How can an agency measure the success of Startup Studio?

By Andrew Amann, CEO of NineTwoThree Venture Studio, a two-time Inc. 5000 fastest growing company. Andrew and his team have created more than 50 products and 14 startups.

Entrepreneurs looking to create a repeatable process to forge new businesses, generate new startup ideas, and build successful development teams are increasingly turning to the startup studio model. Rather than simply creating one startup, this approach ultimately reduces the risk associated with setting up a business and increases the likelihood of a successful startup.

Launching a startup studio works especially well if you follow the agency builder model. By establishing a digital agency to perform project work for outside companies in various business sectors, you gain essential market knowledge and an alternative source of capital.

However, measuring the success of this form of studio requires meaningful metrics that analyze various aspects of the studio’s operational efficiency. In the same way as other tech companies, tracking developer usage and productivity is becoming critical. At the same time, investment allocation and completion rate also help to track success. Basically, without the right data, any venture studio is just flying blind.

So let’s take a closer look at some of the critical metrics used to measure the efficiency, productivity, and subsequent success of a startup studio. We also look at why the desk builder approach makes sense for many studios. Use these insights to really keep your finger on the pulse of your studio’s operations. Ultimately, building a startup studio focused on achieving that holy grail of continuous improvement is the right approach.

Advantages of the Agency Builder Startup Studio Model

As a result, any startup studio that decides to operate as a desk builder enjoys a number of advantages. Perhaps the most important of these is the additional income the studio earns from working on projects for other companies in conjunction with startup incubation efforts. This crucial capital reduces the need to attract outside investors whose investments may limit the studio’s interests in the companies it forms.

Additionally, working on projects in potentially multiple business sectors broadens the level of expertise in the studio. Understanding the pain points in different industries informs the ideation process, enabling the studio to shape startups in new markets. Networking opportunities also provide a source of critical technology and leadership talent.

Finally, having third-party project work keeps the studio’s technical and project management talent utilization as high as possible. Optimizing the utilization of your teams is the real hack of the agency builder model as it allows you to develop and launch new digital products with much lower sunk costs compared to traditional startup studios.

Usage rate provides a useful insight into Studio Edits

A simple formula, the occupancy rate is a percentage that is determined by dividing the number of billable hours by the number of available hours. These calculations are usually performed for an individual employee, but can be used for a department or even the entire studio. Desk builders benefit from knowing these rates as it helps track the work done for both internal startups and external projects.

You can track usage across the studio by dividing the cost of billable work by the cost of non-billable work, such as in-house roles or unpaid startup work. The result should inform you very quickly how much of the business is allocated to monetizing for the rest of the team and provide a benchmark to ensure your rates are high enough to cover the business.

Productivity rate works together with usage rate

As a desk builder, productivity rates are analyzed in conjunction with occupancy rates to get a more accurate picture of studio operations. This formula calculates the percentage of customer work compared to the combination of startup work + SG&A costs (also known as overhead). The key difference between utilization and productivity rates is that someone can work on a project that is out of budget, meaning they are used, but not very productive.

If productivity is lower than utilization, your agency is working on free client work. Try to keep your productivity around 70% and make sure the remaining 30% is overhead rather than overruns.

Useful stats for tracking startup studio investments

In addition to understanding the overall usage and productivity of your employees and contractors, startup studios also benefit from tracking their investments in emerging startups and the studio itself. Investment allocation is a metric used for this critical purpose. At a glance, it provides data on where the unused money is being spent. Think of the investment allocation as the pot of money used to run the agency or invest in a startup.

While work for startups offers hope for future growth, it ultimately contributes less to current revenue when compared to client projects. Any startup studio acting as a desk builder needs to balance the two effectively. Compare the potential future earnings of a successful startup with current project earnings for a true representation of studio profitability, both current and future.

Finally, the realization percentage compares the total billable hours spent on client projects with the total possible hours that could have been billed if the agency had had 100% paid work. This ratio takes overhead out of the analysis and focuses on the “goods cost” ratio between customer work, startup efforts, and overruns. With this metric, studio leadership can gain insight into how the agency converts available work into short-term profitability.

Understanding these KPIs ultimately drives the success of the studio and emerging startups. In addition, don’t forget to consider the desk builder approach for your venture studio. The additional capital and market insights provide significant benefits to any studio.