Business 101 Series For Entrepreneurs

Business 101 – 3: Focus area?

The next step after understanding the entry points into establishing a business setting is to ask yourself what do you want to build first?

I will discuss the following models:

  • Platform first
  • Capability first
  • Product/Service first
  • Network first

There might come more later on, but this is a good first framework. What does it mean?

Platform first

The platform first stems from the idea that you can generate a billion of potential products that all employ the same components they are build on. Enabling efficient channel management, payment services, user record, market data analytics, etc.

The idea is close to what Rocket Internet did. Everything you do in the beginning is monetizing the build of a superior platform that fuels your future product development capabilities.

This is a mix of R&D, operational excellence first that is meant to drive execution and cost of market entry into highly competitive waters. It is lending more towards enabling product companies and creating large portfolios of standardized products. It is not suited for a highly specialized, massive opportunity product.

As a platform first business, you monetize the building of a state of the art payment processor with a state of the art marketing engine and state of the art etc. as you roll out smaller products that merely monetize the capability built-up around the platform. The resulting platform feeds into all new product areas and is something like a hub.

Capability first

Similar to platform. but different. This time it is not about finding a way to finance a core component that can be used to scale many business models, but it is about creating leadership in a particular capability. AWS managed the IaaS capability as part of its strategy to monetize infrastructure, product and client relationships seperately and decoupling it. There are companies specialized in building massive networks of websites that provide product information and comparison to be found by people searching for these products to place changes in ratings and recommendations to auction of revenues to the people whose products are compared. That is a SEO capability par excellence. There are companies that build fully automed, A.I.-driven end-to-end platforms around customer experience. There are companies striving for leadship in product design. And so forth. Capability first implies you are thinking that you will have to compete in a strong industry that requires capability and strength in your capability.

A block chain holding company that leverage access to the crypocurrency market and builds crypto-currencies out of nothing in no time is one more example. And data center management / DevOps company is another example.

This is more like a suppliers market game where the capabilities you create are attacking existing suppliers to your envisioned product portfolio of the future. It is a periphery-to-core strategy as opposed to the core-to-periphery model in the product first scenario.

The capability first approach monetizes capabilities on a stand alone basis and uses the customer network and competitive analysis to identify the true strength of the capability on a stand-alone basis. The capabilities then become spokes to the platform or product business and provide services to the non-capability-first elements of the organization.

Product first

Product first companies are the typical start-ups that get financed. They focus on a particlar problem in the market, solve it with a product and market the product to market. They are winners if they take the market first, build a defensible position and their market position is a good foundation to attack other industries and vertical companies. That is by definition a disruptive product company.

The product first company makes it harder to switch into new segments, the mandate is more clearly bound to a particular product and the result is more visible, making it more open to attacks by new companies and competitors once it is caught monetizing the market.

Network first

The network first attempts to attack the stakeholders around the company first. The door-opening networks, the lobby and political arena plays. Something similar as coming from a specialized nieche consulting firm with strong industry network and access to regulatory bodies that then decides to platformize a product acquisition and buy and build strategy. It is not something a product company will focus on or pull off. It is more likely a strategy that precedes a capability first business as the capability first business uses the networks and ecosystems around those capabilities to identify the attack spots on the supply chain in the capability.

This strategy is maybe best and easiest understood by looking at a traveling business man in the first half of the 19th century. Traveling between the US, China and Europe to establish the network needed to build a global trading and supply chain company is a classic network first play. A more modern approach that you can see is people building start-up networks and ecosystems to potentially create investment funds and using this to build a buy and hold strategy. The network becomes the gatekeeper to opportunity detection and execution.

Revisiting 101.2

It is clear that the dry cleaning successor planning problem is that of a product company. The franchise business is classic platform play. And building an MVP to create a new market out of nothing is in essence more a capability first approach than a product first approach. The whole product will emerge slowly around the capability to get massive numbres of users and learning how to monetize it. The capability here is to use product design and value propositions to generate user bases. The buy and hold strategy was primarily a network strategy.

 

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