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Defensibility, loyalty and networks - TGW#4


The Growth Grind

November 13 · Issue #4 · View online

Your update on Growth news! 🚀

Hi there! 👋🏻
Glad to have you reading this again. Every week the open rates of this e-mail blow my mind. 🤯 So thanks for taking the time to read this.
Before we dive into this, I have a question for you:
What is the one thing that puzzles you most about growing a digital product?
Let me know, and I’ll be glad to have it as a subject soon!

Picture by Louis Hansel.
Picture by Louis Hansel.
Last week, I was talking to an entrepreneur about the coming year and what he will be focussing on. There were not really that many direct competitors for the business as this (recent) vertical has pretty high barriers to entry and no long-term history of success. But still we needed to address this problem:
“What if a copycat enters the market and offers slightly lower prices?”
It’s an old problem and investors are hesitant to put money into a market share that is not defensible.
There’s many ways you can build a defensible position. You have to build stuff that’s hard or impossible to copy, increasing the barriers to entry. Some of the ways you can think about this:
  • Uniqueness & exclusivity: Having a monopoly to a certain good or service. This is highly likely to work within media for example. Netflix built this defensibility by starting to produce their own content that’s highly popular and exclusive for their platform. Notice how this is a very ‘high stakes, high gains’-way of approaching it. Keeping this ball rolling requires ongoing investments and a shift in market preference can be very costly.
  • Loyalty & increasing value: A great way to approach this is build products that have increasing value the more they are used. This can be done by incentivizing users financially for their repeat business (discounts), but can also be done by increasing exclusivity (making content available only for certain users) or improving the UX based on the data the user generates (better recommendations). These techniques all use the ‘disposition effect’ making it harder for users to give up what they have earned through using the product.
  • Network effects: These might be the hardest one to pull off but also the most rewarding one when done right. I’m not going to go in-depth about them here, because it would take this article to far but James Currier has written the blog on it. So you can dive into it there.
I hope this helps you think about the defensibility of your product. I know there’s a lot more ways, like for example ‘embedding’ your service into others and I’d be glad to hear your thoughts on it. So do share by hitting the reply button!
Interesting Articles
This is the perfect example of what I’m talking about above. Ride-sharing is getting all about defensibility. Both the Driver and Rider side of the marketplace are heavily influenced by ‘swing users’. If service-levels are getting only marginally different, the battle for loyalty begins
Lyft is launching a rider loyalty program in December – TechCrunch Lyft is launching a rider loyalty program in December – TechCrunch
NewTV has raised almost $2 billion in funding based on a very tight assumption. People will watch mobile short form content. They will not produce it, they will not distribute it, they will be just be licensing it.
Some claim it is the new way for startups to proceed now capital isn’t so scarce anymore. I don’t believe that the relaxed constraint of finding capital will lead this kind of startup to be more successful. For entities to evolve within ecosystems, constraints are needed. Else there’s no selection. Individuals may thrive, but it’s temporary. New constraints will arise or old ones will return.
NewTV Is the Antithesis of a Lean Startup. Can It Work? NewTV Is the Antithesis of a Lean Startup. Can It Work?
This is an older one that I’ve found it in my reading list over the weekend. It’s a very cool interactive educational tool on networks and the psychology behind it. You should try it if you have some spare time. I promise you, you will be inspired.
The Wisdom and/or Madness of Crowds The Wisdom and/or Madness of Crowds
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Thanks for reading, hope to see you next week! 👋🏻
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