Multipliers and Levers

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Once you have figured out how to create value (your core), the second piece of the business model is how you deliver it, and what makes that powerful and disruptive. Around your core, what can you do to get a multiplier that takes your value higher and a lever that takes your costs lower? This starts to address how you make money (the cash flow formula) and how you make your operations effective and sustainable.

Multipliers increase revenue around your core. They increase reach (getting to more people, part of go-to-market) and increase coverage (when people buy your coffee, they drink it many times a day; when people buy your healthcare, they tell friends so it spreads virally). Multipliers build up your lifetime customer value (LTV). If you just sold a dollar for a dollar, you would not make any money.

Levers reduce time, cost, and resources in producing, delivering, or capturing your value. If you reduce for your customers the time it takes to get their data, that is huge value to them. Anytime you are reducing resources (people, time, energy), that is a lever, and doing it around the core increases the ultimate value the customer receives and your ability to be sustainable. Even a non-profit needs this, because even if you deliver a service you do not want people to pay for, you have to sustain the business to keep delivering it.

If you get your core right, multipliers and levers work together, and the best business models get an advantage in going to market and a cost reduction in building or delivering the product from a single strategy.

Sales and marketing multipliers: tiered pricing, freemium to reach new customers more easily, and channel partners. Channels are applicable to almost any business. You could build a sales force for every product, but it is more effective to use somebody else’s sales force who already has the customer relationship and has already written the contracts with major enterprises. One of the biggest challenges for startups is that the contracting process alone in the Fortune 1000 is horrifying (we sit in boardrooms knowing the deal is closed but the contract is still to come). If a channel already has the relationship and can slide your product in on an existing contract as an addendum, you just took all that friction out.

Sales and marketing levers: the world has changed. We used to sell through two-tier distribution and had to spiff salespeople at ridiculously large distributors that sold thousands of products. Now you can get anybody’s attention on the web with inbound marketing, inside sales, and viral campaigns, which dramatically takes down the cost of selling. FormLabs decided from day one not to send salespeople on the road: they wanted the whole purchasing process to reflect a lower-cost, easier-to-use product, so customers buy direct through the web, which also made it easier to support them.

Viral marketing as a lever. People talk about viral marketing all the time, with all sorts of coefficients, but the most obvious form has been around forever: referral, or reference, selling. If you love something and refer it to somebody you care about, that is the beginning of viral marketing. Making happy customers is the beginning of it. Most people want to justify a purchase they have already made, so arm them with the basics and give them the tools. Test your most basic proposition with people who should care: if it does not pass the test that they would recommend it to the next person, you have probably learned that you do not have a lever working, and you may have a challenge in your product or your business model.

Back-end levers: take out the cost of supporting your product. Crowdsourcing support and crowdsourcing testing did not even exist a few years ago. uTest (a case example, a company in Boston) crowdsources mobile testing: there is no possible way to recreate all the different phones, operating systems, environments, networks, carriers, and locations in your own lab, but if you crowdsource it all around the world you get a real sampling, and you leverage low-cost labor globally as a lever. Brilliant, and highly valuable and differentiated as a result.

Strategic partnerships and the whole product. How do small companies get big? One of my key startup secrets: stand on the shoulders of giants. You very rarely have a whole product, an entire end-to-end solution. Whole product is Geoffrey Moore’s term (from Crossing the Chasm). Startup Secret: if you do not have a whole solution, figure out who does and how to insert yourself into their value chain as a win-win so you go to market together.

Consider big data. What you see (the analytics or the dashboard at the top) is the tip of an iceberg supported by a massive base: how you collect the data, transform and normalize it, store it, and report on it, with storage partners, database partners, application server partners, and authentication partners. If you deliver the dashboard at the top, you are not going to build all of that, so partner with the players who have it, because if you make their storage or database finally show value dramatically, they will love you: you pull their products through.

• Unidesk and Dell: Unidesk pulls through 10 times the amount of Dell hardware as the software they sell. Does Dell like them? So much that Dell invested, and leads coming from Dell are turning into customers at a rate of one in three. Dell qualifies and does the hard work because they know whenever Unidesk sells, Dell gets a huge multiple on hardware and storage. That is how small companies get big. A better business card also helps: walking in as “Dell” opens doors that “Unidesk” cannot.
• IBM and real-time inline analytics: in one company I started, we did real-time inline analytics (before you even transact with a customer, find out if they are profitable, their preferences, and what else they might buy). Analytics is a tiny piece; the challenge is the database, the ETL cleaning, and everything on top. The big giant in the space was IBM, so we wrote right into the core of IBM’s stack (DB2, WebSphere, their middleware and tooling). The result: huge revenue uplift, not just because people sold our products, but because IBM partnering with us brought credibility and opened all the doors. It reduced our time to market and development costs, and ultimately resulted in IBM acquiring the company. A successful strategic partnership is also a great backstop: in my industry you are six or seven times more likely to get acquired than to go public, so doing this early sets up at least a plan B.

Approach partners the right way. Never approach a strategic partner with what you want. Approach with what you are going to give them: “Here are the five reasons you should work with me and what you will get.” Make it a “why wouldn’t you” proposition. Most startups open with “how could you sell my stuff,” which is a bad opening line. The devil is in the details: who is actually incented to sell it (getting a salesperson commissioned on your product matters more than making the brochure look better, because salespeople are coin-operated), and who handles first- and second-line support (if you take all the support cost, that is not smart). And on OEM deals, which startups think are clever: OEMs typically give you cents on the dollar, so that only works if you have something of incremental value to upsell on top, which is why upsell and Russian doll packaging become so important.

Cold Press AI and the whole product. Cold Press AI gets data to people faster, the essence of their value prop. What will customers do with it? Train their machine learning models. Do they have those models? Not yet. So for Cold Press AI to have a whole product, they need a cloud provider, a partner for the models (until they have their own someday), and then the application where it gets deployed and used (healthcare, consumer, whatever). The customer cannot run their AI-and-data application until all these pieces come together: cloud, storage, your product to get the data there faster, the models, and the integration into an application. The good news: those partners need you, so they will help you get to market, find customers, build customer success, and act as a multiplier for reach and a lever that reduces your cost because you are not building all of it. And it is not optional: if you keep trying to sell your little feature while the customer needs all these other things, it will not work. Generally, if you have found a real need, there will already be people solving some part of it who will be delighted when you say, “I can make it faster, better, cheaper.”

On a competitor’s community as a partner (a sharp Q&A). What if the win-win community is a competitor’s community? Say a competitor has a forum where people talk about needs that are not being provided. That is a potential threat and an opportunity: the threat is the competitor locks you out; the opportunity is you are identifying things they are not doing. Play it with the classic entrepreneur’s skill: find where the competitor cannot solve the problem. An example: they are an on-premise solution and you are the first to do it in the cloud (that is the whole SaaS movement of the last decade, decimating legacy on-premise enterprise solutions with cloud versions). Or, with Cold Press AI, almost every application is probably going to get reinvented with AI, so you can go to anybody with an application and say “we could AI-enable your application,” bringing them from the old guard to the forefront as a partner.