Recently I came across an article by Mr. Michael Blanding regarding above. It is based on Harvard business school case study and it was a very interesting read. We always wonder how giants were, when they were still a young business. What would have been reactions from prospective business partners, investors? How did they scale up?
There are many questions and learning from these companies for all start ups, SMEs which hope to make it big some day. It is always interesting to know and focus on value you create in the whole chain and how it is monetized.
Here is summary for all to ponder and use in your own spheres:
1. Define a starting point:
“When you have a two-sided platform, you have to acquire both the customers and the services,” says Harvard Business School’s Thales Teixeira, Lumry Family Associate Professor of Business Administration.
From the beginning, it was clear to the founders of apartment-sharing site Airbnb that they’d need to find people willing to list their homes before finding people interesting in staying in them.
“If you don’t have a supply of houses and apartments, people are not going to come,” says Teixeira.
Key is we may not have resources to work on both simultaneously. For example As Teixeira reports in a new HBS case, Airbnb, Etsy, Uber: Acquiring the First Thousand Customers, all three platforms concentrated on getting the service side of the equation first, customers second.
2. Think like a customer :
What is the problem that we are trying to solve? How is the same need being addressed today? These are some key questions to answer...For eg for Uber existing options was cabs.
Once we know these options it is easier to target the same set of customers allowing us to reduce costs and time.
3. Create a better experience:
“The first time a person goes on Airbnb, they are comparing the quality of photos to hotels that take glamorized shots,” says Teixeira. “They needed to compete at that level.”
In order to do that, Chesky and Gebbia did something that would never be scalable: hired professional photographers to go to property owners’ homes to take inviting pictures.
The gambit worked, making the site much more attractive than the competition, and setting a standard for photography that later property owners rose to match in order to compete against other homes.
“The underlying principle of this is you should help your suppliers portray themselves in the best way possible, even if that is not scalable,” concludes Teixeira. “If you don’t have customers, there is nothing to scale.”
4. Sequencing is everything:
Product, location, timing ... all are critical starting points the sequence to grow to next level is very important part of the business plan.
Uber and Airbnb were also smart about how they chose to expand, picking the right cities at the right time to maximize their success.
Since Uber’s main competition was taxi cab companies, the startup researched which cities had the biggest discrepancy between supply and demand for taxis. They then launched during times when that demand was likely to be the highest, for example during the holidays when people tend to stay out late partying. It also ran promotions during large concerts or sporting events, when big crowds of people all needed cabs at the same time, and an individual might be more likely to take a chance on an unfamiliar company named Uber.
5. Scaling up the operations:
It is most likely that most of the systems used by companies in first year of operations are not suitable as operations grow. It is equally true about acquiring new customers as well.
In each case the strategies are different. While word-of-mouth might work for the first thousand it’s not going to get you to a million. “You have to be more proactive and control the acquisition process, which word-of-mouth does not allow for.”
That’s where digital marketing can help, allowing companies to target specific customers through search ads or social media at a low cost.
“Some tools are better for the beginning, some are better when you are bigger,” says Teixeira. “It’s not about, should I use digital marketing or word-of-mouth or TV ads. The question only makes sense when you say, ‘I am at this stage, what approach should I take?’ Only when you answer that question will you know what tool is most appropriate.”
I believe the principles are applicable for all SMEs and a lot to learn from success stories like this.
All comments /feedback is welcome.