How Network-Based Startups can be built outside the Silicon Valley
July 17, 2019 09:06
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Digiryte Team’s intense research shows that companies with aggregator platform & network-based business models are exponentially better at creating value. They are more valued than companies organised around products and services just because they develop MVP (Minimum Viable Product) or MDP (Minimum Desirable Product) faster, scale faster with high gross margins.
The business press and media tend to focus on Silicon Valley-based platforms and network-based businesses like Facebook, Linkedin, eBay, and PayPal. They not only focus their attention on them but also created a kind of perception that the great platform and network-based startups more than likely survive and succeed only in Silicon Valley. But the truth is you can harness the power of platforms and network to add value in many different ways, in many different niches and in any cities around the world, because Silicon Valley is just a mindset.
“Platforms & Networks in our Digital Age is similar to Electricity & Motors in the industrial age“
Industrial Age | Electricity & Motors | Supply Chain Model | Linear and Incremental:
In the 1930s some companies like General Electric and General Motors embraced electricity and motor as a whole and added a great value to the society. But most successful entrepreneurs took a big plunge by using electricity and motors to reinvent or pivot their existing manufacturing, transportation and construction business to create a great fortune. The conventional way of thinking about value creation is linear and incremental. A production process in the Industrial Age turned raw materials into usable products and distributed them through a highly controlled supply chain.
Digital Age | Platforms & Networks | Data Chain Model | Networked and Exponential:
The Digital way of thinking about value creation is data creation and it is networked and exponential. Both an aggregator and Network-based platform connects supply & demand and providers & users in a two-sided or multi-sided market. Unlike the Industrial Age, the value is not based on the products being manufactured, but in the volume and quality of connections being made by many at once. The value of the platform provider is not in creating the data but in promoting, fostering and strengthening the connections between the data generators.
It would have been natural and impulsive for a manufacturer in the Industrial Age to create unique division or unit to pursue an “electrical business”. Similarly, in the Information Age, many companies made the mistake of separating their “digital business” like how many industrialists took disastrous decisions to separate electricity from the motor. The reason companies make this grave mistake is because they confuse thinking and doing. Platforms & Networks are just a mental model which is similar to a business model. The following examples would offer a great insight to understand;
Hotel chains like Marriott or Hilton create value chains that deliver rooms and related services to their customers. In contrast, Airbnb creates a network that connects hosts and guests.
Retailers like Walmart and Target corporation manage a supply chain, buying and reselling their own inventory. By contrast, Alibaba and Amazon create connections between buyers and sellers by not owning any inventories.
People often get hung up on definitions of “platform” these days. A platform can be a business platform (a multi-sided market), a software platform (a cloud-based subscription service), or an engagement platform, (a user-generated community).
“What defines a platform is the ability to generate a network effect”!
Note: It is not mandatory to be based in Silicon Valley company to embrace platform and network-based model. Because Silicon Valley is just a mindset! The roadmap to build a successful platform and network-based data chain model is pretty much the same both inside and outside Silicon Valley. The essential steps are:
1. Practically validate your business idea (Concierge MVP).
2. Develop an innovative, unique and sustainable business model based on the market potential
3. Have a good co-founder and very skilful team.
4. Generate some business traction ( Establish PMF - Product Market Fit).
5. Again rework on idea and model (Iterate and reiterate).
6. Analyse project in terms of scalability, sustainability, profitability.
7. Prepare a meticulous plan and deck.
8. And then pitch for funding or find ways to bootstrap.
9. Don't be emotionally attached to the existing product.
10. Measure the data to learn swiftly to narrow down your focus and increase your chances of success! If data points you to change course, then pivot hard or go home!
As long as your chosen city for a startup even if it is small has a pool of highly skilled tech team and has necessary simple infrastructures like uninterrupted electricity and internet; platform and network-based startups could be built and bootstrapped successfully! The significant advantages of these smaller cities include; low manpower cost, cheaper real estate, and more affordable amenities. This allows young companies to do more with their limited budgets and stay bootstrapped for longer. Even if you have a top tech talent requirement and at the same time you are constrained with your budget to develop in a smaller city, still you could attract exceptional premium talent from any part of the world if you have the caliber to persuade them to join your mission!
“Today’s founders compete through knowledge. Their location no longer matters; Silicon Valley or any small city, a great company could be built with precise strategy. Period.”