Another option for starting a platform is a pure platform play, in essence, “let’s bet the bank that we guessed right approach”. This is an expensive approach since you need to spend to both build the platform and fuel its adoption. There is no initial solution and no foothold to use as a gauge for platform need and adoption, so you spray and pray to create the network effect. That makes it difficult for investors and requires a true visionary entrepreneur “that has seen the future” and can convince investors with deep pockets and patience to buy into their vision of the future.
This approach isn’t for the faint of heart – when it works the results are spectacular – Uber, AirBnB, eBay. On the other hand, when it fails it is a bloodbath, e.g. Betterplace that turned $850M into $450K. These are “big” bet companies – they either create the platform and become enormous or fail miserably and are never heard from again.
Not surprisingly both entrepreneurs and VCs are wary of starting a company as a pure-play platform, both much prefer a solution company.
But there is another option available that lowers the risk, making a platform startup more palatable. It requires a more seasoned entrepreneurial team and savvy investors. More on that in the next post…