Pure Storage’s CEO on Choosing the Right Time for an IPO


Winni Wintermeyer.


The Pure Storage IPO, in October 2015, was the culmination of a long process. The company was six years old and had completed six rounds of private funding. Pure had nearly 1,200 employees, and its annualized revenue was nearly $500 million. We’d waited longer and grown larger than many start-ups do before going public. We could have done it a year or so earlier, and there were risks in waiting: By the time we finally listed on the New York Stock Exchange, the IPO market had cooled—in fact, some companies pulled their offerings in the face of market weakness.

But in retrospect, the timing worked out, and we wouldn’t change it if we could.

For a young growth company, figuring out when to go public is complex—and the conventional wisdom (along with some steps in the process) has changed significantly in recent years. Companies often face pressure from multiple stakeholders—employees, customers, investors—who want liquidity sooner rather than later. At the same time, some start-ups are coming to realize that staying private longer may have significant advantages.

Here’s how we approached the choice.

Beyond Mechanical Storage

Pure was founded in 2009 with the intention of disrupting the market for enterprise computer storage. That is a large market: $24 billion in software and hardware. But Moore’s law—the notion that the power of integrated circuits doubles every two years—hasn’t played out in the storage business, which has been dominated by mechanical disk drives. Servers and networks, the other big data-center components, have become a thousand times faster over the years—but information slows to a crawl when it hits disk-based storage. Most enterprise storage systems are built on 25-year-old technology that’s insanely complicated—some storage products have 2,000-page instruction manuals.

Two technologies are revolutionizing the field: flash memory and cloud storage. The former has been around for 30 years; consumers began seeing it in the 1990s in digital cameras. But flash didn’t catch on in a big way until Apple started to use it in iPods so that songs wouldn’t skip if you went jogging, the way they would with a mechanical drive. Google had already begun using flash memory in its data centers, because the performance, power, and density are superior to those of disk-based storage. After Apple introduced the first flash-based iPod, chip suppliers began producing more flash memory, and costs came down. Then smartphones began using flash, smaller laptops shifted to solid-state drives (another name for flash memory), and people began using flash-based thumb drives.






Pure introduced flash storage products for data centers. The value proposition is compelling: Our product is the size of three pizza boxes, replacing equipment the size of a Sub-Zero refrigerator, and it’s 10 times as power-efficient, 50 times as reliable, and 20 times as fast as disk-based storage. Once the costs became equivalent, it was a no-brainer, driving our triple-digit revenue growth.

The cloud is the other breakthrough storage solution. Amazon helped popularize cloud storage, which has succeeded largely because of its simplicity. Our cloud solutions for data centers are simple too: We’ve been able to replace giant user manuals with instructions that fit on a business card. It’s really about creating a more customer-friendly technology experience. Apple, Google, and Facebook have done that on the consumer side, and we’re starting to see the same kind of innovation in enterprise technology.

I arrived at Pure as CEO a year after the company launched, when it had just 15 employees. I have a PhD in computer science, and I’d helped build three previous start-ups. I’d held CTO, marketing, and product management roles, and I’d been on corporate boards; I knew how to create technology-driven strategy. But I’d never been a CEO before, and I’d never led a company through an IPO. Pure had already completed two venture-financing rounds before I arrived, however, and it was clear to me that we had a product customers would want. By 2011 we were hearing from companies that were interested in buying us.

Better to Wait

In theory, we could have gone public in 2013. We were certainly big enough—by that point we had tens of millions of dollars in revenue. But we saw reasons to wait.

One was that Sarbanes-Oxley has made it more expensive to be a public company. And although other companies were interested in acquiring us, we wanted Pure to be a long-term play; as a small public company, we would find it harder to fend off M&A interest than if we stayed private and maintained control. But the biggest reason stemmed from the precedents set by Google and Facebook, which both stayed private much longer than venture-backed companies have historically. (Google was nearly six years old at its IPO, and Facebook was eight, whereas Netscape went public 16 months after its founding.) The delay worked out extremely well for both companies, and it drove a change in the conventional wisdom. Companies used to do an IPO as soon as they possibly could; now many choose to wait.

A couple of things were driving us to go public, however. For one, our customers encouraged us; many of them prefer to do business with a publicly traded company. They want to be able to see your financials and to understand how your business is doing. They know that public companies are subjected to a higher level of scrutiny. It gives them a sense of security and trust.


The precedents set by Google and Facebook changed the conventional wisdom.


The other thing was valuation. Private companies’ valuations have skyrocketed in recent years—and that has created complications when coupled with a wary public market. No one wants to go public at a valuation below the last private round. As we approached our financing, we tried to create win-win situations; I believe that the job of the CEO is not to aim for the highest possible valuation every time you seek financing but instead to craft a fair deal with investors who will be good advisers. Going public would let us avoid another private round, one at a valuation we couldn’t match with our IPO.

Preparation and Luck

After I arrived at Pure, we did two more venture rounds and then two rounds of private funding led by Fidelity and T. Rowe Price, mutual fund companies that ordinarily invest in public companies. This form of financing is relatively new and is the result of Facebook and other companies’ delaying their IPOs. Mutual fund portfolio managers missed some of the growth of such companies because they couldn’t invest before the IPO, so they’ve started making private placements. That’s advantageous for everyone. The funds get in on a period of higher growth, and they also get intelligence on what’s happening in an industry. We were able to build a relationship with important public-market investors; not only were they great sources of advice in the time leading up to our IPO, but we expected that they would remain big investors afterward. This new source of investment allows companies like ours to stay private longer.

We also took steps to give our employees flexibility with their Pure shares. It can be easier to retain employees when a company is private, because they’re waiting for the liquidity that comes with the IPO—they don’t want to leave before they can cash in stock options. At the same time, that may create pressure to do an IPO early. To avoid that pressure, we gave employees selective liquidity when we did our financing rounds. They could liquidate a certain percentage of their vested shares while providing a source of supply for institutional investors. More companies are allowing their workers to diversify their portfolios in this way, especially as they stay private longer.

We had to get ready to go public. The first step was to expand the board. We had strong directors, including our VCs, but we needed to add people with operating experience at large companies. In particular, we wanted someone with finance experience at a publicly traded company to chair our audit committee; we brought in Mark Garrett, the CFO at Adobe Systems, to fill the role. We needed a relationship with an investment bank, and we were fortunate to be working with Allen & Company, which handled our fifth and sixth private rounds. We created a two-class structure for our stock, to help the founders and the management team maintain control if a hostile buyer tried to acquire us. Finally, we needed the right chief financial officer. In 2014 we hired Tim Riitters, a former Google finance exec, who helped us put in new systems to give us the better visibility into our financial performance that we’d need to operate in the public markets.




By early 2015 it was clear that we had all the pieces in place. During our last private round, in 2014, the business had been valued at more than $3 billion. I couldn’t see any advantage to doing another private round, so we began planning for the IPO. But a key consideration is that once you start the process, you can become vulnerable. When you file an S-1 with the SEC disclosing your IPO plans, you enter a “quiet period,” with strict limits on what you may say publicly. If you’re in a competitive space, as we are, you run the risk that competitors will spread “fear, uncertainty, and doubt” at a time when you can’t easily respond. Our business is a frontal assault on established storage companies such as EMC and HP (now Hewlett Packard Enterprise). But as it turned out, our timing was fortunate: In the months surrounding our IPO, Dell agreed to buy EMC, and HP announced its plan to split into two companies, which meant that key competitors were distracted by internal events.

The Long Game

In a speech in early 2016, the chair of the Securities and Exchange Commission, Mary Jo White, criticized some companies for staying private too long.


She argued that a company goes public not only to raise capital but to “shed light on its operations and strengthen its controls and governance in ways not required of private companies,” and she questioned whether some large private companies are doing those things.

I understand her point of view. As a business scales, it needs to build out its governance and financial controls—and once those things are in place, why wouldn’t you go public? Staying private longer, as we chose to do at Pure, has advantages, but we never aimed to be private in perpetuity. Our goal was always to build a sustainable public company.

We weren’t trying to time the market. There were headwinds in the IPO market when we decided to move, but we were confident that we had the numbers to go public at a time of our choosing. And we weren’t trying to optimize for stock price—we’re playing a long game. One of the things I tell our team is that if I see a stock ticker on your computer, I’m going to delete it. We want people thinking about the stock price over quarters and years, not hours or days or weeks. Markets don’t always get it right in the short term, but they do get it right in the long term.

Every CEO worries about the economic climate. While we waited to go public, we definitely saw a deterioration in market receptivity to IPOs. You just try to keep the ball rolling, complete all the steps to be ready, and hit while the IPO window is open. Not every company gets it right: At least five that had planned to do an IPO around the time we did ended up delaying or pulling out.

We went public at a share price of $17 and an overall valuation of just over $3 billion. Since then our stock price has fluctuated—a reflection of the turbulent market rather than any negative surprises at Pure. We’re still reporting losses, but we’ve been able to make the case to investors that when you look at our growth rate, improving margins, and increasing operating efficiency, you see that this is a very healthy business. Pure is one of the fastest-growing enterprise technology companies the world has ever seen. We have to invest to maintain that—which is one reason that doing our IPO when we did made sense. [Harvard Business Review]

October 28, 2016 / by / in , , , , ,
Your Startup’s Competitive Advantage



Startups fail when they run out of money. Startups run out of money when they lack focus. Without a maniacal focus on serving customer needs in a unique way, startups can flounder amidst competition. Without product market fit, the business is challenged to generate strong metrics and faces fundraising challenges. That’s why it’s critical to identify and focus on your startup’s competitive advantage.

Most of the time, start up competitive advantages fallen to five categories: product, cost, positioning, distribution and execution.

Product improvements are common startup differentiators. A better chat experience; a data modeling layer for data analysis, near-instant transcription of expenses. All of these innovations are product innovations that cause users to switch to a new product. Product advantages can be replicated by competitors given enough time, but they often last several years or more.

Cost is another competitive advantage when a new business understands how to minimize their costs relative to competitors. Amazon Web Services can offer low prices on infrastructure because of their scale, similar to their initial e-commerce business. This pricing advantage is created by economies of scale, and once a leader emerges, it’s very expensive to for others to catch up. Price advantages are more common when hardware or manufacturing are involved, because these types of expenses can be reduced at scale. Most software businesses costs are dominated by salary and very few businesses can outcompete their challengers by paying their employees substantially less.

Positioning is a more amorphous competitive advantage but can be just as powerful as the rest. A premium brand versus a value brand: which is your startup? Responsys positioned itself as a premium email marketing company with an ACV of $250k+. In contrast, Marketo’s ACV was roughly $26k and ConstantContact $265 (dollars). Each of these businesses ultimately exited for more than $1B.

Another component of brand is category creation. By developing a brand that resonates with customers, that creates a category, and that sufficiently differentiates a business from its competitors, a startup can create a lasting competitive advantage. Gainsight is synonymous with customer success and Intercom for customer communication.

Distribution advantages don’t come around very often. It could be the dawn of search engine marketing, mobile app store distribution, enterprise apps or distribution, relationships with a key distribution channel, or novel marketing tactic. Dropbox refer-a-friend. Zendesk’s community and referral marketing effort. relationship with a national bank. Xero courting accountants to acquire businesses. Distribution advantages place a startup’s product in front of customers in a scalable, cost-effective way that is difficult to replicate.

Execution is a competitive advantage when the team is uniquely qualified to pursue and opportunity. David Duffield founded and ran PeopleSoft before starting Workday, a SaaS disruptor to an incumbent whose business he understood better than anybody else. Because after all he had built it.

To be successful, a startup needs only one or two of these competitive differentiators to succeed. Trying to do all five increases the complexity and execution of the business. Consistently, the startups that differentiate based upon the founders’ strengths (product, marketing, partnerships, expertise)are the ones with stronger competitive advantages. Pick one or two for your business and focus on those.

[Tomasz Tunguz]

October 27, 2016 / by / in , , , , ,
Collaborating Online Is Sometimes Better than Face-to-Face




If you’re embracing online collaboration as a necessary evil — the only way to work with an increasingly dispersed team of global or remote workers, for example — then you’re doing it wrong. Online collaboration is not a second-best substitute for face-to-face work: It’s a complement with its own perks and benefits.

Yes, knitting your team together with online communication tools like Yammer and Slack can help you mitigate the disruptive impact of people working from home instead of at the office. Yes, team-oriented project management tools like Basecamp can help with the coordination challenges of working with teams that are spread out around the world instead of around the building. And yes, sharing knowledge with wikis or Evernote, or co-authoring via Google Drive, are handy options when you can’t simply pass a document to the person down the hall.

But if all you’re asking from online collaboration is for the magic of working face-to-face, you’re doomed to frustration. After all, we know that there are unique benefits to working in a shared location (like the creative power of spontaneous interactions) or talking in person (like tapping into non-verbal communication). And even the best telepresence facilities or in-house social networks can’t replace what we lose when we stop working side-by-side or face-to-face.

But in many circumstances, online collaboration is actually preferable to in-person collaboration. Focusing on what online collaboration can do uniquely well will allow you to realize its benefits — and to identify the particular kinds of projects, tasks, and teams that stand to gain by working together online.

Online collaboration, like most digital phenomena, is good at solving very specific kinds of problems: time problems, distance problems and communication problems. By solving time problems it creates the benefit of 24/7 production cycles; by solving distance problems it enables newly diverse teams; and by solving communication problems it lets us work together in ways that tap into a broader set of skills and capacities. When we use online collaboration to support tasks and projects that specifically leverage these distinctive benefits, we go beyond treating online collaboration as a band-aid for the problem of dispersed teams and use it to actually move our work and our organizations forward.

Take the virtue of 24/7 production cycles — arguably the most widely recognized benefit of online collaboration. When you’re working with a virtual team, you can finish your workday at 5:00 or 6:00, send your work product or question to a colleague in another time zone, and have an answer or next step in the process waiting by the time you’re back at your desk in the morning.

Just as valuable, your own workday can be more action-packed: instead of waiting for the meeting or call that can address your question or provide that missing piece of information, you can reach out to a colleague with an instant message or email – or better yet, find an answer yourself by accessing an internal wiki or knowledge base.

When you’re working on a team or project that involves discrete tasks, defined knowledge sets, and dependencies you’re in a great position to take advantage of the 24/7 benefits of online collaboration. If you’re working on a project that requires you to pass the baton to a colleague in order to move a project forward, or where you’ll be dependent on a colleague’s input or task completion in order to get your own work done, you may be better off working with a dispersed team than with the colleagues down the hall. And if the kind of input you need from colleagues takes the form of black-and-white answers or common knowledge that can be shared online, you’ll work more efficiently when people share information electronically and on demand rather than intermittently and face-to-face.

The ability to convene diverse teams is another benefit of online collaboration – one that works hand-in-glove with 24/7 production if you’re leading a global team that works together across time zones. But the diversity enabled by online collaboration goes beyond the simple (but powerful) ability to source team members from around the world. Online collaboration also makes it easier to pull in people and resources from other organizations, and to tap into emergent forms of on-demand labor like Fiverr, oDesk and Elance.

This approach has greatest value to projects that require specific skills or expertise, and to tackling problems that require a fresh perspective. If you’re trying to reach a customer base that’s previously eluded you, or aiming to introduce a product that represents a major departure from your past offerings, you’ll benefit from a team that represents your target buyer or that can think about your business, message, or products in new ways. If you’re working on a deliverable or innovation that requires highly specialized skills – skills that don’t exist in your own company – the ability to diversify your product team will pay off with a better outcome or product. By tapping into a more diverse range of skills and expertise in a global labor marketplace, you’ll be able to get a better outcome by working virtually than you could hope to achieve by working within your own team or organization.

That means that instead of relying on your in-house designer, you can go to a designer with expertise in the particular kind of product you’re creating. Instead of turning to the same people you’ve worked with on your past five projects, you can bring together a team that will approach your problem with fresh eyes, and bring new ideas to the table. Instead of making do with the range of professional skills that are present in your own office or organization, you can tap into a global network of professionals and find the particular person you need for this project.

A final benefit of online collaboration is the ability to accommodate a wider range of communication and working styles. If you’re the kind of person who always speaks up in meetings (guilty as charged), the traditional workplace may work just great for you. But you’re missing out on the perspective and talents of people who like to mull on a problem before contributing, or that of people who communicate better visually or in writing than they do out loud.

The ability to support a range of working and communication styles is particularly helpful to complex projects that need the engagement of both right- and left-brain thinkers. If you’re working on a narrowly defined problem that falls within a specific field or area of expertise, you’ll be just fine with a homogeneous group sitting around the table; if you’re tackling something larger or more ambiguous, you’ll benefit from online collaboration that taps into a more eclectic group of contributors and thinking styles.

You’ll get the greatest payoff from online collaboration if you make use of an eclectic range of collaboration tools that support a diversity of working and communication styles. Mix online PowerPoint presentations with collaborative written docs in Google Drive; use virtual mindmapping tools like Lucidchart and Mindmeister to encourage contributions from people who think visually, and use online project management tools like Basecamp to support team members who need clear tasks and milestones.

Approaching online collaboration as a distinctive way of working – and one that offers unique benefits – lets us get beyond using online collaboration as a substitute for face-to-face collaboration, and seeing it constantly fall short. Instead, we need to treat online and in-person collaboration as complementary ways of working, suited to different contexts and problems. When we embrace online collaboration as a powerful way of working in its own right, we’ll stop mourning the end of the traditional office, and start tapping the potential of a 24/7, diverse, and flexible workplace. [Harvard Business Review]

October 27, 2016 / by / in , , , , ,
Why No One Uses the Corporate Social Network



Imagine an organization that is completely digitally connected. Colleagues connect seamlessly with each other across silos and across the globe. Management has its finger on the pulse of the company, aware of every crisis-induced quickening. And throughout the organization there is a deep sense of connection to the purpose and mission of the organization, and to each other, breaking down hierarchies in the process.

Snap! Leaders – it’s time to wake up from this fairy tale. This is the world spun by people pushing collaboration platforms and enterprise social networks as the panacea to our collaboration woes. The reality is that the landscape is littered with failed technology deployments. Altimeter’s research shows that less than half of the enterprise collaboration tools installed have many employees using them regularly (see figure below).




I recently spoke with the leadership team of a top Silicon Valley technology firm that had installed an internal enterprise collaboration platform for its employee engagement and collaboration efforts. After an initial spike in adoption, usage slowly dwindled. It was a disappointing outcome and they wanted to know how to fix it, or if they should maybe just toss it out and invest in a new platform.

As I stood in front of the executive team I posed an opening question: “How many of you have been on the platform in the past week?”

Only a single hand went up – the administrator of the platform.

The problem was simple and obvious – because the top executives didn’t see collaboration and engagement as a good use of their time, employees quickly learned that they shouldn’t either.

Our research shows that leadership participation is crucial for collaboration. Leaders know they should engage with employees, especially via digital and social channels. But they don’t, and they offer a string of common excuses such as “I don’t have enough time” or “Nobody cares what I had for lunch.” More than anything else, they fear that engaging will close the power distance between them and their employees, thereby lessening their ability to command and control.

Here are three ways for leaders to take the first steps to becoming what I call an engaged leader – a person who is confident extending their leadership through and deeply into digital channels.

1. Listen at scale. At Red Robin, a chain of over 450 casual restaurants, Chris Laping, the CIO and senior vice president of business transformation, spearheaded the company-wide implementation of Yammer, an enterprise social network. When the chain launched its Pig Out Burger in 2012, employees posted that the new menu item was getting panned by customers. Reviews flooded in and were funneled to executives and to the test kitchens at headquarters. “Managers started talking on Yammer about ways to tweak the Pig Out recipe and four weeks later we had an improved, kitchen-tested version to roll out to customers,” Laping shared. “That’s a process that would have taken 12 to 18 months before.”

Laping and many other executives have realized that the simple act of listening—and letting colleagues know that they are being heard—is the first crucial step to meaningful collaboration. Determine who you want to listen to based on where collaboration would be most useful to your organization: who are they, what are their biggest pain points, what information do you need to make key decisions? In this case, the collaboration tool could be any sort of feedback mechanism—a bulletin board or even an email inbox is better than no feedback loop. The key is that you, as a leader, need to be on the other end, eager and open to learn and listen.

2. Share to shape. Rosemary Turner, the president of UPS North California District, has a major problem—when her team of 17,000 people are doing a good job they don’t see much of each other. That’s because her people are in trucks, on loading docks, or making sales calls. To keep people connected, Turner uses Twitter because it’s a platform that UPS employees are already comfortable with. Turner uses Twitter to share updates such as “Stay away from the Bay Bridge—there’s an accident” and so on. She also uses it to recognize employees, posing with them in pictures and sharing them online.

Because of how easily she shares in social channels, her people trust her. What’s more, this dovetails with the wider “open-door policy” at UPS, whereby employees, customers, and vendors are encouraged to maintain an open dialogue with company leadership. She shared, “I am finding that when I send out a blast on Twitter, I get just as much if not more reaction than if I send out a survey internally.” Turner’s approach to sharing enables employees to reach her anytime—thereby achieving her goals as well as the larger corporate mandate for openness.

To get started with sharing, identify the platform your employees are already using. Then think of a story you can tell there that will inspire someone to take action toward achieving a key objective. You could share the highlights of a customer conversation or a news article that reinforces a strategic decision. As a leader, the key is to start collecting and sharing in order to shape specific outcomes. While it’s true that no one really cares what you had for lunch, they are keenly interested in what you discussed over lunch. Rather than expecting employees to guess what’s important to you, now you can tell them, easily, with stories and pictures on the digital channels they already use.

3. Engage to transform. David Thodey, the CEO of Telstra, the largest telecommunications company in Australia, wanted to make it crystal clear that he was serious about using the organization’s enterprise social network for business. So he used it to ask, “What processes and technologies should we eliminate?” The question received over 700 responses within the first hour, and gave Thodey an immediate and intimate look into what wasn’t working at Telstra. But more importantly, Thodey and his executive team used the platform for the follow-up discussion, signaling that they were serious about creating a dialog to make making meaningful decisions in digital channels. By being responsive and closing the loop digitally, Thodey demonstrated that employee participation made a difference.

Employees are smart—they won’t waste their time on stunts that are purely for show. Think about the types of engagements you want to have in digital channels—with whom, about what, and when. Engaging to transform is the capstone step in the journey to becoming an engaged leader. It involves listening and sharing (both are integral parts of engagement) and interacting with followers in a thoughtful way, either at scale or one-to-one. This is part of what makes engagement precious—it has tremendous meaning for the people with whom a leader chooses to engage. It is a tool, therefore, that should be used wisely and intentionally. If it becomes commonplace, it may lose its value.

Collaboration depends on trust, and it’s crucial for leaders to learn how to do this in the digital era. The tools themselves matter less than the ability of leaders to describe the intent and purpose of the tools. Simply putting a technology platform in place won’t suffice—you must think through how the organization will change and how you will lead it into and through that change. Unless you have a magic wand, the fairy tale world of collaboration won’t happen simply because you plug in a technology. But you have something better—a leadership vision, strategic objectives, and the passion to guide your organization through the changes ahead. Rely on these foundational leadership skills and learn to extend them into the digital world. If you can do that, then collaboration will find its place in your organization.

[Harvard Business Review]

October 27, 2016 / by / in , , , , ,
What Harvard Business School Has Learned About Online Collaboration From HBX




In June 2014, Harvard Business School launched HBX, its new online education initiative. At the time, the norm, increasingly, in many online courses was to create a “lean back”, individualized experience where students would primarily watch streamed video lectures that centered on experts. Stimulating lectures with star professors, perhaps, but lectures nonetheless — with a passive, individualized learner experience. We wanted to change that.

To that end, we designed a program that would:

  • Focus on solving real-world business problems. Videos capturing real managers discussing real problems would anchor the course offerings, to help students understand the applicability of even the most abstract and esoteric concepts.
  • Encourage active learning. Students would engage with the material in “lean forward” mode, rather than passively watching video lectures. Students would not spend more than 3-5 minutes on the platform before being required to interact with the material.
  • Foster social and collaborative learning. Students would engage meaningfully and regularly with others on the platform. We believed that such collaborative learning would not only make it more engaging, but would draw participants more deeply into a process of discovery.

Here are some of the most important things we’ve learned since launching HBX, as it relates to creating a social, collaborative experience online:

Collaboration doesn’t occur in a vacuum. An important premise behind our efforts was that students must first know each other before they can engage with each other. To do this, we helped participants “meet” virtually: everyone was required to first submit a personal picture and complete a publicly viewable profile before they could view any course content. This simple requirement had meaningful results: on the first day of the program, everyone who uploaded personal profiles viewed the profile information of, on average, 40 other participants. Typical online courses showcase course materials on the first page; we showcased the students and their locations around the world. This simple modification created the conditions for engaging collaboration later on.

Incentives matter. Collaboration doesn’t just occur by getting people together. You need to trigger it. To do this, we tied participation and online collaboration to course grades. Students responded. More than half asked a question of others, and roughly 75% answered others’ questions at some point during the program. In comparison, most discussion boards in online courses might follow a typical power rule: estimates are that less than 10% of participants are responsible for over 90% of contributions, while the rest barely engage (We are grateful to Professor Andrew Ho for this data).

Collaboration doesn’t require large incentives, though. Ours were framed in terms of requiring a “basic level” of participation — after which the momentum of the process itself took over.

Fruitful collaboration comes as much from asking questions as it does from answering them. We rewarded both. We even encouraged students to categorize the type of question they were asking — rudimentary, esoteric, abstract, practical, and so on — effectively giving them license to ask questions on a broad set of issues related to a learning topic.

Capability, commitment, and continuity are important to collaboration. Effective collaboration requires participant capability, commitment, and continuity. When we assemble teams in the workplace, it’s rarely a random assortment of persons. The same principle holds online.

To judge candidates’ capability and commitment, we required everyone to submit an application for HBX CORe, our first program (denoting the Credential of Readiness) which was comprised of three courses: Business Analytics, Economics for Managers, and Financial Accounting. In addition to requesting past academic information, the application required each candidate to write an essay. There’s no doubt that the product’s price also played a role in selecting people who would be committed — it cost $1,500 per participant, for a program that was spread over 10 weeks and required 10-15 hours of work per week. (Financial aid was also available for those in need.)

Two of our design principles were also critical to fostering ongoing collaboration. First, we set out to create an engaging experience, platform, and curriculum. Second, we required “rough synchronization” in CORe. Specifically, we released material and set module due dates to ensure that participants were roughly synchronized with others. Thus, although participants were given flexibility for when they completed course materials between deadlines, all participants were required to meet module deadlines. This approach ensured that participants were never more than a few days ahead of or behind other participants. Online courses are increasingly gravitating towards greater flexibility, asynchronization, and “non-linear” personalized pathways through a course. Flexibility is desirable; but shared experiences trigger peer conversations and collaboration.

Our selection, motivation, and design choices affected the “stickiness” of the learner cohort from week to week — and, as a result, affected ongoing collaboration. If large numbers of participants do not engage or have poor quality participation, conversation with, and learning from, peers would suffer. In contrast, participants in HBX CORe reported enthusiasm at learning from their peers, some reporting spending more time on non-required peer-help discussions than on the required components of the course.

These findings are relevant to completion rates in online courses. There may be good reasons not to over-emphasize such metrics. But when drop-out rates exceed 90% (as they do on average), conversation and collaboration will inevitably be undermined.

Norms of online collaboration can be shaped. Online interactions typically go one of three ways: they never take off at all, they get better over time, or they converge to the “lowest common denominator”. One sees this on many websites too: uncivil or disrespectful comments drive out good ones. Other times, however, it’s the reverse. But which outcome occurs need not be left to chance. Online norms can be shaped, too. At the program outset, we tried to actively encourage certain behaviors, to discourage others, and to clarify standards for online conversation. We encouraged participants to disagree with others — but to do it with respect. Rude, uncivil, or arrogant behaviors were not welcome. Those who violated these and other policies faced warnings, and possibly expulsion from the program.

The biggest benefit to being clear about norms at the outset is that, once you’ve created the broad conditions and expectations, students end up monitoring each other. We saw this on our platform on several occasions. In the words of game theorist Tom Schelling, one often just needs a focal point to coordinate behaviors around. Leave it to chance, and you could be unpleasantly surprised.

Social learning can substitute for expert knowledge. Most education — even online education — is based on the belief that experts drive learning. This may be true when it comes to creating the content (indeed, each of our courses was created over several months, painstakingly, by a team of faculty and course associates). But it’s not the case when it comes to the student’s understanding of the material, learner retention, or learning by discovery. Have the expert intervene too early, and it can crowd out discovery.

Social learning was one the major bets we made at HBX. It also yielded some of our most profound learnings. When students asked a question on the platform, we resisted the urge to jump in, instead leaving it to peers to do so. When students struggled with a concept, we resisted (even more) the urge to jump in and correct the group, but relied on peers to do so. The results were remarkable (and somewhat humbling if you’re an expert): in more than 90% of cases, questions were precisely and accurately answered by the peer group. One of our HBX CORe students had previously been the head teaching assistant (TA) for one of the most popular MOOCs (massive open online courses). He noted that a typical approach to intervention in online courses was to amass larger numbers of TAs, so that some “expert” was ready to intervene quickly on any question as it arose. One unintended consequence? “Soon, everyone expected the TA’s to answer questions. No one took it upon themselves to do so.”

“Trust the students,” we preach in our classrooms. It’s one of the hardest axioms to follow. The temptation for an expert, or a teacher, is to help at the first sign of confusion. But letting it simmer can aid learner discovery. Indeed, the power of collaboration comes when you trust the group so that they are strongly encouraged — forced, even — to resolve problems on their own. Let an expert intervene, and you could undermine collaboration itself.

Online collaboration can overcome certain biases and behaviors that arise in face-to-face environments. Clearly there are advantages in face-to-face interaction. You can engage more; it’s personal; it’s real. However, online collaboration also offers certain advantages. The lack of face-to-face interaction might help overcome certain biases and behaviors that arise — often unintentionally — in our traditional classrooms.

One of the salient differences we discovered concerned gender. In our first cohort of participants, women were more likely to both ask questions of others and to answer others’ questions — nearly twice as likely as men. Higher female participation online is the opposite of what we typically encounter in our residential classrooms. These outcomes merit a far deeper exploration of what drives these differences, and biases, and even whether they persist in different settings.

So what are the results of the first HBX CORe program? Completion rates, student satisfaction, and engagement are the most common metrics used to evaluate online courses. In these respects, the results were notable. The completion rate — typically in single digits for MOOCs — was just over 85% for HBX CORe. Satisfaction scores were high too: 80-90% of participants rated the program content and teaching either a 4 or 5 on a 5-point scale. Engagement with course materials and with peers was extremely high — all participants completing the program regularly submitted analyses and reflections via required participation, and a majority of participants participated in content discussions with peers. Similar numbers are being seen in follow-on versions of the CORe program offered by HBX.

These were some of the most important things we’ve learned and discovered in our first HBX CORe program. There were others too. Make it fun, for example. And, make the groups as diverse as possible, because diversity creates the conditions for students to listen more carefully to others (perhaps there’s something you don’t know that others will) and fosters a greater willingness to learn. We are exploring these differences, and others, in ongoing programs through HBX.

As we continue to experiment and explore the potential of online learning, HBX has made a conscious decision to embrace social learning as one of the principles to anchor its online programs around. Online education in general has not yet recognized the great potential of social, collaborative learning. But it should.

[Harvard Business Review]

October 27, 2016 / by / in , , , , ,
Three Essential Elements of Customer Co-Creation


The success of customer-driven innovation depends on who’s invited to participate.

Historically, companies have been coy about engaging directly with customers, using market research to keep them at arm’s length. But largely due to pressure from today’s digitally empowered consumers, many top companies are shedding their shyness and inviting outside stakeholders into their creative or product development process. DHL, IKEA, and Fuji Xerox are a few of the companies that have incorporated customer co-creation workshops as a standard feature of R&D.

Recently, INSEAD has been applying the same principle to the development of Executive Education curricula. In May, Philip M. Parker, INSEAD Chaired Professor of Management Science and Executive Education programme director, invited Unilever representatives to the Singapore campus for a day-long collaborative workshop. The purpose was to map out an unprecedented leadership development programme for top executives that would integrate strategically placed “wellness interventions”, i.e. five- to ten-minute sessions designed to promote personal growth and happiness. For example, one proposed intervention, inspired by Professor Neil Bearden’s Your Second-Order Self website, had executives emailing their future selves with reminders to keep pursuing ideal goals.

Co-creation best practices

The workshop was held in INSEAD’s new on-campus Creative Garage, an open-plan, minimalist space – constructed with input from pioneering design experience agency Eight Inc. – that mimics a studio atmosphere. The Creative Garage’s white walls are lined with colourful creations from INSEAD’s design thinking courses, and a sign hanging from the ceiling proclaims the main house rule: “Don’t be afraid to have shitty ideas.” Professor Manuel Sosa, the driving force behind the Garage and facilitator of the Unilever workshop, says the space provides an “ambience in which you feel empowered to act, think, and behave differently”.

Parker credits the success of the workshop partly to the fact that its setting “was perfectly adapted to brainstorming and creating killer ideas”. For the workshop participants, the Creative Garage allowed greater freedom of movement than a conventional conference room. Parallel conversations and tandem brainstorming on multiple whiteboards lent a frenetic yet highly purposeful character to the day’s proceedings.

Another advantage of the May workshop was the Unilever team’s willingness to take full co-ownership of the process. “Only they could tell us the way [the wellness interventions] could be clustered,” Parker says. “We wanted them to be responsible for what fit together and what did not…Without them there the full day, it just would not have been possible.”

Three essential elements

Parker hastens to point out that not all organisations are fortunate enough to have an in-house design studio and partners that are so keen to collaborate. However, even without those ingredients, you can still get customer co-creation initiatives off the ground, as long as three basic elements are in place.

First, you need professional designers who can translate complex ideas into non-verbal language. In advance of INSEAD’s workshop, students from the ArtCenter College of Design in Pasadena (as part of INSEAD’s longstanding MBA exchange programme) prepared a poster-sized illustration to accompany each proposal, emphasising its relevance for the client and minimizing the danger of miscommunication. There was also a designer on hand at the workshop to sketch brand-new ideas and variations on proposals presented.

Second, you need a facilitator who understands the co-creation process. Parker says that Sosa’s stewardship was pivotal, not only in providing access to the Creative Garage but also in bringing to the table “content, a methodology for doing this well”.

Third, make sure to include the people in your organisation who are most familiar with the ins and outs of the product or offering under discussion, not just managers. The magic happens when customers interact directly with those who are in the best position to assess and implement new ideas. Drawing an automotive comparison, Parker says, “It is similar to having someone who knows about engines, someone who knows about wheels.” If you want meaningful results, don’t be afraid to get granular with co-creation.


The curriculum that ultimately grew out of the May workshop was something more than just the best ideas of the INSEAD contingent, shaped to Unilever’s specifications. The interchange sparked insights on both sides that opened up entirely new possibilities. “One of the benefits of a co-creation workshop,” Parker says, “is that ideas that never existed in the first place, or ideas that the customer themselves have, are brought in…Once you have those pieces, they can actually interconnect with other ones, and fundamentally new things can emerge.”

Phil Parker is an INSEAD Professor of Marketing and the Chaired Professor of Management Science.


October 27, 2016 / by / in , , , , ,
The Secrets of Family Business Longevity


Clear and well defined family values, trust, networks and innovation are often the bedrock for success in family firms, but designing governance structures to face ownership and succession roadblocks are also essential for longevity.

Family firms are prevalent across the globe; they include many household names like Ford, Mars and Wal-Mart in their number; they span all continents and contribute enormously to the global economy. In the U.S. alone, family owned businesses contribute 57 percent of GDP.  And yet, how many are able to say they are over 200 years old and still have a descendent of the founder as the owner or majority shareholder? Even if the answer is yes, are they also in good financial shape and is one or more family members actively involved in the firm’s management or governance?  If the answer is still yes to all these criteria, then you may be looking at a member of the Henokien Association. Of the 5,500 bicentenary family companies in the world today, 44 are Henokiens.

Three of these families were recently invited to the Family Enterprise Day on INSEAD’s Fontainebleau campus and I was able to speak with them to understand what unique family assets they have built their business strategies upon, and what governance initiatives they have installed to reduce the cost of family and business roadblocks.  Each has a very different story to tell but long-term planning, strong values, flexibility and innovation are key themes in their stories.

Viellard Migeon & Cie (VMC) is a company which has been located in Eastern France since 1796 and whose specialisation is the transformation of steel.  It’s a company which, from its earliest days, has felt strongly about keeping production local while having a global vision for the markets it has wanted to serve.  Of its 45 factories, half of them are in France and its ethos has always been to invest in its workforce and benefit from the local knowledge of the area.  In the past, it has even moved families from U.K. manufacturing areas to France so that specialist knowledge was always available in their French locality.  Mr Emmanuel Viellard, Managing Director of VMC, explains, “The closeness of the family to the people, the business, the factories has ensured the firm’s longevity and success.  It has made us cleverer and faster in the decision-making processes [by being distanced from financial/city influences].”

Its three main manufacturing activities have all focused on added value products derived from steel wire and each business has been built on the closeness to its customers as well its strategy to innovate their product lines.  When it comes to growth, however, an interesting approach was taken with the fishing tackle business whereby VMC understood that for it to become global leader of specialised fishing hooks they would have to consider a merger with a Finnish company.   In 2000, the merger with Rapala, the world leader in lures, went ahead.  At the time VMC were only minority shareholders at 13 percent but their strategy from the outset was clear: to gradually buy back the shares of the [mainly] private equity investors as the term of each PE ownership ended.  The result is that VMC-Rapala is now majority owned by the family (45 percent) and the family is able to control the long-term vision of the firm and change the strategy.  This flexibility in ownership structure has allowed the firm to become a global player present in 45 countries which would not have been possible otherwise.


The revolution effect

Flexibility in the ownership design of the holding company has also had a key role to play in the longevity of the firm.  Mr Viellard describes the necessity to have a “revolution effect” among the 140 family shareholders (out of a potential 1,500 family members) which means that some shareholders have a stronger share base than others, and yet, each family member is expected to take an interest in the long-term strategy of the firm. Outside board members who form the nomination committee for new shareholders also bring commitment from the family and this structure has contributed to overcoming roadblocks in ownership issues.


Dutch courage 



The De Kuyper family have been distillers of liqueurs and spirits since 1695. Their approach for mitigating the cost of roadblocks in their 320-year-old history has been to design good governance structures in succession issues.  Recent examples include drawing up a family charter and allowing a non-executive supervisory board made up of mainly non-family members to choose the next successor. This outsourced leadership decision-making process has happened with the move away from the classic “father to son” succession model.  A set of clear rules have been put in place in order to determine the best candidate to take over the running of the company which may, or may not, be a family member. Rules include requiring the chosen CEO to have worked outside the family firm for five years, to have obtained a certain level of education, and to have exhibited a true interest in the family firm. Bob de Kuyper former CEO, explains that, “The objectivity of the process takes the complicated task away from the parents [who inevitably find it extremely difficult to choose between their children] and helps to keep the family united.”

This succession process is currently playing itself out as Bob de Kuyper’s son, Marc, is proving himself worthy of succeeding current CEO, the externally appointed CEO Ben van Doesburgh.  For five years, Marc is heading up the American subsidiary office of De Kuyper and will still have to go through a tough selection process before he might one day be able to take over the business back in Holland.  A lot of uncertainty still hangs over the next succession but one thing is certain: such precision planning has always been a part of the business.

The De Kuyper family has always known that they want to be trading in the niche markets of the alcoholic drinks sector and have kept their focus on liqueurs and cocktails.   As this sector has become globalised, the only change the family firm has made has been to move from local products such as Geneva Gin to international products which appeal to the younger crowd of cocktail drinkers.  They have changed their product lines along with the times, just as the Van Eeghen family has demonstrated for the last 350 years in the commodities and food sectors.


Four centuries of strategic change

The Van Eeghen Group is no stranger to change.  Founded in 1662, the family firm started its life as a commodity trading company. By the end of the 19th century, the company changed its strategy and moved into niche food markets and has kept that approach up to the present day.

Today, partly specialising in food supplements, they saw an opportunity with the aging global population who were turning to health enhancing products. Constantly looking for new ventures, the company’s longevity can be attributed to the unspoken family values of being “entrepreneurial but with a low-risk strategy”.  As former CEO, Willem Van Eeghen, explains, “Starting a new venture has its risks and the usual way we go about that is we start an activity in an embryonic way by usually putting it under an existing operation and it’s then separated from the existing operation when you know it can stand on its own two feet [usually within a year].”

Current Managing Director, Jeroen Van Eeghen, is now re-thinking the company’s future strategy with the help of a supervisory board consisting of two family- and two non-family members.  Flexibility will undoubtedly be part of the strategy and taking an interest in the increased number of family shareholders’ views will have an influence too.  Having reduced the voting power of the family foundation from 75 percent to around 40 percent, the family has been given a much greater say in the company’s future.  Jeroen thinks that, “every different time [period] needs a certain shareholder structure” and that they have currently found the right balance which works on a practical level.  Not only did the share offering serve to raise the family commitment to the firm, but it also raised equity for future ventures.

Just as the governance structure has evolved with the times, so has the core business and as it continues to evolve with the effects of globalisation, the company is currently considering where they stand in the value chain.



As Willem Van Eeghen explains, “Longevity is not a guarantee, it’s something that you really have to fight for and every generation has to do it.”

It is remarkable how each of the families have been able to base their business strategies on well-defined family assets and this has allowed for long-term planning based on a commitment to the legacy for the next generation.  The family assets are protected and transferred from generation to generation and provide the foundation for future family ownership and management.  The families have foreseen the family, business and institutional roadblocks that are bound to arise over time and they are designing efficient governance structures to mitigate the consequences of these challenges.


Morten Bennedsen is Professor of Economics and Political Science at INSEAD, The André and Rosalie Hoffmann Chaired Professor of Family Enterprise and Academic Director of the Wendel International Centre for Family Enterprise as well as Co-Director of the Hoffmann Research Fund.


October 27, 2016 / by / in , , , , ,
10 Principles for Digital Disruption



Digital upstarts are rewriting the rules of strategy, adopting winning principles almost instinctively. Traditional incumbents and hybrids should take note.


The massive transformation of the business landscape in recent years has been driven by ‘Digitalisation’, mostly inspired by “pure plays”, companies that only have online activities and are not encumbered by either the assets or the organisational inertia of most incumbent, traditional companies.

In many sectors, traditional organisations can’t hope to compete effectively unless they embrace the digital economy… and its rules. At the same time, many of today’s pure digital plays have a lot to learn from traditional strategy.

In my recent book, Digital Stractics: How Strategy Met Tactics and Killed the Strategic Plan, I put together a list of key principles that could help the survival chances of pure plays, incumbents and hybrids alike.

1.  Start with vision and purpose

In a business landscape where so much is in flux and new ways of operating are being developed all the time, never before has the need for an inspiring vision and an audacious goal been greater. Such visions have a dramatic effect on the ability of companies to attract people and finance in equal order. For example, Moneysupermarket oriented itself around saving the U.K. £1bn in 2012, which translates into 500,000 households saving £200 each. This created an organisation motivated by helping people to save money.

2. Be obsessed by customers / consumers and their behaviour

John Roberts, CEO of AO in the UK, summed it up well when he said: “The web hasn’t changed what customers want, it has empowered them. We want to consistently be the best in how we treat our customers.”

The competitive battleground in digital businesses is, rightly, around capturing the hearts and minds of consumers. Unless you can inspire and retain large numbers of them – and simultaneously very high market shares – you’ll gain only modest recognition in the digital world.

3. Embed the right planning horizons

On speaking to any pure-play entrepreneur, you will learn that they invariably have a very ambitious vision of what they are trying to achieve, but seldom do they have detailed plans on how they are going to get there.

Given that the digital world and its underpinning technologies are developing so quickly, it is entirely defensible to have a business model that is experimental and empirical. In fact, many argue that this greater flexibility is key to pure-plays’ success. Rapid feedback loops allow you to refine and develop your customer proposition, your understanding of how customers behave, the challenges for the supply chain and how ultimately you might make money. So while you may dispatch of detailed plans, it is crucial to build your organisation’s thinking processes robustly. Assessing top to bottom objectives and key results every quarter gives you the ability to stay focused and to pivot when and where you see greatest opportunity.

4Understand and invest in competitive differentiation and advantage

In the digital world, competitive differentiation and advantage can be a combination of a number of factors such as a low cost business model, the brand itself, unique technology, supply chain, rate of innovation – the list goes on. It is essential that entrepreneurs are honest and self-critical in order to ensure that the advantage is real and applicable to the marketplace in which they compete.

A good test of this is the best-in-breed benchmark, as defined by Andy Street, MD of the John Lewis Partnership, when he said: “focus on beating the best, even if they are not your most direct competitors, because it makes you stronger.” This will require experimentation which will inevitably mean a few failures along the way.But tolerance and a learning culture have long been shown capable of turning failure into sustainable success.

5. Harness technology effectively

Don’t make the mistake of believing that ‘IT’ is what we mean by ‘technology’ in the digital age. The sort of technology which makes digital businesses work is not the same as the technology (IT) that is at the core of many traditional businesses. It is very much more consumer oriented and is as much about consumer interface as it is about transaction or supply chain management or flows of massive amounts of information.

The cost of poor or slow consumer facing technology is very high – that’s a lesson hybrids are better off learning early.

6. Build a robust business model which encompasses an ecosystem of staff, suppliers, and customers

In the early years of the digital era, hybrids often placed their e-commerce or online teams in separate organisational entities, to avoid polluting the mainstream with radical and often disruptive ideas and/or to prevent these new ideas being smothered by the  mainstream. As a result, at the same time that pure-plays were outstanding at front-end consumer interface issues, they were naïvely incompetent in management of the supply chain.

Nowadays, both pure-plays and hybrids understand the need to have a fully integrated business model. By engaging with consumers in co-creation, getting suppliers to provide inventory (and even delivery) systems and ensuring your own organisation is capable across a multichannel model, the added value of integrating digital assets of a business with its physical assets becomes very clear.

7. Do not tolerate mediocrity

In the digital world, the quality of your people and the culture in which they operate can translate into a massive competitive advantage. Creating a culture of openness so that even the most junior people can influence the direction of the business makes all the difference. Insight and creativity is no longer bound up with experience. Pure-plays translate this into true competitive advantage by organising to get the most out of a talented workforce who are used to building apace. Small teams focused on tough problems can make rapid inroads – an all-important characteristic for success in the fast-moving digital world.

8. Reinvent yourself frequently

One of the truisms of the digital world is, of course, that nothing stands still for very long. Knowing this, it is incumbent upon the leadership of any business to make sure that management is constantly questioning itself on whether its business continues to be fit for purpose and is responding to customer and competitive requirements. If not, it needs to reinvent itself rapidly.

9. Design a fit-for-purpose governance model

Although organisational shape has been transformed in the digital era, governance remains key and can make or break a business’ success. The push for corporate transparency and integrity is only likely to hasten the need to reflect this in your business model. It is vital, therefore, that both hybrids and pure-plays design a corporate governance model which will help unlock value in a competitive environment. This should include: shareholders with long term conviction; an informed board; and an inspired leadership; a motivated management.

10. Build a fit-for-purpose organisation

It has been found time and again that simply dropping a group of digitally competent individuals into the middle of the traditional organisation will not work. Tissue rejection – which happens quickly and brutally – usually smothers and discourages even the most motivated group of digitally oriented individuals. In order to get the best out of this talent, companies need to build an agile culture of experimentation and learning through failure – they should take decisions at speed and be encouraged to experiment.

The speed of transit has increased exponentially; but instead of “move fast and break things”, the mantra championed by Facebook’s Mark Zuckerberg, organisations should embrace a slightly new motto: “Move fast and turn your satnav on”. [INSEAD]

October 27, 2016 / by / in , , , , ,
How to Build a Successful Platform Business
By Sangeet Paul Choudary, INSEAD Entrepreneur-in-Residence, Founder & CEO of Platformation Labs, Geoffrey Parker, Professor of Management Science, Tulane University & Marshall Van Alstyne, Professor, Boston University 

Companies that successfully construct networked market places that attract participation and create value for participants, follow three core principles.

How is it that major business segments are being disrupted and destroyed by upstarts with none of the traditional resources businesses have typically needed for growth? Uber is set to replace the taxi business without owning a single car, Alibaba has become the “world’s biggest bazaar” without owning a shred of inventory and Facebook attracts 1.3 billion regular readers who login to browse news, photos and videos, yet it doesn’t produce a single piece of content.

The answer is the “platform”, a business model that uses technology to connect people, organisations and resources in ecosystems to exchange, goods, services and ideas. The list could go on; Amazon, YouTube, eBay, Upwork and Pinterest are others, but crucially, each is unique and caters to a specific market or industry.

Platforms are powerful because they eliminate gatekeepers, unlock new supply and demand and create community feedback loops. Uber, for example, performs a matching service that serves as a virtuous cycle. More demand is met by more opportunistic drivers, which increases geographic coverage, which leads to faster pickups, which encourages more customers to join the platform and more people to sign up as drivers. Driver downtime is lowered and so are prices, which leads to more scale.

This network effect represents a new economic phenomenon. In the 20th century industrial era, monopolies came about thanks to supply economies of scale, largely from increases in production efficiency. Today, monopolies are created by “demand economies of scale”, which are led by technological improvements on the demand side to create bigger networks that create valuable for their users. Such platforms make money by charging a cut for exchanges and are therefore built to scale.


Building a platform

Many traditional companies are now scrambling to make platforms for this very reason. These traditional companies, which we call “pipelines”, create a good or service and channel it to customers. But as Apple demonstrates, firms needn’t be one or the other. They can be both. In any case, there are some key principles to consider.

First, every platform should start with the aim of enabling interaction between participants, the producer and the consumer. It is the exchange of value that attracts users to the platform. The platform also needs to enable the creation of a value unit. For example, for Airbnb, the service listing information is the value unit created by the seller and then served to buyers based on their search query or previous interests. This is the basis for exchange. This is often facilitated by filters, which are algorithmic software tools that ensure users receive only the most relevant and valuable information.

Second, while “interaction” is the why of platform design, attracting users and encouraging interactions is the how. Three functions in particular must be performed very well to encourage a high volume of valuable interactions: Pull, facilitate and match.

To pull consumers, platforms have to solve a chicken-or-egg problem: users won’t come to a platform unless it has value and a platform won’t have value unless it has users. One powerful tool to encourage users to come and use the platform is the feedback loop, such as the example of Uber above. Platforms must also keep users’ attention once they become members. For example, Facebook realised that its users found the platform valuable only after they had a minimum number of connections. So the company shifted its efforts away from recruiting new members and towards helping existing ones find friends.

To facilitate, platforms may need to roll out creative tools to smooth interactions. Canadian photography platform 500px does this by enabling photographers to host their entire portfolio on the platform for easy viewing and exchange.

Successful matching is the icing on the cake. Platforms accomplish this by using data about producers, consumers, the value units created and the goods and services exchanged. The more data a platform has and the effectiveness with which it is used by algorithms can ensure effective filtering and greatly aid interaction. All these three functions are essential to a successful platform and feed each other.

Thirdly, successful platforms scale by layering new interactions on top of the core interactions. Take Uber and Lyft for example, that started experimenting with new ride-sharing services that complement their personal taxi business model. UberPool and Lyft Line allowed two or more passengers traveling to the same place to find one another and share a ride, reducing their costs and increasing the fare for the driver. Uber is also now helping drivers finance car purchases by acting as a middle man to guarantee car loans for its drivers.


Iterate to remain

Adding new features and functionalities can increase a platform’s usefulness and popularity, but it can also make it complex. One way to manage complexity is to change the core platform slowly while making changes at the periphery to cater to certain groups of customers. Amazon Web Services, for example, the most successful platform in cloud-based storage, focuses on optimising a handful of basic operations, such as data storage, computation and messaging. Other services used by just a handful of AWS customers are restricted to the periphery.

If you’re launching a new platform, or seeking to grow an existing one, attention to the above principles can maximise your chance of success. Sometimes, platforms cannot be entirely planned. Most of the activity is controlled by users. Therefore, a careful allowance for serendipitous discoveries and close monitoring of user behaviour are fruitful ways of finding new value, which then have to be fed back into the platform. [INSEAD]

October 27, 2016 / by / in , , , , ,
Turning Products into Valuable Platforms




By Nathan Furr, INSEAD Assistant Professor of Strategy


Paying attention to the management of your company and nurturing customers is the key to transitioning a successful product into a robust digital platform.

Platforms can be a strong source of competitive advantage. But how do you build a successful platform if you only have products? Like riding a bike, it’s easy to describe the physics but hard to actually do. Feng Zhu, assistant professor of business administration at Harvard Business School, and I recently studied 20 companies that aspired to become platform businesses to identify the fundamentals “best practices” of transforming products into platforms.

In our research, we found that platforms emerge and grow akin to companies, people, and products. They don’t just appear – they evolve. Thoughtful management on both the demand side and the supply side can smooth the transition.


Demand-side evolution

Creating a new platform out of a product involves attracting a large number of users, but our research suggests that user growth isn’t linear. It occurs in three stages:


1. Structuring an external product “love group”

When creating their 3D-printer platform MakerBot first attracted a group of devoted product fans, the “love group”, among the maker community and convinced them of the benefits of making desktop 3D printing accessible to all. MakerBot structured and expanded this group through a series of projects, conferences and events that built momentum for the product. For example, many of the early product fans helped build printers for MakerBot when demand began to overwhelm the company’s production capabilities.


2. Transforming the love group into early platform adopters

The enthusiasm of the love group propelled the growth of MakerBot’s then-new Thingiverse – an online platform where makers can post designs and users can download them to print.


3. Leveraging early adopters to accelerate platform adoption

With the early platform in hand, MakerBot leveraged the work and devotion of early adopters to create broader momentum for their platform, their product and for 3D printing.

MakerBot’s cultivation of its users as it moved from product to platform was immensely successful. As you consider the demand-side evolution, note the role of emotion and support: Companies nurture their users’ enthusiasm and support them through these different stages. Both familiar players like Google, Apple and Microsoft and lesser-known companies like Mojang, Valve and Id Software have worked through similar stages on the user side to get their platforms off the ground. MakerBot has faltered lately, however, due to the fact that its core product was difficult to defend – demonstrating one reason that so many product-to-platform attempts fail.


Supply-side evolution

As firms move from product to platform, the company also evolves through three stages:


1. Internal platform R&D + blended complementors + community management

During the first phase of company evolution, it is appropriate to have an internal development team focused on creating momentum for a great product through continuous refinement of the core product, inspiring customer adoption and enthusiasm. As companies start the move to platforms they often benefit from including outsiders in the process. For example, a Stanford graduate student saw the opportunities in opening up the code for Lego’s Mindstorm robots to create a platform, transforming a toy into a tool for schools for education and experimentation. In these early stages, firms don’t necessarily need to sweep out their development teams but they must engage external complementors to explore new opportunities in creating value through a platform.


2. Internal platform R&D + blended complementors + community management

In the second stage, firms typically have to expend a fair amount of internal R&D effort to create the platform itself from the initial seeds of ideas from complementors. Not all this effort is exclusively internally focused and platform project leaders will find themselves increasingly managing two key groups: complementors, who may be outside the company or transitioning to internal roles inside the company; and a growing community inside the company devoted to promoting and managing it.

Nest, the smart thermostat that has evolved into a home products platform, actively works with other companies to develop Nest-compatible products, deciding which complementors to keep outside the company (nurturing them without scaring them away) and which to bring inside. Nest recently acquired Dropcam, which produces cameras that allow customers to see and monitor their home,  ensuring that Dropcam would become a complementor to Nest rather than a competitor.


3. Hybrid business model management

In the final stage, companies embrace a hybrid business model and reallocate revenue streams to optimise for total value creation and capture, rather than focusing on either the product or the platform at the expense of the other. Qihoo 360, one of China’s most successful internet firms, started as a security software product that cross-subsidised the development of a new platform with products they gave away for free, creating more value in the end for the entire platform.

The real challenge is to create the business model flexibility to iterate on a well-established product and turn it into a platform. Several companies we studied appeared to have developed potentially viable platforms out of their products, but struggled to move from capturing value based on products to capturing value based on the combination of products and platforms through a hybrid business model that combined both product and platform elements.

Like many transformational strategic moves, the successful transition from product to platform should happen in stages that demand flexibility. The reward is that they are hard for others to imitate and create enduring growth.

A version of this article was first published on the Harvard Business Review.

Nathan Furr is an Assistant Professor of Strategy at INSEAD.


October 27, 2016 / by / in , , , , ,
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