Get Your Platform Shoes On

Finding a business model that scales is increasingly important in the modern world.

What does that mean, and how do we do it?

First of all, scaling. I'm using scaling in the broadest sense. In my definition, it's a case of where revenues per unit grow faster than cost per unit. An example would be; say I need 2 programmers and 3 web servers to make 1,000 online sales a day. If I do 10 times as many sales, I don't want to spend 10 times as much on programmers and servers. So instead of 20 programmers and 30 servers, maybe I can do it with 3 programmers and 4 web servers. The cost of doing business gets more efficient the more volume I add.

This is a particularly important concept for tech-media companies, because often in a start-up mode they are running at a loss. They are still investable businesses though because if the sales and marketing bring the volumes, not only do you get to a point where the company starts to break even, but the growth in profitability thereafter is extremely impressive.

Secondly, the modern world. Increasingly we are seeing business models that transcend borders. They can be run primarily from one central location with small local teams for international presence. Not just in tech (Google, Facebook, Amazon, eBay), but also in telephony (Vodafone, Orange, Nokia, HTC), consumer electronics (Sony, Samsung, Apple) and supermarkets (Wal-Mart/Asda, Carrefour, Tesco). A business model that scales has a huge advantage over one that doesn't when competing on world stage.

So, if scale is important to compete in the modern world, how should we think about business investments into this environment?

I always ask myself, "is this a platform business?"

If the answer is yes, I'm interested. If no, you'll need to work hard to get my interest.

A platform. Not 1970's funky shoes, but a prism through which to view to judge almost any business investment.

A platform is a place where supply and demand are aggregated. Lots of buyers connect to lots of sellers through a central marketplace or hub.

There are platforms all around you.

iTunes: Hundreds of millions of music consumers connected to almost every music publisher
Google: Millions of searchers connected to millions of advertisers
eBay: Millions of private sellers connected to millions of buyers
And there's more... Autotrader, Match.com, Amazon - and of course Livebookings (my day job) - where we connect millions of diners to thousands of restaurants.

These are all platforms. The more supply you add, the more interesting you are to buyers. The more buyers you can provide access to (consumers), the more interesting you are to sellers. You gain market power - because the owner of the marketplace can charge people for attending the marketplace and for transactions that happen in the marketplace.

In any business model like this, the potential is exciting. The keys to success are; seeding the platform with sufficient product to get consumers interested, have a diminishing cost of sale by adding more inventory over time and having inherent viral effects that customers create more customers. That's all about execution. Having a great idea is one thing - doing it is always harder.

To get past that "is this a good idea?" phase, I always ask myself, "does this solve a real need", "is this a platform" and "will it scale?".

Then - I get my platform shoes on - and go for a boogie.