Why small businesses should leverage platform business models
Tips for building a small business peloton
It’s been a while since my days as a member of Team Canada and the 1989 World Cycling Championships, but lately I’ve found my thoughts turning back to the beautiful, flowing, synchronized mass of common purpose known as a peloton – for this reason.
In the pack I ride in now, the new rock star is another “p” word, “platform.” If you’re among the zillions of businesspeople who’ve heard that term, but have a hard time defining what all the buzz about platform models and platform economics is about, consider how and why a peloton operates.
- Start with the power of any collective; in a peloton, riders work together to share effort, lift efficiency and generate a level of sustained performance that no participant could achieve alone. There is sheer strength in numbers (and aerodynamics).
- Then, consider this business environment; it’s faster, less predictable and has a new premium on resilience. The peloton adapts – all together and on the fly – to whatever the road, the weather or the actions of individuals or teams dictates on a given day. Solutions will emerge organically across an organized, but informal network.
- And finally, remember this eternal truth: the best answers and most enduring value are often revealed in an alignment of shared interests, effort and desire.
Something important is happening in the world of platform business models, and it’s obvious why.
McKinsey estimates that $7 trillion was exchanged on digital platforms in 2018. By 2025, that’s projected to increase to around $60 trillion, or nearly one-third of all global commerce. An Accenture study conducted with the World Economic Forum finds that platforms for business-to-business transactions alone could account for $10 trillion in socio-economic value between 2016 and 2025.
And yet, I find that in discussion with a lot of small business owners – people who could benefit the most from participation in one of these new economic engines – the platform model isn’t well understood and feels out of reach.
I suppose that’s to be expected. Our basic frame of reference is as lone riders against the pack – winners and losers in a big zero-sum competition with minimal cooperation, save some isolated instances of joint marketing or acquisitions to fill gaps in a portfolio.
That’s the way it’s been until fairly recently, when companies like Amazon, Expedia and Uber validated digital platforms as shared, trusted venues of commerce or other forms of business interaction – including access to capabilities that would be hard or impossible for any single business (much less small businesses) to source in a strictly physical world.
Business platforms serve different purposes and take a few forms:
- For peer-to-peer interaction (LinkedIn, Instagram or Facebook),
- As digital marketplaces (eBay, Craigslist and Amazon),
- Or as platforms of capability, that offer access to support, expertise and services.
Why is this relevant to small businesses?
Data from the US Bureau of Labor Statistics reveals roughly half of small businesses fail within five years. However, we know that historically, those working with an accountant – versus managing their money with spreadsheets, file folders or shoe boxes — do much better. At present, only about a third of all the small businesses in the U.S. are getting that kind of professional accounting guidance.
That gap represents an important consideration for any small business owner.
Every small business owner is the captain of a team. And I use the term “captain” intentionally. A captain is not the same as a coach, scout, trainer or agent. Those are all roles surrounding and advising the captain, and it’s crucial to choose wisely. More and more often, we’re seeing that the trusted advisor is no longer a bank or a friend, but the accountant or bookkeeper offering vital financial advice and business direction.
Providing the right guidance on how to play in a platform economy is going to be increasingly central to that advisory role. Tapping into the power of a platform of capability – at the right level of value – will be an increasingly reliable strategy to avoid hitting that five-year wall and proceeding to leadership.
The trick is finding your place, riding your line and drawing speed, efficiency and sustained performance from the community.
Tony Ward is the president of Xero Americas, and back in the day, was a four-time Canadian national cycling champion.