October 6, 2013

HAMED: Micro-Communities Are Hard

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By ALI HAMED

I’ve recently been pitched quite a few ideas that attempt to tackle micro-communities.  These ideas make sense for a lot of reasons:

But as attractive as these communities are, and as much as the Internet has the opportunity to act as the glue bringing neighborhoods together, they are really hard to scale.

*my definition of scale: a company that is able to increase profitability over time via efficiency achieved due to an increase in size of the operation.

The biggest reason they are hard to scale is that marketing spend in each new community either stays the same or increases. A typical founder will initially attack a marker he or she is familiar with. Community number one will act as the pilot community, but also the easiest to penetrate. After that, the entire marketing plan will need to be repeated, but with fewer of the founder’s friends and family present to push the product — and typically in an increasingly expensive fashion.

Word of mouth from one community to another is unreliable — and while virality is important in helping companies grow rapidly, virality is facilitated by a key factor: That users share with others for their own benefit.

Example: Pinterest is more fun if all of my friends are sharing photos I can look at.

But in building micro communities, virality is capped at the border of each community.  Beyond that, there is no user-benefit to sharing the product with a new population-set (aside from personal validation and feeling cool).

There are still more obstacles. Micro-communities require community managers, and these types of outgoing community leaders are incredibly hard to find, as well as hard to retain. They must be thought leaders, and most thought leaders have plenty of other job opportunities to mull over.

And local competitors are bound to crop up. Local network effect is not as drastic as the network effect achieved at a global or even national level, leaving the door open to more niche products to constantly nag at a larger startup’s foothold (Groupon saw this happen to them quite a bit).

Other companies have also seen difficulty in achieving consistent market adoption, and in increasing profit margin.

There are ways to fight these issues. But it’s hard.

(1) Partnering with local organizations already established is one way, (2) finding common tenants of a business that can be scaled is another, and (3) introducing catalysts of virality mutually beneficial to multiple communities are all effective, but difficult to achieve.

For now, I’m too afraid of the capital required to get these companies off the ground, but prove me wrong!

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