Platform Building Thoughts

Tuesday, October 23, 2012 |

Ran across a post from someone who is pondering platform building.  As someone who has been building platforms for a while, I figured I should provide some feedback!

There are very few standards in this area.  Few can even agree on what a "platform" truly means.  OMG is doing some work around the cloud based platforms, but it's more about the cloud than it is about a platform.  With that in mind, a couple of thoughts:

Tenets of building a platform are very familiar to those of us who came out of SOA and BPM worlds.

  • First, encapsulation of each sub-capability of the overall platform with proper granularity to get to modifiability.  This addresses points 4 and 5.  
  • Second, build the "structural steel" into the platform - things like measurement, management, and security (to name a few) usually wind up being bolted on after the "minimum required functionality" is achieved.  In the world of platform thinking, they ARE an integral part of the minimum required functionality. 
  • Third, build to patterns of technology capabilities - not technology.  The only known known is that technology will change.  The modifiability of platforms becomes critical, as does the classification of technology capabilities.  
  • Fourth, build the platform one piece at a time.  The capability model of the platform should be (mostly) known up front.  The iterative approach can then be used to "fill" the pieces of the capability model as it evolves in response to market and regulatory pressures.  

Finally...  Platform building is a ride, from highs of the peaks (of inflated expectations) to the lows of the troughs (of disillusionment.)  Steady leadership is more than just important - it is a requirement.



Numbers Deceive Only Those Who Want To Be Deceived


Calculating Total Cost of Ownership (or TCO for short) is something that's familiar to those of us who've been through the large organization planning processes.  Yet, there is no shortage of entrepreneurs that believe they can move mountains with nothing more than bubble gum and shoe string.  And there's no shortage of investors who believe that they can fund the next Google with $25k.

Well, as John Adams quipped, "facts are stubborn things, and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence."  Today brings news of investment freeze by Joystick Labs, a Triad-based video game accelerator.  Accelerators and incubators can be attractive to investors than an a single startup since they provide a rudimentary diversification mechanism, and hence reduce risk.  But without proper due diligence, the foundation on which this diversification is based is shaky at best.  And TCO is part of that due diligence (at least in our model.)  Bubble gum and shoestring, duck tape, and other such pronouncements may sound soothing, but things take as long as they take and there's still no such thing as free lunch.

Joystick Labs seems to have found this out the hard way:

John Austin, managing director of Durham-based Joystick, said the prevailing economics of the video game market – which have changed considerably since Joystick was launched in 2010 – requires more financing than Joystick and its investors could afford.  "It has become very difficult for an independent developer to get noticed,” Austin said. “For every ‘Angry Birds,’ there are literally tens of thousands of great companies not getting noticed.”

Did the prevailing economics of their market changed that significantly since 2010?   Or is it that they found through two years of experience in launching new video game companies that the startup TCO for their market wound up being much greater than anticipated?   Not a day goes by when I don't hear from entrepreneurs and investors questioning why something costs much more than they "feel" it should.  Those of you who know me (which is probably why you're reading this in the first place,) I'm not into feelings, I'm into numbers, and numbers only deceive those who want to be deceived.


Read more here:

Evolution of VC Business Models

Saturday, October 20, 2012 |

This week at the Funding Post event in NYC one of the panel discussions focused on how VC model is going to evolve over the next several years.  There were several interesting points made that I would love to get this blog's readers thoughts on:

  1. Talking only to people you or your trusted network knows (or "we don't want nobody nobody sent" paradigm) is a limiting and self-defeating factor.  Yet most (almost all) angel and VC groups won't even talk to anyone who's not known.  Group think?
  2. The model of investing and waiting years before an exit event leads to payback (and hopefully more) may be great for CPG based investments, but internet and mobile business models move quicker and not guaranteed to produce the exit event.  Therefore a new model may be required for these investments - one suggestion was to use a real estate investment model.
  3. Very few investors talk about the economic benefits of tax liability mitigation due to new investment.  There were two people in the audience who were shocked that including and tracking these benefits as part of the VC business model is not commonplace.
  4. Crowdfunding will have a significant impact on investment community.  Some thought the lead investor paradigm would still be required for projects using crowdfunding platforms, but is that reality or misplaced hope?
  5. Speaking of crowdfunding, has anyone really thought through the implications of diversification requirements of the Jobs Act?
Over the next few weeks, I'll post my thoughts on these points, but would love to hear what other Business and Enterprise Architects think on how to design the new business model of VC that addresses them.