How to Design a Billion Dollar Company

By Patrick Stewart

Question: What do Airbnb, Snapchat and Uber all have in common (besides multibillion-dollar valuations)?

Answer: None of these startups directly create the value that end users consume. These companies facilitate the exchange of value between users.

Uber does not own or operate any of the cabs its riders use, but it has a valuation of $17B. Pinterest does not post any of the ‘Pins’ that refer 23% of all traffic to e-commerce sites. Vine does not create any videos, yet is the fastest growing app in the world.

This is a colossal shift from traditional business models, where a company creates a product or service and then sells it to its customers.

Some call this the sharing economy or the collaborative economy. Others refer to these businesses as marketplaces or networks. But the overarching term for all of these multisided business models is a “platform.”

Platform startups have been disrupting entire industries (like Facebook and WhatsApp with communication, Youtube with entertainment and Uber with transportation), or are innovating with the goal to disrupt and take over outdated industries (healthcare, insurance, manufacturing, finance and many more).

How Does Design Fit Into a Multisided Business Model?

Let’s start with a quick history of ‘Design Thinking’.

Design Thinking was created to be a step-by-step method to creative thinking and innovation by using a user-centered approach. Unlike analytical thinking, which is often associated with “breaking down” ideas, Design Thinking is a creative process based on the “building up” of ideas.

Design Thinking has evolved throughout the years, from Human-Centered Design focusing on customer experience, to Service Design focusing on customer journeys and touch points between a business and its customer.

Depending on who you talk to, Design Thinking generally follows a five-step approach: This process has worked very well for traditional products and services. However, designing a business that will succeed in this new economy requires us to take Design Thinking one step further. We call this Platform Design.

Platform Design isn’t about making it look pretty. It’s about nailing the experience of user-to-user interactions and making the exchange of value really, really efficient.

Is this similar to Design Thinking? Yes, but a successful multisided business needs to build for both consumers and producers. If you fail to attract either group, your platform won’t succeed. Your platform creates value to one group of users only if the other group of users is also present. The good news is that thanks to the network effects between your different user groups, you can enjoy exponential growth if you succeed in getting both sides on board.

But for Platform Design, this interdependency between user groups makes the task exponentially more complex than traditional product and service design. That’s why I say that:

Platform Design = (Design Thinking)²

What do I mean by this? To explain, let’s go through each of the steps associated with Design Thinking and see how Platform Design is different.

1. (Empathy)²  = Understand those who produce the value and those who will consume the value – and why and how they need each other

As Lean Startup pioneer Steve Blank put it: “Get out of the building and talk to customers.”

Innovation is not possible without stepping into someone else’s shoes and finding out what they see, feel and experience.

So if you’re building a platform or thinking about creating one, stop staring at this screen and start engaging with potential consumers and producers. Focus on finding groups that have some attraction to each other. Understand who needs who, and why.

Next, synthesize this information by taking it out of your head. Putting it up on a physical wall is highly recommended. This could take the form of an empathy map, or you can create user personas. Airbnb founder Brian Chesky has been “mostly homeless” since 2010. He rents Airbnb apartments while hosting other users at his apartment. This practice has helped him empathize with both renters and hosts and experience the quality of consumer-producer interactions first hand. He regularly receives insight into potential problems and pain points, which enables him to continually innovate and improve on his company’s core interaction. This approach has worked out pretty well so far. Airbnb has disrupted the hospitality industry and is now worth $10B.

2. (Define)²  = Identify the problems that exist for those who produce value and with those who will consume that value

Are there any companies (traditional or startups) that are trying to solve a similar problem? What are some common problems with existing solutions? How could they be improved?

Define the problems that you identify into clear problem statements. Figure out how your user groups interconnect and what pain points there are in their interactions. Will you be able to provide value to both consumers and producers?

Group your findings and identify patterns that you see. Bridge the gap between problems and identify commonalities between the two groups. Consider how this may have looked for Uber in the beginning.

• Accountability:
  • As a cab driver it costs me money when someone calls for my service and then doesn’t show up
  • As a cab rider it wastes my time when I call a cab but it never appears
• Supply and Demand:
  • As a cab driver I do not get paid extra to drive in hazardous conditions
  • As a cab rider I am unable to hail a cab when the weather is bad because there aren’t enough taxis to fulfill demand

By solving these problems for both drivers and riders and making it easier for them to interact, Uber has been able to create a hugely successful and rapidly growing platform business.

3. (Ideate)²  = Brainstorm solutions to solve the problems that exist for those who produce value and for those who will consume that value

This is the idea generation phase. You want to brainstorm as many ideas as possible.

For example:

• Consider who the various types of producer/consumer groups will be (college kids vs. professionals vs. ?)
• What is the value that will be exchanged?
• How can you make the exchange of value from producer to consumer to make it more seamless?
• How can you improve the quality of the value being exchanged?
• Will your solution enable producers to innovate on top of your platform?

Once you have exhausted all your solutions, start identifying which are the most feasible.  Also, start narrowing down and clarifying the core value that you want to be exchanged. Too often a startup will try and cater to too many users and offer too many things.

TaskRabbit is an example. It tries to facilitate the exchange of a number of different services and hasn’t been able to deliver a high-quality experience as a result. And now it’s starting to see a decline in users as it goes up against competitors that have more clearly defined value propositions.

Aiming to facilitate too many different interactions on your new platform and you’re destined to fail. Remember this: to build something complex you first have to build something simple. If you want to build something complex from the start, it will never work.

4. (Prototype)²  = Experiment to learn whether your solution solves the problems that exist for both consumers and producers

The goal of this phase is trial and error through rough prototyping. By creating prototypes you are able to learn often by failing quickly, and then iterate onto the next experiment. As is often stated in the design world: “A picture is worth a thousand words, and a prototype is worth a thousand pictures.”

One of the best methods for bringing platform concepts to life is to create a story, which could be in the form of a sketch or acting out a skit. Stories help put abstract ideas into a context that people understand, since stories are tangible. They inform, inspire and engage.

For example, sketch out a storyboard for producers and consumers and identify the interactions. How can these touch points be made easier and more exciting? How can the value being exchanged be of higher quality? Are there any instances of wasted interactions? A variety of basic prototypes like this will iron out a lot of these questions before you start building your platform. Airbnb is a company that lives by this. Their CPO, Joe Gebbia, describes their process well:

So how do we bridge from our script to these real world experiences? We storyboard. And we storyboard like crazy. Last year we embarked on an ambitious project to map the entire guest and host terrain of Airbnb and we did it through illustration. We looked at key emotional moments of the journey and we drew them. We visualized them. And what it’s done for us, it’s allowed our entire company to achieve a whole new level of empathy with our customers.

5. (Test)²  = Assess the desirability of the prototype from the point of view of consumers and producers

Traditionally, there are three factors that need to be analyzed when qualifying a new product or service:

• Feasibility from a technological perspective
• Viability from a business perspective
• Desirability from a human perspective

Unfortunately, the third point is often overlooked when a new product or service is launched. Businesses will spend huge sums of money to ensure that their idea is technologically feasible. And there is always someone crunching the numbers to work out whether a venture is viable and can make a profit.

But too often businesses will skimp on the human element and fail to see their platforms through the lens of their producers and consumers. They do not try and understand them and find out what is meaningful to them.

This brings us full circle back to (empathy)².

As I discussed earlier, for a multisided business, understanding its users is more important than ever. The interdependency of each user group also makes innovation even more complex since you now have to balance technological feasibility, business viability, producer desirability and consumer desirability.
As we’ve seen, entrepreneurs who are taking a human-centered approach to designing their platforms have seen enormous success. For future platforms to be successful, aspiring entrepreneurs should be doing everything they can to walk in the shoes of their producers and consumers and experience the core interaction through their eyes.

Remember that this process is different than designing a product or service for a traditional, one-sided business. You need to learn both what each user group values individually and how they relate to each other. This interdependency is key to figuring out how you can create value for both groups by bringing them together.

This task requires a new way of approaching the problem – (Design Thinking)². Only then will you understand what each group values and how you can truly delight them.

Follow Patrick on Twitter @palpatrick.

Illustrations by Applico Designer Matt Kofman

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Filed under: Platform Innovation | Topics: Airbnb, Design, Platform Startup Advisory, platform thinking, platforms