The Lean Startup Reimagined for Platforms

Building platforms with ZERO custom software

To learn how you can bring an on-demand, two-sided marketplace or content startup to market in two weeks for $15,000, read about Applico’s Platform Modeling offering.

Platform businesses require a fundamentally different approach to building & scaling. Software is integral to their success; however, it is not the primary source of value for the end user like in a SaaS business. Instead, software is an enabler for network value to be captured. As the business scales, network value becomes the primary source of value for both sets of users in a platform – consumers and producers.

As a result, the concept of building a minimal viable product (MVP) needs to be rethought. The most important thing to consider when testing the viability of a platform startup is its network effects. And, you don’t need to build custom software to test the network value available to you at launch.

Enter, the Platform Model.

If you are connecting the right consumers with the right producers and can execute a well-planned launch strategy, you should be able to capture some initial network value with very basic technology. If you can’t do this, then it’s probably because one of two reasons…either A) the timing for your idea is wrong or B) your platform’s target market of consumers and producers is ill-defined or incorrect.

Platform Modeling isn’t just for startups that don’t have a ton of investment dollars. It is also ideal for well-funded startups with tech teams. The learnings you can receive from operating your platform business with less than ideal technology products will make your MVP product feature decisions very clear to you and your team. Engineering is expensive and takes a lot of time in today’s world, even if you can launch your first product in a couple months. Imagine the additional learnings a hyper-iterative approach can yield when you can launch a business in a couple weeks. Let’s look at some examples:

Platform Models can be most easily understood in the context of service marketplaces and content platforms. Let’s use Hotel Tonight.

If you were starting Hotel Tonight in early 2011, you could create a WordPress templated website for your consumers and just launch the service in San Francisco or NYC, depending upon where your founding team was based. You could install a plugin that let you the show availability of same-night hotel bookings at steep discounts. You and your team might need to manually update the availability each day into your admin portal. Once a consumer books a hotel, you could send them a separate form to enter their credit card.

Or, you could call them to get the information over the phone. In order to keep your inventory accurate and up to date, you could let hotels email you directly with their excess inventory. Or, you could create another website which lets them submit a form indicating their inventory on a daily basis.

This system requires a lot more manual labor to facilitate the transactions. And, this system wouldn’t scale very well to multiple markets. Nor, would it scale to a point of critical mass even in one market, like NYC or SF. But, it would give you an idea of your product-market fit.

Is there enough excess inventory that hotels are willing to provide discounts that consumers are interested in? Who at the hotel is responsible for making discount decisions? Who are the consumers interested in same-day discounted hotel rooms? How much does it cost to acquire those consumers through paid-marketing channels? If these questions were answered (even partially) before investing heavily in custom software development, they would greatly reduce future redundancies or inefficiencies.

The content platform example is similar. Use Coursera, the education platform. They feature courses from around the world to educate people for free, online. They could start sourcing this content from key professors and educators with no technology interface whatsoever. Then, they need a website with a decent content-management system to host all the content they collect.

There are plenty of 3rd party modules in WordPress to facilitate that. Key questions they would look to answer would include: what consumer segments are interested in this content? College Students? High school students? Other professors? What kind of content is most interesting? What type of motivation do you need to provide to educators for them to post their education content?

Filed under: Platform Innovation | Topics: network effect, Platform Modeling, platforms