HitchHiker's Guide to — The Platform Opportunity
Or how to identify a platform when you come across one - Part 2 of 2
In the last post Platforms vs Point Solutions, we spoke about what platforms are, different ways to go about creating a platform, and the dynamics of competing against platforms as a point solution.
Today, we’ll take a stab at the Platform First approach. To qualify, this is not a product management conversation. It’s beyond it and more a company-focused approach.
In our view, the building blocks for this include the following:
The Right Team
Speed of Execution
Right Starting Point
And a clear “Why Now.”
The Right Team
We won’t really go into the Founder Market Fit aspect (you can find it covered here, here, and here)
Source: HowtoSaaS
Speed of Execution
Now Speed of Execution is very interesting and nuanced, where (our) words won’t do it justice.
We are at a time when software has become fairly modularized. There are playbooks for scaling, identifying the right architecture, etc., and most importantly, selling as an unknown vendor is easier now than 10 years ago. In this environment, being ahead of the competition is very crucial, and we believe Speed of Execution is a function of having the right leaders with the right team-building experience.
And the tacks need to change for different times. Work Chronicles below represented one of the most common scenarios.
We digress, but would strongly recommend reading this post on Wartime CEO v/s Peacetime CEO by the good folks at The Ken
Coming to what we want to cover in this post, the Right Starting Point, and “Why Now.”
The Right Starting Point
So what is the right starting point?
Companies that end up successfully fulfilling their vision get this part right. They start with the right feature/use case to build from; you’d generally hear this called the “wedge.” This could look like a tool/use case to manage new complexity.
An example of this would be Hashicorp building an entire suite of cloud management tooling platform starting with Terraform, which decreased the complexity of provisioning resources on the cloud or Databricks building an entire data science platform through their start with Apache Spark, which made it much easier to process large amounts of data.
Take an example of 2 companies with the same skill and experience starting at the same time and trying to disrupt an industry. But what’s different in this case is that they start with completely different approaches.
The way it usually pans out is that in the end state, they will probably converge on each other, see Snowflake and Databricks. We take this particular example since both are clearly moving toward each other, but the story hasn’t played out.
Another example of different starting points to a platform where the story hasn’t played out is Deel vs Rippling which are coming for Workday’s HRMS suite (or more if you ask some people)
In a lot of cases, the story plays out, and there only remains one. Because the other didn’t have the right starting point. Evernote is probably an example that comes to mind. While Evernote still exists (we believe), multiple companies came after the workflow it provided. Notion would be one contemporary example.
The other key point is that of Why now?
Starting at the wrong time either marries you to the wrong approach (one interesting thread from here is the classic first mover’s advantage, a contentious topic, which we will probably tackle some other day) or does not get the flywheel effects since your customers don’t know how to leverage your product/platform effectively — For example, AI companies that have been there from 2013 but might now see themselves competed out by their 1-2-year-old competitors.
Source: Avichal Garg
Coming back to the main theme, one of them has the platformization opportunity open to them while the other doesn’t.
So what makes a solution a better platform opportunity?
It goes without saying that what we’ve covered, the right starting point, is crucial.
But a few other things stand out as the best platform opportunity. Now these might not be applicable to everyone, but most will have one of these as a common factor.
Being embedded in mission-critical workflows
The same buyer for the additional modules
Network effects — Snowflake and how they are leveraging data sharing
User experience — a user is more likely to recommend a use case if they’ve had a great experience with the vendor for something else
More use cases for no additional implementation hassles
Platformization is not a winner take all in B2B as it is in B2C — Google in search and Amazon in online retail for their dominance over long periods but it is still advantageous
Some interesting platform approaches adopted by Big Tech companies
Cloud Marketplaces by Public cloud platforms where new software is sold within the ecosystem
Snowflake’s Data Collaboration product
Cloudflare’s effort to become the 4th public cloud
ServiceNow adding all enterprise workflows (adding employee and customer workflows to its IT workflow flagship product)
All this is not to say that point solutions cannot be successful.
Calendly is a good case study.
One has to look at Calendly, which in 2021 crossed $100M in revenues at a $3-4B valuation. Of course, things have changed now, but its success has continued to a large extent. And it hasn’t been disrupted to a large extent.
For the analysts out there
Bringing this all together, the platform opportunity is the most lucrative one out there.
A great Point of View to identify them would be to start with these 3 questions:
Why now?
Is it the right starting approach?
How well are they embedded into the workflow?
While this could be a fairly basic representation and heavily focused on SaaS businesses, the key laws that govern this are universal.
This is a particularly interesting time to use this framework to evaluate the sudden explosion of AI-led/AI-native businesses propping up everywhere. With a major asterisk of course that there are always founders out there who break the norms!
We would love to chat with folks who’ve thought deeper about this as well as folks who have thought about this in the context of other industries!
You can reach out to us at deepthought@fortytwo.vc, or any of us individually (Asutosh, Dhruv, Dishan) and discuss/brainstorm in detail.