May/104
The trouble with “Stacking” your business
I’ve been thinking a lot lately about attempting to create a business that’s a “viral stack”. I first read about “Viral Stacking” in the book, Viral Loop, by Adam Penenberg.
One of the examples given in the book is basically that Ebay was growing incredibly virally, and then Paypal came along with a much needed service and piggy-backed their viral growth. Youtube & Flickr did the same thing with Blogs & Myspace – creating a service that bloggers & myspacers needed. The same sort of thing happens with all the social games out there like Farmville and Mafia Wars built on top of Facebook.
So, now you get the idea…
Some service is growing at lightning speed, you provide a service that’s needed by their customer base, and viola – you’re growing at lightning speed too.
I’ve been thinking about creating something that would ride on top of Clickbank, in much the same way. Even though the growth of Clickbank is not “at lightning speed” as compared to Facebook, Twitter, or Ebay (back in the day); it still has good steady growth and a hungry hungry affiliate base.
And then a few things happened to some of my friends in the last week…
o Paypal has been limiting and even shutting down some companies accounts. It feels like the Paypal of 7 or 8 years ago. I’m not exactly sure of what the pattern is – but I think it’s a backlash from the higher refund rates on higher ticket products that a lot of info product sellers are seeing now because of the recession.
o Ning has thrown out their ‘free’ model. (Funny, Ning was an example given in both the book “Free” by Chris Anderson and “Viral Loop” mentioned above.) A friend of mine had an info product that basically “stacked” on top of Ning – but it was heavily reliant on the fact that Ning had a free model. Oops – back to square one.
o Yesterday, Twitter announced a big change in their API in relation to advertising that will drastically effect a company that I personally use and recommend called Sponsored Tweets as well as others with similiar business models.
o Plus, I’ve recently had a hacker attack us through an exploit in a piece of software that I’ve built my current business on top of.
Believe me, I know these things can happen…
On the flip side, it’s awesome to be able to ride on top of another company’s success, too. I think the benefits far outweigh the risks in this case. But let this be a warning to you (as well as to me) when you try to stack your business on top of another company. They can, and most likely, will change the rules on you at some point.
It’s best to go into the relationship with a ‘white hat’ on and, more importantly, with open eyes as to what the risks might be if the rules change on you.
I’d be interested to know what you. Please comment if the rules have ever been changed on you by another company in such a way that it’s effected your business.
UPDATE May 26
Oh the Irony: Today my PayPal account was ‘limited’ – they want a business license from me. I’m sure I’ve provided them everything they could possibly ask for in the past. I guess they’re just doing a yearly sweep or something. Don’t have much money in there right now… Didn’t do a launch recently… So, can’t think of what it might be other than ‘random’.
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1:10 pm on May 25th, 2010
Hey Harris,
This isn’t a term that I was particularly aware of but once you explain it then it becomes clear.
I certainly haven’t suffered from anything like this as I am not at that stage in my business. But seems to me that it is just that age old saying of “change or die”. Its all very well setting up a service that can ride on the back of an already successful site but you have got to be able to adapt your own business model if their model changes.
Not really a lot of difference between the online and the offline world when it comes to something like this. Many businesses are dependant upon other, bigger entitys like the farmers who produce for McDonalds then all of a sudden McD’s decides to focus on salads, or the timber merchants who depend on the housebuilders etc.
But online we can adapt quicker so if you have an opportunity to piggyback on a successful site then do it but be prepared for that inevitable change.
Andy
1:51 pm on May 25th, 2010
Anytime we Rely on Another, we Open ourselves up to Being Left in the ‘SplatZone’ … Holds True for employees too! Best be ‘Adaptable’ and have a Backup Plan & Exit Strategy. Prepare for the What-If Worst-Case Scenario while Working Towards the Best Case ‘Ideal’. Just a short while ago Several Offices and Businesses had to Move Out of their ‘Digs’ with Last Minute Notice while the Locksmith was working on the Locks. Meetings planned to be held at the Office for That Night were Cancelled Without Notice to Speakers OR participants who showed up to Closed Doors!
3:34 pm on May 25th, 2010
Great post.
If you are going to stack and ride the coat tails of an existing companies success you need to make sure that you have the ability to change/adapt quickly and easily.
I do think this method is one of the best ways to look at models and industries to see were they are going and how you may or may not penetrate them.
Cheers,
Hollis Carter
5:15 pm on May 26th, 2010
Interesting post harris, I have never read that book but am adding it to my list… I appreciate it.
I have never intentionally created a site that piggy-backs off another sites growth and success… then again I guess an info-product “could be” that.
it’s definitely important to be versatile in today’s world, especially online.
Just thinking about how many changes twitter, facebook and youtube have made over the past year is crazy… quite a few for sure.
I agree with you, it’s definitely important to be open minded… really to expect change and roll with the punches if you have a piggy-back site or concept.
Interesting post and thoughts to ponder… thanks for sharing!
David