X

Blog

@pentagrowth, the five levers of accelerated growth

The Internet allowed us to organise in networks and gave us the possibility of combining distributed capacities to generate markets or develop shared resources. Social media transformed everyone into a content producer and spread mutual knowledge and trust between strangers. Smart phones put the possibility of connecting anywhere, anytime, into everyone’s pocket. Now, our personal belongings (watches, bracelets, clothes) and those surrounding us (electronic devices, vehicles, urban furniture) are also integrated in the network.
Two years ago, Marc Andreessen stated that software was eating the world: the biggest warehouse and the biggest bookstore (Amazon), the favourite music platform (Spotify), the pay television provider with the most subscribers (Netflix), the most acclaimed movie producer (Pixar) and the sector with the largest budget (videogames) are all now digital. In addition to these, the biggest chain of accommodation providers (Airbnb), the largest fleet of private drivers (Blablacar), the biggest market of independent professionals (Odesk) and many more already affect our daily, tangible lives. They have a wider view of their business ecosystem: they connect new nodes, they integrate more resources from different origins in their processes, they take better advantage of their users’ capacities, and they share tools and resources to enable others to develop their own businesses and lifestyles. The value of these organisations is not their volume, but the amplified view of what is available for them, which comes from the design of business model itself. Their advantage is based on scope, not on scale. They are net contributors to their ecosystems, specifically designed to generate value beyond what they need to capture in order to sustain and evolve their contributing capacity.

In Ideas for Change, we have studied the 50 digital organizations that have grown interannully more than 50% in number of users and revenue between 2008 and 2012. From the results obtained, it can be concluded that growth acceleration depends significantly on the network and platform properties embedded in the organization’s business model design.

@pentagrowth describes the 5 key dimensions, the 5 levers for exponential growth:

  • Connect networks: What connects the network over which the organization operates?
  • Collect inventory: How does the organisation add new units of value and build its available supply?
  • Empower users: How many roles does your user play?
  • Enable partners: What tools do you provide to third parties so they can create value?
  • Share knowledge: How openly is your knowledge shared?

@pentagrowth: the 5 levers of exponential growth

CONNECT

The larger the number of nodes (people, situations, things) that an organisation is able to connect, the greater the growth potential of the organisation.

From the website to the social network

Spotify was the first external service entirely integrated in Facebook. Initially, it allowed its users to use Spotify with their Facebook password (August 2010)

Reinventing from the mobile (smartphone/cellphone)

Match.com, leader in meeting services, has just launched a new mobile app in which it imitates the functionalities of Tinder, an app that was already born in mobile (2014).

Networked things

Nestlabs, the fist intelligent thermostats manufacturer  was bought by Google in 2013 in 2013 for 3.2 billion dollars.

COLLECT

The smaller the internal effort an organisation makes to build its available inventory, the bigger its growth potential.

Zipcar (Avancar in Spain) , a car rental service per hours was bought by Avis Group for 500 million dollars, with more than 80,000 subscribers and 10,000 available vehicles.

distributed inventory

Etsy is the world’s chicest market, where a million vendors sell their artisanal or unique creations and vintage articles (20+ years old) without intermediaries.

Integrating the commons

Github is the biggest open-access software repository of the world. By the end of 2013, it had around 13 million repositories and added 10 thousand users every day.

EMPOWER

The greater the number of capacities from its users that the organization integrates in its business models, the greater the potential growth.

Consume-only user

Netflix is the largest service provider of on-demand audiovisual content (films, series) in the world, with more than 40 million subscribers as of 2013.

User and producers

Fon’s global Wi-Fi network had almost thirteen million access points accessible to its users. Subscribers to have a special router (fonera) designed to maintain private W-iFi connection and keep part of this connection accessible to other Fon users.

Any role

LinkedIn, the most widespread professional social network, had 200 million users as of March 2013. Linkedin users can publish their cv, start a group, offer or look for a job position or share content.

ENABLE

The greater the number of value creators that use the tools provided by the organisation to generate their own business, the bigger its growth potential.

Providers

Airbnb is the largest chain of accommodation providers in the world. It exists in 34,000 cities in 192 countries and it is valued at 10 billion dollars.

Co-market

Forty thousand professionals use Athenahealth’s services for patient medical records, professional administration management and insurance company billing and payment collection.

Freedom to develop and range of services

Arduino is one of the most widespread open-access hardware platforms for electronic projects thanks to the fact that its creators decided to open its design and maintain only the right to use the brand.

SHARE

The larger the community that shares a sense of resource ownership with the organization, the greater its growth potential.

Proprietary knowledge

DeviantArt is a platform where several artists’ commercialize their creations. Created in 2000, in mid 2013 it had more than 25 million members that each day produced a million and a half comments and likes for the 246 million exhibited art pieces. Its art pieces are subject to copyright by default (2013).

Non-commercial knowledge

In March 2014, Getty Images decided to liberalize 35 million images for non-commercial private users such as bloggers.

Open knowledge

PLOS ONE is an open-access and open-edition scientific magazine created in 2006. Since 2010 it is the scientific publication with the greatest number of scientific articles per year.

What do differently the organizations that grow exponentially?

A trait that is shared among all the organizations that grow exponentially is their capacity to use the network effect at some points of their value chain: for the access of users, for the collection of a distributed supply, to provide tools and resources to partners.In the current highly competitive environment it becomes very difficult, even for the biggest companies to internally dispose of the financial, productive, human and knowledge resources to keep the pace of innovation. Up until now, owning the intellectual property or managing the control of the supply for the consumers of the goods and services could secure a sustainable position in the ecosystem. The network structures reorganize the business ecosystem: they provide new functions to part of the classical agents and they introduce new agents.; they develop new combinations between the knowledge that they have, the tools they share and the value that they reserve.; they exploit the potential of  distributed and available assets. They remove  the number of intermediaries, multiply the access and open new opportunities to third parties.

An example of @pentagrowth analysis

Airbnb is the largest chain of accommodation providers in the world. It exists in 34,000 cities in 192 countries and it is valued at 10 billion dollars. In record time, just six years, it has acquired an enormous supply of rooms, apartments and special places that make it possible for anybody to rent a space they are not using. During its five first years of existence, it has put a lot of effort into ameliorating all aspects of creating trust between strangers to increase transactions on the platform. And so, they quickly realized that those spaces posted with professional photography were rented more often than those advertised with homemade pictures. Since then, it offers free professional photography services to its users. Moreover, it has recently introduced a new rule that establishes 10 minimum requirements which any rented space should have, from clean towels to Wi-Fi. In fact, Airbnb has created many commercial opportunities: independent professionals who clean or deliver keys, small enterprises in charge of managing apartments in exchange of sales commissions, applications to professionally manage prices and rooms (like hotels) and other platforms of tourist activities between citizens: meals in private houses, car rentals between neighbors and tailor-made tourist activities, among others. While Airbnb has reached specific agreements with some of them, they have not developed any particular tools to encourage their development beyond making the reservations schedule compatible with the most widespread systems. To date, Airbnb has devoted its energies to generating transactions, and has not needed business partners to grow and innovate with the company. In fact, the entry of the large hotel intermediates in the apartment rental market, such as Booking.com with its new Villas.com will probably help push the development of tools to incentivize other agents to use its platform for developing their extended commercial offer.

@pentagrowth : instructions

Use @pentagrowth as a model to evaluate the potential of growth of a company according to the current business structure. You can evaluate the competitors and consider which is the relative position of your organization in each of the levers and its development potential. Afterwards, it’s good to open the approach beyond the company, to start considering the disruptive competition. Explore each of the dimensions of @pentagrowth and look for elements within your business systems that aren’t yet integrated in your operations.

Advice: not all the combinations of @pentagrowth are  economically sustainable structures: the organizations that are extremely open often don’t capture enough value. They contribute to generate a lot of value but as long as they are not able to capture their survival is threatened. We have observed that the virtuous combinations are focused in the reach, the management of transactions and the maintenance of a dedicated community respectively.

Combine and recombine the free elements of the ecosystem until you find an structure designed to grow and to capture value.  It will be a good opportunity to accelerate growth.

Methodology

The @pentagrowth model is the result of a study carried out by Ideas for Change between 2012 and 2013. It takes more than 50 digitally based organisations that:

  1. Have grown more than 50% per year in terms of users and income between 2008 and 2012/2013;
  2. Have reached a relevant scale of the industry where they operate;
  3. It was possible to obtain information from reliable sources. They are mainly young companies, and the majority of them are not listed in the stock market nor have any duty to make their information public.

For the analysis, we have categorised every organisation according to the year of creation, the type of inputs used, the business structure, the type of access that they provide, the pricing system, the type of customers, the typology of their APIs (tool for developers), as well as the results they have obtained. We have calculated the growth velocity and the acceleration of growth (alpha) of each organisation and we have crossed data with all descriptive variables we have used.

Observation 1: growth is faster with every generation of connectivity

Organisations born in the smart phone era (after 2008) grew twice as fast in terms of users from 2008 to 2012 than those that grew in the social media era (2003-2008). Moreover, the latest ones grew twice as fast as those that started their activity before 2003. It appears foreseeable that younger organisations grow fastest. Nevertheless, the network effect is unquestionable, as it can be observed in the following image that shows, for each generation, the number of years needed to reach 20 million users.

Observation 2: platforms grow faster than services

Organisations that build their available supply using distributed mechanisms, such as Airbnb’s temporarily unoccupied apartments, and those that share their tools and resources to enable others to develop their own creations, like Apple did with its Itunes application market, grow at least twice as fast as those whose supply does exclusively depend on their own capacities.

@pentagrowth is a creation of Ideas for Change, directed by Javier Creus with the support and collaboration of Fernando Iglesias, Tim Mares, Óscar Marín, Mara Balestrini and Albert Cañigueral.

This article was originally published in Cat.Economica.

Leave a reply

Your email address will not be published. Required fields are marked *