FourWeekMBA

A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Network effects have become an essential element of a successful digital businesses, for several reasons. First, the Internet itself has become a facilitator for network effects.

As it becomes less and less expensive to connect users on platforms, those able to attract them in mass become extremely valuable over time.

Also, network effects facilitate scale. As digital businesses and platforms scale, they gain a competitive advantage, as they control more of the total shares of a market.

Last but not least, as we will see, network effects are considered among the defendable, or what confers to digital business, a competitive advantage.

Where in the past linear businesses gained a competitive advantage by buying assets and controlling supply chains. Digital companies gain competitive advantages by building network effects.

Read: Linear Vs. Platform Business Models In A Nutshell

Business pills part of the Digital Business Model Podcast, offered by FourWeekMBA.com

Business pills part of the Digital Business Model Podcast, offered by FourWeekMBA.com

In today’s session, I had the pleasure to have Bo Burlingham, contributing writer at Forbes, co-founder of the Small Giants Community, former editor-at-large for Inc. Magazine and author of several books among which I really loved and enjoyed Small Giants, which is going to be the topic of this conversation.

A venture capitalist generally invests in companies and startups which are still in a stage where their business model needs to be proved viable, or they need resources to scale up.

Thus, those companies present high risks, but the potential for exponential growth. Therefore, venture capitalists look for startups that can bring a high ROI and high valuation multiples.

That’s because of the set of investments venture capitalists make; only a few will succeed. Therefore, they have to place more bets to make the system work in their favor.

In the end, the venture capitalist makes money (the so-called exit) by either reselling the stake in the company at a much larger valuation or with the IPO of the company they invested in.

When that happens, venture capitalists make substantial returns for their partners. Indeed, the venture capital firm is usually comprised by a group of partners which raised capital from another group of limited partners to invest for them.

The limited partners (or LPs) can be either large institutions or wealthy individuals looking for high returns.

Usually, venture capital firms invest in growth potential. Therefore, when a startup receives venture capital money, the venture capital firm – usually – expects aggressive growth.

Before we get to the advantage and disadvantages of taking venture capital money, let’s first understand the explicit and hidden incentives that drive venture capital firms. Indeed, at the end, taking venture capital money is mostly about interests alignment.

And if those interests do not converge, that is when probably it might be not a good idea to take that money.

A bootstrapper isnʼt a particular demographic or even a certain financial situation. Instead, itʼs a state of mind.

That is how Seth Godin described bootstrapping in his “The Bootstrapper Bible.”

As firms which are venture capital backed get so much media attention, it’s easy to miss the other 99% of businesses out there which made it and which built a sustainable business model by bootstrapping.

That’s because by definition firms that are looking for venture capital needs a continuous PR coverage to play the “look cool game” to ease the hand in the pocket of the venture capitalist’s next door.

Thus, it’s easy to forget of the army of entrepreneurs that from day one decides to go the other route and first build a viable business model, then and when they feel the time is right (if it ever is) take outside money to scale the business.

Let’s start from a simple definition of bootstrapping.

When does make more sense to use venture capital and when to use bootstrapping to build and grow a company? We'll look at both perspectives in this episode offered by FourWeekMBA.

A venture capitalist generally invests in companies and startups which are still in a stage where their business model needs to be proved viable, or they need resources to scale up.

Thus, those companies present high risks, but the potential for exponential growth. Therefore, venture capitalists look for startups that can bring a high ROI and high valuation multiples.

That’s because of the set of investments venture capitalists make; only a few will succeed. Therefore, they have to place more bets to make the system work in their favor.

In the end, the venture capitalist makes money (the so-called exit) by either reselling the stake in the company at a much larger valuation or with the IPO of the company they invested in.

When that happens, venture capitalists make substantial returns for their partners. Indeed, the venture capital firm is usually comprised by a group of partners which raised capital from another group of limited partners to invest for them.

The limited partners (or LPs) can be either large institutions or wealthy individuals looking for high returns.

Usually, venture capital firms invest in growth potential. Therefore, when a startup receives venture capital money, the venture capital firm – usually – expects aggressive growth.

Before we get to the advantage and disadvantages of taking venture capital money, let’s first understand the explicit and hidden incentives that drive venture capital firms. Indeed, at the end, taking venture capital money is mostly about interests alignment.

And if those interests do not converge, that is when probably it might be not a good idea to take that money.

For more: fourweekmba.com/venture-capital-advantages-and-disadvantages/

Venture capitalist, Dave McClure, coined the acronym AARRR which is a simplified model that enables to understand what metrics and channels to look at, at each stage for the users’ path toward becoming customers and referrers of a brand.

This funnel goes through:

It is important to highlight that this is a model, and as such, it doesn’t represent the actual behaviors of users or customers. Instead, that is a simplification that helps identify the crucial actions and marketing tactics to implement to make sure a user becomes a paying customer.

https://fourweekmba.com/pirate-metrics/

There isn’t a single way to define a business model, and any tool that helps identify it from a different perspective – I argue – is useful for an entrepreneur building a different kind of business.

In this article, I’ll focus on the Blitzscaling business model canvas. This is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

Rather than a magic formula that works in each scenario, Blitzscaling follows a framework that revolves around three key ingredients:

Those three key ingredients of Blitzscaling.

What’s Blitzscaling then? There are a few key elements I think are worth highlighting.

Related: What Is a Business Model? 30 Successful Types of Business Models You Need to Know