on track with my data gathering and not go too far off on tangents when following divergent paths of questioning.
There is also the issue of bias in the collection of primary data in the form of semi-structured interviews, this can come in the form of interviewee and interviewer bias. Interviewer bias is where the ‘comments, tone or non-verbal behavior’ of the interviewer creates bias by affecting the way the interviewees respond to the questions being put forward by the interviewer (Saunders et al. 2012: 318). This can occur when the interviewer attempts to put forward or impose their beliefs and agenda through the questions asked, or by the way the responses are interpreted. Being aware of this risk, the questionnaire and general structure of the interviews was composed so that the problem formulation was not explicitly mentioned, and that the relaxed way the interviews were conducted allowed for an almost organic development of primary data, free of any kind of coercion. Also to avoid interviewee risk, the representatives chosen from Founders for the interviews were selected especially for the reasons that we had very little experience of working together in any way, also that their positions being very different allowed for a broader range of data being collected.
In the assessment of the quality of the primary data collected in the form of Participant Observations, threats to reliability and validity of data once again had to be considered, as this form of primary data is very high on ecological validity based on the fact that it involves researching a social phenomena in its natural context (Delbridge & Kirkpatrick 1994:43). The most significant threat to reliability in Participant Observations comes in the form of observer bias. As the researcher cannot avoid this form of bias, that can shape their own interpretations of truth, they must be aware of the threat it poses to the reliability of data collected (Saunders et al. 2012: 292). In conducting participant observations of the ‘Beers and Cheers’ meetings in the common area of Founder’s office, I was aware that the purpose of my research was to gain insights into the innovation management and business model innovation that was occurring at Founders, so after gathering my notes I used an approach called ‘informant verification’ (Saunders et al. 2012: 292), where I presented the data collected from the meetings to the employee responsible for hosting them, in order to verify their content, and to triangulate my own perception of events to their own reality.
2.5.1 Quality of Secondary Research Data
Saunders et al (2012: 263) claim that the same caution used to assess primary data must also be applied when selecting secondary data. When selecting the documentary secondary data for supporting my research, great care was used in ensuring that the data used would (Saunders et al. 2012: 292):
• Enable me to answer my research questions and meet my objectives • Ensure that the benefits associated with the use of the data outweighed the costs • Accessible to me as a researcher
As one of the critical elements of assessment for the quality of a secondary source is the reliability, authority and reputation of its author, this area can be considered the greatest threat to the validity of some of the secondary sources used for this research (Saunders et al. 2012: 265). As the research field of Startup Studios and new models of Venture Capitalism is relatively new field, access to academic journals and other secondary documentary sources of data is limited, so use of non- academic web-based sources can be considered a threat to the validity of the research. However, the majority of the data selected in this respect, has been through sourcing experts and prominent members of the startup studio community that are writing their reports based on first hand experiences with their own projects and startup studios. As there is no single universal business model of the startup studio, the purpose of using these sources of secondary data was to find common ground and reference points to the startup studio business model, based on the experiences of those who have been a part of their development in some way, shape or form. As far as the secondary data collected for the rest of the research, for example in the theoretical framework, collection of data was done primarily through the use of academic journals which are considered a valid and reliable source of data.
3. Conceptual & Theoretical Framework
3.1 An overview of the Traditional Venture Capital Model
Venture Capital is a form of financing provided to early and later stage ventures (see appendix 1) with either high potential for growth, some degree of demonstrated success through rapid sales growth, having developed a new and promising technology, having a top management team, or demonstrating potential for being acquired by a large company or being taken public through an IPO (Entrepreneur, 2018). Due to the high costs and risks of innovation activity that entrepreneurs are exposed to, coupled with limited cash flows and the scarcity of seed capital, access to these resources is vital, and the Venture Capital (VC) funding model addresses this problem by providing the necessary funding, advice and presence that is vital for the early stage growth and traction of young ventures. Although the VC model is characterized by a higher risk appetite than more established financing models, with their willingness to significantly invest in the funding of high potential though unproven ventures, this acceptance of higher risk is balanced out by terms that are often far more expensive to early stage ventures than other forms of finance (Sopher, 2017: 4) In exchange for the provision of funding and other resources, VC’s often demand significant portions of equity in the venture, usually a controlling stake, or issue the funding in the form of expensive loans which usually carry interest rates of up to 30%.
Venture Capital funding can generally be grouped into three categories: Traditional Institutional VC Firms, Small Business Investment Corporations, and Angel Investors (Broome 2007: 21). Traditional VC firms gather funding from private sources like hedge and pension funds, banks, endowments and individuals. The main goal for a traditional VC fund is to identify ventures with high potential for generating return on investment (ROI) of greater than 10x through an exit, within 5 years (Sopher 2017:6). This relatively broad category of VC sees only a small number of early-stage investments made, out of the large pool of potential candidates that are considered for funding. It is only around 10% of early-stage ventures considered that generally receive funding, as the criteria for going ahead with an investment is quite stringent, depending on a variety of selection criteria usually centered around the venture already having revenue streams, a solid customer base, quality management team and a business plan coupled with an exit strategy (Vækstfonden 2018). Sopher (2017:6) defines ‘early-stage’ investments as comprising:
“Seed, Series A and Series B….. the investment rounds at which startups are at their riskiest and have their most difficulty attracting less expensive, more entrepreneurially friendly sources of finance”
Looking at the VC financing model (appendix 1), it is only a small fraction of ventures that receive early-stage investments of seed and series A capital – whereas the majority of traditional VC funding comes in the later stages of the model, when ventures already have achieved a degree of traction (Rosenbuch et al 2013: 337).
The second category, Small Business Investment Corporations (SBIC’s), is a public VC initiative which is typically subsidized by the federal government (Broome 2007: 21). This type of funding was developed in accordance with the Small Business Investment Act of 1958, to address the gap that existed in capital markets at the time, in that growth orientated ventures could not gain access to long term finance from private institutions, which were limited to offering only short-term and intermediate credit (Dilger & Gonzales 2012: 408). The majority of SBIC’s are owned by relatively small groups of investors, though there is a significant number that are wholly owned by commercial banks (Dilger & Gonzales 2012: 410). The SBIC program offers a variety of support to (Dilger & Gonzales 2012: 408):
“small businesses, including loan guarantee programs to enhance small business access to capital; programs to increase small business opportunities in federal contracting; direct loans for businesses, homeowners, and renters to assist in their recovery from natural disasters; and access to entrepreneurial education to assist with business formation and expansion”
Whilst the SBIC program’s structure operates seemingly similarly to the traditional VC firm, by providing the vital equity capital, finance, and management assistance, it is also common in considering smaller investments with more flexible terms (Broome 2007: 21).
The third category of Venture Capital providers are known as Angel Investors. Angel investors are private individuals, of whom in most cases are friends, family or local business professionals, that invest their own capital in someone else’s venture, ‘angels’ because these ventures usually don’t qualify for other forms of investment (Vance 2005: 111). It is a form of funding that generally comes with a higher-degree of flexibility, compared to traditional VC financing, though the expectations of a high return are still present – which can range between 20% – 40% (Broome 2007: 21). Some Angel Investors are already seasoned professionals, and some have accumulated or inherited wealth, thus bringing both money and business experience to their investments (Vance 2005: 111). Some of the distinguishable characteristics of the average Business Angel are that he or she is on average 47 years old, has a post-graduate degree or vast entrepreneurial experience, and are usually people whom have a higher tolerance for risk than others (Vance 2005: 113). The typical investment for an Angel is between US $25,000 - $250,000, though potentially higher in other markets or if investing together with other Angels, invested in early stage ventures which in most cases are pre-profit/pre- revenue (Vance 2005: 114).
3.2 Overview of The Startup Studio
The Startup Studio, otherwise known as the Venture Builder, Tech Studio or Startup Factory (to name a few), is in general terms an organization, which using its own resources, ideas and infrastructure, builds its own companies internally, usually working on several projects simultaneously, devoting resources where they are needed most. Elziere (2014) defines a Startup Studio as: “a structure whose aim is to repeatedly build companies. Thanks to its infrastructure and resources, startup studios increase a startup’s chance of success and optimize its creation and growth.”
The fundamental elements that the classic model of a startup studio possesses, are that of Internal Ideation, Repetition, and Infrastructure (Elziere, 2014).
Internal Ideation: A fundamental aspect of the Startup Studio business model is the internal generation of ideas. Through use its own network of talented individuals and systems, idea generation is the driving force behind the development of new companies and ventures, which is the most defining feature of the startup studio business model (Elziere, 2014). The generation of ideas is usually the result of in-depth market research and concept exploration by the members of the studio, as well as the use of existing techniques developed through iterative creation playbooks, in the hope of developing a viable and scalable business (Liuzzi, 2016). Although internal idea generation is considered a vital element of the business model, in cases such as Founders, the Startup Studio also partners with external entrepreneurs, acting as co-founders in the journey of a startup from ‘zero to traction’.
Repetition: Developing multiple companies, in most case simultaneously, using a universal strategy or playbook, can be considered the main goal of the startup studio (Elziere, 2014). A key defining feature of the startup studio, compared to traditional forms of venture funding, is the willingness to assume much higher levels of risk in the development of ventures, as there is a much greater level of risk in early stage ventures. So developing multiple ventures simultaneously is a way of diversifying the risk associated with early stage ventures, and by creating an iterative playbook based on repetition, makes the process of creating companies more streamlined and efficient – at least in terms of developing the skeleton of the company (Fishbein, 2016). The efficiency of the process and the speed of launching a Market Viable Product (MVP) is a crucial factor in the success of the venture, in an age where competition is flooded and technology has increased speed and access to markets.
Infrastructure: Startup studios and the success of their projects rely on an infrastructure that is built up of pooled resources, including a network of experienced and talented people, processes and playbooks that are usually developed in-house or obtained from the previous experiences of the team, as well as an established network of contacts, sources of finance, and potential business partners (Elziere, 2014). The quality of the studios infrastructure will determine the effectiveness and usually the eventual success of the studios ability to generate ideas and convert them into a viable business. The advantages of having a pre-existing infrastructure in place when developing new ventures is that they can be built faster, due to already tried and tested building processes, and better, with experienced expert teams in all aspects of business working together as a network to improve efficiency of launching the project (Diallo 2015).
3.3 Business Model (BM) & Business Model Innovation (BMI) Theory
After the turn of the century, studies on business models greatly intensified, as economic events such as the dot-com boom of 2000 saw a need for a greater understanding of the defining elements of business models, which then became conceptualized as representing the logic, or the rationale that allows the firm to create value (Andreini & Bettinelli, 2017: 49). However, this conceptualization, and the usefulness of BM research has been criticized due to its lack of clarity, or ‘fuzziness’ in definition. In response to the criticism, business model research has taken a more dynamic approach, turning its attention to the innovation of business models as a source of competitive advantage and key determinants of firm performance, in a turbulent business environment (Andreini & Bettinelli, 2017: 49). Research shows that BMI not only positively influences the performance of entrepreneurial firms, but also to established firms of all sizes who actively implement BMI (Foss & Saebi, 2017:202) . As BMI research introduces the dimension of innovation into the research model, Foss and Saebi (2017:201) highlight important questions such as;
“What are the drivers, facilitators, and hindrances of the innovation of a BM? Under which circumstances can BMI give rise to sustained competitive advantage? Does BMI exclusively originate in the upper echelons, or may it also originate in lower levels of the organization?
The following section will describe the evolution of business model research and its re-direction to the innovation of business models and will attempt to answer the above questions which will be further applied to the case of the pivot of the Startup Studio in its value proposition.
3.3.1 Business Model Theory
The popularity of BM theory, both in research and practice, has increased in recent times, with a large mass of differing conceptualizations and definitions being produced in an attempt to develop a homogeneous model that distinguishes between the different elements of a business model. Although the notion of BM theory has been around for decades, It was only quite recently (occurring in the mid 90’s) that entrepreneurial and strategic scholars began developing definitions of the BM construct as a firm’s key business processes, and how these dynamic processes are linked (Foss & Saebi, 2017:202). To list a few of the more modern definitions, Chesbrough & Rosenbloom (2002:529) define the BM as:
“the heuristic logic that connects technical potential with the realization of economic value”
Or Aspara et al. (2013:460):
“the corporate business model resides primarily in the minds of the corporation’s top managers or top management team (TMT) members – essentially, it is the corporate top managers’ perceived logic of how value is created by the corporation, especially regarding the value-creating links between the corporation’s portfolio of businesses”
And finally, Casadesus-Masanell & Ricart (2010:195):
“a reflection of the firm’s realized strategy”
In breaking down BM theory into its main individual components, or its key processes, these can be described as: the Strategic Activities and managerial decisions, the resources, the networks and relationships, and the value creation of the firm (Andreini & Bettinelli, 2017: 36).
The Strategic Activities and Managerial Decisions of the Firm:
In strategic management literature, ‘Strategic Activities’ are the activities implemented by firms through their BM design, that create value and assist in gaining competitive advantage in the market (Andreini & Bettinelli, 2017: 47). These BM activities are used to set priorities, focus energy and resources, optimize operations, ensure stakeholders are working toward common goals, and providing organizational direction in response to a changing environment (Balance Scorecard Institute, 2018). The strategic constructs of the BM are vital for understanding how the firm creates value. In contrast to the strategic construct of the BM, entrepreneurial studies identify the components of the BM as being mainly managerial decisions that are made on behalf of the firm in order to exploit internal and external opportunities. Casadesus-Masanell et al. (2010: 198) state that BM’s represent:
“Concrete choices made by management about how the organization must operate and the consequences of these choices”
These choices made by management lead way to the creation of the ‘basic architecture underlying all successful businesses’ (Andreini & Bettinelli, 2017: 36). The Resources of the Firm:
As a continuation of strategic activities and managerial decisions, these can be considered as an outcome of the tangible and intangible resources held by the firm – this is how the resource component of the BM is encapsulated by strategic management theory (Andreini & Bettinelli, 2017: 37). These tangible and intangible resources held by the firm offer differentiation and competitiveness, and allow companies to create value, as well as offer value to the market.
Networks and Relationships:
Although the majority of research investigates the different components of the BM in the context of a single company, there are recent developments that expand this to an investigation of the BM in networks (Andreini & Bettinelli, 2017: 38). Through network relationships, firms and their actors rely upon and take advantage of their dyadic, triadic, and group interactions, exploiting external resources to create and co-create value (Andreini & Bettinelli, 2017: 38). In the case of Venture Capital Funding, the relationship between the venture itself and the financial institution providing the capital are fundamental for the development of the venture, as well as to the benefit of the fund provider – as the dyadic relationship between the two creates value for both parties in different forms.
Value:
Value can be considered as the main purpose of the BM – whether it be value in the form of customer value, financial value, efficiency, or innovation, the BM can be considered as the driver of value in its different forms. Although the different approaches to identifying value come from fields such as economics, strategic management, entrepreneurial and organizational studies, and marketing, they all reflect the different elements of the BM that a company has to actively develop in order to capture and create value (Andreini & Bettinelli, 2017: 39).
Being that the literature presents a vast differing of conceptual and practical definitions, the majority of literature agrees that the BM is useful for research on boundary spanning innovation, it is a concept used to represent how firms do business in a dynamic way, and finally, the main purpose of the BM as a tool is to create, capture and deliver value (Andreini & Bettinelli 2017:29). The convergence in BM theory research of the key defining features of the BM, has allowed for the categorization of the literature into three broad areas; firstly as the basis for enterprise classification – as a way to understand and classify value drivers of BMs, second, the BM as an antecedent of heterogeneity in firm performance, or being recognized as a crucial factor contributing to firm performance, and finally, the BM as a potential unit of innovation in which managers can manipulate and purposely innovate (Foss & Saebi, 2017:202). This last area, adds the dimension of innovation to BM theory, becoming Business Model Innovation Theory (BMI), and while it serves as an extension of BM theory, the additional element of innovation raises crucial questions such as the circumstances under which BMI give rise to competitive advantage, and from which source does innovation of the BM primarily come from (Foss & Saebi, 2017:201).
3.3.2 Business Model Innovation Theory
The introduction of the innovation dimension into BM theory, thus becoming BMI theory, is widely considered a new source of innovation that complements the core components of the Business Model mentioned previously of strategic activities, managerial decisions, networks, and value (Foss & Saebi, 2017:201). Although the BMI theory can be considered a direct extension of BM theory, the lack of literature in comparison to traditional BM literature proves that the dimension of innovation in the BM is less understood and also raises important research questions that extend beyond the boundaries of BM theory(Foss & Saebi, 2017:201). These questions attempt to deal with the issues related to the organizations search for new business logics and attempts in creating and capturing new sources of value for its stakeholders (Andreini & Bettinelli 2017:60), as mere product or process innovations have been deemed as insufficient in the current business climate (Bucherer et al, 2012:183). Thus, BMI can be considered as strategically important to managers, strategists, entrepreneurs and academics for various reasons such as; BMI represents an often unutilized source of future value, secondly, competitors find it more difficult to replicate an entire strategic activity system than a single novel process or product, and finally, as BMI has the potential to be a driver of competitive advantage, management must be aware of the competitions effort in the area of BMI (Amit & Zott, 2012: 42).
Like the traditional research in BM theory, BMI theory also has vast differing perspectives from research fields in Marketing, Organizational Studies, Strategic Management and Entrepreneurship, though there is a greater definitional convergence compared to BM research, which addresses the points of criticism that BM theory has drawn with regards to its definitional fuzziness (Andreini & Bettinelli 2017:59). In order to provide a general definition of BMI, Bucherer et al (2012:184) synthesize different definitions to come up with the following:
“The business model abstracts the complexity of a company by reducing it to its core elements and their interrelations and thus specifies the core business logic of the firm…… Thus, the business model is not static but must be managed and developed over time……..Challenged by competition, market shifts and technological changes, firms have to adjust their business models to remain viable…”
It is through this synthesis of definitions that emphasize that the business model is a dynamic organism, and that this process of deliberate change of the firm’s core elements and business logic is referred to as BMI (Bucherer et al, 2012:184). In addition, BMI research broadly points to the notion that whilst the different components of the BM, for example products and services, can relatively easily be reproduced, BM innovations are far more difficult for competitors to replicate, due to the fact that BMI’s require considerable time and effort to simultaneously develop the various components, and also that the business model being innovated has to fit with the company’s long term strategy, corporate culture as well as its core competencies (Bucherer et al, 2012:183). By utilizing BMI, an innovative BM can both create markets or allow for companies to develop and exploit new opportunities in established markets (Amit & Zott, 2012: 44).
3.3.3 Drivers of Business Model Innovation:
Research into the drivers of BMI show that drivers come from a variety of sources, and these sources have been categorized by (Bucherer et al, 2012:189) as internal and external threats and opportunities. The distinction being that when a firm is forced to innovate its business model, this is categorized as a ‘threat’, and a situation where the firm innovates to capture an opportunity, this is categorized as an ‘opportunity’. Threats and opportunities come from both internal and external sources, with the different activities that drive BMI being identified by Andreini & Bettinelli as (2017:60):
“Knowledge management, corporate entrepreneurship, innovation, BM design, marketing, learning, accounting, and Corporate ‘Social Responsibility”
An example the BM activities responding to an internal threat or opportunity, and leading to BMI, could be the increase in cost of the firm’s resources, or their resources becoming unnecessary over time, leading to a change in the firms business model of outsourcing the certain activity. This kind of change is considered a response to an internal threat. An example of an internal opportunity could be re-utilizing the firm’s resources for additional purposes, which could lead to the triggering of innovation (Bucherer et al, 2012:189). Innovation of Business models is however in most cases a result of disruptive changes within an organization’s industry or external environment, changes that force organizations to rethink the way they deliver value to their stakeholders. The typical disruptive changes, or external drivers of BMI, include the rapid advancement of IT, globalization, and deregulation. However, what are considered the key drivers for BMI are the Macro-economic climate that impacts stakeholders, a market crisis or shift, and finally, the realization of the firm that their existing BM is not working (Mudaly, 2016: 18).
3.3.4 How Business Model Innovation Occurs In Practice:
BMI in practice can occur in subtle, incremental, or disruptive ways, though research on the actual processes of BMI are limited (Bucherer et al, 2012:189). Osterwalder and Pigneur (2010:248) suggest five stages for business model innovation and design being: mobilize, understand, design, implement, and manage. In this model, progression through each of the stages is described as rarely being linear, proceeding in most cases in ‘parallel’, and emphasis is placed on the fact that the organization’s BM requires continuous management, until it requires complete ‘rethinking’ (Osterwalder & Pigneur, 2010:248). The first stage, mobilize, is described by the authors as ‘setting the stage’, where all the elements are assembled for a successful BM design. The activities in the first stage could include: framing project objectives, testing of preliminary business ideas, setting out a plan, and assembling a team (Osterwalder & Pigneur, 2010:250). The second stage, Understand, is the stage dedicated to understanding the customers, technology, and environment, that the BM is addressing. This could include interviewing experts, collecting market data, study potential customers, and Identify their needs and problems (Osterwalder & Pigneur, 2010:249). The third stage, Design, develops the data collected in the understanding stage and creates BM prototypes that can be explored and tested. Then, once several prototypes have been tested, the selection of the most appropriate model is based on the prototype that best addresses the threats and opportunities discovered in the previous stage(Osterwalder & Pigneur, 2010:254). The fourth stage, Implement, takes the BM prototype selected in the previous stage and implements it. This stage is described by the authors as the ‘execution’ stage, and involves for example, defining projects, specifying milestones, organizing any legal structures, preparing budgets and roadmaps – all of these things usually being set out in a business plan of some kind (Osterwalder & Pigneur, 2010:256). The fifth and final stage, Manage, highlights that after the execution of the new BM, in most cases the BM requires adaptation and modification depending on the market reaction. It is usually the management team that is responsible for the adaptation of the BM, and are required to continuously monitor, evaluate, and transform the BM (Osterwalder & Pigneur, 2010:249). As an extension of Osterwalder & Pigneur’s 5-stage model, which provides a useful description of the critical elements of the BM and provides the practical steps which need to be taken to develop each stage, Amit and Zott (2012:44) provide another model with a greater focus on the Innovation of an existing BM, and suggest that BMI can occur in the following ways:
1. By adding novel activities, for example, through forward or backward integration; we refer to this form of Business Model Innovation as new activity system “content”. 2. By linking activities in novel ways; we refer to this form of Business Model Innovation as new activity system “structure”. 3. By changing one or more parties that perform any of the activities; we refer to this form of business model innovation as new activity system “governance”.
By categorizing these three dynamic elements of an organization’s BM as the Content, Structure, and Governance, BMI thus involves the disruption or modification of any one of these dynamics. The first element, content, refers to the selection of activities that the organization performs. This could be the offering of novel services, for example a retail bank offering microcredit where there existed a high demand in the market. The offering of new services can be considered an innovation of the banks BM content, a process which requires training and adaptation of existing systems (Amit & Zott, 2012: 45). The second element, the structure of the BM, describes how the organization’s activities are linked, and the kind of processes or sequences these activities occur (Amit & Zott, 2012: 44). The final element, the governance mechanism of the BM, describes who it is that performs the organization’s activities. An example of an innovation in the governance of an activity system could be the decision to franchise the organization and create value through professional management and location adaptation – this was the case for 7/11 stores in Japan who used franchising as a response to strict government regulations that limited things like size and opening hours (Amit & Zott, 2012: 45).
3.4 Pluralistic Leadership Theory
In contrary to the management literature, which consider a homogenous, unitary leader style as the most advantageous, “Pluralistic Leadership” offers a leadership style which allows for a variety of perspectives and competing ideas (Fagerberg, 2005: 10). This kind of leadership style is considered by Fagerberg (2005: 10) as the ‘best strategy’ for firms in their early stages, who must in order to avoid being ‘stuck’ on a certain path remain open to a variety of ideas and solutions. Two key problems associated with having hierarchical models of leadership installed within the organization are that firstly, it can lead to individuals feeling like they don’t fit into the organization, and secondly, not embracing a leadership style that acknowledges multiple perspectives can lead to what is known as ‘Group Think’ which consequently can lead to the issue of ‘Path Dependency’ and can lower productivity and efficiency within the organization (Kezar, 2000: 9). Many other studies have also described the inefficiency of hierarchical models of leadership in meeting the challenges of today’s business climate. These challenges, including the challenges of cost containment, accountability to stakeholders, globalization and hi-technology/competition in the market, call for a more participatory form of leadership, than those touted by management literature as the most advantageous (Kezar, 2000: 721).
Pluralistic Leadership is an approach to leadership which incorporates diverse voices and leadership perspectives into the organizations decision making process. The approach is an extension of Taylor Cox’s ‘Pluralistic Organizations’ framework, which describes organizations as entities that place great value on diversity, that have different cultures fully integrated into their structures, and as having reduced intergroup conflict (Kezar, 2000: 10). By implementing a leadership approach which incorporates the diverse perspectives the individuals within an organization, this fosters a reflective and critical culture within the organization, which is vital for innovative firms in their developing stages, as being critical is important for the emergence of differing viewpoints, and a reflective culture leads to decreased conflict, engages members within the organization, and helps develop awareness of identity, positionality and power (Kezar, 2000: 11). Having an organizational ‘Openness’ to new ideas and solutions, can be considered as fundamental to the organizations reflective and critical culture, which is considered essential for early stage innovation projects, as every new innovation incorporates a combination of existing ideas, skills, resources, and capabilities Fagerberg, 2005:10). This ‘openness’ is considered as the starting point to embedding a Pluralistic Leadership culture within the organization.
Kezar (2000:10) outlines three strategies for creating a pluralistic leadership culture within the organization; 1. Developing an Awareness of Identity, Positionality, and Power, 2. Acknowledging Multiple Perspectives and Leadership, and 3. Mediation. Firstly, in developing an awareness of identity, positionality and power, the organization must demonstrate awareness of the existence of bias or power that can be created by group affiliation and organizational status (Kezar 2000:10). Not recognizing the effects that organizational members in positions of power, or their affiliation to certain groups, can have on influencing the way others within the organization create meaning, can lead to situations where the organization can become blind to the introduction of new perspectives and ideas, and the general undermining of effective communication (Kezar 2000:11). Another related consequence of not developing awareness of bias and power relations, is the development of ‘Group Think’, leading to ‘path dependency’. Group Think is a concept developed by Janis (1972) which seeks to describe the extreme consensus seeking tendencies within the organizations decision-making groups (Behl 2012). It is a phenomenon that can increase the risks, especially in early-stage tech ventures, of the self-reinforcing effects of group decisions or strategy regarding selection of an innovation path. In this kind of environment where speed to market is vital for product survival, being locked to a specific innovation path, reinforced by a consensus of viewpoints or groupthink, can lead to a situation where investment in the strategy may be too high and costly to switch, this situation is called ‘path dependency’, and is considered one of the side effects of groupthink (Fagerberg 2005: 21). According to Leana (1985:5), groupthink threatens effective decision making in organizations as:
“concurrence seeking becomes so dominant in a cohesive ingroup that it tends to override realistic appraisal of alternative courses of action”
As decision-making processes within the organization are usually the outcome of a concerted group effort, under time constraints and deadlines, groupthink as a barrier to attentive information and decision-making can prove disastrous to organizations (Behl 2012). Therefore, activating a Pluralistic Leadership culture, through developing awareness of identity, positionality and power, assists in thwarting the symptoms of groupthink as it encourages the diversity of viewpoints and promotes a (Neck & Moorhead 1995: 537):
“group norm of open inquiry into alternative courses of action”
The second strategy for creating a Pluralistic Leadership culture within the organization is acknowledging the multiple perspectives and sources of leadership of its members. With the awareness of multiple perspectives within the organization, Pluralistic Leadership then must openly acknowledge the differing perspectives as well as engage in developing a leadership strategy based on these differing perspectives (Kezar, 2000: 11). This is done by actively engaging with the differing perspectives of the organizations members, by giving them the opportunity to ‘compare, mediate, and even openly appreciate’ the varying ideas, insights and strategies provided by counterparts, rather than treating these divergent opinions as obstacles to consensus (Kezar, 2000: 721).
The third and final strategy for fostering a Pluralistic Leadership culture, is that of mediation. One important aspect of Pluralistic Leadership is that the diverging perspectives of the organizations members cannot all be treated as being equally valuable in terms of using ideas in the development of strategy (Kezar, 2000: 12). Mediation between conflicting ideas requires organizational members to be self-aware, reflective, empathetic and open, and of course a critical viewpoint. By approaching differing perspectives with these kind of traits, sees the enrichment of all organizational members achieved by an honest approach and consideration in selecting appropriate strategies (Kezar, 2000: 12).
3.5 Innovation Management Theory
In recent years there has been an increased focus and emphasis placed on the important role of ‘users’ or members within the organization and their role in the innovation process (Sørensen et al 2013: 1446). Not only has there been a greater focus on the individual’s role in promoting the innovative capacity of the organization, but what is also important to consider is how organizational knowledge as a whole, and the effective assimilation and application of organizational knowledge can help innovative firms distinguish themselves from the competition (Trott 2005: 62). The capability of the organization to apply and assimilate knowledge, or their capability in ‘organizational learning’, has put this phenomenon under the microscope bringing into question how this capability can be managed, as the management of a firm’s organizational knowledge has proven to play a significant role in its ability to innovate and survive long-term (Trott 2005: 64).
When assessing the organizational conditions that promote organizational learning, Trott (2005: 71) describes both a structured and a dynamic approach which explain how organizational conditions can lead to an increased level of innovation in the firm. In the mainstream management literature, there is usually a structured approach in describing the conditions for fostering and sustaining innovation, for example that flexible organizational forms compared to bureaucratic forms have more innovative potential, or that stable knowledge bases are supported by stable communication etc. Whilst there is merit in emphasizing the structural conditions required for innovation management, there are also new approaches that claim organizations have to uncover and understand their dynamic activities or routines, usually built on tacit knowledge (Trott 2005: 71). This for example could be how the organization is able to capture the knowledge created by ‘individual non-routine’ activities that have potential in generating genuine business opportunities (Trott 2005: 68). What is meant by individual non-routine activities is what Trott (2005: 68) describes as the circulating of ‘idiosyncratic knowledge and experience’ in situations where experts working in specialized departments continuously spread and impart this knowledge and experience on others in the developing of technical and commercial ideas. In order to capture the value created by the flow of this kind of knowledge, the organization must support the sporadic and dynamic nature of this kind of knowledge creation by implementing ways that can lead to its retention. This could be for example holding discussion meetings, cross-departmental information sessions, and external information sessions and conferences, as well as developing tools for capturing participants knowledge and experiences.
In what Trott (2005: 68) describes as a structures or dynamic approach, Sørensen et al (2013: 1446) in their ‘Service encounter based innovation’ research, list the general organizational conditions for this kind of innovation, in an approach that covers both the structural and dynamic features of Trott’s work. The capability of firms to be continually innovative is dependent on two factors – that innovative firms possess a ‘dual structure’ and consist of (Sørensen et al 2013: 1447):
“ (1) an informal social system producing ideas and (2) a management system that inspires employees and selects the ideas that are to be developed.”
Sørensen et al (2013: 1447) build upon this argument, and claim the organizational conditions that are most important for innovation are that the firm has an organizational support system, and a front-office innovation climate. Developing a ‘front-office innovation climate’, has been proven to positively influence innovation capabilities. This could be for example management ensuring the existence of an organizational arena where front line employees can implement and develop ideas and changes to products and services. Having a space where tacit knowledge and experiences can be absorbed efficiently, as well as a space where direct innovation can be promoted, is considered of central importance for organizational innovation (Sørensen et al 2013:1448).
A firm’s support system is defined as the functions and processes of the firm’s ‘back-office’ in the integration of the innovative creativity developed in the front-office innovation climate (Sørensen et al 2013: 1448). In other words, this is how management and the organizational structure allow for the absorption of the creative forces that are developed on the organizational ‘front-end’, and how knowledge is implemented in organizational learning. In the development of the firms support system, it is of great importance that all of the firm’s departments are involved in the process, taking into consideration ‘ideas, competencies and the knowledge of all employees in high involvement innovation’, in a situation where the sources of innovation within the firm become blurry, moving away from the traditional view that it is only specialists who innovate, and to a far more participatory model (Sørensen et al 2013: 1448). In order to successfully ‘manage’ innovation, it is important for the firm to get a firm grasp over these front and back-office functions and shape the firm’s strategy by focusing on areas such as the support from top management, longer time horizons, flexible organizational structures, and a culture that is conducive to innovation, as the movement towards ‘high involvement innovation’ will not succeed unless supported by a strategy that incorporates innovation (Hisrich 2014: 67).
4 ANALYSIS
4.1 A comparison of the Value-Added Benefits of the traditional Business Models of Venture Capital funding and the Startup Studios Business Model.
4.1.1 The Value-added benefits of traditional VC funding
Throughout the last half century, traditional private equity investments have proved to play a significant role in helping ventures in all stages develop through innovation and entrepreneurial growth. However, as the number of alternatives between venture financing options is growing, this gives entrepreneurs more choice in regards to choosing the financing option that best suits the needs of their venture, with the terms and form of the finance being offered having a significant impact on the value adding activities that follow the investments. As the nature of the startup is in a state of continual flux, with regards to the market challenges that it faces, assessing which form of finance provides the best chance of success, in terms of how the investment augments innovation or increases the likelihood of commercialization of the venture, can be considered a crucial activity that needs to be treated carefully. In comparing the value offerings of traditional forms of VC funding with those of the Startup Studio, this will highlight the key differences that each of the business models have, as well as describe the forces within the startup ecosystem that saw the need for new forms of venture finance offerings, like the Startup studio.
When assessing the influence that traditional VC funding has on a ventures ability to succeed, Dutta & Folta (2016: 42) highlight three broad streams of research that explain the relationship and role that this type of financing plays in adding value to the firm. The first area of research suggests that the VC firm serves as a ‘quality signal and information intermediary’. The involvement of VC funding not only provides capital in the form of cash, but also brings with it an extended network of industry information and contacts that are invaluable for early stage startups in getting opportunities within an industry (Dutta & Folta 2016:42). In addition to the valuable networks that VC financiers bring to their investments, their involvement in a project also serves as an endorsement which is claimed to improve the chances of the venture attracting research and commercial partnerships as well as human capital (Hsu 2006: 208). Finally, VC’s also function as information intermediaries, who are able to provide their investments with privileged industry information access during the process of searching for resource partners, enabling the venture to form stronger strategic alliances (Gans et al 2002: 576).
The second area of research by Dutta & Folta (2016:42) suggests that the involvement of VC’s provides ventures with a higher and more structured level of governance through structured contract covenants as well as board membership, which allows for a greater level of monitoring the activities of the firm. Baum & Silverman (2004:431) highlight that this increased influence and involvement by the VC is beneficial to the venture as they provide ‘business intelligence’, which can improve the startups core business functions, as well as increasing the chances of identifying the potential threats as well as opportunities in the business environment, to a greater degree than the original founders of the venture.
It is therefor crucial, when assessing the effects of bringing in external partners that will implement governance and structure, that both the investor and investee’s goals and visions are aligned, as in many cases, the VC’s business model of rapid growth within a short timeframe, simply is not compatible with that of the startup, and a misalignment of vision can potentially lead to the disaster situation where the venture founders and the board disagree on the strategy or direction of the venture. This situation, one in which Paley (2017) describes VC influence as ‘toxic’ to the startup, can occur in situations where performance measuring metrics required by the VC firm and the startup, differ on fundamental levels, where VC firms measure performance usually based on financial/revenue metrics, whereas many promising startups in early stages rely on other usually more qualitative metrics, or financial metrics such as ‘burn rates’, which better depict the performance of the venture in the early stages. The misaligning of performance metrics between investors and investees has the potential to lead situations where management of the ventures get a kind of ‘tunnel vision’ in regards to directing the strategy of the venture that promotes these misleading KPI’s. After interviewing Sebastian, director of design at Founders, he describes this phenomenon as (Appendix 4: 13:40)
“….they’re (startups with VC backing) just going to focus on getting the KPI’s up that they promised, not questioning: “is this the right KPI” when things start to go bad”
Therefore understanding the intentions of potential investors, especially with VC firms who will generally come to command a significant portion of equity, is crucial, as the VC firm’s growth driven model can lead to early stage ventures chasing marginal dollars at increasingly greater costs. The final area of research by Dutta & Folta (2016:42) is in the VC’s role as a financial intermediary, where the authors claim that the ventures capability and speed to innovate is positively influenced by the fact that VC’s are exit driven within a specific timeframe. As the business model of the traditional VC is derived from generating a specific return, usually in a specific timeframe, this time orientated approach is claimed to ‘expedite’ the innovation and development capability of the venture, by ‘spurring’ innovation intensity and reducing the commercialization time of the startups innovations (Dutta & Folta 2016: 43). However, although some evidence shows that the nature of this relationship between the VC fund and the venture may indeed influence the launch time of a venture, more current trends in research, as well as data gathered from Founders, reveal that this approach has led to a situation where VC financing, especially in tech startups, has created a model of ‘extreme growth’ which has some serious implications for young ventures (Paley 2017).
4.1.2 The Value-added Benefits of the Angel Investor Model
Using the same three value-adding dimensions as previously considered in the assessment of the VC firms influence to early stage ventures, another type of traditional funding is that of Angel investors. Dutta & Folta (2016: 42) suggest that the Angel Investor may serve as a quality signal and information intermediary when investing in emerging ventures, as support from business angels can alleviate the uncertainty around the early stages of technology development that can help the ventures innovation process. As many Angel investors are already seasoned professionals with extended networks, their endorsement and involvement in young ventures can facilitate the attraction of human resource talent, as well as other resource partners to the venture (Van Osnabrugge & Robinson 2000: 76).
The second dimension of value-adding influence offered by the Angel investor model is the effect on governance of the venture. As angel investors are more flexible in their involvement, compared to traditional funding from VC firms, governance control mechanisms are implemented in a more relational/informal approach, rather than a contractual approach (Dutta & Folta 2016: 42). Relational governance is considered more ‘entrepreneur-friendly’, as it usually implies weaker control rights and less contractual provisions for the venture, with the level of contractual sophistication depending on the level of active involvement and prior experience of the investor (Dutta & Folta 2016:43). Weaker control rights and more flexible contracts gives ventures greater control over strategic planning, whilst still having investors whom are actively monitoring financial performance and serving as consultants in the formulation of strategy.
Finally, Angel investors as direct investors, rather than financial intermediaries, means that the investment funds come from the angel’s own capital, meaning that they aren’t bound in the same way by fixed investment periods and exit timeframes (Dutta & Folta 2016: 43). This flexibility can also be considered preferable to early stage entrepreneurs as the pressures of the extreme growth models employed by VC firms can be to some extent avoided, having an investment model that is more fitting to the growth demands of early stage startups. With reduced pressures to earning marginal dollars, the innovation process of the early stage venture has time to develop more organically, as the extended investment period that is generally offered alleviates pressures in the demand for short term growth (Shane 2008: 14).
4.1.3 The Value-added Benefits of the Startup Studio Model
When assessing the value-adding benefits offered by the ‘classic’ style of the startup studio, which is described by much of the current literature as a business model that is based on internal ideation, strategic repetition, and pre-existing infrastructure, each of these business model elements will be explored through the current research as well as through the collection of data at Founders, with the value-added benefits being listed under each category. An important point to make before making the assessment, is the discovery through the primary research collected at Founders, that perhaps the current research available on the startup studio is slightly misleading in the claim that a ‘standard’ or ‘classic’ model of a startup studio can be found. Sebastian (Appendix 4), Director of Design at Founders, makes continual reference to the fact that it can be difficult to compare or talk about the startup studio as a standard model, as each studio can be different in their approach to funding, investment structure, as well as strategy. However, although this has been uncovered, the core setup, investment structure, and general approach and business model of Founders has been found to be very similar to the startup studio described in the conceptual & theoretical framework.
Firstly, the Startup Studio’s approach in the development of innovations is primarily achieved through internal ideation through its own talented network of individuals and systems. This is usually carried out either as the result of in-depth concept exploration and market research or by replicating existing models in creative ways (Liuzzi, 2016). As the idea for the ventures are internally developed by experts and experienced founders, this allows for studios to more actively manage risk by being able to remove the potential faults and weaknesses of a business idea in its early stages, as opposed to the VC firm who have to identify and mitigate the weaknesses of a startup before they invest (Montgomery 2016). Having this internal flexibility can help ensure that the studios investment has the best possible chance for success. Internal idea generation in the startup studio is also fueled by the ideas and passions of the studios employees and leadership, which helps reduce the time in vetting external ideas and potential projects by reducing the number of potential investment paths – this uncertainty in the vetting of investments is considered a key downfall in the VC model, which usually only selects 3 to 4 ideas out of 300 in the process of finding the right investment (Montgomery 2016).
At Founders, the process of idea generation in the beginning, came primarily from the gathering of the managing partners who would present their ideas and businesses to each other and then would measure and score the viability of the ideas based on parameters such as the size of the opportunity, the ease of testing it, and the ‘excitement’ the idea generated. The ideas which scored highest would be taken and developed, either immediately or over time, with some of the potential projects only being developed years after (Appendix 4: 17:17). The benefit of this approach to idea generation is that the potential roadblocks or problems found with new ideas can be revisited years after, when perhaps solutions to the problems have been found. Being able to use the existing network of the studio in the creation of ideas, as well as assisting in their development, has been found to be of high value in the case of Founders, as for example, through the ‘beers and cheers’ initiative, organizational members pitching their business ideas can gain valuable input in a relaxed environment about ways they can increase the success of their innovation (Appendix 6: 4). This was the case with the project ‘Reach’, who’s CEO was considering introducing ‘virtual consulting’ as an additional service, and was given advice about how to launch the necessary platform and it’s viability of the service by Simon, head of a project called ‘Headlight’ which offers a similar service (Appendix 6).
The second and third value-adding elements of the Startup Studio is that of strategic repetition and existing infrastructure, which has been found to be highly valuable in aiding the commercialization process of a venture’s innovation by use of the existing legal, financial, HR and strategic resources the studio commands. Strategic repetition in the development of new projects involves the startup studio replicating the approach to creating new companies, usually through a kind of strategic ‘playbook’, which codifies the procedures undertaken when commercializing a new venture. Not only does this business model of creating new ventures, in many cases simultaneously, diversify the risks inherent in early stage ventures, but it also streamlines the vital aspects of the venture such as legal, finance and HR, so there is an increased speed to market, as well as tried and proven methods in developing the backbone of the company. Having this infrastructure already in place also has the potential to improve starting time and reduce the building time of the innovations, as well as if a project fails then team is reassigned within the company rather than scattering, taking the learnings from the project and implementing them into the next (Appendix 3).
In the case of Founders, a strategic playbook has been developed in the areas of HR, Finance, Legal, as well as in Innovation, which has proven to become a valuable asset as a tool for launching new companies, as it allows for the projects within Founders to take advantage of all the same processes and resources, as well as facilitates internal connections and reduces costs by creating an internal synergy and increased benefits of efficiency. In this regard, the expertise of the different teams at Founders, represented in the different areas of the Founders Platform, provides a faster and more efficient way of bringing new ventures to life, by identifying and codifying the best solutions to each problem in their different contexts (Liuzzi 2016). Also, in standardizing what Sebastian (Appendix 4: 08:33) describes as the non-value adding elements of their business model (the finance, legal, hr), the element of repetition through the playbook allows entrepreneurs at Founders to spend more time on more important things like product development and growth.
4.2 Business Model Innovation. From Investment to Involvement: the shift in form of VC Funding leading to the birth of the Startup Studio Model.
The nature of the venture funding/supporting ecosystem has over the last 2-3 decades evolved tremendously, primarily due to the reduction of entry-level costs and barriers that startups face. It is with this premise that serves as the key catalyst in the innovation of the business model of venture funding, as entrepreneurs no longer require millions of dollars to launch a web-based startup, but rather rely more on developing ventures with speed, precision, and a platform that allows for continual support of innovation, as the high failure rate of startups has been primarily due to (Collide Village 2017):
• The lack of entrepreneur’s startup experience • Product development challenges • Misallocation of resources • Improper market startegies
Where entrepreneurs once could only rely upon traditional VC funding to support the rounds of financing, due to the high entry costs, developments in the funding ecosystem have led to a more multi-layered environment with many forms of venture support, including the Startup Studio, that have aimed to support entrepreneurs and ventures where they have failed so many times in the past. As an innovative BM can both create markets or allows for companies to develop and exploit new opportunities in established markets, the Startup Studio has allowed for a business model that hedge’s risk by the development of simultaneous innovations/companies which can disrupt existing markets, like Founders in Fintech (in their Kontist & Pleo projects) (Appendix 4), or create new markets in the design of the actual business model (Amit & Zott, 2012: 44).
In line with the current literature on the definitions of business model innovation, the Startup Studio model can be considered a dynamic response to the challenges in the venture funding ecosystem, challenges of increasing competition and rapid technological changes – coupled with low entry costs for entrepreneurs. Due to these market conditions, there became a need for a business model that allowed for companies to leverage certain business functions like finance, legal, HR and marketing, which in turn allows for greater scalability at a lower cost of capital (Rao 2012). This key element of the Startup Studios business model describes how the content, structure and governance mechanisms are interlinked and set the basis of BMI in challenging the traditional VC investor/investee relationship systems (Amit & Zott, 2012: 45). For example, in Amit & Zott’s (2012:45) description of how business model innovation occurs in practice, the first phase of innovation occurs by the adding of novel activities to the original business model, or the ‘content’ activity system. In the case of the Startup studio, through a kind of backward integration, the administrative business elements that traditional VC funds expect are already established in a venture before making an investment, these elements are part of the investment package that a startup studio offer, whether through the development of internal projects or through collaborations with external parties. By integrating these elements into their business model, the chances of commercialization of a venture greatly improve as these functions become internally streamlined. While these essential business model elements play an instrumental role in building, marketing and distributing a venture’s innovations at a greater speed than through traditional funding channels, the benefits of speed created by the existing infrastructure of the startup studio also come in handy when an innovation doesn’t work and has to be shut down. As mentioned by Talika at Founders (Appendix 5: 19:02):
“Failure is part of the Founders Startup Studio Model. You can look at the traditional VC model which is based on the fact that venture failure happens in the market. But the Founders model is a more flexible model for innovation. If it looks like a particular innovation or business idea isn’t going to work, we can simply pivot as we haven’t actually invested that much capital” This ability in being able to pivot innovations, also describes the attractiveness of the Startup Studio’s ability in being able to be less exposed to the path dependence that can occur in more traditional models that are based on investment in single ventures.
Another catalyst in the shift from the traditional venture funding model to the Startup Studio, is the entrepreneurs need not only for financial investment, but also for technical support and administrative backing. Coupled with this consideration is the large equity requirements that traditional VC firms demand in their investments, so the innovative Startup Studio model understands this and offers much more than purely financial support in the exchange for equity when partnering with co-founders. Rajiv Kapoor, one of Silicone Valleys most prominent entrepreneurs, claims (Techcrunch 2013):
“Entrepreneurs are open to and expecting help that goes beyond just investing. In the traditional VC world, it’s done it through mentors and advisors....But it is very difficult for someone who isn’t really close to the company to add value on a regular basis.”
The Startup Studio business model addresses this issue on two fronts, in the internal projects and companies that the studio is developing, being that the studios infrastructure takes on the responsibility of developing the company through its own network, and secondly, entrepreneurs looking to partner with studios as co-founders have far greater networks of support from seasoned startup veterans, than the traditional paths of VC funding, who can potentially dilute the entrepreneurs ownership in the venture down to 20% after series A and B funding, in exchange for a lesser degree of mentoring and guidance (Crockett 2018). The internal infrastructure of the Startup studio, compared to traditional forms of venture funding, can be considered as the second element of the purposeful innovation of the business model, proposed by Amit & Zott (2012: 46), in that by linking internal activities, in the case of Founders being the cooperation of each business unit in the launching of ventures, creates synergies as new activity systems centralize the flow of information within the organization (Amit & Zott 2012: 47).
Finally, as organizational survival depends not only on efficiently executing a business plan, it relies on the ability of the organization as a whole in being continually innovative and fostering an environment that spurs innovation. This notion can be applied to the shift in business model offerings in the venture funding ecosystem, as traditional VC funding firms can be considered to be restrained by stringent financial requirements that limit the backing of many disruptive ideas and innovations. These rules and regulations make it difficult to support true innovation in the ‘startup spirit’, proving to be more favorable in satisfying shareholder expectations rather than supporting innovation (Szigeti 2017). Due to the fact that traditional models of venture funding are more aligned with a strategic approach that seeks to satisfy shareholders and (at least in the tech startup world) chase unrealistic growth goals, the startup studio’s innovation of this model, in approaching funding more carefully and creating a model that invests heavily in providing support in the form of human capital, aligns more with the nature of startups in that traction can be better achieved through more careful growth tactics. The model creates a greater incentive for innovation, as in the case of Founders, all of the ‘non-value adding’ services described by Sebastian (Appendix 4: 25:04), are supported by the Founders Platform, which frees up more time for the entrepreneurs to better execute their innovations. This is where the business model of the Startup studio shines, as when analyzing the ‘textbook’ techniques that large enterprises use to spur on innovation, like lean and design thinking, it is the corporate culture that doesn’t seem to compete with the business model of the startup studio in allowing disruptive ideas to flourish (Szigeti 2017), as shifting the offerings of the business model to incorporate more than just financial support provides entrepreneurs more flexibility and freedom to innovate without being weighed down by the administrative or legal aspects of launching a venture.
4.3 Founders ‘Pluralistic Leadership’ Model.
As today’s startup venture climate is one that is typified by high pace, a significantly high failure rate and an ever-increasing number of hi-tech ventures, the leadership approach which is guiding the development of new ventures can be considered highly important, as research shows some leadership approaches can lead to the situations of group think and path dependency previously mentioned. The leadership approach that seems typical of the Startup Studio, with Founders included, can be considered more ‘participatory’ in nature, one that incorporates the diverse voices and leadership perspectives into the decision-making process, namely the Pluralistic Leadership approach. At Founders, the incorporation of leadership perspectives, as well as the ‘voices’ of employees, has created a reflective and critical culture within the firm. Sebastian, partner and director of design, claims that as Founders doesn’t really have “top down management”, rather they rely on the skills and expertise of their employees in the development of projects, which is why they are hired in the first place (Appendix 4: 31:55). Management at Founders even feel they do not possess the ability to ‘give orders’ to design employees, rather they are in a position to give feedback, as employees are expected to develop their respective projects with freedom and independence, supporting the nature of startups with their own experience and expertise (Appendix 4: 31:55). By allowing the employees, who are as Talika explains ‘entrepreneurial in nature’, to have creative freedom, as well as the open ability to criticize management decisions in developing new projects, this contributes to the organizational ‘openness’ which is considered essential for early stage innovation projects and the starting point for a pluralistic leadership approach (Appendix 5: 22:43).
When comparing Kezar’s (2000:10) three strategies for creating a pluralistic leadership culture to the leadership at Founders, similarities can be drawn in each of the model’s steps. Firstly, in developing an awareness of identity, personality and power, Kezar (2000:10) states that the organization must demonstrate awareness of the existence of bias or power that can be created by group affiliation and organizational status. At Founders, developing awareness and creating openness is one of the key areas promoted by management as a part of their innovation strategy. Incentives like ‘beers and cheers’ encourage employees at all levels to challenge management and project leaders in the way they develop their projects, or solving issues they may be having. One observation from beers and cheers which emphasizes this point, is when Simon (partner and head of strategy at Founders) is openly challenged by a Financial Assistant (Clara), in the way the collection of receipts and expense reports are carried out, with Clara accusing the current system is riddled with non-compliance and is taking too much of her time, when she could be doing other things (Appendix 6: 15). With Simon being responsible for creating the current system, Clara was able to challenge the status quo, gather support from those sitting around her, and constructively approach the situation with the goal of finding a better solution. As a result, Clara was then challenged by Simon to explore possible solutions that would make everyone happy, and make the process more efficient, which gave Clara a sense of task responsibility and trust by Simon. Such a reflective and critical approach to problem solving is a central concept to the pluralistic leadership model, and highlights Fagerberg’s (2005:10) claim that every new innovation incorporates a combination of existing ideas, skills, resources, and capabilities. Another benefit of ‘Beers and Cheers’ is the way the incentive deters the self-reinforcing effects of group decisions and strategy regarding to a specific innovation path, leading to groupthink and ‘Path dependency’. As the design of ‘Beers and Cheers’ is to continually (on a weekly basis) assess the progress of each project and its internal functions, the continual questioning of strategy and innovative paths taken by those responsible for projects acts as a deterrent for the symptoms of groupthink as it encourages the diversity of viewpoints and promotes alternative courses of action.
Kezar’s (2000:10) second strategy, acknowledging multiple perspectives and leadership, is done by actively engaging with the differing perspectives of the organizations members, by giving them the opportunity to ‘compare, mediate, and even openly appreciate counterpart’s ideas and strategies. Using the ‘beers and cheers’ platform again as reference, this incentive by management at Founders provides project participants and those on the sideline with the opportunity to give criticism and feedback to ongoing projects. Sebastian (Appendix 4: 42:17) describes the benefits of beers and cheers as rather than looking at and criticizing a project when it is finished, which is easy to pick out where it went wrong, having an incentive in place which allows for individuals to openly criticize a project as it happens, not only gives employees who are not actively a part of the projects a say in its management, but also gives the core team a sense of inclusion, which when things go well can create a sense of joint achievement that can be celebrated. Rather than treating divergent opinions as obstacles to consensus, the pluralistic leadership approach at Founders embraces divergent opinions and have actually created a platform which embraces divergence as a tool for progress.
The final strategy for creating a pluralistic leadership culture is that of mediation, which emphasizes that although embracing divergent aspects is an important part of leadership, knowing which ideas and perspectives are actually valuable and worth pursuing is important, especially in the tech startup environment, as speed in development is crucial. With Founders having developed the ‘Founders Platform’, the continual collection of strategic data from previous projects helps guide the acceptance and development of future projects. For example, the ‘Super Powers’ section of the platform which describes how each department implements and develops their own playbooks, provides vital strategic guidance in the creation of new projects, by showing what has failed and what has worked in previously related projects. Having a platform in which leaders and employees are able to journalize their experiences in the form of playbooks, has for Founders, worked as a selection tool and ‘filter’ in developing new projects. By having the strategic playbooks in place as part of the business model’s framework, like the Founders platform, as well as hosting regular ‘live’ events which gives organizational members the opportunity to influence the platform on an ongoing basis, this gives the organization the best possible chance to ‘mediate’ future decisions and invest time in potential innovation paths.
4.4 Innovation Management at Founders
The management of innovation and the purposeful development of the firm’s ability to promote ‘organizational learning’ in the case of the startup studio Founders, has shown that although leaders and employees at the company do not explicitly mention implementation of an innovation management system, their strategic approach to innovation and the business model of the startup studio in general, reflect several of the crucial elements of innovation management mentioned by Sørensen (2013) and Trott (2005). In other words, the approach taken by Founders in the creation and development of projects, as well as the management of the company in general, shows many of the ‘textbook’ approaches to successfully manage innovation, or at least positively influence its development.
Firstly, when trying to identify the different vehicles for organizational learning that are present at Founders, or which methods they use for the ‘effective assimilation and application of organizational knowledge’, it is hard to look past the Founders Platform which is so central to their business model. By having an effective vehicle for absorbing and deploying organizational knowledge, the firm can gain increased benefits of competitive advantage by way of increasing innovative capability (Trott 2005: 64). The Founders platform, can be considered as the primary ‘support system’ at Founders, as it functions as a ‘back office’ tool that integrates the ‘innovative creativity’ in the front office innovation climate. This platform enables Founders to build and co-found successive companies and projects on a single platform, which through a cybernetic collection of continual data from past and current projects, as well as through internal and external events like beers and cheers or tech festivals, is able to organically develop strategy based on the past, present and future. The platform relies on the ‘Expert teams’, which is what Sørensen (2013:1448) describes as the members of the front end innovation climate whom through ‘high involvement innovation’ are able to develop innovative ideas, and subsequently the ‘Super Powers’ of the platform are the capturing techniques or the ‘Support System’ in place which integrates the output from the expert teams into the platform.
What has become evident in the case of Founders and ‘innovation management’ is that although the organization’s structure and working tools can be influenced through the back and front office approaches described by Sørensen and Trott, management at Founders, both in the design and the HR department, still firmly believe that the fostering of innovation within the firm comes down to ‘finding the right people’, rather than actually tinkering with any manageable elements of a business model. Sebastian believes that in his experience it is the people with an ‘innate entrepreneurial drive’, something that Talika claims cannot be taught at universities, that are more likely to take opportunities that present themselves, as well as create the situations where value can be found – rather than finding a holistic approach to innovation management that in itself gives rise to opportunities and value. A company with the perfect front and back office tools for organizational learning can only achieve innovation through the actual individuals producing novel ideas through ‘individual non-routine’ activities (Trott 2005:68). Talika describes this innate entrepreneurial drive as a kind of ‘natural entrepreneurial talent’ and flair, which is what Founder’s look out for in the hiring process, rather than purely educational background, as in her experience the most successful programmers at Founders have mixed backgrounds and experiences (Appendix 5: 26:14). It is therefore through a balance of finding the right people and creating and managing an organizational structure that possesses the appropriate tools for capturing front end knowledge, that innovation can be promoted, at least in the case of the Startup Studio Founders. Primarily through the Founders platform, though as well through hiring staff that are not only technically capable but display entrepreneurial flair, management can to some degree manage the forces of that can hinder innovation and optimize its benefits.
6. Discussion
The purpose of this research paper has been to assess the validity of the different models of venture capital financing in adding value to young ventures, as well as look at an alternative model of financing that is becoming more popular with tech startups, the Startup Studio. Because of the changing nature of the Startup environment, one that has less barriers to entry and is significantly cheaper than before, entrepreneurs have to optimize the process of launching a new venture in order to be competitive and survive. It is because of this change that new innovative models of financing are becoming more attractive to young ventures, as some of the traditional methods of financing are almost inapplicable to ventures that require more than just pure funding, but a much more involved offering that provides strategic guidance and support at a far more competitive price with regards to the terms of the agreements. Although criticism of the startup studio points to the issue that a business model that essentially ‘copy and pastes’ strategy can lead to a kind of ‘innovation stagnation’ which takes away from the entrepreneurial nature of the startup, we can see in the case of Founders that innovation stagnation can be avoided by implementing back office tools for learning integration like the ‘Founders Platform’, and events like beers and cheers, that optimizes strategy in approaching new ventures and projects by continually absorbing data and experiences from the past into a platform that ultimately guides future strategy. By finding a balance between the right organizational structure/tools and a pluralistic leadership approach that supports organizational learning, this will place the firm in the best possible innovative position.
The significance of these findings highlights firstly that the traditional offerings of venture capital funding are not only inapplicable to the majority of tech startups, but are also out of reach from many of these ventures who cannot meet the performance requirements of these funds. What has also been brought to light is that due to the high failure rate of early stage Startups, there needs to be a more innovative funding model with a more alternative focus on performance indicators (KPI’s), rather than with selection criteria based on revenue metrics. It is in this respect that models such as the startup studio have become more attractive to entrepreneurs as a more careful and involved growth-strategy has proven to be more effective, which is what this model offers compared to traditional VC funding. This research also has highlighted the significance of more inclusive leadership models that promote ‘high involvement innovation’, namely the ‘pluralistic leadership approach’. Although Kezar’s (2000) research on Pluralistic Leadership has been developed with a focus on the education sector, this has been adapted as a model which best describes the leadership style at Founders, and has been found to promote the benefits of a heightened level of innovation, through a participatory leadership style which relies on the professionalism and skills of employees without so much of a leader-subordinate approach that research in the past has advocated.
By using the case study of Founder’s as a way of assessing the value of the startup studio model compared to traditional offerings of venture capital funding, as well as the benefits of alternative leadership models like the pluralistic approach, further research is required from other startup studios to gather a more accurate assessment of the business model. The discovery through gathering primary data at Founders has uncovered that startup studio models differ significantly from firm to firm, in regards to their fund structure, investment terms and conditions, as well as leadership approaches. Without having a more standardized model of the Startup studio, it becomes a little problematic when attempting to use blanket terms to describe the model as a whole, as one could conclude that each studio is a unique phenomenon in itself. Using Business Model Innovation theory as a means to describe the development of the phenomenon of the Startup studio could be considered a little convenient, as the business model is quite ‘fuzzy’ in its structure and adoption. Also, as the nature of ‘investment’ and ‘involvement’ from traditional models of venture funding and the startup studio are fundamentally different in their respective offerings, this makes it difficult to draw the concrete parallels and clear steps of business model innovation set out in the theory, rather using the categorization of the organizations content, structure, and governance components as the key points of reference when describing the startup studio as an actual form of business model innovation. Perhaps using a different theoretical approach in describing the startup studio could have been adopted, like Lewin’s change management model, which could have been applied more generally to singular cases like Founders. However, as the nature of the Startup studio, especially in the case of Founders, revolves around constant failure, as well as strategic experimentation, the BMI approach was adopted as it allows for a little more flexibility than models like Lewin’s.
From the data gathered at Founders, as well as through limited research of other prominent models of the startup studio, I as the researcher have found and described the ‘common grounds’ that make up the fundamental characteristics of the model, thereby distinguishing it as an innovative adaptation of traditional VC funding. That is the inclusive leadership style of the model, the repetitive approach to strategy, as well as use of knowledge capturing tools such as the Founders platform that integrate front end knowledge through back end mechanisms. What could also be of great value in future research is looking into the way that traditional venture capital funding can remain competitive through business model innovation, in capturing value through tech venture funding. It is unknown whether traditional funds will be willing to adapt their business model in a way that provides early stage startups without financial and managerial traction, with more in depth strategic guidance, as well as funding with the goal of obtaining more stable and less rapid growth.
7. Conclusion
Through the investigation of the theoretical underpinning of traditional VC funding, business model innovation theory, the pluralistic leadership approach, and innovation management theory, applied to the case of Founders as a Startup Studio, we can conclude that the Startup studio business model offers young ventures a far better platform for stable and successful growth, than some of the traditional forms of VC funding, who’s extreme growth tactics and stringent investment requirements are simply not suitable or even attainable for the majority of ventures in the early development phases.
According to the research on the startup studio as well as through data gathered from Founders, the fundamental elements that define the business model, which are Internal Ideation, Repetition, and a pre-existing infrastructure, offers new internal projects as well as external partnerships a much more streamlined and efficient approach to innovation and project development, than traditional funding which has been deemed as incompatible with many startups, expensive, and failing in offering any real support for stabile growth. This increased efficiency and streamlining is based on the fact that when new ventures are undertaken, or new ideas are developed, the startup studio’s business model can immediately put to use its pre-existing infrastructure (HR, Legal, Finance, Marketing) in the process of taking a project from an idea to a market viable product. By having a platform in place that essentially absorbs and codifies strategy (the Founders Platform), much time and effort can be saved by following the guidelines of different playbooks developed from past data, which have been put together with the learnings from previously failing or succeeding projects. In this way, the concerns about the model’s exposure to ‘innovation stagnation’ or that the model dissuades the innovative ‘freshness’ that startups are known for, can be overlooked, as the back office Founders platform is continuously updated and only used as a strategic template. To overcome the issue of stagnation, which can be related to ‘single loop learning’, the startup studio relies heavily on the expertise of its employees and partners to be the forces on the frontline in generating innovation.
This research paper has also adapted Business Model Innovation theory in order to describe the development of the Startup Studio model. As BMI is considered the process of the deliberate change of the firm’s core BM elements and business logic (Bucherer et al, 2012:184), this theory has been adapted to the startup studio model as although this form of venture funding still possesses some subtle characteristic of VC funding, in providing both funding as well as strategic guidance, the new model has revolutionized the approach to venture funding by developing projects from the ground up, becoming fully involved in the project. This shift from being the pure ‘investor’, with limited strategic guidance offerings, to being involved both financially as well as strategically, has provided entrepreneurs with a new business model that offers greater value and accessibility in the developing of new projects. BMI in the case of the startup studio and Founders has emphasized that the innovation of the traditional funding model has led to a more open business platform which has impacted the way managerial decisions and strategic activities are undertaken, offers more efficient use of the firms resources in launching new projects, as well as maintains the networks and relationships utilized by the studios through their professional employees and partners.
In addition to BMI theory, this paper also has adopted Pluralistic Leadership theory in order to best represent the leadership at Founders, as well as it being used to generally describe the leadership style used in other startup studios. As Pluralistic Leadership offers a style which allows for a variety of perspectives and competing ideas, this can be considered as an optimal approach for the case of Founders and the startup studio, as a flat and open leadership approach has proven to be an ideal strategy for young ventures in avoiding the problems of path dependency, group think, as well as reduced productivity. In line with the research on Pluralistic Leadership theory, Founder’s possess the qualities of incorporating the diverse voices within the organization in multiple ways, both through the Beers and Cheers incentive, as well as through their openness in project development in which engagement with employees from all areas is adopted as the key strategy moving forward. In this area of the research paper, further research could be gathered from the individual projects and how involved organizational members actually are, as the data gathered relies only on the information gathered from employees in positions of management, and of course the notes taken from the beers and cheers event.
Finally, in assessing how the Startup Studio model nurtures and manages entrepreneurial innovation, this paper has adopted various perspectives in Innovation Management theory and applied them to the case of Founders. Sørensen (2013:1447) as well as Trott (2005:71) both describe the importance of the organization’s ability to capture the knowledge that is created by ‘individual non-routine’ activities, contributing to the maintenance of the ‘learning organization’. In order to support this, the firm must, according to Sørensen (2013:1447), develop a support system (back office) which can capture the knowledge created in the ‘front office innovation climate’. At Founders, both the support system, as well as the front office innovation climate are nurtured by way of implementing the pluralistic leadership approach, which encourages the diverse voices and opinions of employees in the innovation process, as well as by having the structural tools and events in place like the Founders Platform and the Beers and Cheers event. As stressed by the mainstream literature, it is of great importance that all of the firm’s departments are involved in the process of innovation, and this is precisely what management at Founders strive to achieve, in taking into consideration the ideas, competencies and knowledge of all employees in ‘high involvement innovation’ or a high participatory management model. Employing a management model that embraces high involvement innovation in these ways, increases the capability of the firm to be continuously innovative, and this point shows in the current high achieving portfolio of Founders companies.
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Appendices
Appendix 1 – Stages of Venture Capital Financing
Appendix 2 – Founders Business Model (Founders 2018)
Appendix 3 – Startup Studio Basics (Quora, 2015)
Appendix 4 – Interview with Sebastian
David: 00:04 But yeah, a look at it. So yeah, what I've got as far as I understood that founders wasn't like a like a revolutionary model of a startup studio compared to the others that I've researched.
Sebastian: 00:19 No. So yes and no. I think that the startup studio model is super new in some way like compared to like if you look at VC or like the different stages, right? Or business angels or something like this. So historically it's super new but also if the one we compare ourselves to like E-founders and Expa and these other guys primarily in New York, like if they're funded in a bit of a different way, right. So E- founders is private money from people who actually sold the company and then started from there, and you know, got it all going. Expa is some of ex-Uber, x, like these kind of people who went together and also started it and they were part of Uber and so they've gotten capital in from a different way. A lot of them, ah, I don't know about, now forget the name of the people who are doing a lot of games and using, also in New York., their doing like much more media kind of stuff. Right. Okay. So it's entertainment stuff
David: 01:22 Like using a lot of their capital from other projects like ah..
Sebastian: 01:25 Yeah, exactly. Yeah. So actually I'm sure they exist. I mean I guess Nova Founders is an example of someone where they raised a fund to actually do it, but um, and they are active and the same with Fin Leap in Berlin. Right. But they raised an actual fund to do it. So I guess there's a few but, but we are actually, I guess we're older and about the same age as NOVA Founders, Fin Leap started a few years after us as well. So I think like in the sense of raising a fund and getting lnvestors on board to actually say yes, we want to, we want you to execute on it and not just invested in it as soon as possible. That's kind of new.
David: 02:11 Um, but yeah, the general, like the general format of, uh, all the, the questions will be about this innovation of a uh, and how the startup studio came about and what kind of problems it was addressing, mostly mostly in tech. Yeah. In that kind of environment. Then going on from that, you're trying to look at how the startup studio positively influences the projects that as its own company cofounding with another entrepreneur. Yeah, I mean, how are you using the infrastructure that you have to help take a project from, you know, from zero to launch and then I'll be looking at if that, if that kind of setup has what kind of challenges that that brings as well as far as like, um, like they're kind of novelty and freshness that the startup environment has and whether, bringing this, this copy and paste kind of business model into new projects that, whether that hinders innovation. Um, but I guess we can just start at the basic question is how would you, how would you best describe founders, the founders model? Would you consider it as a classic style of startup studio?
Sebastian: 03:39 But also I think it's hard to define this classic startup studio model. Also even the setups with the, with Expa, they're much more like a, you know, a few partners can go together and do a venture together with external people and then, you know it helps everybody, a little bit like Rainmaking was in the beginning as well when they started out in 2009 or something. I think it was where it's also like one partner can choose to go out and do a project. Right. And then like everybody can benefit if it goes well of course. And there's been...
David: 04:13 Representing the, representing the studio or like?
Sebastian: 04:16 Yeah, yeah, yeah. And it's more like a group of entrepreneurs working together and you know, also investing their own capital into the thing like Rainmaking as well. And then the, the and this kind of thing. So that's more like Expa as well and I think we're much more in the, in the everybody together in the same boat, have some responsibility on all the companies, and try and staff up to replace our own knowledge or whatever we want to say. Like within that single project where I feel like in, from what I've heard from Expa and at least also from, from Rainmaking it seems more like there is a gap in some way. Well it's up to those partners, like those two partners, if they don't have a design background, they need to go out and find something. Then they got one of the design partners has a good incentive to help them out and try. But there is no big differences. This responsibility or no responsibility. I think, I have a responsibility for the companies that we built. If they don't have design power, that's my problem. Not the other founders.
David: 05:23 So did the partners kind of work independently at the same time as working together?
Sebastian: 05:29 Yeah.
David: 05:30 So do you have to like do, do you need permission or anything like that to go on a new project or like do you all have to agree on something before you
Sebastian: 05:38 At founder's? David: 05:39 Yeah.
Sebastian: 05:39 Yes. So you used to be much more like that, then we went in the opposite way. I think we learned that this kind of consensus way, of course, well it led to a sensible, fairly boring, 'not super passionate about them projects' on paper, a good business, but then often it didn't turn out to be very good business.
David: 05:59 Yeah.
Sebastian: 06:00 When we saw when people were super excited about things, then you know, it kind of worked out a bit more. So that more happens if, you know, I just let you go and do the thing you're passionate about and not having to argue to a board of four or five other people about like why is this a good idea and take all of that input in. I mean we still listened to each other and do all these things, but it's not a gateway in the same way there was before. So we have like at least the possibility to go and explore something to a certain extent. We can talk about it in the phases, maybe when we get to that, but to a certain degree where we can, we can explore stuff and do it and then when we actually want to commit capital and incorporate and make it a proper company of course, then, like around us and also with our board, we need approval.
David: 06:46 Just a side note on that, as like when you're building a team for certain project, like do you feel like that works in a similar way with leadership, like letting the individual team members run their own course in,
Sebastian: 07:06 Like in terms of who leads a single project?
David: 07:09 Yeah. And like freedom of choice and things like that and how your projects are being built.
Sebastian: 07:15 Yeah. So that's a lot of freedom. I think whenever we tried to put in this kind of the, the, the, I think a big challenge of doing it, is whenever we try to put something into a formula, it's very easy for people to go blind and just execute on that formula and follow the steps and often that's not the right thing to do in that moment. Right. Some companies don't need design or someone needs a lot, some don't even need to do design. They just need to do a service and do research or something like that.
David: 07:50 An aspect of my paper is looking into this 'innovation stagnation' that I've been reading about Sebastian: 07:58 Within larger companies or within, within a society in general?
David: 08:01 This is like a, like a challenge to startup studios. When you come in using like a, a structured approach to creating a business, something that we've used before, then that can kind of hinder innovation but maybe like this, uh, when you're, when you're talking about using a very structured approach to doing things that people still need to think outside of this, outside of like a regular process sort of thing.
Sebastian: 08:33 Yeah. So things like if we go into like the whole like actually doing innovation, our process isn't, it has nothing to do with innovation anymore. I think our, our process and the main like positive thing that we get out of all of this is like all the stuff that's non-value adding so to say, which is like of course very value-adding, but like where it doesn't, it doesn't differentiate. So ratio in a company having access to capital, having access to like traditional good skillsets, like development or design and business development and these things, it's not so much: "is it being done right?" It's more: "are we doing the right thing" and choosing this are we doing the right thing or not, we don't have processes for that, there we just have people with like fairly good entrepreneurial mindsets often and then doing things right, doing the proper financing during the proper time. All of these things that, that we can put it into a formula and then take all of that, you know, mental bandwidth that normally goes into running a business and recruiting and doing all of this that we can take away, which I see, of course it's, yeah, we've had a few discussions about this, right, because I like to talk about it as non value adding in the sense that this is not something where I'd throw the dice or were like, like we need to completely rethink how we register our company or how we do our books or you know, how it goes through our recruiting process or anything like this. It's very important all of those things, but it's not actually what's going to make or break the business often I think. I mean there's a problem if we can't do it, but it's just something that takes, you know, it's just work. It's not. Because it's not like where, where our unique advantage is.
David: 10:21 So how do you think founders have innovated the traditional model of venture capital funding?
Sebastian: 10:34 That is such a broad one. I'm not sure we innovated on it either.
David: 10:41 I think it's more related to this that there are, there is no set format of the startup studio. I mean, they're all unique in their own way. Sebastian: 10:50 I think so. I think so. I think it, yeah. And there's so few of them, at least when we started off as well and don't think when Ulrich came with the idea to, to our investors, he was not aware of anyone else doing it really, he just saw a possibility to take these people who were top consultants and top like, basically his own profile a little bit, right. But didn't have his entrepreneurial mindset maybe and you know, guide them into actually being great entrepreneurs. You could see that these people could become great entrepreneurs.
David: 11:26 What is it about this kind of business model, this kind of being a part of this business that's most attractive to you, compared to other, other kinds of approaches?
Sebastian: 11:40 So I, I don't know, this is a personal thing, of course, I could never see myself as being part of a venture capitalist firm, but never say never, but it doesn't speak to me at all. I think I would be very, it doesn't speak to me. I like to actually do things. I have my hands in it and this is just a way of starting as many companies as possible, and learning from that and I can see having started companies before like this, gathering the learnings from it, It's often like when things go well, you don't really realize how lucky you've been and when things fuck up, it's really hard to actually pull back and, and learn from it while you're in it. And I think it's much easier in this situation. So when I joined I didn't join as a partner, I just joined to set up the design team, right. Then became a partner later on and that joining in the beginning was much more because of just wanting to be better off when I started my next company, like my own. So just going through it, it was like a very selfish reason and I think like, and I could offer something to Founders of course for that, but that was the reason i did it, instead of just starting my own thing again.
David: 13:07 How do you think the startup studio model is able to positively influence the innovative capability of a firm? Whether being a new project or a cofounder project compared to more traditional models of funding? So what are the, what are the benefits of going in and actually being a part of what's happening and using rather than just sort of standing back as a kind of an investment?
Sebastian: 13:40 So I think the big thing, we can see that as, as a difference in at least the ones of us who have started companies ourselves some, almost 20 years ago. Right? The first one's, and if they've gone well, I think that's kind of the thing. If it goes really well then you do for a long time and then like maybe it's five, six, seven years since you were in the early days, in day zero, day one, day two, whatever and taking like whatever you learned back then and reapplying it six, seven years later is probably not gonna work very well because it changes so fast. Both the venture market that you kind of have to fit within, you know, is it a, is a good market, bad market is probably going to be very different in like three years going out and raising funding. You need something else to show that you did three or four years ago when it was very, like extremely bubbly and um, so, so actually like being able to do it on such a short time, we can, we can learn something that even if you've been a successful entrepreneur before, it was a quite a while since you did it. And if you, ah, you probably haven't failed as much as us either. I mean we have failed more than most, right? Because we just do it again and again. So I think this is what we can offer and again, I think it's not so much and that's not the most important part is helping people doing things right. It's more like building people focus on what's right and wrong and having sense of clarity. And the last thing I think where we can have something where it becomes more innovative is that none of these people have spent six months of their lives trying to raise funding for this vision that needs to be fairly like a pitch perfect in some ways. So at that point they're pretty locked into this. This is what needs to work, with promise right. Um, so at that point, like even if it doesn't seem to show the right results after a month, after six months, after 12 months, even if the investment is in trenches, they're just going to focus on getting the KPI's up that they promised, not questioning is this the right KPI , when thing starts to go bad. Like if you don't have an out, if you don't know what else you're going to do, it's much more easy to continue another day, another day, another day, than pulling the plug. Whereas if you do it within our setup, we do it ourselves when we are running a project. I mean we're much more inclined to kill the things that don't show results because it's not, I know I'm going to be able to pay rent next month again, and I'm going to do it with something that I'm probably more passionate about than running my head against the wall day after day after day with this thing that doesn't work. It's incredible how many people decided it wasn't a good time to run that company when they run out of funds instead of like a few weeks before. Right. Um, so I think that's a coincidence that's not really a coincidence right, they just continue until they run out of money.
David: 16:44 Can you talk me through the process of getting involved in developing new projects? I guess from start to finish, from idea generation to, to launching a product.
Sebastian: 17:00 That's very deep of course. David: 17:04 I guess how have you guys come up with ideas, if there is, if there is a, I mean a framework or how it generally happens.
Sebastian: 17:17 So I think in the very, very early days, which we don't do anymore, we're trying to kind of feel each other out a little bit and see what we excited about, to kind of because that was one of, even in the beginning it was one of the three big things that we kind of measured on, measured on the size of the opportunity, How easy is it to test it out and excitement, that was kind of the three parameters that, we kind of scored ideas on in the beginning. And then when we were like, we're talking about having a focus much more at some point and to find that focus and find that shared interest. We used all kinds of models to kind of come up with it like, or like method or methods to kind of get ideas for what to do and kinda of to see where is everybody at on this map kind of thing. How are peoples clusters of interest. And uh, it didn't really, uh, I mean we found stuff and all of this, but we didn't come up with any good ideas. I think the, all the ideas that we've come, they've come up like more organically over time. So the stuff we're doing now and stuff we talked about almost two years ago, the stuff we did two years ago, we talked about a year and a half ago. More than that. It just takes way too much time to find these ideas. And I think whenever we try to do it, like mechanically people aren't excited about it, and when people aren't excited it doesn't work.
David: 18:40 So it's a bit more of like a natural, organic sort of process.
Sebastian: 18:45 Yeah, for sure. Yeah. We do have like, then the ideas change right. So the solution change, a lot i've learned. So yeah. Okay. So the process is there's opportunity, at least right, it all often because we are the people that we are and I think it's hard not to try and find a solution for this problem when you're talking about. And then we actually try and do it and then often the solution changes because we realized, AH, okay, the world is just like that because then we can go on and try and solve
David: 19:18 Maybe learning from other mistakes that have been made in other areas can, uh, as part of the whole process of figuring out if something is actually going to work.
Sebastian: 19:28 What do you mean?
David: 19:29 I mean, part of this whole failing and learning from mistakes. I don't know, maybe you can apply that to a previous ideas that you've had. Um, I guess that would be part of it. Sebastian: 19:40 Yeah, yeah, yeah.
David: 19:44 Maybe something happened in another project. Then you'll say, okay, well then maybe that I can apply it to this new idea that I have or.
Sebastian: 19:49 Oh, for sure. Yeah, that's definitely something like that. I think we can. I think it's much more high level stuff often, but we can see, okay, here we were trying to solve the problem by doing this by, by offering a solution that, you know..... Some things we can see at least in the past, there's been a had this GoBox company at one point, it was just started a bit before I joined, which was like a physical dropbox was the get to techie people based. Basically we've got boxes delivered at your door, then we brought them away. And then you could have an app or you had an overlook of all your shit basically and you could just press a button and then we would deliver to you within 24 hours you can choose when, and then you could take the things and put it out again and that was part of the subscription so you didn't have to pay for this back and forth and whatever. It was, people that are living in smaller spaces. Yeah, I don't want to have all this stuff in the house and you know the thing, your winter coat why do you even have them in your apartment for half a year. So that was the idea. And then we go out and try and make this company with competing with all of these self storage companies. And then a good amount of time into it we realized that these companies are actually not, we're not competing on fair terms in the sense that these guys are not actually in the self storage market, they're not trying to build self storage businesses there in the real estate market and they just want to make the cheapest possible building on the real estate. That real estate is the real investment. So they can always underbid us. They can always, you know, because our business was the self storage business. There's is real estate. So something where this is a good example of at least something now when we're, we're, we're looking at markets, is this actually their business? And now it just came up again. We're doing the, we're thinking of doing an investment company, allowing people to invest more easily and so buy fractional shares by without a quotation as a fees and like all of these things. And then we realized that the companies providing this in the US, their business is not actually providing investment services for people, their business is selling market intent to speed traders. We go, okay, so we can't go out and compete with them again on this area because their business, their revenue stream is something completely different. Then we can either choose to get market intent faster and better for speed traders and outcompete them there at their core business. Or we need to come up with a different method of doing it. They will always be able to underbid us. They're not earning money off what we actually want to do.
David: 22:29 That's kind of a tricky problem.
Sebastian: 22:32 Yeah, but it's really good this like, okay, are they actually earning money off the product? Are they earning money off something else? And I think that's like a like one of these over arching learnings at least like really figuring out alternate revenue streams for businesses for example. It's not something you think about alot as an entrepreneur, I think, at least not for us.
David: 22:57 What kind of desirable features of a potential product do Founders look for when deciding to invest or partner up with an entrepreneur? What are the steps of approval of a potential project? So what kind of, just what kind of things when you're looking to partner with entrepreneurs, I'm like, what kind of things? So do you usually go for just, I guess things that are solving a problem that no one else has done before?
Sebastian: 23:26 Yeah. The thing is we start out so early that we rarely look a lot on the idea. I think when also because we don't have a focus, right? We don't only do fintech or or health care tech or something else. So basing it on that we can go in and analyze this, this pitch deck or something like this wouldn't probably work very well. And also we know that these pitch decks are 90 percent bullshit in the beginning at least. So of course if we had ideas around the same area, like LifeX, we thought about doing something like that before, but yeah, we never did it. And then Sune and Ritu later will come along and have something along the same lines and then we're much more willing to do it of course. But still it was based on the merits of Sune and Ritu and their background and grit and Blah Blah Blah and all of these things that they can displayed.
David: 24:23 And that seems to be going quite well?
Sebastian: 24:25 It's doing really well now. Yeah, but it's much more than the founder level and for the internal projects it's, it's much up to the one of the three partners in the creation in the like creating new companies and then we have two of the partners who will bring Peter in execution with our existing companies and then Simon is with the platform and also involving himself a little bit more in Headlight for example, but they're still a little bit.
David: 24:59 How would you best describe the founder's platform? Sebastian: 25:04 I think again with all due respect kind of thing to it, all the non-value adding services, these things that can be standardized and I think being very aware of what can be standardized and not, but some of the things definitely can. Yeah. I think the more immaterial part of it is the whole house of people. So now when you have to do interviews, you can actually ask other people about it, you have to network of 100 something, people just around you and maybe outside of Pleo, all of these people are sort of in the same situation as you. So they're super helpful for recruiting, for testing stuff out, for giving pretty candid feedback. Especially in the early days. We can see a lot of the roles where we would be sitting alone to like not a lot of companies have one designer, like you have more than one designer at the beginning right. It can be pretty lonely. And the feedback that you're getting is very like, yeah, just not professional in some way is just opinions and that's great. But actually being able to work with people who have the same profession as you. Even though you're in the company where their is only one startup ceo type of person, right. There is only one, yeh, whatever it is. Um, yeah.
David: 26:31 This section is called the personnel attributes. Before getting involved in a project or recruiting a team to work on a project, what kind of people do founders consider getting involved with, is there a certain criteria for selecting these people or co- founders, or is it generally whether or not they're capable of doing the job?
Sebastian: 27:05 Yeh, I think there's a, I think there's. Okay. So there's a, we believe that the market is oversaturated in terms of, you know, these for us by US technology solutions, so solutions for techies by techies kind of thing. Right. And that's often, where were these garage startups are great, you know, that's a billion of them, then they can operate on no cash, its tech only, and that's a very bad place for us to kind of go in and try and compete. I think, also because yeah, just the market is so saturated with it so that that pushes us and I also think it's more interesting and generally it's a good opportunity to go in where you need some kind of specialized knowledge and when you do that we can again expect ourselves to be experts in all of those things. Now we've done quite a few of fintech stuff so we have a fairly good understanding of what's involved but still say with something like the new investment company, which I had absolutely no clue what it takes to get a brokerage license or what's the difference between giving people a normal bank account versus investment account. If there even is a difference. I have no clue on this. So in that case we're going to go out and find people who have a background for doing this, specialists, first of all to learn and then often some of them we fall in love with and they fall in love with doing this differently. They've been doing it for 30 years in Danske Bank and they're kind of tired of whatever, cheating the system out of money or something like that and now they actually want to do something with this, with this vision with us and that's a good way both to find co founders, specialists those advisory board members, whatever it is,
David: 28:55 People who are very qualified and that are excited about working on projects like someone like founders and then what Founders are doing.
Sebastian: 29:03 Exactly. Exactly. So for Kontist. The CEO, Christopher Plantener, he, I knew him from many years ago, 10 years ago, no more when he was on the board of my one or one of my companies and, and I contacted him because I knew he was starting an accounting solution in Germany for as part of economic. Then, through all of those discussions who fell in love with the idea of starting a bank that automated this accountant and then joined and then for Headlight, Oliver contacted Eric because we need to someone with a background for understanding coaching and psychology and these kinds of things. Even though he's not a psychologist, but understanding coaching and through that he now became a co founder, so it's not that uncommon that, that kind of thing.
David: 30:05 What would you consider to be the personal attributes of a successful entrepreneur? Education, flair, experience? Um, if you could partner up with an ideal entrepreneur without considering their business idea, what kind of person would that be?
Sebastian: 30:25 No. I think the biggest thing was we still have it even with the most experienced people we have, like we'll talk about this coachability because if they're not coachable then we are really bad match for them because we're fairly in there of course with them and doing it. But if they're not coachable, then first of all it's going to be tiring relationship for everybody. And also, you know, then we're not the best deal in town.
David: 30:53 Uncoachable, like how would you like describe exactly what a coachable person.
Sebastian: 31:02 I think this and that's a bit of a conflict, right? There's very traditional person who is a good leader, often has a hard time, you know, not being honest about not knowing stuff. So we want, that's a little bit of a mix, right? So we want these people who are super driven and you know, it can go a stand up on the box every Friday in and excited people every Monday morning and excite people and you know, get people to follow them, and join their vision, but at the same time we also, people want people who are honest about what this, I don't know anything about what you, what do you think we should do? And those kind of. It's hard to find those people.
David: 31:38 How would you describe the environment of the office and working closely with people from all areas of expertise?
Sebastian: 31:55 I get extremely informal. I think extremely informal, extremely disorganized. We don't even have a project management system. It's very much trying to put people on what's it called, but the responsibility on people to actually work. And we've had heard this quite a bit in the beginning. I think we've got a better idea, but very much this, when people got hired, they got a table and a computer and then it was kind of up to them to figure out what they wanted to do right off the. Tell your other people what you can do so they can ask for your help or offer your help when you can see that you can do something. Also, since we don't have any kind of top down management of people really, people work on a project and then, you know, yeah, I might be your boss, but still you're a designer, you're hired because you're a good product designer or generalist. I don't believe I can go in and tell you what to do. I can give you feedback but I can't tell you what to do.
David: 32:55 And is that typical of the leadership style of founders? Is it very flat?
Sebastian: 33:03 Yeh, I think also now it's only like really like, yeah, Simon, me and Josh, right? That has a team of specialists that we work with us and, and uh, for Simon he has a bit more of a structure thing of course. But Josh, the same extremely hands off, it's much more for recruiting purposes and, and giving people the information that they want basically. So what kind of new projects opportunities are coming up and what can they join and having those discussions with them that maybe the co founder of the company doesn't think of so much,because they're just their hired guns, kind of feeling. Yeah.
David: 33:47 So now there's this section called innovation management at founders, and the first question is: being that entrepreneurship is the driving the driving force for organizational innovation, How do founders strive to be an innovative firm? What conditions do you believe are crucial in fostering entrepreneurial activity at founders? Sebastian: 34:23 It's really. Okay. So we are very, very, very funny to see how many people come into Founders to join founders and who actually like, uh, yeah, I just want to, you know, do my own thing or lead a project or do all of these things and then when we give them the opportunity, we've had such a hard time getting people to actually grab that opportunity and take it. And even if you'd like, if you give people like an open space to do something like because of this, we believe in people following a passion in some ways, people can around this thing and then they come up with like a little fun little photo app or something like this. They don't always come up with, um, this drive doesn't come from nothing. I think it's very, very hard to foster. On the other hand, when if you come and say, okay, it's impossible to get into the housing market as a millennial almost, we just born in the wrong time, okay, how can we solve this? Can we do split up or purchasing a house into fractional ownership of housing or something like this? Then keep people can get excited about that idea and go for it. But I think there's fostering their entrepreneurial entrepreneurial kind of thing is very, very, very hard. Some people really have it and some people don't think of it like that. We can guide them into doing it. But this very first we called it flags, right? We have these flags that are way out in the horizon that you can go for it. But they need to kind of have those flags. Some people, other people can come up with themselves, but it's very hard to do it.
David: 35:56 Because there's a lot of literature that says that a, I guess a traditional literature is saying that innovation and entrepreneurship comes from the individual, but now there's like a, you know, this field of research that is saying that it can be actually managed and fostered and there are sort of steps within an organization to kind of bring this out in people. But do you still think that's a big influence from the actual individual?
Sebastian: 36:26 Yeh, I think, but it's also maybe because the time people stay with founders at the core founders team is fairly short. I think that Sarah had a two year birthday with founders. It was maybe Toby was there before, so he had been there for three years. Otherwise, besides Dixie and the partners, no one has been there from. All right. People really come and then they either join a company or they're not a good fit and head out to a bigger company. But I think the moments where we've had the most success with it is then when they come back with the photo app or something where it's a little bit, you know, it's a novel idea and whatever, but it's maybe not actually like you're not innovating on a business in somewhere like a good business for us to invest our time, but its not within our field. It could be a fine app or whatever but, when we've set those boundaries that are quite high, I think that's very different for people when they're working in organizations, the normal scope of their tasks day to day is fairly small and it's very easy to become overreaching and stepping over your boss and whatever, that when you don't really have this boss kind of thing. And we just want you to dream big and do these things. We kind of need to. Okay, so this needs to be Pan European. This needs to be a 100 million euros evaluation within four or five years. This needs to be like trying to put up something like is like these imaginary constraints. But then people have to think of to get people out there, but then I think it's very hard.
David: 38:13 Are there any kind of internal controls within founders in place regarding the management of the innovation? Ways of measure performance, which maybe of these kind of imaginary goals that you're setting or things like that or any kind of control criteria.
Sebastian: 38:47 So that's the, I think that's a really good point, and that's a huge plus of our model at least. So I've tried this before and when you, you raise some funds on certain kpis and then you have trenches for getting those newer over whatever, two years or something like this, then you're going to get x million by, you know, reaching that goal. Most of the time people don't reach them, but then the investors have the option to pull out if nothing happens at all. Right. But if they're kind of just go in the right direction, but that often these people who just focus on those kpis and not actually step back and say, are we providing actual value? Oh we're just reaching the KPI and that's when you get, you know, the stupid we had growth hacky, dark design pattern to keep people in or you know, this, you can't delete your account, you can only be de-activate it, So we don't do with user volume or some shit like that, and it's, it's so infuriating when people just like get on the blinders and just go for that one goal. And especially for ours like in the first 12 to 18 months, I don't think anyone can really say be sure of what it is. Is it better for us to have two customers paying $30 instead of three customers paying 10? Probably. But now we have this user goal instead of price goal or whatever. Right. And the price goal is very normal but still some small different differences like that. So instead we of course have these, these checks and balances a little bit, but we're very aware that it's like the qualitative thing is so much better. So even for something I hit nine for doing it. It's one of the things we talked about, which we're still going to do for the trenches. Like, oh, which we have for the first one is I just want to hear 10 people having been through the program, I think this was actually what we ended up with 10 people having tries being through this program and uh, and hear what they think of it afterwards. And hearing that I cannot imagine not doing this, like not continuing. I think that's a very, like you can get a lot of pitch decks from a lot of people wanting to raise funds. Whereas like already stats of growth and expected growth in five years and I think a lot of value. So it's super qualitative, and even qualitative within like so: "we have a really good gut feeling about it, but we're not anywhere close to the market". I think we're kind of over those days of build something in two weeks, launch it in three months, get the growth, especially if we're, if we're investing a bit more, some things are just harder. Again, this deep tech versus for us - buy us type companies.
David: 41:47 What kind of initiatives do founders have in place in the office to encourage a kind of an entrepreneurial environment and here in brackets I think the only kind of thing that felt like that was like things like beers and cheers and uh, encouraging people for like going to tech events and things like that. Maybe there's meetings or like staff outings. And then do you feel like these kind of initiatives have given concrete results and can you name any examples?
Sebastian: 42:17 Yeh, Beers and Cheers I think it's a good example of this. I think that, we had it a bit before, but this showing work when it's so far from done and talking and showing it weekly. So you can't just show, you know that’s perfect. Oh, And then we had a rough time, but then we figured it out kind of journey, which is very nice to tell, but also actually having to tell it week for week gives this, and i think It's a big challenge we have the sense of urgency because 10 year plus for hopefully many more years fund, like where does this sense of urgency coming from? But I think something like this where you kind of go up week by week and show it and then you also have to kind of on your way down of like, okay this didn't work, this didn't work, this didn't work. Forcing people to tell this kind of makes it less scary because, you know, three other people also saying it didn't work was because most of the time it doesn't work. Yeah. And then sometimes it does work and then people can celebrate it. But this showing stuff as you go along, I'm very open about it is very, very good. Then having everybody in the room. So developers are in the room from day one, designers are in the room. Definitely. Yeah. Yeah. Super Open Process.
David: 43:39 Do you feel like you do feel it's important for companies like founders to actively manage innovation? Or do you think It's more about finding the right people and innovation comes more from the ground up rather than from, from like the managers. Sebastian: 44:00 It's very hard. Now I just read this, there's this outliers book. Have you read it? Malcolm Gladwell's? There's a lot about who uses these outliers and society spend people who managed to do some extreme stuff. Right. And the background was in at the end of the day, he talked a lot about different types of privilege that you've had in your life to be able to achieve these things, right? It's not because you're brilliant. You just need to be fairly smart up to a certain point and then the rest is opportunities given to you. But I think there's something to that, and one of the things that's talked a lot about which really matches well with us is yeah, we need to give people the opportunity, but they also need to have a background where they feel like they can take it, and that.... I haven't tried to do it that many years, there's only been four years, five years, and we're still trying to like force people in through the door but that doesn't work. You can only give it to them, you have the opportunity to pitch something and get allocated 1 million, 2 million, 3 million euro to do it. It doesn't happen a lot of places and everybody wants it, but it's been a handful of people over those four years out of the maybe 50, 60 people who have been through founders who have actually taken that opportunity and they've all done it before and most, which I think is like, it's crazy and I don't think we've had anyone who, who haven't expressed a wish to be accurate. Definitely see myself doing something. My own thing. Yeah. It's funny. I don't know. It's also a little bit, I've heard this but this from the more softer people, like a lot of designers that are, it is a little bit of an intimidating environment for them in some regard because of this like ex consultancy background, we can see your hard questions and very like, I think even beyond radical candor. Uh, so it can, it can be tough to get through, you really have to stand your ground, but uh, but besides that, I haven't actually seen a lot of people doing it and we can be better at coaching them, but good for us. I used to think that the skills that we have as managers of coaching people into we need to have people who have an innate, innate entrepreneurials.
David: 46:16 If you had to consider it a balance between, uh, relying on people and coaching them. Yeah. Like do you find it is a balance. Or does it tip in the favor of people's own kind of entrepreneurial drive.
Sebastian: 46:34 Yeah, I guess, yeah, I guess. And this entrepreneurial drive, I feel like it's a very much also a little bit of a, I don't feel allowed to do it. Like a. If you had this entrepreneurial thing, it's very easy to kind of always see, you know, if I don't like this wine that they came down and serve me, I'm going to say no. A lot of people have this. Yeah. I asked for it and now I have to drink it. Kind of. Yeah. I think like this, having this option of saying no, and just choosing your own path comes very hard for some people.
David: 47:15 What would you consider like the, the challenges that a startup studio like founders face. Would you consider that the repetition of strategy when it comes to developing new companies, if that is something that, uh, you would consider that founders does, could hinder the creative and fresh approaches or forces that startups bring to the table? Even if even if still the execution of developing a new company and launching it is more efficient than what would have been for startup without any backing. Do you think something is lost? If you know where I'm going with that question?
Sebastian: 48:01 Okay. So we do two types of companies, right? Or we have done two types of companies In the past. We've done the cocreation the one, like where we started internally. The ideas that we might find some people very early on, we might find some half a year on the road, but it's Kinda we, we, we started the seed of this idea and then get people to join and then where people just joined from the outside, we invested 200,000 euros, something like this very, very early on. Often when there's just a team and an idea, but, and then we have fairly, you know, You have to hire yourself. I mean we can help you doing this, but you are responsible for it. I think that's the biggest responsibility and the cocreation lies on each of the partners with this area. The responsibility of finding a designer if, if we don't have resources internally and we don't yet, whatever it is, then it's up to them. I mean I can because otherwise we cant scale it. I can only say yes to so much and to keep the scale going. Okay. So with those two things, where's the challenges in terms of innovation here? They're very much like in the where people start come to us with an idea is very much on them, you know, we can, we can, we can be a sounding board and whatever, but it's very much up to them. We have office hours every week or every other week I think with some of the companies and you know that's it. For our own projects. Yes. I think without having specialists coming in, we can see we just get very shallow ideas. I get the same idea as to everybody else around the world. We need the specialist in there. The good thing is that we can actually get the specialist in because we have a, we have the brand of our investors behind us which is pretty good. We can actually dedicate a lot of money towards. So they take us serious, we are not two guys in their garage so we can, we can actually get the top level people to come and sit with us, talk with us and, and we have the capital to actually, you know, these guys might not be able to live off cup noodles for six months while figuring out what the hell they're doing, but we have capital before we know what we want to do to deploy into like we believe in these people and even in these people that we don't know yet, try to get them in. And then once we have something good like Eric or Christopher or whoever it might be with.
David: 50:27 How do founders this deal with a situation where one of their companies has achieved significant success or is suffering and requires a lot of attention. Can this lead to one project over shadowing another. Um, is there a limit to how many projects founders can have at one time?
Sebastian: 50:56 Yeah. So, so to, because we don't, we have a budget for, for the core team and you know that's Kinda. I mean, we could, we could change the budget if we wanted to kind of have this budget and we don't want to grow the core team to be 200 people. It's a completely different animal and you know, that's not really our focus. So there is a uh, you know, we can only move, be part of so many companies at a time. Our finest job is to make these companies self sufficient when they come out of those eight, at that 18 month period. Then we have two other partners, Peter and Ulrich who are on execution, so the companies after those 18 months and they're working mostly with the companies and they're spending their time with the companies that are doing bad and not spending that time with the companies that are doing well. I mean we, we try to optimize our stake in it and we can have our growth fund that we can invest more money into the company to maintain our stake and we're sharing them. But, but I mean, yeah, we don't, we don't work so much with the companies that are doing very well. We try as much as you give them opportunities, of course introduce them to people and you know, whenever we see something, yeah, yeah, of course, but that's also because everybody loves being part of a success as well.
David: 52:15 But the goal is to kind of have them as a self sufficient kind of organism once they have reached a certain stage.
Sebastian: 52:21 For sure. Yeah. And we've heard, we've heard a few times this, the feeling of a little bit like being the kid, you know, and then then the, then the family gets a new baby, right. And they like feeling like I used to be the center of attention and now I'm not anymore. We've heard this story before, but that's mostly our us in creation. What does the energy then go into the new company and then you're out in the cold. So we've heard this, but I think it's also just need a little bit maybe of that shock to, to take like to where their responsibility again changes from being on me for product design on Simon for growth on Josh for recruiting that technical person to actually okay. The responsibility is on, you know, we try to be pretty clear about it, but it's harder to hear about as well as it is often a gradual process.
David: 53:24 Would you use the Founders platform as I guess kind of like a kind of structure of knowledge within Founders as a whole? Or is it a thing that you use as a tool?
Sebastian: 54:06 I think it is very much a tool, but it's also, um, very, uh, yeah, I think I'm very much not as much a fan of the use of these tools and these like because I think it gives you, like most of what we're trying to do is, is fairly, you know, if you don't kind of take those two steps back, you don't know why the hell you doing it and for us early on its so much more important. Like why are we doing it or what we're focusing on rather than how will we do it. We don't need to hire the best designers on earth, or we don't need to hire the best visual designer, the best coders because what we're doing is fairly simple. It's more choosing what to actually work on. And um, and I think the culture of, of doing this as much more important so that the whole, like we have a culture of always questioning these things and always taking a step back. That's actually not knowledge. Right? I think that's more a culture of, you know, always asking that annoying question on Friday and you know.
David: 55:00 But that's part of, I mean that's part of learning that's I think brings back memories of reading bad like this double loop learning what do you know, you have this problem and you do it in a certain way and then you just come back to the problem and keep doing it rather than kind of stepping out and trying to come to the core of what the problem is. Think about it outside of the box.
Sebastian: 55:21 Yeah. Yeah. And I think the culture is much more, it's much more a way to approach a problem that actually then knowing. And again, there's like a very honest about not knowing being we do, uh, we do an identity and branding sprint in the matter of maybe two, two and a half hours. And when, if people like my colleagues from E-types and whatever, this is just around here, they spend two or three months and really get to the values and talk to all of their, you know, all the important stakeholders and the customers. And we do this in two hours, three hours max, and it's super cowboy, but it's also based on it being super honest that it's not, It's not as important as you do it and you don't know. And like having like being able to do this and being, you know, when I'm not judging you on your code is not being perfect. I'm always, you know, yeah, this is not a good logo, but it doesn't matter. And we can look each other in the eye and say, you know, within the, within the, within the framework of starting a company, this is the best that we could possibly get, but it's not a good logo, its a shitty logo. It's a square with a letter in it. That's basically, if you look back over half of the logos we made and it doesn't matter. Not at this point in time. '
Appendix 5 – Interview with Talika
David: 00:05 So how would you best describe the founders startup studio model? Would you consider it a classic model? Talika: 00:12 Uh, so, no, it is definitely not classic. It is very unconventional. Um, and the way I would best describe it is a place where we aren't just giving out advice, but we actually partner with the people we take on so it's not like we're throwing cash at them. Actually this is one and two combined. Um, so yeah, we're not a traditional startup model because of the way that we fund as well. So we're not just saying, hey, we like your idea, here's some money. It's like, Hey, we like your idea, how can we help and how can we be truly invested? And that's what makes us different to other startup financing companies out there. Okay. Um, so it's definitely not a traditional model.
David: 00:55 What is most attractive about this kind of business model for you?
Talika: 00:59 Uh, so for me personally, it's the fact that I, I'm, I'm not a developer and i'm not an engineer, I'm not in design. So for me to be able to build, it's hard to find a job that does that so I can go to any big company like Mærsk or a bank and I can hire people and that's great and then they get lost in the big cog of the machine. But the appeal for me in working particularly somewhere like founders is that when I hire someone they're being hired to build a product from scratch or they have been hired because we know that they're the right person to go out and get funding and be the lead of it so I can actually see how the people I'm hiring make an impact versus just getting lost. So it's the way that I can help build versus not having the skills to actually build a company myself. But it's nice because it's not like I'm hiring a backend engineer and I don't get to see what they do. Like even cool things like beers and cheers, It's cool to see the people I've hired standing up in front of everyone going, this is what I've done today, and everyone going, holy shit, that's really cool. Um, and for me, I'm like, well, I found that guy, I got him, I got him attracted to the company, especially as a traditional startup, we don't do pension, we don't do a lot of bells and whistles, so people really have to join because they love what we're doing. So that's also quite cool.
David: 02:29 How do you think the founders business model, that kind of model of coming into a new product or idea or cofounding a project with someone else. How do you think that positively influences companies in the structure of how founders works? Like if you compared a traditional venture capital model, you know, like investing just money and stepping back and watching a startup grow by itself, compared to the founders model where you actually are coming in and working together and developing? How does Founders positively influence, say its own companies or a co founding projects without other people?
Talika: 03:43 I think if you are looking to invest, I think the lure of founders, it depends on what type of people we're approaching, but the people that we usually approach like to work with this kind of in the same way that we like to work with our portfolio companies and the people we invest in. So the people that we've had given us venture capital, uh, have been people that want to be involved, they want regular updates, they want to see where their cash is going, not that they have so much cash that they can just put hands off and the type of people we attract are the type of hands on people that want to see that and they actually really believe in entrepreneurial-ism versus venture capitalists going: "startups. Cool. I want to get a leg in, which is where I think the difference is, um, do, do you know, Kontist? So Kontist just secured a new round of funding. Um, and it's not a traditional venture capitalist company funding because Chris, the CEO wanted to find something that really shared their values. So now they're partnering with one of Germany's biggest accounting firms, so they get a buy into all of their customer base. I'm, Chris gets more knowledge about the market that he probably wouldn't have gotten if he was just partnering with a traditional VC firms as well. So the reason why that partnership works is that people giving Kontist money also want to be involved in that partnership. So that is part of the value as well. Um, and then if we look at like even the way founders is funded, like the Lego guys are in once a month chatting, "where is all the money going what's happening?" Because they care and they want to know versus someone just giving cash away. So I definitely think it is the lower, not so much control because I think there are people with this amount of cash who will always like to be in control, but it's control and intrigue as well that they get with Founders, and shared interests. And Kontist is the best example of that. Um, it's the shared interest of actually you're doing something in our firm and whether they saw Kontist as a competitor and they thought it was a smart move as well, it doesn't matter. Both parties are getting out of it, what they want
David: 06:02 Mutually beneficial.
Talika: 06:03 Yeah, yeah, yeah. Versus just going: "we are just going to throw some money at it because we want to show our stakeholders that we care about startups and we're Cool. Yeah. Because I think that can sometimes happen. It's like candidates that say: " I want to leave banking to work in startup", but then they don't want to take a massive pay cut because I don't really understand what that means. So I think the same can be for funding as well.
David: 06:21 Can you talk me through the process of getting involved in new projects? I'm not sure how much you're involved in idea generation of launching new projects and things like that.
Talika: 06:46 I can tell you how it works in the recruitment, like in the recruitment world. Um, but I mean everything get found is, comes from as you know, an idea that we've been trying to solve ourselves, um, or like a life x or reach types of companies that have come to us and we've thought that's a really good idea. So new projects can start from those two different avenues people approaching us or we built them from scratch. Um, and then in terms of the recruitment process, it's slightly changed a little bit with founders. So before, well actually when I started in February 2017, we were a little bit too gun heavy to just, um, we have a great idea, We need to staff it. Um, and I think Walkie is a really good example of that. We hired too many developers to work on that and then we ended up having to let them go. So now we've learned to only hire when the project stage is at funding and that's external funding, not just from founders. So headlight. For example, we were going to hire a head of sales that's been dragging on for two months now and now they took a step back and now they're only at the place of going, okay, we actually have a business model. We can go out and get clients. So it's the way that we've launched everything, even in two years has completely changed and we've learned. Um, but I don't know if that really to be more.
David: 08:16 To be more conservative in your approach?
Talika: 08:17 Yeh, to be more conservative. Because part of my struggle was, so like the founders wanted me to go out and get cofounders for companies that didn't have a landing page. We didn't have any structure. They didn't know the direction. So we were just talking to people saying: "Oh, we have this pipeline dream and there was no wonder why we couldn't attract anyone. So now they are more conservative and they're a little bit more savvy to be like: " now we have funding, now we have this. This is actually attractive to you." And we can also, hey, a little bit more nicer as well because the company has done more research in the market to actually be a company. We can actually offer warrants and shares and it's not just going to be monopoly money because founders has a bit of a reputation in the market for giving out shares in their new companies, but then they really don't amount to anything. And when I was, when I first started talking to co founders, they were like, do I get equity and shares? And you're like, yes, once the project you're working on eventuates, but that might take two years and then your share price starts from zero. So yeah, they've definitely learned from that. Um, and I'm, and I get involved in the process much later now, which is nicer.
David: 09:36 So yeah, I can imagine bit easier to speak to candidates?
Talika: 09:42 Yeh and it's even, it's even that they would try to get me to interview candidates before we even had a landing page. So I couldn't even send them anything. It was more just get them on the phone with the partners and they'll sell, which I think is a good learning curve for them because I think they thought that would work, but unless those people are in their direct network, I don't think anyone outside of the founders bubble would really get it.
David: 10:07 What kind of desirable features of a potential project do Founders look for when deciding to invest in and partner up with an entrepreneur and the kind of steps taken in the approval.
Talika: 10:27 Yep. So, for example, I get about five to ten emails every week of people reaching out for funding or people reaching out with these pipeline ideas. Um, so founders as you know, has the umbrella of the future of work. So I think with exceptions, son of the tailor, the tee shirt company is the only one that doesn't really fit that mold, but otherwise it has to be a tool or a business that can improve your day to day life within the realm of work. Um, even our new company reach is a bit of a stretch, but it's to help your body and mindfulness at work so you can kind of make it fit. So when I get these emails say, Oh, I wanted, I got an email yesterday from a gentleman that is launching a travel clothing APP. I.e When you go somewhere and you don't want to pack all of your clothes, you can get clothes delivered to your airbnb or your hotel. And he was going to start with winter jackets, so that, for example, I automatically just dismiss it because I know founders is not going to be at all interested in it. Um, and I've got very strict guidelines as to what makes it through to the partners. David: 11:40 Your own? Or ones that Founders has?
Talika: 11:45 So all of the new project ideas go to Stefano, that's his part of Founders, its growing and getting out these new businesses. So they have to either have to have their own idea or an idea that's been at least researched. They have to have some form of pitch deck to send to me as well. Um, and it has to be something as well that we know that we can contribute and help too. So we're not just going to bring people on board because we liked the idea if the knowledge within founders can't help it grow. Um, so for example, Keith, were you there when Keith was there? Bit older blonde hair?
David: 12:28 Did he have a beard?
Talika: 12:30 No. Okay. No. Okay. So Keith is someone that emailed me as a co founder and he's like: "Hey, I have this idea, I'm looking for funding or to partner with someone. What do you think?" And it was a company called whisper ai, artificial intelligence and trying to improve people's processes at work so things become more automated. And I was like, that's actually cool. It could fit. So I had a call with him, really liked him and I put in touch with Stefano. Stefano really liked him as well and he sat with us for six months and we tried to hire him a co founder. We tried to launch it, um, but it, sadly didn't eventuate, so Keith is leaving at the end of this month or next month. But he takes whisper ai, his idea with him so founders doesn't keep that. Um, so when, when people come to us, like Keith with his own idea, with his own project, his own pitch deck and if we like it, we will partner, we will pay your salary, we will give him all the tools that, that founders can offer and that's how we partner with him. If someone, if, if, if whisper ai had been a founder's idea and we had found Keith but we didn't want to partner with him anymore, Keith would be exited from founders but whisper ai would still be our project and we would find someone else to staff it. So it's, it's a little bit of a different way how co founders can, can come to us, but it generally goes down one of those two roads. They come to us with an idea. We try and make it work. If it works, great. If they come to us with an idea and it doesn't work, them and their idea leaves, which is also why we've be more conservative in our hiring.
Talika: 14:18 So when we bring someone on board to be a co founder, we know that that's they're going to lead the company for hopefully two, three years until it grows. Um, but you know how do you know Duo, Dennis has gone separate ways with Duo. So yeah. So yeah, so Dennis wanted to take duo to more of a sales tool and Amae and I coudn't remember his name, but Amae wanted to take it and stay on the same path so they couldn't agree. So Dennis left Duo, he left all of his shares on the table and founders has gone actually: " Dennis, we really like working with you. We will give you six months to show us that your new tool, if your sales tool can eventuate into something. So Dennis now becomes a co founder type of role directly for founders and at the end of the six months, if he can prove that his project has gone somewhere and he will become the CEO/cofounder for that specific tool and he gets put on a contract for that company and no longer is a part of the founder's direct family. So if that project doesn't go well and we can't rehouse him in founders that he's gone. And that would've been, that would've, that would've been what had happened if we, if Dennis had had no idea what he wanted to do, founders wouldn't have hired him. So we try to hire, but we try to hire a bit more smartly now, so we're not just wasting money. Um, but also at the moment, all the founders are so busy with their own projects, like we're not even really looking to take on any more cofounders, even though the co founder role remains up and Stephanie doesn't want to take it down. It's been interesting. Yeah.
David: 16:13 How would you best describe the founder's platform? Have you seen that before?
Talika: 16:19 Yeah. So do you mean like the learnings or whenever someone's like, it's on the platform, all the shitty things we've learned.
David: 16:25 I've only kind of seen a powerpoint presentation of what the platform is. Basically the general structure of how you use it as a tool.
Talika: 16:42 So I actually think the platform is quite a good thing and the appeal of the founder's platform is that we're quite happy to share that knowledge. So we, we write articles, we have all of our media and blogs we're quite happy to tell you. Like for example, when walkie shut down, Josh wrote a blog about what happened, what he did wrong, why we didn't sell it to Slack, what we could have learned. And the platform for founders isn't just internal knowledge where we can keep it. We actually share that it's, yeah, it's all of our playbooks. Like I've done one for recruiting Janni done multiple ones for marketing and it's not so much that as well as all the articles that we write as well as saying this didn't work. That was a bit shit. But this is what we learned. And the cool thing is because most of the core team now, like me, Sarah, Janni, Dixie, Casper, we have all been there for in excess of, you know, two years. So we have all of those learnings with us as well. So when I'm, if, if Simon comes to me and he's like, Hey, let's start searching the cofounders, my knowledge and my knowledge that I've on the platform I can actually say: "slow down, is now the right time? Are you not getting a bit excited? Whereas when I'd first started having no prior knowledge, I would have been like, okay, let's go. So it's not only the knowledge that you get that we share, its knowledge you gain from working and understanding the very unique way how to do your job within founders because it's not like any other job I've had. Like I would never say to someone, Oh, you sure now is the right time to hire. I'd be like, I'd be like, great, you've got budget off we go. But now I'm, because of my learnings from the platform, I'm very happy to say I personally don't think this is right. Um, which is cool. So I actually think it's a really good thing. And founders, even though we can be slightly arrogant in our approach and some of the personalities are quite arrogant. Um, I think they are very open to admitting failure and admitting what they've done wrong, which is also quite a nice thing. We're not so much like we don't place blame, like if it wasn't anyone else's fault but ours to what can we do, which I think is quite unique. Most people are like, most companies are like, well, no, no, good, perfect. We want to paint a picture of perfection.
David: 18:55 Especially like individual leaders and things like that. It's kind of a mentality.
Talika: 19:02 Like I really liked when, when I keep going back to Walkie because it was one of the biggest projects we had last year that should have been big. It should have gone somewhere. Um, and Josh stood up and said, I just couldn't sell it to slack. It just didn't work out. And you could see that he was disappointed, but he didn't say it was great. Walkie is great. It's slightly like slack are a bunch of assholes. He was very much like, this was, this was on me to do this and I didn't have a break, which I think was quite good. I don't think I could see every partner's personality doing that, um, but they have gotten slightly better at admitting fault. And I think that is also from the learnings that they've learned as well. Not just how to run a company but how their personalities can have changed as well. So I think that's quite a nice learning. So failure is actually part of the Founders Startup Studio Model. You can look at like the traditional VC model which is based on the fact that, uh, venture failure happens in the market. But the Founders model is a more flexible model for innovation. Like, If it looks like a particular business idea isn’t going to work, we can simply pivot as we haven’t actually invested that much capital.
David: 19:55 Ok, before getting involved in a project, or recruiting a team to work on a project. What kind of people do founders consider getting involved with? Are there certain criteria selecting people? Or cofounders to work with or is it generally whether or not they're capable?
Talika: 20:17 Yes. So we look for people. We actually really prefer if people have tried something in the past and not succeeded or they have succeeded and um, whichever the case. When I'm talking to people on the phone, if I can see they've done their own start up in the past and I say: "what happened? What did go right?" If they can like what we were talking about, the, the platform. If they can say, Yep, I learned x, Y, and z, I wouldn't do that again. This is what I would learn. Those, are the type of personalities that we will always be drawn to. If, if, if we hire people that can't find fault in why things haven't worked, even if they've not worked in their own company, but if I can't find fault in their day and what they've learned, we automatically wont want to hire someone like that. So even though we have a high level of, I wouldn't say aggression, but we have, we have a high standard and that can come off as arrogance, but we're also quite down to earth. So if people can't admit fault, I would automatically just not put them through. They're not going to be a culture fit. They're not going to sit with Sebastian in a room for three hours banging out a prototype. So the personal attributes have to be quite humble, they have to be still quite firm in their beliefs, but they still have to be able to work together as a team. Um, and most cofounders are usually very tunnel visioned. I'm just working on their own so they also have to understand that when you joined founders, you are joining a team that wants to help you, which is also what makes us a different type of startup to everyone else. You're not just joining us to sit with us and eating lunch with us. You will really get all of our opinions. So if they don't want to be that type of Co founder, then founders isn't going to be the right place for them. Um, and then yeah, that's generally besides the good idea, that's generally the type of personality I look for. So like, even though things haven't worked out with Keith, I know that he will be a contact with founders forever now, even if we finance his idea but don't help him, it's because we've had that connection and we know Keith is a, is a great person as well.
David: 22:31 What would you consider to be the personal attributes of a successful entrepreneur? Education, flair, experience? I mean, if you could partner up with the idea entrepreneur without considering their business idea, what kind of person would that be?
Talika: 22:43 Yeah, so I actually really laugh at the way that university courses have gone lately, because they do a course in entrepreneurialism and I don't know if you know the startup guide? So startup guide is run by a lady called Sidsel Hanson and they've launched in New York, they're all over Europe and I had a really good discussion with her because she was like, you can't teach how to be an entrepreneur. You either have it or you don't. And I actually really agree with that. You can do all the course around it, like business, finance, marketing. You can figure out how to present and do a PNL, but you have to have the drive to do it. So I look at education. I think that's nice. They did a degree, cool for them. But then I go in and see what else have they done after that? Um, so if, if you look at all of them, Oliver has been in the startup world now for over a decade and he did, he started off a co living space, done some other things. He's education is great, but he's had a track record of starting and successfully launching companies and he's now running headlight, which is one of the biggest founders projects that we have right now. Um, so I think it's natural. It's a natural flair and personality. It's like you, you can, it's like singing, right? You can either sing or you can't, you can think that you can and you can go and get some lessons. But it's a natural talent. And I think that's the same with co founders. You can't teach someone how to be an entrepreneur. Um, they have to have the drive because it's not, it's not fun. It's really, really difficult and it takes a lot of your time.
Talika: 24:32 But yeah. And yeah, so natural flair first, experience second, but then it depends what that experience is. If you've been a consultant or your life and then you want to take a step into startups. We're going to have a bit of a red flag, but if you've had like Simon, if you've been a consultant and then you've taken a step into a startup world and you've done different things than we can definitely have a more aligned, but taking the jump to particularly a place like founders which was this with little support and very lack of structure and it's on you. It's, it's sink or swim as co founders. We're not gonna sit down and spoon feed you, They have to have that level of experience that also gets coupled with natural flair. They'll either know how to do it or they wont. Um, and I don't think any university class can really prepare you for that.
Talika: 25:22 They can teach you how to do a nice pnl and how to go out and ask for money. But I think that's really about it. But yeah, the experience of failure and the experience of getting 50 no's for finance before you get that one. Yes. It's really soul destroying how to break into new, how to go out and find customers. You can't. You can teach the basic fundamentals of communication, but you either have it or you don't like. It's like salespeople. You can't really teach people how to sell the just natural born sellers, which is why I laugh when I talked to some cbs grads. Oh, I'm doing a thing in entrepreneurialship and I'd really like to work in startups. It's my passion and I'm like, but what have you done? And I always fill up what is your experience versus your education? Um, but yeah, I would actually put education last.
Talika: 26:14 I was going to give one more example for sorry. So like for example, Casper has no university degree, but he's one of the best developers that we've had and every time I've talked to like Dennis or toby, they're like he's so sharp because it's natural talent and he taught himself how to code. Um, if he was to go into a google or a skype or a big tech company, he will not get through the door because he doesn't have that education. But when we were looking at startups, we have a little more flexibility to look at the talent behind the degree. So it's not education comes last in every company, but specifically for startups and more specifically for founders, we care about natural flair and experience. Yeah.
David: 26:57 But I guess you can kind of see from people's track record, like the kind of person they actually are rather than someone, someone who has a very nice education'.
Talika: 27:10 Yeah. But even with the experience, if I was talking to someone that changed his or her startup every three to four months, that would be flagged, I would say. Did you get bored? Did it not go well because even if you're still in the startup race, you still have to have a good track record of longevity of career. Like if you're just giving up after four months, I don't want to hire you. It shows me that you don't have that entrepreneurial drive and you think you do.
David: 27:43 How would you describe the environment at the office and working closely with people from all areas of expertise?
Talika: 27:51 So I think when I, yeah, it's very segregated at the moment to be very honest. Um, so for example, Sebastian is working really closely with Kontist. Um, so he's got tunnel vision for that. Simon is very, very focused on headlight and so is most of the team, Oliver, Tobias, Emil and Eric are all headlight and because that's the biggest company at the moment, a lot of the other conversations are around that, um, so as much as they want, as much as they think they are a very inclusive company at the moment right now it's very segregated, and everyone's in their own bubble. Um, and then working closely with people from all areas of expertise. Um, this is actually why, like I'm quite lucky that I get to work with everyone. Um, so even though everyone's in their own bubble, if you slack someone, or you ping them and ask for their time?
Talika: 28:59 They will give it, which is quite nice. So even though everyone's quite tunnel vision, do you still know you can go out and ask for people's time. But then for me personally, I work 85 percent of my time is with portfolio companies right now. I have very little work for founders, um, and I know Sarah, but this is basically for the growth team, right. So Sarah is the same, Janni is the same, so we're doing very little work for founders and all of our time is on portfolio companies. Um, so that does create a bit of a divide, like founders core team working on founders core, founders core team working with portfolio companies. Um, and sometimes it can be like what have you done today because what are you doing for founders? It's like, yes, I'm doing Snapcarr, Maguru etc. So it can also create a bit of tension because not everyone knows what you're working on or what you're doing. But I think overall the vibe is nice and we have the understanding that you can still reach out even though everyone is kind of heads down.
David: 30:01 I think this goes into another question, but this tunnel vision that you're talking about, do you think with a big project like headlight, do you think like having a big project can overshadow everything else?
Talika: 30:16 Yes. And that's exactly what's happening right now. David: 30:21 That is one of the major criticisms of this kind of business model.
Talika: 30:24 It is, so like I think also you talk about team environment as well. It makes people think that their work and contribution is less important. So in my last year where it was with Simon, I said: "all you care about is Kontist and headlight, which is fine because they're the ones making money or to make money, but you should ask your team what they're working on and how are they adding value because otherwise it's like, do you, do you care? Um, and I don't know if that's a founders specific thing or leadership specific thing, but I definitely think in this type of founders business model, it is one of the downfalls is that when a project takes off or the strategy, the money, the funds all go to that and everyone else is left, like going: "hmmmmm".
David: 31:17 Okay. So this section is about the management of innovation at Founders. And the first question is being that entrepreneurship is the driving force for organizational innovation, how to founders strive to be an innovative firm. What conditions do you believe are crucial in fostering this kind of entrepreneurial activity at founders? How do you get the employees at founders to continue to be entrepreneurial and always stepping outside of the box and things like that?
Talika: 32:04 I don't think we, I think it starts at the hiring process, because I don't think we would hire someone that didn't always want to be striving to be different. Um, it's a, it's a weird balance because the things that we are building aren't that innovative, they're good ideas and they're things that we can do well, but they're not going to set the world on fire. But I think the way that we go about them is very different to everyone else. That's where we get all innovative niche.
David: 32:50 So then maybe it starts with the person?
Talika: 33:08 Yeah, yeah, yeah.
David: 33:14 Are there any kind of internal controls in place regarding the management of innovation at founders? Like ways to measure innovation performance? Any kind of benchmarks that are set to measure performance of a project?
Talika: 33:32 You've always measured the project by being able to make money. But I think with founders is that it's always like two or three years ahead of where we are. Um, but I think to measure performance at the moment is making sure that no one else has the idea or who has the idea and who was doing it well, can we actually add value and be better than everyone else. So that's how we kind of measure performance as we're getting it built. And then the real tick is if we come up with an idea and we market it and we go out to market and actually find out this is something that people need, that validates why we spent six months working on it as well. Um, but I, it's so, because I asked Simon this once, so I was like: "how do you tell if a company's been a success or not?" He responded: "If it makes money, but that's very far down the track". So they just keep going until like, um, like with Walkie they wanted to sell it to slack, it didn't happen. Instead of trying to keep, instead of trying to keep flogging it, they just killed it. Now they can bring it back in the future because everything is laid out and ready to go. But they were like, well we're not, we're not going to keep doing this because it won't be a success. So they also know what time to kill and time to pick it back up again. So I think that's also quite an important mindset.
David: 35:00 What kind of initiatives do founders have in place in the office to encourage and foster an entrepreneurial environment? From my own experience I thought things like beers and cheers, maybe like encouraging people to attend tech festivals and things like.
Talika: 35:14 Yep, and also Sarah's been kind of one of the best people at doing this. So we now host a lot of meetups at founders as well. So it's not just things that we are like, oh, come into here, Josh will speak at founders, its more things that are like, um, ladies at Ux and all of these different things. We host them at founders and we're all encouraged to go and participate even if it's things that we don't touch on our day to day life, um, we are all encouraged to go and listen because it's going to be a way of expanding our knowledge as well. And it's nice that its at founders, so we don't have to go somewhere else, but I think that's been something really good that has kept us, kept us being inquisitive. Otherwise it's very easy just to get lost in what you're doing everyday and go home and it is tough. So you can't lose that spark and passion. Um, but I think having the events at the office, and beers and cheers, and all of these things help. And also around the office now we have all of these, like the screens, we've kind of changed them a bit. And so we have like 'wins'. So Reach is like we've just reached 410 paying customers. We've done, our customers have done for over 4,000 exercises this month. We'll have life x is just launching this new, their 18th new apartment. So it also keeps us kind of visioned as to why we are here to see these small wins and I think we're doing that quite well. And we didn't when we started it was very like: "what the fuck is going on?" Like what is happening? Or you'd have to wait for Stefano's monthly newsletter, to get any kind of info.
David: 37:00 Maybe its a good way to tackle the segregation you have in the office, to kind of get everyone on the same page?
Talika: 37:02 Yeah. And I, and I think as well, like when I first started I had no idea who Peter and Ulrick were, I had really no sense of how they worked into the company. So again, it's like another founders learning with, and as we've grown we've also realized that people need more information. People care because we do have that mindset. We don't just come to work and leave, but here, because we want to build and we care. Um, and they've gotten a lot better with their open communication as well. Um, and that also helps us keep that passion alive. Otherwise its a bit, Sould destroying.
David: 37:39 Do you feel it's important for companies like founders to actively manage innovation or do you think it's more about finding the right people, and innovation comes more from the ground up rather than from above.
Talika: 37:55 I think it's sometimes the issue I have with founders is that you've got the same five people continually building these ideas. So if you look at some of the websites that we've built, obviously Sebastian is a fantastic designer, but he's designing all of these websites. So they're still amazing and innovative and new, but they're coming from the same brain. So I think as well to manage that and to grow and to keep being cutting edge, we always have to get new people on board. I think it's the people first and then that will grow.
David: 38:36 What do you think are the challenges of this kind of business model? Just going back, we mentioned this kind of tunnel vision and then overshadowing and things like that, but, uh, would you consider that the repetition of strategy when it comes to making new companies or pairing up with others, can kind of, can hinder the creative and fresh approaches that startups bring to the table?
Talika: 39:11 So I think if you cut it in half because we have the founder's platform which we've already touched on. So we really value that so we can get those learnings. So when we have fresh and creative ideas, we'll go to the learnings and make sure that we don't make the same mistakes again. So they can also save time. But it can also hinder because you were less open to trying and making a mistake, if maybe we tried it three years ago and it didn't work. What's stopping us from trying it again? Um, so it's good that we have the learnings, but sometimes tunnel vision will be like, well we tried that and it didnt work, so lets not try it again then let's not waste our time. But you couldn't miss a trick, which is also why I liked the idea of fresh people coming in because they might be like, I totally get your learnings and why you've done it - but have you considered this?
David: 40:07 I guess that's a good thing about the platform that it is continually updating in a way. So it's not actually exactly the same strategy that you're applying every time. It's kind of continually evolving.
Talika: 40:18 It is, but I also liked the fact that people like Keith and people like Eric who is the trainer for headlight are in their personal views adding to the platform. So it's not the same five partners adding their own learnings again and again because it's going to be much of the same. So I think for the platform to grow, it needs new talent, new people to come in and grow it and learn it, but also so you can keep being creative and not being so bogged down on what we've done before or can we do it another way, which I don't think we will get if we just keep having the same five people, Sebastian, Josh, Stefano, doing the same thing again and again and again,
David: 40:57 We have kind of covered this but, how to Founders deal with a situation where a company has achieved significant success, or its suffering and requires increased attention, can this lead to shadowing the other projects that are running. Is there a limit to how many projects at one time Founders can handle?
Talika: 41:37 Yeah. So I think if it's a significant success then it should be a shared success of the whole Founders core team. But I think at the moment because of segregation, if headlight does really well, I'm not going to feel like I did anything to make that succeed. And that's a bit shitty because that's part of the sell of the founders model, like we're all in this together, but theres also a learning that we can make everyone feel more included. But if it's, if it's a success, it's only, it's only ever going to be the best thing for the whole company. It's just more of a personal thing. Like, I really didn't make or do anything to make that a success. If things are, if things require increased attention, um, so for example, Maguru needed to hire six people and I had to tell them I don't have time to help you do a full recruitment lifecycle. I can reject people and I can email, but I don't have any more time during the day for calls. Um, so it was a bit of a tough conversation because me as the founders HR helping a portfolio company, I should always be willing or able to jump in and help. So sometimes that's where the model fails as well because we can only do so many projects at one time. So I'm on four different, five different companies right now, all requiring urgent attention. So part of the founder's platform model is if you are on that many, how do you juggle that everyday because everyone thinks that their own company is the most important, which is for the founders core team, me, Janni, Sarah, in particular, helping all those people grow, how do you tell one person that their company is not more important than the other? Sometimes this is where the model fails and where it's a bit hard to manage. Um, but it's also why we work in this company so we can help those companies. But it's also shitty when you can't do everything that you want to do to help them.
David: 43:36 This is something I just wrote down. My interpretation of the platform, is that it represents the knowledge of founders as a whole because a company like founders shouldn't rely on the individual knowledge of that as a kind of singular model, the platform is more based the knowledge of everyone and then kind of applying it in one platform.
Talika: 44:22 Yes and no. So I think the founders platform definitely is me to finance, to marketing, to product, to getting finance knowledge. It's all there. However, if I got hit by a car tomorrow, there's nobody there to know what I've been doing. Um, so the knowledge is good to an effect, but because most of our, most of our departments are one man bands, we can put as many learnings as we can, but we also take that knowledge with us. So if I was leave founders and I had to hire someone new, I could teach them the fundamentals, but I feel like that person will be starting brand new and in their learnings as well. They have to learn what a cofounder is, and they have to learn the particulars of Simon and Stefano, what they want, and what they don't want, so I can write that down on a platform and I can share it, but I think it's only through experience of working in it that they'll really start to be able to contribute as well. David: 45:25 So the founders platform can be interpreted differently by different people.
Talika: 45:31 Yeah. So the, the knowledge that you put in the platform, depending on who's reading it, can definitely be up for misinterpretation or be taken another way. Um, so I think you, I think when we put learnings into to the platform it's, it should be kept broad and it should be kept very open and not so specific, which at the moment it's quite specific, um, but I still think it does represent the knowledge as a whole, like every department is at least covered in some basic of how to run that department. So I've written the playbook, it's like 11 million pages long on how to run a recruitment process from scratch. So if I got hit by a car, at least a new company, Simon can say this is what we think you should do. And that I think is the core of what the learnings and the platform is to be able to send it on to someone who has no idea and to be able to read it and go from there.
Appendix 6 – Participatory Observations – ’Beers and Cheers’
Beers and Cheers Meeting 1 – Friday July 20th 2018
Descriptive Information:
1. Meeting commences, with around 18 people attending. 2. Cheerful atmosphere, most people enjoying an afternoon drink as presenters from the companies Reach, Pleo and Headlight prepare to present their weekly progress and achievements. 3. Sune from Reach explains they are in the process of developing a ‘virtual consulting platform’ in which customers can seek consultation through an app by one of Reach’s professionals. If successful, Sune believes this could save time and widen the customer base, but is unsure about the financial viability of the project. 4. Simon (Founder of Headlight) explains how the company Headlight use virtual consulting on their platform, and also explains the troubles and difficulties they had when implementing it. However, the platform is working well now, and the staff at headlight are very happy with it. Simon suggest Sune and him could take a meeting to go over implementation. 5. Pleo designer Rasmus takes the lead now and presents Pleo’s performance over the last 2 weeks. Pleo exceeding all expectations in regards to customer intake, and are now preparing to move into the German market. Pleo on the lookout for a new sales team members. All attendees are asked to keep an eye out. 6. Attendees are asked by Simon if anyone else would like to present the progress of their projects. Ritu (head of LifeX) points out that LifeX has just acquired an additional 2 apartments in Copenhagen as well as expanding in Amsterdam. 7. That concludes beers and cheers for the day, duration: 48 minutes.
Reflective Information:
Being the first Beers and Cheers Meeting I have attended as a researcher, I noticed the mood of the group significantly improved in the instances where project representatives reported the successes of the projects. On the occasions where presenters put forward problems in which they were seeking guidance or suggestion from others, the mood of the group was far more serious and reflective, and I got the feeling many of the less experienced employees did not want to speak out in order to save face. It seems that the problems that some of the projects, like Reach, are facing, will be tackled with help from other Founders departments, like headlight, in the coming week via consultation with Simon.
Beers and Cheers Meeting 2 – Friday July 27th 2018
Descriptive Information:
8. Meeting commences, with around 23 people attending. 9. First point of the meeting is the recognition that Janni, one of the lead developers in the Founders core team, will be leaving Founders at the end of next month. A short presentation by Dixie (CFO) is underway, with a small video of the projects/achievements Janni has been a part of. A round of applause is given. 10. Continuing from this, Dixie has brought to the attention that the Finance department is having problems with gathering the data needed from portfolio companies for investor reporting. Portfolio companies need to provide the necessary figures and KPI’s in a more timely manner, if the finance department is to meet their deadlines for reporting. 11. Next speaker is Mads, from the company Maguru. Maguru have developed a new launch page for the company, which better integrates the features the company offers. However, there are still a few bugs in the software that Kasper, developer from the core team is working on. Maguru are searching for a financial assistant and attendees are asked for reccomendations. 12. Simon from Headlight presents the company’s new website and gives a brief overview of the company’s offerings and who the participating trial customers are. The feedback so far for the coaching platform is very positive, now with the company looking to gather as many more trial customers as possible in the Danish Market. Simon who is also a partner stresses the importance of the headlight project which has been underway for 2,5 years now in development. 13. This sees the end of the meeting, which has ended a little sooner due to celebrations to be held for Janni’s departure.
Reflective Information:
This meeting has felt a little less collaborative, being that the first half of the meeting was about Janni’s departure, which still gave a pleasant, uplifting feeling to attendees, as well as the CFO raising issues related to reporting. These two points were more one way in nature, but still generated feelings of both happiness for Janni, as well as a slightly more negative feeling from the failure of portfolio companies to meet deadlines. The presentations from Mads and Simon were very positive, as it gave, especially in the case of headlight, a feeling of togetherness on a project that not everyone has had a chance to work on. I feel that these meetings are definitely a great way for a medium sized startup studio to bring everyone in from the core team and the projects and create a feeling of togetherness, as with so many projects and departments working individually, the feeling of working for the same parent company can sometimes be lost.
Beers and Cheers Meeting 3 – Friday August 3rd 2018
Descriptive Information: 14. Meeting commences, with around 15 people attending. 15. First point of the meeting is raised by Clara, financial assistant. Clara who is responsible for the collection of expense reports and receipts from Founders employees, explains that the worst part of her job is chasing down these documents from staff who simply cannot deliver them on time. She explains that it should not be so difficult to upload these documents on the platform founders uses and feels like she is the ‘bad guy’ when pinging members of Founders for these items. Clara suggests that there are better ways of doing it, and recommends that Pleo (Founders petty cash system) can come up with ways that automate the process of collecting documents. As Simon was responsible for the current system, he questioned Clara about ways she thought it could be improved, which she responded was to trace it back to pleo, and both Simon and Clara agreed that they could work together to find a solution. This made Clara happy, as although it is not the most important job for everyone, it is an important job in her role, and a better system will make her life much easier. 16. After the relatively lengthy discussion about receipts and expense reports, two new employees are introduced – Oliver, a developer for headlight, and Jeanette also working on the headlight project. Both introduced themselves, spoke a little about the previous projects they have been a part of and then what they were going to be involved in with headlight. 17. Next to speak is Kasper, developer in Founders core team. Kasper has been working on an AI Bot project called ‘Walkie Bot’, which is designed to be used with the communication program called ‘Slack’. Kasper explains that after a failed attempt to sell the project to Slack, that the project will be put on hold, as there are other more pressing issues to be dealt with elsewhere. As Walkie Bot was quite an exciting prospect and rather successful project, it came as a shock to the others that it was temporarily closing down. 18. Final point. Sebastian, partner and head of design, is seeking developers already within the company to help design the launch page for the project called Workwell. The potential developer would be working alongside Sebastian to create a new ‘fresh’ approach for the company’s launch page. Sebastian describes the flaws of the current page and explains where he wants to take it – this generates a discussion from the different participants about their opinions for the page.
Reflective Information:
Beers and cheers today had an interesting beginning, with a long discussion between Clara, in an assistant position, and Simon, partner and project leader at Headlight. Although both are in very different positions within the company, and Clara being quite new, it was still very interesting to observe the way both Clara and Simon discussed the issues Clara was having. With the involvement also of Pleo in finding a better solution to expense reporting and receipt gathering, this felt very productive, and really hammered home the productive feeling that these meetings offer. Having a network of professionals from all areas working together to solve problems both large and small seems to be reaping benefits on this occasion. The input from Kasper about Walkie Bot is also a good way for the rest of the team who have had nothing to do with the project to feel like a part of its progress and eventual shut down.
Appendix 7 – Study Progress Description
What I have found unique in my study program at Roskilde University, compared to my education in Australia, is how involved my studies were with group work. Combining the studies of management and leadership with an intense focus on group work, I believe provided a realistic approach to working, as I believe in my career the skills I gained with collaborating with others in reaching my goals will be extremely beneficial. I feel that the course content of the Masters of Business Administration and Economics at Roskilde University is very well balanced in providing intense leadership, management and innovation theory, coupled with a limited amount of finance and accounting theory and practice. These elements of the course, I feel, coupled with the group work approach, have provided me as a student and future professional with the valuable analytical tools as well as people skills required for my future job.
In my own opinion, although the ‘hard’ analytical tools of accounting and finance (accounting and finance being my background from Australia) are very important, what I feel my education in Australia was lacking was a more in depth look into what the forces behind leadership, management, and innovation were driven by, as in order to succeed in a job, as well as in a family, is not just the ability to produce and analyze hard data, but also to be able to motivate people and foster the innovate forces within an organization. Without diving into this theory, for example of Stacey and Mintzberg, the forces behind leadership and management can be taken for granted, and what I have learnt is that having an in depth understanding of organizational theory, coupled with what I have taken form my bachelor degree and job experience, will put me on a good platform to take the next step in my career in Financial Controlling.
It is through these skills also, taken from the first three semesters of study at Roskilde University, that have helped me accomplish the completion of my Thesis paper, providing me with the theoretical backing to my paper, as well as providing me with the data collection tools used in the process. What has also been an eye opening experience throughout the course of my study here at Roskilde, is the importance of the Philosophy of Science as an approach to a research paper. In Australia, the scientific method was not so much used in research papers and tasks, so getting an understanding in both use and application was also helpful for me as a researcher to understand how to approach my own research.