Sequencing Business Models: So You Want To Be A Platform?
The article explains that while platforms—businesses facilitating interactions between interdependent user groups—are powerful, founders often fail by trying to become platforms too early, and instead should first solve a specific problem for one user group with a "killer app," build user liquidity on that side, then gradually open the platform to other users and third parties to leverage network effects, as exemplified by companies like Slack, Airbnb, Shopify, Salesforce, and Facebook.
Many founders want to build a platform. Platforms are powerful business models, but they are also very hard to build. The most common mistake founders make is trying to become a platform too early, before they have solved a real problem for a specific set of users.
What is a Platform?
A platform is a business that enables interactions between two or more interdependent groups, usually consumers and producers. Examples include marketplaces like eBay, developer platforms like Salesforce, and social networks like Facebook. Platforms create value by facilitating exchanges and interactions between these groups.
The Sequencing Problem
The challenge is that platforms are only valuable when both sides of the market are engaged. Early on, there is a chicken-and-egg problem: why would producers join if there are no consumers, and vice versa? This is why most successful platforms start by solving a specific problem for one group first, then gradually expand to become a platform.
Sequencing to Platform
- 1.
Start with a Killer App: Most platforms start as a single product that solves a real pain point for a specific group of users. For example, Slack started as a team communication tool before opening up its platform to third-party integrations.
- 2.
Build Liquidity: Once you have a critical mass of users on one side, you can attract the other side. For example, Airbnb started by attracting hosts in a few cities, then brought in guests.
- 3.
Open the Platform: After you have both sides engaged, you can open up your platform to third parties, integrations, or new types of users. This is when network effects really kick in.
Examples
- Shopify: Started as an e-commerce store builder, then opened up to third-party app developers and theme designers.
- Salesforce: Began as a CRM product, then launched Force.com for developers to build on top of their platform.
- Facebook: Started as a social network for college students, then opened up to developers with the Facebook Platform.
Key Takeaways
- Don’t try to be a platform from day one. Start by solving a specific problem for a specific group.
- Build liquidity and engagement on one side before opening up to others.
- Sequencing your business model increases your chances of building a successful platform.
Building a platform is a marathon, not a sprint. Focus on solving real problems first, and the platform opportunity will follow.