The Value of Community

“The only wealth you will keep forever is the wealth you have given away.”
— Marcus Aurelius

In the business world, one of the themes of the first two decades of this century has been the value of networks and communities. Their value, in a business context, had been relatively hidden, and thus underappreciated, before the widespread adoption of the internet allowing us to be connected with anyone at any time.

Today, the importance and value of networks is well chronicled in the venture capital community. Many investors seek to deploy capital into businesses with network effects which can lead to “winner take most” outsized returns. Two people with thoughtful views on this broad topic whom I follow are James Currier and the entire a16z team through their blog posts and podcasts.

Over the last 50 years, network and community centric business models have evolved from broadcasting (Sarnoff’s law) to telecom networks and then social networks (Metcalfe’s law) to groups within broader social networks enabled by software such as Slack and Discord (Reed’s law). This graphic below, from the VC investor nfx who recently published a great piece on how networks influence all our lives, offers a good visualization of the different types of networks. It illustrates that mathematical principle of how the value (V) of each type of network is related to the connections between its nodes or endpoints (n).

A graphical representation of the value of each netwrork type as a function of the number of nodes shows how even with a small number of nodes (fewer than 10) the value of each type of network changes dramatically.

Much of the writing and thinking on networks has naturally focused on the value offered to the endpoints where the endpoints are individual consumers taking actions in their private (i.e. non-work) lives. Thus business writing and thinking on networks and communities has been targeted towards companies building social networks and consumer applications which encourage their customers to participate in communities.. We are increasingly seeing consumer businesses selling physical products build communities around those products to create greater customer loyalty and engagement. Rebecca Kaden, a partner at USV who invests in consumer businesses, describes the power of this trend at USV portfolio companies such as Dia & Co and Duolingo as well as other successful new consumer products business such as Glossier.

Reading a short blog post published by Chris Dixon in January 2015 entitled, “Come for the tool, stay for the network,” I was inspired to think about the relevance of communities and networks for B2B software businesses. The most popular incarnation of this advice in the B2B world has been to combine a software tool (SaaS for a business workflow) with enabling a transaction between two parties (a marketplace). And the ideal business model has been to monetize both elements. PointNine Capital has a good post on the “SaaS-enabled Marketplace.”

However, beyond the SaaS-enabled marketplace, there have been few B2B software businesses that have deeply leveraged the power of communities. That strikes me as a huge missed opportunity.

In the last 5 years of my career, I have witnessed a striking growth in digital communities organized by job function. These communities, mostly knitted together through Slack or Google Groups, have become really valuable virtual meeting spots to engage with our peers across the business world. We can now easily “gather” with others who have similar functional experience. And in these communities we find a “safe space” to ask questions and get valuable feedback. These communities have really revolutionized how we can uncover important business insights from trusted sources in an efficient manner.

Why are we drawn to these communities? As humans we get a lot of positive reinforcement and good feelings from community and connection. Additionally, many of us are naturally curious and driven — wanting to learn from others and apply that knowledge to solving problems in our workplace. And finally, we all enjoy giving back as well. Communities, executed well, allow for the right mix of contributing and receiving.

These valuable, functionally-oriented, digital communities remain completely separate from the software we use in the workplace. I wonder, why not combine at least some of the benefits of these communities with the software tool. A “free to use” community can be valuable to both the user/buyer of the software and to the B2B software vendor, even if the software vendor is not monetizing the community in any direct manner. Communities, executed well, provide a halo of value around and beyond the core software solution.

Many B2B companies might believe they do enough in the community space by their efforts in:

(i) Creating a space where users can supplement product FAQs and ask questions;
(ii) Organizing a product council to get customer input into the product roadmap; and,
(iii) Holding an annual user conference

Sadly, that’s scratching the surface. B2B software vendors ought to create communities that enable their users to share and receive information from each other on any relevant topic, including many with no direct benefit to the software vendor.

So, what types of communities should do I recommend that B2B software companies build?

Free to Use: Most B2B software companies sell their product in editions with additional features and functionality included as the editions get more expensive. I recommend including the community feature in all editions, including any “free”, “trial” or “POC” instances of the software. Communities are an easy way to provide value quickly to the buyer, even if onboarding the buyer and training them on the full software functionality takes a while. And, as the diagrams above show, communities become more valuable as the number of endpoints expand.

Functionally Focused: Most B2B software is sold into a particular function — Sales, Marketing, Account Management, HR, Finance etc. In our workplace lives we typically identify ourselves around a functional area, by saying “I am on the [X] team” or “I am in the [Y] org.” While that is not our only identity, in terms of workplace growth and success, we want to connect with other people in similar roles. And so communities should be functionally focused.

Seeded and Curated: Communities have value when they are seeded and curated. By this I mean:
(i) Activity is encouraged by the B2B community owner in the forms of questions or topics for the week;
(ii) Rules exist to ensure appropriate behavior/topics including no one directly selling their services and that customer service issues are addressed elsewhere; and,
(iii) Channels exist within the community for organizing dialogue.

An added value would emerge if the curator compiles and disseminates survey data based on topics that are addressed repeatedly in the community or of deep interest to the members.

Private and Secure: Make it clear that user data and anything shared in the community is never being sold to anyone or monetized in any other fashion. And, if user input is solicited for surveys, ensure that such input, once collected and analyzed, is shared back freely and anonymously to all participants.

Allow Anyone in the Buyer’s Organization to Join the Community: Unless cost is prohibitive, allow anyone in the buyer’s organization to participate in the community. Otherwise at least allow multiple participants even at the lowest software tier. It is an opportunity for learning in the functional area (and thus value) to be disseminated independent of the software product to a broad range of people beyond the core buyer or user of the software.

Store Any Content Created in the Community in an Accessible Place: When content is created that is for the benefit of the entire community, such as surveys, best practices, names of vendors solving specific problems etc., store that information in a centrally accessible place and ensure community members know it exists.

Costs and Benefits to the Software Vendors

I believe the benefits will vastly outweigh the costs over time.

The obvious costs include the cost of at least one full-time person to manage the community and the software required for its efficient functioning.

The benefits will be realized in the form of:

Higher retention rates, as a result of:

1. Value provided to community members independent of the software
2. Increased awareness and usage of the software tool, due to deeper membership in the community beyond those who use the software tool regularly
3. Faster time to value — the community offers value to the buyer even during a lengthy onboarding process

Lower customer acquisition cost, as a result of:

1. The network exerts a pull when users change jobs to come back to the tool
2. The network creates a word-of-mouth benefit

We take for granted the importance and value of communities and networks, both offline and online, in our personal lives. And, we are seeing communities grow in importance in the business world. Many businesses — startups in particular — rely increasingly upon the kindness of their functional peers in other businesses (rather than merely paid advisors) to help them address challenging problems in the workplace. I look forward to seeing B2B software company founders and product leaders go beyond merely building a workflow solution to adding a community around the software. I am confident companies doing this will increase their chances of success and achieve higher valuations.