Creating Value vs. Capturing Value in Social Mission Platforms
While creating a double sided platform that solves a social issue
Yesterday, I spoke with a group of entrepreneurs about this topic. My expertise is in creating double-sided marketplaces. I have succeeded in their creation and generated societal value for Latinos and other underrepresented groups, but I have not always been able to capture the value back to the business.
I believe that many networks will be created to solve social problems, but at its core, they will have to ask themselves the same questions. How are we making those services more sustainable? How do we create societal value and economic value without a contradiction? The answer is simple. Create something that someone, one side of the platform, or both, are willing to pay for.
Let’s start by discussing what is a platform. A platform is a business model that creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers. There are many other definitions. The most common focus is on the presence of important same-side and/or cross-side network effects between the customer groups participating on the platform: “people value it more, the more others use it”.
Both of the companies I have created, BeVisible and Wallbreakers, have assumed that the value of the platform increases if more people use it. In the case of BeVisible, a social network for Latinx and other underrepresented groups (generation y and z), more people meant more connections. In the case of Wallbreakers, more candidates mean more employers and more employers means more candidates.
What are some examples of platforms?
One example is Amazon, which connects buyers and sellers of goods in the Amazon Marketplace, while Amazon’s Kindle also connects readers with content providers. So does Apple’s iTunes. And both the iPhone and Android are a platform that connects software developers with consumers. Taxi startup Uber is also a platform. It connects drivers with customers and seamlessly handles payment when your ride is done.
Other major platforms include iOS, Android, Square, Xbox, Youtube, Wikipedia, Airbnb, Handybook, Postmates, Lyft, Etsy, Seamless, Snapchat, Kickstarter, Lending Club, Groupon, Skype, WeChat, Facebook, and Instagram.
The trick, however, is to “design” the creation of a platform. I did not do that with my first startup BeVisible. It was born out of passion and left many questions unanswered in its design. I said to myself “we will figure it out later”. Bad idea.
Here are the core questions you must ask when designing a platform (for the full article, read: https://mitsloan.mit.edu/ideas-made-to-matter/platform-strategy-explained).
What sides of the platform should be brought on board? In the case of BeVisible, I brought users or job seekers first but it took me a long time. In the case of Wallbreakers, I brought candidates first and employers immediately after, almost simultaneously.
What should be the core functionality and logic of the platform?
What rules should we adopt to govern transactions and activities within the platform?
How much freedom should we allow?
What is the pricing architecture? Exactly who should pay for access to the platform, when, and how much? Platforms normally subsidize one size, so which one should it be? Who should we charge? What should we charge for? How often should we charge?
A successful platform core creates value for customers/users on either side through network effects while allowing the platform company to maintain control over its technology and design, a necessary condition for value capture
It is really difficult to make your first business a platform. It is one of the most challenging business models to chose from.
As I mentioned, my first startup was a social media platform called BeVisible (see below for how it looked). The premise was if we attracted Latinos in the platform we will then attract companies and recruiters that did not know about them and they will be hired and have better opportunities. That was my why. But what I was not ready to accept and what my business model never assumed was that companies did not care about diversity (at that time).
While BeVisible was a great success in terms of attracting users organically, we did not charge either users or companies, because we were betting on building an audience of millions. That’s the route followed by Tinder, Airbnb, Pinterest, but to build something that millions use you have to provide them an incredible value. We provided value to our users by increasing their social capital, but the value was not so great that millions were attracted. With enough marketing, it could have reached those numbers. However, you will not have the money to make it that far when you are a first-time founder.
My second platform, Wallbreakers, is a much more intentional market place. We have been building it offline for more than a year and we are only about to launch the platform now. We created a free training for CS majors college seniors and recent graduates from underrepresented backgrounds. Like BeVisible, Wallbreakers was addressing the same demographics but we zoomed into the qualifications. After Isaac Saldana and I conducted hundreds of interviews, we found that software engineers were in high demand, diversity was gaining importance and that companies were willing to use and pay for a product that provided both.
To attract candidates, we designed a top-notch curriculum and a free 6 weeks training with top senior engineers. That worked great. That allowed us to attract companies at the same time, essentially allowing us to build a micro double-sided platform at the same time.
We thank the early adopter companies that helped us to grow by investing in our solution @Airbnb, @Visa @Joylabs @Humu, @Bonously @Pagerduty @Gusto
We then proceeded to collect data. With that data, we were able to build a machine learning algorithm that would allow us to predict faster the matches to companies. That resulted in our tech and the building of our product. That also meant that we had to move from a fee per placement to a software as a service model
This is Wallbreakers: We show the skills of software engineers to companies looking for talent and for the users we provide free training to nail the interview.
This was my first platform: lots of value for the users, but where are the paying customers?
I credit my learnings to Isaac Saldana, my business partner, and the teacher of the art of entrepreneurship. He is responsible for helping to grow to reflect back on all of this and encouraging me to get an MBA.