Remember when you were a kid playing Monopoly? The more you owned, the likelier it was you’d win. Today’s markets don’t always reward that philosophy. In fact, winning is often much more about focusing on what you’re good at, which might mean you may need to own very little.
I had the pleasure of interviewing Steve Strongin, Senior Advisor at Goldman Sachs, as my guest on The XaaS Files. Steve’s written a lot about Everything-as-a-Service (XaaS), digital transformation and disruption, and how companies create value in the marketplace. We talked about many of these topics which you can read about in blogs ‘Focusing on customer value for paramount success’ and ‘3 things to consider when pivoting to XaaS and digital’. We ended our conversation by discussing how to become an agile platform player.
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Determine the right growth opportunities
Platform company success stems from determining which product suites, bundles and portfolios are best suited for your platform. There may be an entire ecosystem of partners plugging into a platform in different roles and providing various goods, services or data. These partners bring a multitude of capabilities, products, services and may even be competitive. Steve points out that Netflix sits on AWS without being worried about Amazon Prime, and Apple’s app store hosts lots of competitive offers. The company may be in a particular business because it completes their product suite, but may not be core to their strategy. But if another company comes in with a better product, they will let them in as opposed to force them out.
Platform players encourage innovation by pulling required pieces together quickly and making sure they work seamlessly for the customer. But this doesn’t necessarily mean the platforms own all of the parts. Steve notes that, “Apple – the most successful of the smartphone producers – is organized entirely around the customer experience and does not manufacture any part of the iPhone and has little to do with the actual production chain.” As Steve summarizes, “What you're demonstrating is mastery of the standardized stack. Understanding what's custom to your business and owning as thin a layer in that stack as you can. What's the part of the stack we need to control? How do we use the rest of the stack so that we don't have to put money, time or effort or confuse our clients with what we did?”
Pick the right strategy for the desired outcome
In his paper A Survivors Guide to Disruption, Steve talks at length about the differences between scale businesses and boutiques. Scale businesses gain efficiencies as they grow and derive profits from cost advantages. Boutiques have niche audiences and charge premium prices. “These two types of XaaS businesses are run very differently,” he says. “What a good scale company should do is often the exact opposite of what a good boutique should do.” They're sometimes encased in a single company, but they require very different strategies. So, it’s important to think through the right strategy to get to the desired outcome.
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“What a good scale company should do is often the exact opposite of what a good boutique should do.”
- Steve Strongin, Senior Advisor Goldman Sachs
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Make the pivot
In my day-to-day activities, the question I probably receive most often from companies considering building a platform is this: If I'm a traditional business and I want to create a platform, is it smart to try and change my whole business? Or does it make sense to create more separation between the traditional and new, where they still work together but they operate separately?
Steve falls back on the importance of knowing whether you're a boutique company or a platform. “You shouldn’t wake up one day and say I'm tired of being a boutique. I want to be a platform. That's not a successful way of approaching business. Most of the time, you can't do both. A big company may have businesses that are one or the other and be driving both. But you have to deal with each in its own structure and its own advantages. It really starts with understanding your competitive advantage.”
Ultimately it may be the best move from a valuation standpoint to separate the ‘new’ from the ‘traditional’. Steve goes into detail about the potential outcomes associated with investing in a new business in-house at a larger firm or building it on a standalone basis in his report, What the Market Pays For. It’s a great read, and I encourage you to spend some time with it when you can. I’m confident you’ll learn a lot from it. I know I did.
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