People are acting shocked about the Facebook Cambridge Analytica mess, but really? This could all be seen to come to pass a decade ago.
The real question is why have a small handful of companies in one remote part of the world become so dominant? Why is the rest of the world allowing themselves to play by the rules of the game of those companies?
The answer is that people who live and work in Silicon Valley and Americans in general tend to grow up on self-confidence. It’s not just Larry, Jeff, Mark and Tim but millions of business people who want to be them, and the kids coming through school.
Additionally, there really seems to be a system-level design for every era – a sort of operating system to how the world works at a particular place and time. The reality is that no one owns the design of the age, but there is a digital playbook for the age. We call that Ecosystem Economics®. Those who organise the economics of their ecosystems win; they create Network Asset Value™ not just Enterprise Value.
Platforms, Ecosystem Economics and market fit
There’s a lot of talk about platforms, and I still believe that Robin Chase’s book, Peers Inc, is the best explanation of how platforms and individuals, or as she refers to them, peers, interoperate. But there is a step between being a platform and being an Ecosystem Economics® firm.
Management teams that build Ecosystem Economics firms ask themselves a fundamental question: How should this industry work? They start with a consumer insight, and work from there. They may have to speak to the best entrepreneurs in the market to get the best insights, but they centre their businesses around those consumer insights. Those insights drive product creation; products engage with markets and either hit or miss. Product market fit happens or doesn’t. But the intersection of products and consumers will either yield profitable unit economics or not. And then they need to put that car on a highway: they need a customer acquisition route.
Example: commercial air travel
SurfAir had an insight that British Airways gold card holders would really rather escape commercial travel and fly private but that the cost was too much. They created a product which would enable one to hop skip and jump across the main airports of Europe for ~€2,000 /month in smaller jets with two pilots and twin engines, but 12 seats and escaping commercial air travel. It’s taken off – pun intended. For the uber business traveller, commercial air travel doesn’t work. As SurfAir continues to build its business, it essentially has to prove that there are enough Julie Meyer’s who will buy their membership, so that they are profitable delivering their product. Are the unit economics profitable? Is the demand there? How can they target enough Julie Meyer’s at a price point which is profitable?
Back to Larry, Tim, Jeff and Mark’s world.
Startups and entrepreneurs and venture capitalists worry about product market fit, and unit economics, but does the average CEO of a major company? No, and there’s the problem, and why a few companies in a remote part of the world are cleaning up right now and acting as if they are smarter than everyone else.
They’re not. They just have the digital playbook. But Ecosystem Economics® can be understood and applied by everyone.
Of course the investment bankers will just try to sell them companies, and the consultants will try to keep them sick, but we open source the digital playbook. We want to help both the incumbents and the challengers to figure out the design of the future not, just play by someone else’s rules of the game.
If you are a traditional retailer, bank, insurance company, transportation company, healthcare firm, the same system-level design or operating system for the world applies to you, but it’s not native to you. So you have to go to seek input and insight from those who have the code.
Follow The Entrepreneur…..
Goliaths in their quest to iterate themselves into the digital future must engage with Davids who have those consumer insights. Goliaths can scale businesses once the unit economics have been proven to be positive and profitable, but Davids have the consumer insights and test product market fit best. Together they can create Ecosystem Economics® firms which can be found anywhere.
Our investment strategy is to back Ecosystem Economics® firms, that is, digital enablers, or fast-growing enabling tech firms, who will bring digital revenues to traditional established firms that are their highways which help them to scale.
Ed Bussey’s Quill is a case in point. Quill creates content faster than any other means in any language, any style. You might think of them as an outsourced content agency but that would not get the full impact of what they do for brands and retailers. Quill transforms the balance sheets of its customers. As they create content or digital assets for retailers, what was a cost becomes an asset. The operating model of retailers improves by engaging with Quill.
Moneydashboard is another example of how a challenger brings value to the incumbent by engaging with them. Moneydashboard is a moneydashboard. You load up all of your finances – cards, loans, income sources etc, and it gives you a picture of your money. This consumer insight that individuals do actually want to be smart about their money is sound. But even more so, Moneydashboard are on to the whole macrotrend of building one’s personal economies which is the great opportunity of the era – the shift from the servitude of employment to taking charge of your life.
But banks are the Goliaths that perhaps most benefit from Moneydashboard. If banks persist in old-fashioned thinking about sharing their customers’ data with another bank, they lose. But if they start with the thinking that the consumer’s insight is always right, and they want to make the industry profitable, not just their own bank, they win. By enabling the customer to see their own data – the whole picture, they can shift from selling product to building ARPU (average revenue per user). This is a core feature of Ecosystem Economics® companies: they optimise for ARPU.
Entrepreneurs will create their own digital playbooks
There is a fight back strategy in a world dominated by Larry, Jeff, Tim and Mark. It’s called: share the digital playbook. Spoil their day. Accept that there is a design to the era, but apply it to your ecosystem and geography by asking: How should this industry work? By understanding the unit economics of the products built around new consumer insights, you can scale those products through partnerships with Goliaths and create Ecosystem Economics® firms.
You can learn more by attending the 8th annual Follow the Entrepreneur Investor Summit, this year taking place in Dubrovnik from the 7-10 October 2018. Click here to register.