Why it’s OK for startups to have platform risk
A lot of people worry about platform risk for startups. For an e-commerce company, this can mean that the vast majority of user acquisition is coming from a single channel, often Facebook. For a media company it can mean that the vast majority of users are coming from a single platform, also often Facebook. Investors or others worry that if something were to happen to that channel, then the company would be out of business. This is a reasonable fear to have, but for early stage startups, I think that it is wrong.
Startups can usually only do one thing well at a time. As a result they should focus their efforts on whatever is working best for them. For an e-commerce company, that means focusing on whatever channel is the single best scalable mechanism for cost effective customer acquisition. This is usually Facebook. That channel will often yield 80% or more of all of their new customers. This creates platform risk by definition. The only way to diversify this risk would be to divert resources to less cost effective or less scalable channels. That’s the wrong decision at an early stage.
The same thing is true for a media or social media company. There is usually one best channel for growth, that yields the vast majority of new users. This is also usually Facebook. Once again, this creates platform risk. It is hard enough to get one vector for viral growth. Once you’ve found one, you want to milk it for all that you can. Diverting resources to the very difficult task of finding a second one would be a mistake until the first growth loop starts to hit its limits.
Many startups look at later stage companies and see a diversified set of growth channels. What they don’t realize is that these channels were built one at a time, not all at once. At an early stage, if you find a scalable, repeatable vector of growth, embrace it and ride it for as long as you can. And if anyone warns you about the platform risk when you’re early and growing fast, ignore them.
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