Multi-sided platforms (also known as two-sided networks), bring together two distinct groups who each benefit from the other’s presence on the platform (e.g. Monster.com is a classic two-sided network where employers post jobs on the site because of the breadth and depth of the jobseeker base and jobseekers come to the site because of the quantity and quality of jobs on the site). Much of the existing literature on multi-sided platforms has focused on possible solutions to the inherent chicken-and-egg/Catch-22 condition of the model. The thinking goes that prospective users on each side of the platform will be reluctant to join without the presence of users on the other side. To skirt this issue, most solutions focus on one of four approaches:

1. Subsidize one side of the platform to motivate those users to join.
2. Establish exclusive relationships with key users on one side of the platform to lure users on the other side.
3. Start off as a vendor to one side of the network and after building a loyal base of customers, begin facilitating transactions between those customers and other suppliers.
4. Start off as a merchant acquiring inventory from suppliers and then resell that inventory to customers on the other side of the network before transitioning to a non-risk taking intermediary.

From my perspective, these strategies seem to be optimal for startups with completely innovative business models or those that reject the precepts of the lean startup methodology (http://www.startuplessonslearned.com/2009/08/minimum-viable-product-guide.html). To the extent that no content already exists on the web from either side of the platform, I believe the aforementioned would be the best place to start. However, given the vast availability of content on the internet, there may be an approach to starting a multi-sided platform that would be far more consistent with lean startup methodology, harvesting.

Harvesting is the collection and processing of information already stored elsewhere. RentJungle (apartment aggregator), Kayak (flight aggregator), theLadders (job aggregator), Yipit (daily deals aggregator) are all multi-sided platforms that harvest content already on the web to solve the inherent chicken-and-egg problem of the two-sided network without subsidization, exclusivity, or starting off as a vendor or merchant to one set of users. Since both sides of each of the platforms above already transacted over the internet in a fragmented way (two key requisites), the simplest approach for serving as an intermediary was to aggregate the data from all the “sellers” (content providers) and serve as a one-stop shop for all of the “buyers” (users). In this way, each of these companies was able to avoid the Catch-22 by eliminating the need for one side of the platform to join the site in the first place.

At this point it is worth taking a step back to think about how harvesting fits in with the context of the lean startup methodology. Eric Ries, whose recently published book The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses has garnered much acclaim, writes that one of the most important techniques for a lean startup is the “minimum viable product”. Ries states that “the minimum viable product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.” The four traditional approaches to solving the chicken-and-egg issue of multi-sided platforms all most commonly require substantial effort and/or resources and do not lend themselves to rapid experimentation and testing. In contrast, harvesting is an extremely fast and easy way to acquire content from one side of the platform (as outlined below) and the harvested data can be pruned for different users to test various iterations of the platform.

All that said, how easy is it to harvest? In the absence of an API or direct-feed into one side of the platform, the lean startup can develop a simple scraper to acquire data from one side of the platform which then can be used to attract users on the other side. That said, if an API does exist, it might not even be necessary to build a scraper as the data may be readily available from a content provider (Amazon, Google, CNET, Facebook, Twitter and even the World Bank all offer APIs). In either case/whenever possible, I believe entrepreneurs adhering to the lean startup methodology should first attempt to harvest one side of the multi-sided platform in order to eliminate the chicken-and-egg problem before moving on to one of the more traditional approaches for vetting the viability of a multi-sided business model.

As a chemical engineering undergrad at MIT, I partnered with some friends, among them a computer engineering student, to try to launch a website. We never thought of our plight as launching an actual company, we mostly just felt like we had a great idea – a social networking site dedicated to helping users date friends of friends. We worked on the project for months, completely consumed with how cool the website would be, but not at all concerned with revenue streams, customer adoption, network effects, or hardly anything having to do with business.

Although certainly not always the case, it is often easy to fall prey to the excitement of a concept as an engineer. While many MBAs do not code, we certainly bring many skills that are still transferable to launching a tech startup.

A Market Focus Allows for Better Product Formation

There is value in honing in on a true market gap, exploring ways to address it with little regard to the technical ease of implementation, and focusing on opportunities for monetization. These skills allow you to design a site or software in a new and different way as compared to someone purely focused on the cool end product. It also helps you focus on addressing a market need with technology in a way that will create monetary value.

Traditional Business Tools Translate to Site Design

Many skills MBAs have can even translate well to site creation. An analytical mindset lends itself to identifying the key criteria that seem to make a website great and user friendly. Marketing knowledge can be applied to determining which existing user interface designs convey the look and feel that you desire for your product’s brand.

With this in mind, you can create your own mockup of the website or software. Even if you do not want to figure out mockup programs such as Photoshop or Balsamiq, certainly your finance, consulting, or corporate days honed your expertise in PowerPoint. And even PowerPoint can be an incredibly powerful tool for creating mockups for software or a website.  You can simply use the Snip or Printscreen elements of Windows to piece together aspects of other sites and create a mockup of your idea. Such a mockup goes a long way in explaining a concept to both a designer and a developer, and it shows that you have a clear plan for achieving a vision.

The Right Hypothesis is Better than the “Right Product”

The business world also touts a hypothesis-driven approach to problem solving. This is easily applied to tech startups. Instead of focusing on the excitement of building out a full blown product, focus on a hypothesis for customer needs and conduct an early test to determine whether you are correct. For many tech ideas, a minimum viable product is often as simple as creating a landing page that explains your idea and testing whether any potential customers try to purchase the software or enter the website. Today, there are plenty of third party programs such as Unbounce, Google Sites, Weebly, Yola, or Wix that make it easy to create a simple page. Using Google Adwords, Facebook Ads, or forums, you can drive potential customers to your site. With web analytics programs such as Google Analytics, you can get a sense for customer acquisition and adoption before even creating a full-blown product. These ideas are explored more deeply in Lean Startup concepts.

Having an MBA can be used as an asset rather than as an obstacle. Instead of focusing on the skills an MBA does not have in the tech space, MBAs can capitalize on the skills they do have that are still applicable.

I had the opportunity to hear Eric Reis, author of the new book The Lean Startup, speak last week.  Several aspects of the lean startup process I have applied recently are gain user feedback early in the development process, create iterative feedback loops (build, learn, revise), and release a minimum viable product with a plan for sequential roll out of additional features. 

This past year I started an online venture with zero technical expertise and have relied on these principles in the development process.  The point of gaining user feedback early in the development process is to ensure there’s a market for the product/service you’re creating.  Many times when someone has experience within an industry they are able to identify pain points, “white space”, or opportunities for improvement, and these insights are typically the basis of the idea.  For me I spent four years in the retail and CPG industries and recognized the difficulty independent sales representatives have in marketing themselves to manufacturers.  Because of my professional network I have been able to reach out to those in the CPG industry and gain their feedback on pain points they currently experience.  I also observed groups on LinkedIn that pertain to the CPG industry and was able to get additional information on how to help this industry become more organized.

Smoke screens and iterative feedback loops can be established in multiple fashions.  One of the easiest things to do is to run a Google AdWords campaign with a landing page and measure click-thru rates on the ads.  Another thing we did was create a user profile on LinkedIn for our company and send invitations to connect to those we thought would be interested in our service.  We’ve been able to measure the acceptance rate of our invitations and have engaged with these connections through surveys that have given us valuable insights into the CPG industry.  Lastly, we will gain user feedback through sitting down with users and showing them our hi-fi wireframe mockups and asking them to walk us through our site.  Learnings from these sessions will be incorporated into the wireframe and then handed off to the programmers for creation.  It is much cheaper to have changes incorporated into a wireframe by a $10/hour intern than by a $65/hour programmer.

I have fallen prey to the thought that I must release the perfect, robust, feature-filled site at launch or else my customers will take one look at a watered-down site and walk away.  There are two things that have changed my stance on this and convinced me that I should focus on releasing a minimum viable product.  First, is the more practical one of the cost-benefit of certain features.  Features such as video conferencing, instant messaging, and cloud storage are the most expensive part of our site and are really focused on the secondary aspect of our site of facilitating communication between manufacturers and independent sales representatives.  Because I am boot-strapping the business I’ve decided to wait to release these features until we gain traction with the primary focus of matching these two parties together.  Second, I realized additional feedback will come from our initial users, which will dictate what features are essential in subsequent rollouts.  Once users get on the platform and get a better understanding of what our service is, they will give us feedback in regards to additional features desired (which may differ from what they’ve told us already).

By: Benn Manning

 
I was at the MIT Startup Bootcamp last Saturday, listening to one of the highlights of the day: Drew Houston, founder and CEO of Dropbox. He received thunderous applause to his proclamation that “engineers make better startup founders because [he's] seen great engineers become great managers but he’s never seen a great manager become a great engineer, and you need both skills to be a startup founder.” This was one of many swipes that day targeting non-technical founders, and in particular MBAs. I texted my indignation to my HBS classmate sitting a few rows down. She replied: “Omg yes, just ridiculous. I need to find an engineer tho.”

Alright, enough with MBAs feeling sorry for themselves and claiming that they’ve got a great idea but first they need to “find” a technical co-founder. There are alternative ways for us non-technical founders to get it done. Here’s one such path…

“You don’t find a technical cofounder, you earn one.”

Before I dive into the meat of my recommendation, I’d like to dispel this notion that you can just find a technical co-founder. I was once foolish enough to think so. Last April, when I was ready to build the prototype for my online advertising startup idea, I emailed the Harvard and MIT engineering list serves kindly asking if anyone wanted to be my technical co-founder. I got all of zero legitimate responses and a rude awakening: it’s near impossible to recruit the right technical co-founder on the merit of an idea alone.

Later, I read an article; distributed by the Startup Digest; that echoed the lesson I learned and still resonates with me. Its primary thesis: “You don’t find a technical cofounder, you earn one.” With this lesson in mind, I make the recommendation below.

Outsource Your Way to an MVP

Before building a fully fledged business or product, Eric Ries, lean startup guru and evangelist, advocates building a minimum viable product (MVP), a bare bones prototype of sorts that allows you to test whether customers would want anything resembling the idea you had in mind. My recommendation to non-technical founders is to at least reach the point of building and testing an MVP without a technical co-founder in tow. Outsourcing the development of the MPV to overseas developers is a rational and economical way of doing so. 

After failing to solicit a technical co-founder in April, my business partner and I hired overseas contractors recommended by a friend to begin work on the MVP. The outcome was abysmal and we had to let those contractors go.

However, we didn’t give up. We tried our hand on oDesk.com, a marketplace for hiring contractors. We reviewed more than 50 developer profiles, narrowed the list down to 5 promising prospects, and finally settled on a freelance developer with stellar reviews. oDesk made a fan out of me because their reviews system is something of an insurance policy against hiring poor developers – you can filter out the developers with bad reviews and the ones with good reviews do their best to deliver positive results for fear of ruining the reputation they’ve build on oDesk. And the results this time were indeed remarkable. We’ve since completed a minimum viable product worthy of our beta customers’ time, and we continue to work with the developer we hired off of oDesk.

A few more quick tips on the topic of outsourcing:

• Hire a contractor on a full time basis rather than one that works for you part time. A dedicated developer is far more focused than a developer juggling multiple projects at one, and as a result produces better quality work with fewer delays.

• Hire a freelance, independent developer rather than one belonging to an agency unless your project requires multiple developers from the same agency. The former approach allows you to communicate directly with the developer and the hourly rate is often lower since an intermediary isn’t taking a cut.

• Expect to spend at least $5,000 to $10,000 on developing the minimum viable product. No matter how basic the functionality, these things take more time than you expect, believe me! And if you’re not yet confident enough in your idea to commit some money, how can you expect others, especially technical co-founders, to commit themselves to your venture.

Conclusion

Nat Turner of Invite Media, an online advertising startup with a successful exit, opined against hiring contractors stating that he’s “never seen a startup that relied on contract developers scale up successfully”. However, outsourcing the development is not an end in itself. It advances you to the point of having an MVP with which to gain customer traction and much needed validation, and moreover it proves you were scrappy enough to get it done despite your limitations. Armed with this validation, you may finally be ready to “earn” a technical co-founder or raise capital to attract the technical talent that you need.

By: Omar Restom (orestom at mba2012.hbs.edu), Co-Founder of Vaiad