Platform Ventures Model: launching and scaling platforms without scaling middle management

You have two types of technology companies. The solution-focused tech companies and platform-focused tech companies. Solution-focused tech companies have a solution for a specific set of problems, e.g. an insurance policy and claims platform for insurers. On the other hand you have platform-focused tech companies who have a platform that can be used for many different solutions, e.g. an enterprise low-code development platform.

Platform-businesses are transformative to industries when they work, e.g. Amazon’s Web Services has transformed many industries with their cloud platform. However getting them to scale is a lot harder than solution-focused approaches. The platform ventures model is a new model to scale platforms with many advantages over the current middle management heavy approach. This blog post will use Prove Anything, a digital Web3 proof platform, as an illustrative example.

Prove Anything Corporation

Prove Anything enables anybody to create digital proof via a simple API. Digital proof can be used to prove many things from product authenticity [e.g. is that Gucci second-hand bag on eBay real], proof of ownership [e.g. is this bike stolen or not], expert skills [e.g. are you a certified electrician], genuine spare parts [e.g. is this authentic ink from the manufacturer], maintenance history [e.g. does a second-hand car have all the required maintenance visits, all by certified mechanics and with genuine parts],? to an almost infinite set of proof apps for almost any consumer, enterprise or industrial use case. This flexibility is both the biggest feature and problem for platform businesses.?

The traditional path is to aspire to become a large corporation with different business units having different products focused on different customer segments. The standard approach is to pick a low-hanging-fruit use case which can quickly show the value of the platform to customers. Several departments, i.e. marketing, product, technology, sales,... all work together on this use case. Given initial funding is scarce, everybody is focused on this solution.

As soon as this solution starts working, the company needs to make a key decision. Do they want to stay adjacent to the original use case or find a totally different use case? The easiest approach is to launch a solution which is in the same or an adjacent market. The long-term outcome is likely that the platform starts to incorporate specific solutions for the low-hanging-fruit market and is at risk of becoming less of a platform and more solution-focused business. Visionary founders normally want a generic platform so let’s assume they go for a different use case in a totally different market instead.?

People from the marketing, product, technology, sales,... departments all work together but now need to divide their time between creating a new solution and scaling the previous solution. This becomes harder to manage so two programme managers are hired, one for each use case.

Fast forward and each major use case has been converted into a business unit. Marketing is done both at the corporate level to manage the brand as well as on the business unit level. Some business units are extremely successful and pay high bonuses. Some are less successful and find it hard to attract talent inside the corporation. Complex programme management offices have been set up to deliver programmes across the corporation. Launching new business units has become harder and harder because the overall corporate structure is no longer focused on launching new businesses but on competing for RFPs and evolving products. The platform has been overloaded with features to win these RFPs and can now only be used by large and complex customer use cases.?

A more nimble platform comes along that is used by smaller companies. Those smaller companies grow and end up disrupting the corporation’s business by driving its customers out of their markets. The whole cycle starts again. Corporations are not built to keep on innovating quickly and launching solutions which can both be used by small and large companies. Think of SAP and Salesforce. Both are struggling to get traction with new disruptive small companies because their platforms have become overly complex.

Prove Anything Ventures

Let’s explore an alternative approach called the platform ventures model. In this case we do not create one large corporation but instead we separate the platform from the go-to-market. Prove Anything Ventures is a company which is focused on launching new ventures which address different customer use cases and use the underlying Prove Anything platform.??

Initially the team all works together on the first use case, e.g. home appliances. They make a solution with several apps incorporated like proof of ownership [e.g. your home insurer loves that you have all the paperwork of all your home appliances in case there is a claim], after sale support / warranty [i.e. get problems fixed quickly by quality experts and easily buy extended warranty], accessories and spare parts [i.e. that third shelf in your fridge broke, it took you three clicks to find the exact reference and order a new one], social cookbook [i.e. the thermomix community is creating and voting on new recipes each day], energy savings [i.e. your dishwasher and washing machine are integrated with your energy provider and receive which night-time hours best to switch on and not-to-use hours in case of energy shortages], subscriptions [i.e. Amazon will automatically sent salt, dishwasher tablets, rinse aid,... when you are running low, all based on your anonymous usage], other communities [i.e. even after the manufacturer stopped supporting the software in your home appliance, which often is after two years, the open source community sends security fixes. There is even an active secondary authentic replacements parts market and recycling community], and so much more.

The home appliances solution is a great hit and is transitioned into its own venture. Specific home appliances apps and features are built inside the venture while general features are added to the platform. All sales towards home appliance vendors happens inside the venture. The venture only has a small team of people that are fully dedicated to growing annual recurring revenues to $10M in the next five years. Several large corporations have tried to steal people away from the venture but given that the team has a minority stake in the venture, none of them wants to leave “their company”.???????

Three more ventures were launched six months later. One around sports, another around beauty & fashion and one around cars. During the same time 10 venture ideas were considered, some even prototyped but killed quickly because the go-to-market and the product solution were too complex.?

By creating independent ventures, employees aren’t distracted by departmental infighting, bureaucracy, an army of middle managers,... The platform receives competing requirements but everything that is shared gets prioritised and specific edge cases get resolved inside the venture. This way quickly more ventures can be added.

The ventures have several other advantages as well. Normally the founders and the first investors get extremely diluted when later stage investors come in. This is not the case with the platform ventures model because after an initial round of funding to set up the platform and ventures companies, all other ventures sell a minority stake to specific investors interested in seeing the success of the specific venture. The home appliances venture could see investors from home appliances corporate venture arms which immediately bring business as well. Similar for sports, fashion and car ventures. This setup also facilitates spinning off, selling or closing ventures. Easy to add and grow revenues as well as reduce costs.

It is easier for 10 ventures each to do $10M ARR than to create one venture which does $100M ARR because grabbing a minority market share in multiple markets is cheaper and faster than driving out incumbents and becoming the market leader. With a 10x valuation, this means that becoming a unicorn is easier. Also often enterprise and industrial ventures which respond to RFPs will need to show procurement a minimum number of revenues. By using the “group’s revenues”, these ventures can punch a lot above their weight.?

The ventures creation business can save the other ventures costs via the reuse of limited or common resources across ventures, e.g. brand marketing, HR, legal, finance,... It is even possible to create disruptive ventures which are meant to annoy an incumbent and force them to acquire a venture.

To quickly launch and grow ventures you need everybody to be aligned and collaborate. The main reasons why larger organisations become slow is that functional departments optimise their own workloads at the expense of others. Each department puts a queue in front of their people. In order to get access to one of the department's people, the head of the department often needs to agree. To get an accountant, business analyst, designer, product manager, front-end developer, back-end developer, DevOps, sales specialist, marketing expert, lawyer, support expert,... all looking at the same problem, you need to plan weeks if not months ahead.?

Inside a venture, you have one of each skill set. You can be sure that if a legal or support issue stops the venture from being able to sell, everybody will be highly motivated to stop what they are doing and help their colleagues. Sales will not sell features that cannot be delivered just to meet a quota. Developers will not cut corners on quality, expecting support to solve the mess. Different experts will understand that collaboration and understanding other people’s problems is the fastest path to success.

Ventures require a different type of leadership skills. Most corporations have Chief X Officers where the X reflects their skills and the ones of their subordinates. The Chief Financial Officer has finance experts in the team. In a venture model you bring finance, business, design, product, implementation, operations, sales, marketing,... together. You have one of each skill instead of many of the same skill. This has an immediate impact on leadership. The leader might have to deal with legal, accounting, sales, technology, support, marketing and other issues on the same day. The quality of a leader is expressed in getting everybody aligned behind a common vision and quickly executing upon it. A leader is not a leader because they have a specific number of direct reports or control a certain budget.

Will different ventures have inconsistent processes and product features? Yes, this is likely to happen. However this is an advantage, not a disadvantage. In large businesses, the “standardised process” is helping the biggest business unit(s) to consistently deliver the same quality products and services in a relatively efficient way. Unfortunately this consistency is detrimental to quickly launching new businesses inside a company. The process to vet if a sales opportunity should be pursued in a $100M long-running business unit can not be the same as in a new venture. If one group sells into financial services, another into healthcare and a last one into fashion, then the last thing you want is that regulated financial and healthcare processes get applied to the fashion business. If a platform is really versatile then cross-industry adoption should be possible. Having industry and customer specific solutions and processes, make the venture more successful. Best practices can still be shared but overly complex processes do not have to be copied and pasted.??

Is the platform ventures model completely new? No it is not. Virgin is a great example of how a cross-atlantic airline company can co-exist with financial services, telecom, health clubs, travel agencies, betting, games, a space company, and so much more. The main difference is that platform ventures all would share some common technology platform. Amazon Web Services is using a venture-like approach in which each cloud service is run by independent cross-skilled teams that are end-to-end responsible. They just are not independent companies but different higher-level services, e.g. IoT Greengrass, are built on top of lower-level services, e.g. databases, compute, data streaming,...

Conclusion

To build fast scaling and innovative organisations that can launch new businesses each month, you cannot keep on using an organisational structure which has proven that it cannot handle frequent technological and business model changes. We live in an exponentially growing technology world, full of power laws. We however organise our companies still in linear ways. No wonder that the average lifespan of an S&P 500 company has gone from 67 years in 1920 to 15 years and 75% of today’s S&P 500 will be gone by 2027. We have seen that platform businesses have disrupted many industries. It is time to adapt how we create and grow these platform businesses.

P.S. If you are interested in becoming a proveanything.com customer or investor, please reach out.