When I began my physical studies [in Munich in 1874] and sought
advice from my venerable teacher Philipp von Jolly… he portrayed to
me physics as a highly developed, almost fully matured science…- A lecture by Max Planck in 1924, Sci. Am, Feb 1996 p.10
When real life hits Monday morning, it’s easy to be caught up by imminent deadlines & KPIs. Indeed, those are critical managing functions for established & stable businesses. Companies can even do good analytics & feeling very good at “data-driven”. Only they tend to be backward-looking. They are just too good to deal with a linear future. Unfortunately, they almost always shed light on the wrong spots for new ventures. On the other hand, non-linear changes are much messy, but may create an asymmetric payback. So what could be better mindsets for the next new ventures? Let’s try 3 mental models: Platformization, Subscription & The Front Door.
New Value Creation Platform
“Create More Than You Consume
If you want to be successful in business (in life, actually), you have to create more than you consume. Your goal should be to create value for everyone you interact with. Any business that doesn’t create value for those it touches, even if it appears successful on the surface, isn’t long for this world. It’s on the way out.”-Jeff Bezos, Amazon 2020 Letter to Shareholders
The 1st mental trick is platformization. Even it won’t be easy to be “the platform for X”, the payback is huge because of the power of the value network. For example, Youtube is the user-created video sharing platform, Uber is the crowd-taxi service platform, & AirBnB is the crowd-accommodation service platform, etc.
Today with accelerating digitization & 5G commoditization, the universe is the limit. Your users will be a valuable asset when you consider them as prosumers instead of consumers. Let’s scrape 2 surfaces for examples.
- Prosumers can explicitly create content. For example, Roblox is becoming the kid-created gaming & social platform. Also, so much digital stuff may be created by prosumers. They just need a platform to make it easier & facilitate interactions between creators & consumers.
- Prosumers can also implicitly generate data, which takes better personalization to a whole new level, powered by ML, a new way SW is eating the world. For example, TikTok recommends videos for you automatically. Spending records enables more effective personal credit assessment. Which makes new forms of personalized credit services possible, such as Buy-Now-Pay-Later — Affirm: The Morality of Money. Driving patterns can take usage-based insurance to a new high…
As you adapt to the Platformization mindset, you will see a new dimension in terms of value network instead of the value chain, and then opportunities to Redefine Business Boundaries will be a bit more obvious. In short:
- When you apply new technology, you reduce the cost & time to serve.
- When you use new data, you provide better personalized experience at scale.
- When you encapsulated all complexity in a platform, you create a new value universe for more people.
Subscription
But still, how may I create a sustainable business? “Car software isn’t a part, it’s a product.” as a wise leader recently said. Which inspires the 2nd trick, more generally: Subscription isn’t a sale, it’s a service.
The business used to be easy as customers pay to buy SW products, e.g. MS Office, Adobe Photoshop & Oracle/SAP CRM systems. Sure, there is customer service. But it’s mostly a cost function to sell the product. However today, everyone offers a subscription service, such as Microsoft 365, Creative Cloud & Salesforce, aka Software as a Service (SaaS).
Many even raise because they focus on the subscription service only early. For example, Salesforce is leading with a 48.4% CRM market share in 2020 even against all old gods such as Oracle & SAP. But 22 years ago, no one in silicon valley/the Sand Hill Road would give Salesforce any money. Luckily, Marc Benioff, the co-founder has rich friends/angles to found his “craze” idea.
So when you want to go for a smarter car or whatever new venture, why not level up your business model by exploring new opportunities with the lens of subscription service early. And when you do, challenge yourself: What Customers Want from Your Products & What Business You Are Really In. Just like Theodore Levitt, a Harvard Business professor suggested: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”
The Front Door
How may we compete with giants? The short answer is you don’t, at least not at the beginning nor at their games. Instead, you should focus on your target users & community to be their “front door” to solutions in 2 steps.
1. Focus on your “minority”
When you focus & care more on the specific groups of users & unique problem circumstances, you can see the over-served, under-served & no-served needs better, aka Focus strategies.
Your goal should be providing “new drills” to serve them better. By focusing & leveraging new tech., you can be better, cheaper & quicker. For example: Now Twitch is the go-to live streaming service for gamers despite YouTube is still a king of video streaming & Facebook is still a king of the social network.
2. Open more doors
As long as you serve the target users well, they will keep coming back to you. You can then expand to adjacent opportunities for new users and new engagements. This is typically an organic process instead of a big bang. Indeed, if you don’t build, they have no way to come. The hard part is building right because even drivers used to believe they want “faster horses”. Therefore, in the valley people have no shame on failing fast & even celebrate Spectacular Failures.
As you build toward a critical mass, the community may start to “abuse” the platform with nice surprises, e.g. sleep streaming is trending on Twitch. Even such “features” are rarely planned, you can create an arena for them to emerge. With more users on your side, the network effect is on your side & you can ask more interesting questions, such as: What’s Your “Super App” Strategy?
The Innovators & Early Adopters are your first priority. And if you serve them well, they’ll be your good salesperson & guide you to the next doors.
Full Disclosure
The opinions stated here are my own, not those of my company. They are mostly extrapolations from public information. I don’t have insider knowledge of those companies, nor a whatever expert.
