How do you start a platform startup?

You’ve looked at Facebook. You’ve studied Linkedin and its strategy for capturing market share. You’ve also seen Whatsapp and its formula for becoming the messaging app for hundreds of millions of users.

You’ve got an idea that has the potential to be the next platform. The question is how to convert it to the next billion-dollar and billion-user solution.

I assume you’re already aware that the barriers to entry in a platform startup are extremely low. Here are a few considerations that you need to keep in mind when you start a platform startup.

A technology backbone helps. Even if you’re planning a platform startup, having a technology provides you (and your investors, but we’ll get to this in a subsequent blog) with a competitive advantage. Perhaps the technology provides a stronger backend, perhaps it increases security, or maybe it stops competitors from blatantly copying you. It may also help by owning a technology critical to your platform, since you don’t want to be kept hostage by having someone else owning the technology that you’ve based your platform on.

Own one customer, own one segment. The most dangerous platforms are those where the startup thinks that they are relevant for everyone everywhere. Even Facebook started with addressing gaps in one tiny group (rating girls at Harvard). They then went to other ivy league institutions and became a social network only for those institutions. The question you have to address is who what your customer is, and what your focus segment is. It’s fine if it’s small. In fact, it’s preferable. But it’s key that you own it.

How secure is your client information? A platform is all about instilling trust in your users. A platform implies that users will populate it. Showcasing security of the platform, or even hosting (and talking about) information being hosted at client site will add security of client info, at a time when the automatic credibility and trust associated with using your platform has yet to be established.

Who pays? Depending on where your platform originates, this may be an important question or something that needs to be addressed at some future point in time (perhaps by another management team). If you’re based in Silicon Valley, your investors may have deep pockets and a greater motivation to create a platform since this is where there is an opportunity to create 1000X returns. If you’re in a more conservative region of the world (read ‘everywhere else’), the immediate revenue and customer references play a more important role.

How to get there? To get a platform off the ground, your have to address the key question of whether the platform helps people to make money, save money or improve their quality of life. A B2B platform is easier to get off the ground, however pervasive the technology potential. This is because other businesses help get users onboard. It is also easier to convince corporates of the value in saving money.

Platform challenges? When you start talking to companies, you may realise that their information platform don’t talk to yours, or to each other for that matter. This is definitely a challenge, but if this is systemic, it can be a real opportunity. In fact, the opportunity to get information from clients to work on a same platform where it talks to each other is a much lower hanging fruit than getting them to start using the value-add created via your platform. It is also an excellent way to get companies onboard.

An example is the facility design in manufacturing facilities. Conventional CAD systems don’t recognise the visual information relating to pipes that carry liquids, gases and wiring, inherent in any factory. If your solution is able to integrate interior layout systems and the pipe-based systems, this addresses a current need. The current need that you address also becomes your marketing channel. It also becomes much easier to push incremental value in a platform if it collates info from different platforms to begin with. Cisco began this way.

In summary, a platform startup can be viable if you have the key ducks lined in a row. With initial traction in a defined beachhead, it is not only easier to scale to others but also have target investors call you.