The Durability Formula – How It Will Determine Your Startup’s Future Value

The Durability Formula – How It Will Determine Your Startup’s Future Value

In the competitive world of startups, capturing long-term value is crucial for success. One way to achieve this is by designing for durability from the very beginning. Durability, in this context, refers to a combination of factors that contribute to the long-term success of a startup. These factors include network effects, economies of scale, brand identity, embedding, and intellectual property.

Network effects play a significant role in determining a startup's value. When one user joins a service and enhances its value for other users, it creates a network effect. As a startup gains an advantage and attracts more users, the value of its competitors' smaller networks diminishes. To leverage network effects, it is essential to consider whether your product is a "single-player game" or a "multi-player game." Making it a multi-player game, such as a network or a marketplace, can significantly enhance its value.

Another critical aspect to consider is how the value of your product or service changes as new users join the network. Does it increase, decrease, or mostly stay the same? Understanding this dynamic is crucial for long-term success.

Additionally, having two different types of users who come to the network for different reasons and produce complementary value for each other can be highly beneficial. Homo sapiens are naturally tribal and emotional, and they often identify themselves with brands. Therefore, establishing a well-known brand identity can create psychological switching costs for users, making it less likely for them to leave your product or service for a lesser-known brand.

Embedding is another factor that contributes to durability. By integrating your product or software into a customer's operations, you make it difficult for them to replace you with a competitor. It is crucial to assess whether there are low or no costs associated with using your product alongside other competing products simultaneously. Additionally, positioning your product as a "database of record" can further enhance its durability.

Founders who achieve significant success often spend considerable time at the beginning, focusing on creating products and business mechanisms that align with these durability factors. By doing so, they drive increasing returns at scale and position their startups for long-term success.

Myspace, Tumblr, and the Long-Lost Weirdness of the Social Internet

While Facebook aimed to bring everyone online, platforms like Myspace and Tumblr embraced individuality and customizability. These platforms allowed users to express their creativity and differentiate themselves from others. However, as Facebook gained dominance, it stamped out individuality, leading to the decline of platforms like Myspace and Tumblr.

The nostalgia surrounding platforms like Myspace stems from the ability to customize profiles. People miss the freedom to express themselves uniquely. This presents an opportunity for new social platforms to be built, emphasizing creativity and customizability.

Three areas that are particularly interesting for the future of social platforms are 3D creative expression, memes, and pseudonymity. 3D spaces purpose-built for social interactions and customization can provide users with a unique and immersive experience. Memes, which have become the language of digital natives, play a significant role in how ideas spread and communicate in the online world. Platforms that make it easier to create and share memes can capitalize on this cultural phenomenon.

Furthermore, there has been a cultural shift towards individuality over the past few decades. People no longer want to conform and have the same online persona as everyone else. They want to stand out and express their uniqueness. Platforms that allow for self-expression and the adoption of new online identities can thrive in this environment. Pseudonymity, where users can choose their online identity, adds to the appeal of these platforms.

Interestingly, there has been a resurgence of Y2K culture, with Gen Z embracing fashion, music, and aesthetics from the 90s and early 2000s. This trend further emphasizes the desire for individuality and unique experiences.

In conclusion, both the durability formula for startups and the long-lost weirdness of the social internet highlight the importance of differentiation, individuality, and customization. Startups that incorporate these elements into their design and positioning from the beginning can increase their chances of long-term success.

Actionable Advice:

• 1. Embrace network effects and design your product or service as a multi-player game, leveraging the value created by each user for others.

• 2. Focus on building a strong brand identity that triggers psychological switching costs for users, making it harder for them to leave for lesser-known alternatives.

• 3. Explore opportunities in the realm of creativity, customizability, and self-expression, such as 3D spaces, memes, and platforms that allow users to adopt new online identities.

By incorporating these strategies, startups can position themselves for long-term durability and success in an ever-evolving digital landscape.