Community-Powered Businesses: The future will be driven by community
Community is what Daphni is all about. Our community of 350 entrepreneurs, investors, and experts (a.k.a. Daphnipolis) is the foundation of our VC model and is accessible to our portfolio companies through our proprietary platform. This delivers a knowledge exchange and collaboration culture that accelerates our portfolio companies and enriches the conversations with our ecosystem partners.
The power of community-based models led us to back businesses like Comet, Capitain Cause, Typology, and Geev. We’re continuing our search for the next generation of community-centered or enabling models to invest in.
We asked our community of experts for insights, including Sarah Drinkwater (ex-head of Google’s London Campus, currently GP and founder of Common Magic, a micro fund Investing in products with community at their core), Joy Howard (ex-VP of Marketing in Patagonia, Nike, ex-CMO of Lyft and founder of Early-Majority), Adrian Ho (Co-founder at Hellen and Chairman of Zeus Jones and Hellen), and Anais Cisneros (Former Venture Partner at RaliCap, community-led VC, and Co-founder at Amela).
Hope you enjoy the read!
👾 First things first: What is a Community?
There’s been a lot of discussion about community-driven businesses, Ganas Ventures had a great overview here.
We love this vision and believe the following is also required. Here is Daphni’s definition of a community:
- Members who are passionate about the topic
- Organic growth
- Members engage with each other regularly
- There is a clear exchange of value between members
- There is a sense of belonging
Creating that as a business with your users/clients is very challenging, but the moment this happens, something magical gets unlocked.
“I think the bigger difference between communities is whether there’s reciprocity or if it’s just transactional. I think that’s what makes it or breaks it for a community.” — Anais Cisneros, Co-founder at Amela
The term community gets thrown around a lot, and to be clear, a community is not a WhatsApp group, a newsletter, or followers of an influencer or brand. Those are tactics and channels that can foster a community, but alone, they miss critical elements. Sarah says it best here:
“The way that I think about community is utility plus belonging. Utility is, this product helps me get something done that I need to get done. And belonging is, there’s a feeling I have around this product. I make money around it. I feel close to it. I meet other people and there’s a strong peer-to-peer connection.” — Sarah Drinkwater, GP and Founder at Common Magic
🌊 The 3 waves of community in Business
The concept of community in business has evolved over the years. First were the B2C brands, where wearing or using a product would give consumers a sense of belonging. Then came the shifts towards platforms allowing communication between people with the same interests and allowing greater exchange, with consumers becoming active community members.
Today, a third wave is happening. There are great new models with the community at their core being used to nail the go-to-market strategy (or how Patrick Woods, Co-founder at Orbiit, perfectly defined in his “Future” piece, Go-to-Community). We’ve also mapped out the rising stars that are using community to power their business.
🏍️ 📱 🥾 First Wave: Leather Jackets, vests and iPhones
Patagonia is a clear example of the power delivered by the “why” behind the brand. If you wear Patagonia, you are part of this group of people passionate about consuming sustainably and responsibly. This strategy was exploited by other strong brands such as Nike (especially Air Jordan and Converse), Apple, and Harley Davidson.
Customers inspired by the “Why” not only become users but also gain a sense of belonging to a community and become ambassadors of the brand, hoping to find people with whom they connect.
“What the logo does is it allows me to recognize you as someone who shares my values, who I’m probably gonna enjoy hanging out with, who I’m probably gonna get some good beta from”. — Joy Howard, ex VP of Marketing at Patagonia and CEO and Founder of Early-Majority
👩💻 🎮 📹 Second Wave: Community arrives in Startupland
A new generation of companies in the late 2000s/early 2010s took the concept of community even further.
Twitch (former Justin TV), a strong example of this wave, found in the gaming community their perfect ICP, although not the initially intended one. The platform fostered a sense of belonging and interaction among users, allowing them to support and interact with their favorite streamers through subscriptions and donations, transforming solitary gaming into a communal event.
GitHub followed a similar community-driven approach, offering a collaborative space for developers to share and contribute to projects. This approach propelled GitHub to become the primary platform for open-source projects, promoting co-creation and learning among developers worldwide. Even in traditional sectors, tools like Slack have redefined workplace communication, promoting enhanced collaboration and employee engagement in a more informal and effective manner.
Other second-wave legends are platforms like Discord, Reddit, and YouTube (RIP pre-ads YT).
Engaging communities was no longer a marketing move; it became the heart of these businesses. Software allowed these groups to interact and influence what businesses were building. The magical co-creation word!
PS: We wanted to give a special shoutout to Linux, the OG of open source, and the perfect example of the power of community, evolving from a project supported by global volunteers into a powerful operating system.
🎯 The Third Wave: Go-to-community and Community Enablers
Community is here to stay. The third wave is pushing for verticalization!
After seeing transversal software solutions using community for co-creation or engagement, we observe startups using community in their specific sector as the core basis for their go-to-market and distribution strategies. Additionally, community strategy has expanded outside of consumer, content, gaming and devops. Now, we can see firms building community-driven models in healthcare, financial services, and construction.
The “Go-to-Community” (GTC) or Community-led-Growth strategy focuses on nurturing and leveraging communities to create value, build trust, and enhance customer engagement/retention, thereby strengthening the overall market position and long-term success of businesses. We describe these businesses as “Community-Powered”.
There are a lot of synergies to be explored between the product-led growth concept and Community-Powered GTM. As a founder, if you are exploring a PLG strategy for your product, building and activating a community can offer a huge boost in going from 0 to 1. Thus, acquiring engaged early users who are also promoters of your solution. Figma, Miro, and Canva are great examples of the power of combining both strategies.
Following this major shift with industry leaders opting for this “Go-to-Community” model, solutions offering enabling tools to enhance community engagement can finally find a big enough market. We like to call them “Community enablers”.
“A strong “go-to-community” competency not only helps companies proactively compete in this new environment, but it also provides the framework and tools to shift from top-down to bottom-up.” — Patrick Woods, Co-Founder and CEO at Orbit
🤷♂️ Why now?
Traditional marketing strategies, driven by the sheer volume of paid ads through the same channels, are losing effectiveness. This saturation leads to cognitive overload, making consumers selective about the content they engage with. Brands now need to pivot from repetitive advertising to forming more meaningful, engaging connections.
Gen Z’s preference for community-centric platforms like Discord and Twitch, as highlighted in “The Move,”, marks a significant shift in digital consumption. 65% of Gen Z find a sense of belonging in these platforms, favoring them for their privacy and community aspects. This generation is actively engaging in micro-communities for advocacy and education, moving beyond passive content consumption.
Emerging businesses are tapping into the power of community engagement and effective communication, thriving and attracting substantial investments. These startups understand the shift towards a participatory economy, where consumers are collaborators, not just targets, aligning their strategies with the values and identities of modern consumers for more authentic engagement.
“I think there’s gonna be a whole new wave of companies coming up built on community. I think the time is now because advertising doesn’t work. It’s a very noisy world, the rise of AI content, people want to feel connected and the companies that are closest to their customer base will be more resilient.” — Sarah Drinkwater, GP and Founder at Common Magic
“The rise of a participatory internet gave rise to participatory brands and participatory media and a whole new culture of participation. We are are experiencing the same shift where a move to ownership media is giving rise to a host of ownership brands and community-oriented strategies.” — Adrian Ho, Co-founder and Chairmen at Zeus Jones
🥇 Success Stories that we love
Here are some of the businesses that are strategically using industry-specific “Go-to-community” models to disrupt their category and are taking advantage of the network effects of an engaged community:
- Chief: Professional Networking for Women (Total Raised: $140M, FY: 2019)
Chief is really making waves in the professional networking scene, particularly for women. They’ve built a community where women can really support and engage with each other, shaking up the usual networking vibe. This approach has gained them a strong and engaged member base while solving a problem usually overlooked: how do we keep and increase the number of women rising up the corporate ladder? - Hugging Face: AI Research and Collaboration (Total Raised: $395M, FY: 2016)
We believe the future of Large Language Models and AI/ML as a whole will be open-source. Hugging Face became the go-to for many of the AI/ML builders as it was community-centered from the start and now is reaping the benefit of these flywheel effects. - PowerUs: Social Work Education (Total Raised: $38M, FY: 2020) PowerUs is changing the game in blue-collar job-matching by bringing users (workers) into the mix as co-educators and researchers. This fresh approach is creating a more engaged and loyal community, something that many failed to do when working with this profile of professionals (more about this space in our previous article here).
🏆 Mapping Time! The “Community 80”
After reviewing over 500+ companies and shortlisting 300+ community-powered or community-enabling businesses, we selected the 80 best approaches to using these strategies to develop sustainable (and VC-backable) business models.
We selected 60 startups and scale-ups using community as a core Go-to-market strategy (Community-powered/Vertical) and the 20 best software products enabling communities worldwide.
Since we ranked based on their approaches in maximizing the power of community, there is a mix of more mature and younger businesses. In each section, we feature our selected ‘Rising stars,’ which are companies founded in 2019 or later that have great potential to become future winners in the categories. For the rising stars, we selected 2 of these startups from each vertical of the Community-Powered section and 6 community enablers.
If we think we missed your startup in our mapping, do not hesitate to reach out to us!
🎤 Thesis and Conviction
We are community junkies and are convinced that the startups that know how to leverage highly engaged groups will be the ones who will be able to build the strongest distribution MOATs. We can’t predict how the next community-powered multi-billion businesses will look, but we know we want to back them!
We will be looking for companies that:
- Have a passionate and engaged community as an unfair advantage in terms of Go-to-Market (lower CAC + high retention + user-centric product feedback loop)
- Build software tools enabling businesses to build + engage + monetize + track their communities
- Use communities to disrupt traditional industries that have been slower in adopting new technologies like retail, logistics, industry, and construction
- Nail co-creation
✌🏼 Conclusion
We recognize that we’re still in the early stages of uncovering the next wave of community-powered models. We’re keenly observing the industry shifts and are hungry to support entrepreneurs who share our vision. If you’re a founder working on a project that aligns with our focus on community engagement, disruption in traditional sectors, and harnessing the power of co-creation, we’d love to hear from you.
Reach out to us on our platform, and let’s explore how we can collaborate to shape the future together.
We would like to thank some people who have shared great resources on the topic and inspired us to dig even further. We think especially of Duncan MacRae, Lolita Taub, Preetish P, Patrick Woods, Shola Slick Akinrolie, and the super-rich NFX library on network effects.
