Scaling Peaks
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Scaling Peaks

Platforms and Leverage

In my post on 21st Century Software, I talk about “ Platforms, not apps”. What is the business advantage of building platforms? In a word: leverage.

Leverage allows you to maximize returns on minimized investment. But there’s never a free lunch, as they say. You have to make an investment of capital, time, or risk in order to gain the advantages of leverage. Leverage often involves getting help from others, and you usually have to do something in return for that. In financial investing that means borrowing capital from someone else to invest more in an asset than you can afford to on your own (mortgages on our houses are the most familiar form of this), but of course you have to pay interest for that capital in return.

With a product platform, the leverage works like this: you make an upfront investment in building the platform and in exchange get outsized returns for marginal incremental investment. The product platform allows you to add new capabilities to delight customers more, or to start to delight new types of customers, at much lower cost — in money and time — than if you build and operate a brand new separate product to bring those additional capabilities to market. With decreased need for incremental investment, you can try new things out much more quickly, frequently, and cheaply, and the consequences of failure of any of these individual things goes down. Since trying things out lies at the heart of innovation, your ability to innovate goes up.

With an open platform, you can get help from others. Customers and partners add value to your platform (for example, by integrating their content and building their apps on the platform), driving increased sales and stickiness for the platform, in exchange for making it cheaper and easier for those partners to innovate and to bring their capabilities to market. Others take the innovation risk and put in the work. And since innovation is powered by trying things out, your platform can benefit at another level by having multiple partners doing similar things and letting the Darwinian forces of the market reward the best one. That moves beyond leverage to something even more powerful: optionality. It costs more (requires more investment) of course, but optionality gives you leverage on the upside plus protection on the downside. It creates an asymmetrical (“unfair”) advantage.

So if you want to generate outsized returns for low incremental investment, build a platform. If you want to maximize that leverage, go all in on it. And if you want to harness the help of others to increase leverage even further and decrease risk, make your platform open.

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Climb your mountains. Blog on business, technology, entrepreneurship, success, mindset, and getting stuff done. Exploring the blindingly obvious and the subtly unexpected.

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Philip Brittan

Philip Brittan

Philip is an entrepreneur, technologist, business leader, writer, and innovator. https://www.linkedin.com/in/pbrittan/ Blog: https://medium.com/scaling-peaks

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