The Power of Community to drive mass market scale for B2M² companies
People hate to be tricked. This is hard-coded in our DNA: we violently object to people cheating — whether it is playing online games with strangers or our best friend not paying on a bet. People have no problem ordering a $7 latte from Starbucks three times a day but will recoil in horror when presented with a $1 paid app or a site with a paid firewall for content. While it is true we have been anchored to expect content on the web to be free, a large part of this comes from the feeling of being tricked — if we pay $1 for a horrible app, we feel cheated at an apparent emotional cost that far exceeds the one buck.
The constant push for accelerated growth amplifies the challenge to connect with users. Online scams and fraud are one thing but as software and social eats traditional retail, companies are using tricks and growth hacks to get users to find, like and buy their products. A wake-up call is needed — manipulating search results through low quality SEO content, fake reviews and repetitive exposure to “call to actions” to get people to register and buy a product does not qualify as a growth hack! As I wrote in our last blog, marketers are increasingly taking a myopic approach to customer acquisition and retention at the expense of building real stories in which companies connect and build long-term relationships with their users. There is growing backlash to this — especially among millennials — whose desire for control combined with “one click and I’m gone” capability make it seamless to rebel easily against the perceived slight of trickery. This is where Facebook has received considerable backlash as it has pushed consumers and SMBs to join the platform, encouraged friends, fans and clients to friend and follow them, only to have the newsfeed overrun by ads and businesses forced to pay to play (read “trickery”). Even influencer marketing — which was supposed to represent more authentic marketing — is getting a bad name as people realize it is just another form of inauthentic performance marketing (again, read “trickery”).
Growth hackers are now considered far more valuable than brand marketers. However, true mass market scale will not be driven by digital marketing alone and simply moving from billboard branding to data-targeted clickbait marketing. The behavior and cost of the Big 4 will force companies to reduce reliance on them and aim for direct relationships, since they are increasingly producing negative results for start-ups and SMBs via high costs for advertising, taking a huge cut of the end price, or outright competition for the same clients. Facebook, Google and Amazon alone account for 50% of start-up expenses — effectively causing companies to double down on the art of NOT building a sustainable mass market brand!
Community Effects start with recognizing the need — companies must first accept it is necessary and understand that manipulation through data ignores the fact there are people on the other side of this relationship that every company should be building. The successful business-to-mass-market companies (B2M²) will find new ways to connect with customers — even before they become customers — and encourage purchase and retention through quality product, service and a sense of community. These platforms of the future will enable members of the community to be both buyer and seller, with loyalty to the platform and the benefits it provides.
Most companies use a Net Promoter Score (NPS) as a key KPI, but, often lack a focused strategy on how to both encourage and truly incentivize promoters of their brand, rather than just measure them. Referral programs, growth hacks, forced invites to friends — these can be useful tricks in the short-term but do not translate into network or community effects. Building a true community requires investment and patience and in the end provides for a better product for all, greater brand awareness and true barriers to entry for the platform. True members of a community will not only help these platforms grow with their participation but will promote them with their active “marketing” through enlightened self-interest. This authentic marketing is the gold of the coming Web 3.0 era and where platforms should devote their creativity, investment and product marketing skills.
Decentralized networks on blockchain are the idealistic version of this as they have no central authority but rely on the community itself to drive the brand. Especially in a decentralized world, brand will take on even more importance as users need to trust something. The community thus becomes the buyer, the seller and the connector and as the connector, the community should — and often must — get rewarded by direct compensation for adding value to the community and promoting the brand. This is the true promise and utility of cryptocurrency as the fuel that incentivizes trust and rewards contribution to the system among the community. It will be available as soon as the infrastructure is built. Just as every company must now have a website, Facebook page and some mobile interface, we can imagine a world where all B2M² companies will have some method to reward their community — whether via crypto or its successor forms — and measure, monitor and scale the Community Effect.
B2M² as the result of Community Effects
True business to mass market companies will thus engender community effects by combining a business offer with a community that by its very existence supports the offer. Examples in our portfolio include Harri — which is transforming Software as a Service for the hospitality industry to Talent as a Service through its Workforce OS solution; Spitball — a peer to peer marketplace for academic knowledge, effectively turning anyone into a paid teacher; and LoungeBuddy, that combines lounge-booking technology with a digital platform that enables travelers to discover, access and rate airport lounges worldwide and was just acquired by American Express — and more to be launched very soon.
We will thus focus our investment in teams leading B2M² companies — B2C, SMB Tech and Platforms — that are underpinned by a passion and ability to achieve mass market growth through community effects — via the use of brand marketing, great UI and UX, true relationship-building with potential customers and most of all innovative models to encourage and incentivize the community to support the product and service. These are the brands of the future and entrepreneurs and investors must be patient and willing to invest for the long-term in their brand to build a loyal community. As with most things in life, patience and discipline will be rewarded!
Stay tuned for our next post which will detail how we evaluate investments with our “4 questions” methodology.