Hi, I’m Jaryd. 👋 I write in-depth analyses on the growth of popular companies, including their early strategies, current tactics, and actionable business-building lessons we can learn from them.

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Happy Friday, friends! 🍻

Welcome to the #10th edition of this weekly series! To everyone who’s recently subscribed, you can always catchup on our previous 5-Bit’s here anytime you like.

Housekeeping done. ✌️

Here’s what we’ve got this week.

Pipelines vs Platforms
Startups are cheaper to build, but more expensive to grow – here’s why
How to get people to choose your product
10 things to do as a PM joining a new company
Maximizing CLV — understanding the key drivers and their relationship

Let’s dive in. ⛏️

Pipelines vs Platforms

Back in 2007 the five major mobile-phone manufacturers—Nokia, Samsung, Motorola, Sony Ericsson, and LG—collectively controlled 90% of the industry’s global profits. That year, Apple’s iPhone burst onto the scene and began gobbling up market share.
By 2015 the iPhone singlehandedly generated 92% of global profits, while all but one of the former incumbents made no profit at all.
How can we explain the iPhone’s rapid domination of its industry? And how can we explain its competitors’ free fall? Nokia and the others had classic strategic advantages that should have protected them: strong product differentiation, trusted brands, leading operating systems, excellent logistics, protective regulation, huge R&D budgets, and massive scale. For the most part, those firms looked stable, profitable, and well entrenched.
Certainly the iPhone had an innovative design and novel capabilities. But in 2007, Apple was a weak, nonthreatening player surrounded by 800-pound gorillas. It had less than 4% of market share in desktop operating systems and none at all in mobile phones.

There’s a great post in the HBR where three platform strategists answer this questions: To give you the short answer: Apple bought a platform to a pipeline business fight.

And they go on too convincingly argue that when a platform enters the marketplace of a pure pipeline business, the platform nearly always wins.

Pipeline businesses succeed by making their value chains more efficient.
- e.g Apple, Nokia, GM, Netflix, Glossier, Marriot Hotel
Platform businesses succeed by bring together producers and consumers in high-value exchanges more efficiently. It’s about generating value on both sides of the market — creating network effects (and a flywheel), which grows both S&D within the platform.
- e.g Apple, Uber, YouTube, Amazon, Airbnb

You might have noticed that Apple is in both the pipeline and platform business. That’s because the physical iPhone is a classic pipeline — get the inputs at the top for the best price, move it through to the end customer as quickly and cheaply as possible, and sell it to them for as much as possible. But, unlike any of the other players when Apple entered the market — nobody had an App Store.

Apple’s success in building a platform business within a conventional product firm holds critical lessons for companies across industries. Firms that fail to create platforms and don’t learn the new rules of strategy will be unable to compete for long.

Takeaway: You can be both a pipeline and a platform, and it’s worth figuring out how to add platform-ness to your business.

So let’s see what these three strategists from HBR suggest:

3 strategic shifts to move from pipeline to platform

Resource control ⇒ resource orchestration.
- In a pipeline world, resources = tangible assets (i.e raw materials, warehousing) and intangible assets like IP. You can see how control is important here. But for platforms, the key resource is the network of producers and consumers and the resources they control (i.e cars, rooms, money to rent a room). The platforms job is connecting S&D efficiently.
Internal optimization ⇒ external interaction.
- When you do the above shift, the focus and priorities of your internal teams should shift too. It’s about moving from “dictating processes to persuading participants”.
Focus on customer value ⇒ focus on ecosystem value.
- Pipeline businesses need to maximize the customer lifetime value (CLV) of people who sit at the end of a linear process. Platforms on the other hand are not linear, they are circular. And by being circular, they need to max the total value of an expanding ecosystem. If you look at any marketplace business, you’ll see that often requires subsidizing one type of consumer in order to attract another type. (i.e Uber subsidizing drivers to build supply).

So that’s a deeply simplified look at how to start getting out of the pipeline ring and into the platform era. 🥊

But once you’re playing against other platforms (or if you’re still a pipeline going up against platforms) …competition, and therefore your strategy, becomes different.

How platforms change strategy

Forces within the ecosystem. Since platforms are not about control and instead deal with the fluid dynamics of two different sides of a market — the roles that people play can be additive or depletive based on how they see the platform provider. E.g if a host thinks Airbnb is unfair, they will try bypass them. And because of that, platforms need to be built in such a way that the value distribution works fairly so that people keep growing the ecosystem and don’t try work against it.
Forces exerted by ecosystems. If you’re a pipeline business, competitive threats usually follow one of these three patterns:
- A platform with superior network effects uses its relationships with customers (i.e community) to enter your industry.
- A platform targets an overlapping customer base with a distinctive new offering that leverages network effects. i.e Airbnb vs hotels
- A platform that collects the same type of data that your firm does suddenly goes after your still emerging market. i.e in health care where traditional providers, companies like Fitbit, and pharmacies like Walgreens are all launching platforms based on the health data they own.
Focus. Pipeline businesses focus on growing sales. Platform businesses need to focus on interactions, balancing value and volume. As a platform, its first about defining what the right core interaction is (i.e getting into the Uber), which often means starting with just a single type of interaction that generates high value even if, at first, low volume.
Access and governance. Pipeline businesses are about control and creating barriers to protect it. With platforms, the strategic focus is on eliminating barriers of interaction to maximize the value being created inside the ecosystem

I’ve said it before in previous posts…businesses that help other people make money stick around.

⛏️ Source + dig deeper: Pipelines, Platforms, and the New Rules of Strategy, via Harvard Business Review

Startups are cheaper to build, but more expensive to grow – here’s why

Startups should be getting cheaper to build. After all, the industry’s created several waves of innovation that’s supporting this across multiple layers in the stack:
Open source software instead of paid developer tools
AWS instead of your own datacenter
Per-click ads instead of Superbowl commercials
Off-the-shelf SaaS tools versus building your own
App stores for efficient global distribution
Not only do a number of these trends make building new products cheap, in many cases it’s about driving the costs down to zero.
— Andrew Chen

But, while it’s generally becoming much more affordable and accessible to create a new startup, Andrew Chen goes on to argue that the more important part…growing the damn thing…is becoming much more expensive.

Startups are raising more capital and burning more capital to get to their Series As. It might be cheap to build the v1 of your app, but getting traction is a whole other story. Compared to a decade ago, it’s getting more expensive to get traction, while at the same time, growth is getting harder from intensive competition, consolidation, and saturation

This is analogous (kind of) to the buy-now-pay-later model. Getting the thing you want in yours hands has never been easier (symbolic of the wave of new startups), but the payments with interest are coming for you (symbolic of the wave of startups that fail).

And according to Chen, growth costs are rising for 2 high-level reasons:

Acquiring and retaining talent is way more expensive than it used to be (high comps)
As growth becomes harder, growth is shifting more to paid channels to scale amidst lots of competitors

So, what’s happening as a result?

Startups are raising more money to get (and maintain) traction. Cash raised often goes to fund bigger and more expensive paid acquisition efforts — because that upward growth curve is really all investors care about. Spend to grow so you can raise again, meaning rounds are getting bigger. The classic adage once you go the VC route.
Companies are trying paid marketing earlier. And because more companies are trying paid, the costs go. The plus side though is that because companies start sooner, they can test and master paid spend much earlier, giving them an earlier and better understanding of unit economics and how to optimize the other steps in the funnel.
There’s an increase in emphasis on paid referral programs rather than virality. More companies are using referral campaigns to juice their acquisition. These paid referral programs help build user engagement and get companies to faster network effects.
Companies are going for deeper monetization in order to open up paid channels. To spend more on paid channels, companies need to either raise more money, or make more money. As a result, companies need to optimize for better LTVs to justify higher CAC and increased competition across the board. “In short, better monetization is a competitive advantage for growth”

Takeaway: As you build your company, don’t underestimate the rising cost of distribution

⛏️ Source + dig deeper: Startups are cheaper to build but more expensive to grow - here’s why, Andrew Chen

Speaking of being cheaper to build and trying to keep your costs down…check out the first bonus link at the end of this post.

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How to get people to choose your product

Why would I ever listen to the second-best podcast on a topic if, for the exact same effort, I can get the best? Why would a buy a record from a band that 'sounds like the Beatles' if I can get the Beatles for the same price?
— Cal Newport

In a short and punchy article, Justin Jackson takes a stab at answering the question: why choose product X over Y.

Anything you build has to compete for attention with the other available options.
If someone can just as easily buy a similar product from a more trusted brand for the same price, why would they choose you?
To compete with established brands, you’ll need to figure out how to differentiate yourself in meaningful ways.
Think about:
What do customers care about? (product quality, service, story, community, values, features)
Which of these items can you deliver at a high level?
For example, Tony Dinh built a screenshot tool called Xnapper.
There were already existing options, so Xnapper had to be better in a few areas that customers cared about.
So Xnapper focused on generating "beautiful 'twitter-ready' screenshots without using Photoshop."
He nailed the execution. It's super easy to create screenshots for your website, or social media. Each image looks like it came from a professional designer. I use it 3-5x a day.
How to make your product the better choice
"How can I make my product/service the more attractive choice?"
The answer will depend on what certain customers value.
The key is to combine multiple attributes (that certain customers care about):
Pricing: " Start unlimited podcasts for $19/month. "
Customer Service:  "We provide the very best customer service, customer experience, and company culture."
Features:  "Auto-post your podcast to YouTube."
Your story: "Did you hear about Jack and Paul? They bootstrapped an analytics company and compete with Google."
Your values:  "We're standing up to big tech."
Packaging:  "Ugmonk products make such great gifts because of the packaging."
Reputation: "I've heard Cloudflare is the best way to speed up your website."
Distribution: "I chose this product because it was the first result in my Google search."
Product quality:  "Stephen Kenn's furniture is an example of quality craftmanship."
Remember, this isn't just about delivering "more practical value;" it can also include emotional properties that people desire.
For example:
"This is the brand my friends use."
"I resonate with the founders' story."
"This company aligns with my values."
"This is the brand that people like me use"

Justin writes about “bootstrapping, the good life, building calm companies, business ethics, creating a better society, and introspecting the tech industry”. You can find his newsletter here.

10 things to do as a PM joining a new company

There’s loads of advice out there on how to onboard when you’re joining a new company as a product manager, but most of it focuses on getting up to speed with the product and the customer first.

And while obviously super important, Aatir Abdul Rauf has some other advice focused around people.

Product Managers often make this mistake when they join a new company: Focusing on the product rather than figuring out the organization.
Fueled by impostor syndrome, new PMs tend to spend time on analyzing the product: docs, analytics, market, competitors.
This forces them into a silo.
Sure, they may figure out a plan. A few ideas. A problem. A feature.
But they'll be disconnected from the team's operational energy - their history, their motivational drivers, their ambitions.
What if the team already tried what you just imagined? Or the product isn't designed to change the way you want it to? Or there are other priorities that need attention?
Without "org sense", PMs won't have the wheels to put ideas into motion.
No buy-in. No support. Resulting in longer time-to-value. So, what do you do instead?
As you're onboarding:
Start with your manager. Build a relationship. Connect at a personal level once you warm them up. Know what their goals are. What's their definition of success for you? What's their SWOT on the product?
Ask your manager who to talk to for specific things.
Draft a little org chart for relevant departments.
Memorize names & job titles. Note down who owns what part of the product.
Setup 1:1s with devs, product, QAs and ops in the first 10 days.
For on-premises resources, schedule a coffee chat. For remote, send a "Hello there" Loom video linking to your Calendly. Keep the ice breakers short (20 mins).
Start with small talk. Find something common. Learn what they do & how long have they worked on the product. Find what drives them, their challenges, their expectations.
Get yourself invites to team meets. Listen. Observe. Note down what you don't understand.
Do tight AMA-like sessions. Instead of asking people to tell you all about the product, go with a list of specific questions to them. But break it up into segments. Don't overwhelm them.
Learn about the market, competitors etc. "in collaboration" with them. Understand their context.
Don't pass judgements. If something is off, ask them about their honest opinion. Why is it done that way? Maybe there's more to what meets the eye. Also, appreciate things you feel have been done well.
To make an impact early, embed yourself among the people driving it. Become one of them first.

Aatir also writes on Substack, you can learn more about his newsletter, , here.

Maximizing CLV — understanding the key drivers and their relationship

If you’re building a consumer subscription business, then one of your most important metrics is Customer Lifetime Value, or CLV.

Substack is a consumer subscription business, and since I started this newsletter, also my new favorite platform. So when I came across a post on CLV by Reid DeRamus (Growth at Substack), I knew he’d have words of wisdom to share on the topic.

Reid lays out four primary drivers of CLV:

Customer lifetime — how long someone will remain a paying subscriber before they cancel (if ever).
Revenue — average revenue per user ("ARPU"), expressed on a monthly basis (monthly recurring revenue, "MRR") or annual basis (annual recurring revenue, "ARR"). ARPU usually ties closely with your subscription price but can fluctuate based on discounts, special offers, and price increases.
Marketing costs — the cost to acquire customers ("CAC").
Variable costs — costs that scale or have a close relationship with revenue growth.

https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F2d7e3560-007e-4fe4-a1d5-f5f898e6e6df_738x550.png — Image by Reid, via Growth Croissant...

The thing is, these factors are all interdependent. Meaning if your play with one of them (like charging people more), then at least one of the other drives will change to —likely in the other direction.

Reid lays out an example: Increasing your price to boost CLV.

What happens?

https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3d07a6e0-75db-4e71-86b8-ac0478f2c191_738x570.png — Image by Reid, via Growth Croissant

All else equal, we're selling the same product at a higher price. Attracting new subs will become more challenging, leading to a higher CAC. If pressed too far, a price increase can also erode retention for existing subscribers and shorten customer lifetimes. For a price increase to have a net-positive impact on CLV, the increase in ARPU must outweigh the rise in CAC and erosion of customer lifetime.

Obviously there are endless scenarios, but he emphasizes the key point: “improving CLV is a delicate dance of inching all the drivers in the right direction. If we focus too much on one driver, we'll likely harm the other drivers, which could lead to a net-negative impact on CLV.”

For more on CLV and growth frameworks, checkout Reid’s newsletter — .

And that’s it for this week! I just want to say, thank you so much for reading and subscribing to How They Grow. I don’t take you giving me your time lightly. I know how much amazing content there is out there (this series is me taking a stab at aggregating some of my favorites for you), so, thank you for choosing to invest your time here with me. I’m very grateful. 🫶