When you start anything, you don't expect it to fail. That's precisely why you start it. However, we also know that most startups fail. We are involved at a really early stage of a startup, when it is just an idea. The probability of failure is high as there are many possible points of failure.
One reason that we create multiple companies is that we don't expect all of our companies to be successful. We are improving the probability of success through the creation of multiple companies.
Some people argue that you improve the chances of success by focusing. We don't believe this to be true. There are so many factors that need to be right before you achieve success and some of these are just out of our control. Bill Gross recently stated that timing is the main reason behind the success of startups that he has been involved in, which is something that is very difficult to predict.
In creating a portfolio of companies, a question to answer is how many companies should be in the portfolio. Obviously resources are limited, especially when we get intimately involved in the initial stages of the company.
We have decided this number to be 5 for now. There is no science behind how we decided on 5. It just got to a point where we are unable to handle any more till we get more people involved. We are however continuing early stage explorations of ideas. If one of these ideas becomes viable, we may have more companies.
Is 5 good enough to increase the chances of success?
A typical venture capital investor can invest into more companies due to the reduced involvement in each company as compared to a startup studio. Their chances of success are therefore improved and hence, to account for greater failures, it makes sense for VCs to invest into the companies that can potentially return higher on their investments.
As the number of companies are fewer for a startup studio, we have deliberately sought a balance with the types of companies that we start. While we start companies like Mirakel and Homebakee which are riskier and profitability takes a longer period of time, we balance that with companies like Dlab and Lifestyle where we expect to get to profitability more quickly. Even though we believe that we can get to profitability more quickly with companies like Dlab and Lifestyle, it doesn't mean that we don't explore potential high return projects in these companies. Our aim is to start with a focus on profitability and then utilize the profits to explore the higher return projects.
In summary, do we expect all of our companies to be successful? We don't. However, we also do not take on significant risks with all of the companies. We balance the risk with some companies that can get to profitability quickly and utilize the profits to explore high return projects.