Differential: 1st Year Startup Studio

by Gerard Sychay

Differential is working on a new approach to the studio model. In the next few days, we’re officially announcing details of this new model. But 1st, let’s look at where we’ve been…

For the past year or so, people have asked me what it is Differential does. At different times, I’ve answered that we are: an agency, a venture studio, a venture agency, and a product lab. We’ve also been called an incubator, an accelerator, and a seed fund. So which is it?

We can look back to our first blog post for some help. When I compare how we executed compared to that vision, we had mixed results. Strong product team with a focus on lean? Check. Strong focus on B2B? Not so much. Successful mix of service for equity plus traditional consulting? Check. Operated as a continuously operating product lab? Debatable.

If I had to describe last year in one word, that word would be: messy. As of today, we have 84 repos in our GitHub organization, if that gives you any idea of the sheer variety of projects we took on. We worked on everything from crypto-currency to coffee, all while building the culture of the company we want to work for. It was messy, for sure. I remember working one day last summer, and abruptly turning to Tim, asking: “Wait, when do we get paid?”

So What Do You Guys Do Again?

Looking back, Differential’s activities usually fell into a few high-level buckets.  Over the course of the year, we learned a lot about each type of activity. 

Services for Equity

It turns out that startups are very poor. Who knew, right? Thus, operating an agency that works almost exclusively with startup clients is quite different from operating one that performs outsourced work for big companies or even for other agencies. Turnover is very high, and a 4-6 week project is typical. 

On the plus side, the work is a lot more exciting. Work usually starts right away. No 4-hour long design meetings week after week. As it is in dating, the best part of a project is the beginning part, when the slate is clean and anything is possible. The work is great, and so are the clients.

The problem is that at best we’ll break even. So if we’re giving up a lot of money, we’d better be getting something back in return.  What we get back is the promise of a big payday, but it turns out that using our time as capital is very limiting at this volume. Differential would have to have several, big exits to see the kind of returns we’d like. So if not client work for equity, then what?

Internal Ideas

For any internal idea to have a real chance to succeed, it needs a lot of time.  Time is money in an agency, so dedicating folks for weeks and weeks on an idea that may never go anywhere is incredibly risky. However, if an idea does start to see traction, Differential has complete and total control and ownership, and can dictate where it goes from there. We’ve started many, many internal products, but are focusing all of our internal time to Assistant.io (Version 2 now live!) currently.

Professional Services

To be candid, we spend the majority of our time doing full-rate design, development, and marketing work for clients.  While this pays the bills, unfortunately, it runs at direct odds with our other operations. Why? Because the function of a services company is to continue finding bigger, longer, and more profitable contracts, and startups bring the exact opposite of those things. In true lean fashion, we’ve even validated away potential clients. 

The Differential Fund

So if we want to work with startups, without having to worry about starving, the natural path for a venture studio could be to raise a venture fund to invest in potential clients. It’s like paying for the dogfood ingredients, making the dogfood, and then eating it all ourselves.

Raising a fund is not trivial, and trying to raise a fund without prior experience and without bringing significant capital ourselves is probably not a winning idea at this point.

Hidden Option C

So where does that leave us? Taken together, a rough definition forms: 

Differential is a startup studio. In the same way that movie studios produce movies, we produce startups. This can happen by:

  • Helping startups build, market, and scale, in exchange for cash & equity.

  • Turning internal ideas into products and spinning them off into companies.

  • Investing in startups.

Listing these things helps, but it’s still feels unfocused. We need something more, and so that’s exactly what we’re doing. Differential is working on a new approach to the studio model. In the next few days, we’re officially announcing details of this new model. This new model will allow us to help startups succeed, earn good revenue & upside, and vet the very best of our own ideas. Watch this space for news, and stay tuned.

I thank my lucky stars every day I go to work for the job that I have. We have the opportunity to do some really pioneering work and in doing so, support other risk-takers, help our community win, provide for our futures, and have a lot of fun.

Thanks to Tim Metzner, Ry Walker, and Brad Kirn for reviewing and offering feedback.

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