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Many business leaders are overlooking a way to grow their company and capture untapped value. Most of them understand the superior value of business models built around subscription-based software as a service (SaaS) and models built around marketplaces that join together many buyers and sellers. Few, however, understand the exponential growth and value that comes when both of those strategies are combined with data and machine learning models. As well, many leaders simply haven’t considered adding these strategies and models to their own business to create platform economics and growth — whether they’re running a startup, a midsize company, or a legacy organization.
But the opportunity to integrate these three strategic elements is becoming a critical business imperative. Companies today compete with one another for human capital (customers, partners, and employees) and financial capital (debt and equity investors). Growth stocks have outperformed value stocks since 2008, a reality that has accelerated during the pandemic. Investors are reallocating more of their capital to growth companies to align with a shift in consumer buying patterns (for example, from Regal Cinemas to Netflix). These facts reinforce the “grow or die” mindset — especially for companies that want to access the best talent, customers, suppliers, and investors.
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Just as “beating the market” means focusing on growth stocks to investors, for companies it means allocating resources in ways that also drive growth and, therefore, superior performance. Some business models are better at this than others. Manufacturing and distribution are capital intensive, while financial and professional services are capital inefficient. SaaS and platforms, on the other hand, are capital light, with platforms even better by this measure than SaaS. Building a platform business model with (1) subscription revenues with a large user base, (2) a robust marketplace of sellers, and (3) machine learning models based on data has become the best business model for the modern world, offering the most capital-efficient model on the planet.
So how do you go from a bad business model that is capital inefficient to a spectacular one that is as light as air? You do it through this combined trilogy.
The Power of SaaS and Machine Learning
In his seminal 2005 book The World Is Flat, journalist Thomas L.