The value of aligning business model, brand values and growth
Updated: Feb 26, 2020
The concepts in this post will be relevant for most B2C firms, but a particular focus is on tech companies.
Over the past few years my focus has been in bridging the gap between business strategy and marketing execution and over the past two months I have become convinced that today more than ever this has become critical – and there is a huge opportunity for anyone who aligns their business model, their brand and their growth strategy.
Let’s do a quick review of the current landscape.
It is proven and now common knowledge that platform businesses are extremely powerful thanks to network effects – which means that more users/customers they have, the better they get.
Unfortunately, as NFX are common knowledge vs 10 or more years ago, more and more businesses are looking for them. While before a company with network effects would witness a winner take-all or winner takes most scenario, today it’s not the case. The most clear example is Uber and Lyft where in numerous cities they have reached a stale mate (marketplace equilibrium).
Similarly Netflix ,regardless of their huge success, are facing increasing competition from Amazon and Disney, while Spotify is losing market share to Apple music and Slack is losing market share to Microsoft Teams.
A platform business will almost always win against a pipeline business; network effects are still a strong economic moat, but decreasingly so.
There are four key trends here:
1. After decades of advertising, consumers are anaesthetised to it.
2. Due to numerous corporate scandals where multinationals prioritised profits over customers, consumer trust has eroded
3. VOD and digital platforms are making ads less and less viewable
4. The rise of social media means that consumers’ opinion is spread broadly and quickly. If a brand doesn’t deliver on its promises it will quickly lose the trust of its customers.
A company today needs to be true to itself, (one tweet from a single employee can go viral), and to its customers.
To be clear, having a performance marketing background has made me weary of brand marketing, but with time I have come to appreciate that a strong brand can bring significant value, well beyond simple awareness.
Most decisions we make are affected by non rational factors and brands help creating an emotional connection – this impacts price sensitivity, brand recall and product selection. So while it is entirely possible to build a viable business without a strong brand – having one makes it certainly easier in an era of high competition.
Initially “growth-hacking” was about automating certain tasks, web-scraping, or finding certain “viral loopholes” within social media platforms. These practices are either not possible now or so widely used that they fail to deliver an edge. (Don’t get me wrong they can still happen, but it’s a rarity, not something to count on).
Using a quick iterating test and learn approach across the funnel is certainly a good way to create value, but currently any activity at the top of the funnel, (read customer acquisition) is difficult as all main platforms are quite saturated (Google, facebook, Instagram, Linkedin, Youtube). Competition for paid media is high and content is overflowing. Needless to say that if we can’t feed the top of the funnel, growth will likely be slow.
Environmental/societal awareness: consumers are increasingly demanding brands to stand for something and that something should be a clear positive goal. The more the mission is aligned to a greater good, the more social currency the brand can gain. (This does not mean that every brand’ mission should be to save the world).
Blockchain + machine learning: these technologies can help generate innovative business models.
The following transformations will enhance and facilitate the value creation process of a business (particularly a marketplace):
Of course it’s not possible for all three to be always present, but they are linked and when possible their combination will be extremely powerful in terms of Growth and defensibility.
As mentioned above, network effects are losing strength as an economic moat and that’s why most big players are overlaying multiple moats to their business. They may develop features to create stickiness and lock-in, or use machine learning to enhance the service. Eventually most firms invest in building a strong brand.
Exploring the three transformations
I am aware that a marketplace is also a platform and this can be confusing, so I will start by defining the two.
Marketplace: joins demand and supply on a purely transactional basis, benefitting one side and commoditising the other (usually supply). E.g. Uber commoditising drivers or Amazon producing own brand products. Aims to reach critical mass to squeeze revenue out of supply – it often has a conflict of interest with part of its customers
Platform: creates the tools for third party to build value on. The general agreement here is that with a platform model third parties create and retain more value than the platform owner. This in turn drives significant mass of players to which third party services can be supplied, achieving network effects. The relationship between different players on the platform can be one of collaboration, competition or a mixture of both.
Platforms are created by joining a transactional engine and a learning engine.
To design this I use the PDT approach (from the Platform Design Toolkit).
A learning engine is effectively a feature that enables an exchange of information between different parties creating a community. A strong community brings the following benefits:
- Attraction: it brings people in
- Retention: people like to be part of something
- Defensibility: this can’t be imitated overnight through the deployment of capital and/or technology
The ideal platform is designed for attraction, it’s made so different parties want to be part of it, they are not on it because they can’t afford not to be. This helps avoiding what’s called “bad profit”, which are fees that customers might accept, but are regarded as high, so they will actively be looking for cheaper alternatives, thus opening a door for competition and multihoming e.g. Uber drivers also working for Lyft.
The radical shift is away from design thinking, (serving the consumer), to platform thinking, (serving the ecosystem).
In an age where people are too busy to care and too sceptical to listen, having a positive, strong and true message makes a difference.
Being a purposeful brand does not mean greenwashing. Of course when possible having a social purpose is always great, but it’s not a necessity. What matters is to stand for something of value, to work to fulfil a real need for customers in an ethical way. This approach can also help to elevate the conversations with consumers.
Vitality Insurance offers Health Insurance, but more importantly it cares about the health of its customers. Through a purposefully built app it helps customers keep fit and tracks that data to decrease the cost of the insurance policy.
Volvo wants to be associated with safety, that is why they invest heavily in R&D in this area but don’t patent most of their technology: “because safety is for everyone”.
A clear and real purpose has first of all the benefit of inspiring the team. This impacts staff retention and work quality. When this happens all decisions within a company are taken in a different way. Similarly people speak in a different way – and that terminology influences the way they work. E.g. how would Uber look like if it considered taxi drivers to be their partners?
Famous VC James Currier advises start-ups to start with language. Start by crystallising your value proposition to customers and then plan work starting from there, (rather than creating a product and then find the ways to communicate what it does).
Of course it’s harder for a marketplace to have a positive message to give to both sides of the market as it aims to commoditise one of them. An enabling platform on the other hand can leverage a positive value proposition and be aligned with the growth of all its users.
On top of this a positive message, (consistent with the value delivered), told through a well executed story telling technique, can deliver huge gains. This may sound lofty to some, but it’s actually based on scientific reasons. While crafting a great story is certainly partly an art, a rational and emotional connection will make a message stick in our brain – and that is extremely valuable.
Growth = customer acquisition + customer retention + monetisation
The three variables are highly interconnected.
Organic/viral customer acquisition is always preferred to paid customer acquisition, that’s a given. Unfortunately for many businesses it’s very hard to tap into organic/viral growth. A marketplace tends to have rather strong organic growth and retention once it reaches critical mass.
A platform, by being well aligned with the goals of its users, has the opportunity to “hire an army of entrepreneurs”, and this is the most powerful organic growth strategy a firm can have. A recent article on the Andreessen Horowitz blog talks about an interesting concept: the passion economy. Succinctly put, more and more people are working as freelancers: giving them the tools of doing what they want, reach financial security, work independently and the opportunity to even build a strong personal brand and get wide recognition, is certainly a winning value proposition.
Just three examples:
Instagram: allows content creators to become huge celebrities, with potentially huge monetisation opportunities (see influencers). In this case influencers will often “drop” their IG hashtag wherever they can; so not only they produce content for the platform, they also push the platform.
Shopify: gives business owners the SAS tools to launch an online business and to scale it. The more their businesses grow the more Shopify gains. In this case Shopify is a supplier of tools, beyond that the pushing to maximise monetisation is done by the customers, (as goals are well aligned).
Etsy: helps craftsmen monetise their work by giving them a huge shop window, that only works thanks to the scale of the offering – no single craftsman could get such interest from buyers. The pull to the platform is a strong sense of community among craftsmen.
(As you have noticed each example works slightly differently)
Paid customer acquisition ideally is used for two user cases:
- To accelerate learning in areas of testing
- To accelerate growth tactically when/where needed
In some cases, Paid and Organic Growth can both be deployed effectively at scale.
AI and Blockchain
Recently I spoke to entrepreneurs who were working to deliver services purely through an AI, thus gaining massive cost efficiencies. There is no doubt AI can scale with almost no additional marginal cost and arguably it can deliver a better service, (for some tasks this is already the case and moving forward it will be the reality for more and more jobs).
In some markets this may be a winning strategy: generally it will be the case where the service is very homogeneous. In most cases I think this is not the optimal solution.
Here it’s why:
- If you are looking to commoditise a side of the marketplace and potentially made them redundant, it will be impossible to have a true positive brand story to tell them, which will impact negatively initial growth.
- The best output is generally given by a combination of AI plus human intelligence. This goes from chess games to commercial solutions where AI enhances a worker ability (think how a stylist could make better recommendations, or a trainer could give better fitness advice).
- Human interaction will often lead to a more premium experience, in certain markets this is key as only the high value segments in those markets have real value, in an AI service world everything outside of premium experiences can be commoditised
- If the service offered is a pure AI solution, with no community/workers involved, then the likelihood is that large players (GAFA), will easily be able to offer a similar service with the advantage of vertical integration (see above the examples of Spotify, Slack and Netflix losing market share).
- Empowering “an army of entrepreneurs” is a very powerful organic growth strategy, so I would think twice before sacrificing it
The best way to predict the future is to make it. A framework I particularly like is the TMO by Mark Ventresca:
The key to successful innovation is aligning Technology, Markets and Organisation, (as in internal skills and processes). For start-ups getting the T and the O right is not that difficult, the real challenge is the market.
Often products don’t fail in the market because of their quality, (although a certain level of quality is required), but due to weak traction/distribution. DVDs were not better than Blue Ray CDs, but they became the winning format. Blue Ray’s had the initial advantage and gained more market share, but DVDs were able to strike exclusive deals with a very concentrated part of the value chain: film studios. This enabled them to corner the market.
There is a saying: first time founders care about the product, second time founders care about distribution.
Getting the market on your side should always be the number one priority. In most markets this will be a winning strategy vs cost efficiencies delivered by a fully automated, AI driven service. The hybrid approach of empowering passion workers with AI tools is a superior solution. This is because the two reinforce each other: network effects bring players on board, which generate data, and data fuels the AI solution, attracting more users, that generate more data etc. (This concept is well explained in the recent and excellent book "Competing in the age of AI", by Harvard Professors Marco Inasiti and Karim Lakhani).
As network effects are losing strength as an economic moat, (as per above landscape analysis), aligning business model, brand values and Growth strategy in the way described above has the benefit of building multiple moats:
- Network effects
- Data/AI (for enhanced quality)
- Lock/in (through data tools)
- Community (through a learning engine)
This can be further enhanced by blockchain technology, where passion workers effectively become co-owners of the platform and can be remunerated proportionally to the value they bring over time, e.g. a stylist earning money from their follower for style advice plus earning company equity for bringing in other stylists.
While there is no single receipt to success, today aligning business model, brand values and growth strategy can give firms (particularly B2C platforms), a real and sustainable competitive advantage.
If you want to have a chat about your platform design and strategy, or to generally talk about Growth, don’t hesitate to get in touch.