3-2-1nsight: Strength to Strength
If no mistake you have made, losing you are. A different game you should play.
Following up from last week where we looked at the challenges that now exist for maturing “disruptive” companies as they continue to try to grow after the pull forward they saw from the pandemic. Today, we look at the new high-growth companies that have been able to continue to excel after the pandemic and explore how they continue to outperform their peers. Going beyond the obvious, I break down what considerations these companies have taken into account in order to grow.
3 Stories
Airbnb continued to blow expectations out of the water despite previously laying off a sizeable chunk of their staff and shutting down many of their prior initiatives in 2020 when the pandemic started. Two years later, revenue has passed its pre-pandemic levels and generated $2.2 billion in free cash flow on just $6 billion in revenue. That level of profitability surpasses even most traditional tech companies. While Airbnb’s revenue and operational efficiency excelled in 2021, its resilience was the genuine star in Q4 as the company saw outstanding performance despite omicron. Omicron shut down many other travels, hospitality, and leisure businesses, but Airbnb saw Q4 revenue outperform 2019 Q4 by 38%. That revenue growth and $2.2B in free cash flow show Airbnb’s ability to continue growing and establishing strength in this new travel paradigm rather than spend more money convincing new users to give their service a try. Airbnb expects substantial growth as more supply will open due to homeowners combatting inflation by offering their home on the service, which means they’ll be able to get and capitalize on this extra inventory with more demand.
Snapchat Q4: 319 Million Daily Users, Revenue Up 42% - Variety
While Meta provided earnings that showcased how fragile and how much their business depends on iPhone users, they continue to suffer from competition from TikTok and declining user growth. That was in contrast to Snap, which saw record revenue despite the Apple privacy updates. Snap, rather than trying to over-invest in current expectations from retailers, merchants, and buyers of traditional social ad products, Snap opted to build a solution that included a new tracking method that better captured the realities of mid-funnel prospecting. By understanding how their platform was unique to their customer’s experience in how they used their service, Snap didn’t bypass or outsmart Apple but better recognized their value proposition and how they could build a better monetizable product from that. Snap reported their first profitable quarter as a public company by focusing and giving their users what they want.
Disney+ streaming growth, park revenue boost shares | Reuters
After unveiling its most recent numbers, Netflix saw its stock tank, which showed that the pull forward in subscribers during the pandemic meant it would be harder for Netflix to grow. With rising content costs, many understood that Netflix was nothing more than a glorified studio that had better algorithms and better access to the credit market to finance content production. Disney realized this, so while they want to be seen by Wall Street as a subscription company to garner similar multiples to tech companies or Netflix, they operate differently. Now that Wallstreet and others may finally see through the smoke of Netflix’s mischaracterization as a tech company because they have an app, Disney is now probably thankful for their more robust and resilient revenue model. With its more robust revenue model and deeper content library, Disney has continued growing its consumer base as it’s done a better job with international expansion. Disney’s broadcast and streaming rights to the Indian Premier League Cricket allowed Disney to grow dramatically in India. Pairing live sports programming with their robust content library creates a very sticky value proposition for any India-based customer. By not having the same streaming model everywhere globally, Disney’s again able to leverage its variety and diversity to build more compelling offerings to consumers. The ability to manage various business models rooted in family and iconic IP has always been Disney’s core competency, and we can see how they applied their macro playbook specifically to streaming. Another reason why having diversity in revenue is so important is because while subscriber growth in India is less profitable than other consumers, that’s fine as Disney’s parks posted a surge in year-over-year revenue as attractions reopened.
2 Takeaways
Differentiated features still drive most growth scenarios for companies.
When we look at the most recent results from most companies, the companies that continue growing have found their growth rooted in their features. Take, for example, Uber, a company that created the “gig economy” and expanded from rides to food delivery. While Uber saw its ride-hailing revenue in the quarter rose 55% to $2.27 billion (still far behind the $3.05 billion it saw in 2019) for the quarter, its food delivery business came through for them. Uber Eats saw revenues rise to $2.4 billion, up 78% a year earlier, despite the world reopening. Although Uber Eats isn’t a ridesharing solution, it solves a different last-mile problem, which is Uber’s true core competency.
I share this because the companies that are still seeing the correct type of growth have continued growing profitably despite things returning “back to normal.” After all, their feature(s) are so killer. I say this not to diminish killer features before the pandemic with strategies and tactics that made sense at that time, but to emphasize that certain features became even more apparent and natural because of how the pandemic sped up the adoption of certain new behaviors. Uber Eats isn’t a unique product from 2019, except the function and utility of the feature became more apparent than ever during the pandemic. The convenience and trust established by Uber Eats are not going away; instead, it only gained more justification.
As we exit the pandemic, companies need to prioritize their features to remain relevant to consumers. It’s important to note that creating features that help you grow isn’t the same as chasing fads. Instead, prioritize expanding or strengthening features so effective that the pandemic conditions would only accelerate their adoption rather than be the primary reason for adoption.
To sustain surging growth, you need to recognize and own your strengths.
It’s never been more critical for companies to recognize their strengths and ensure that their business strategy and product roadmap reflect their strengths. Many companies often misunderstand their outcomes and attribute success to the wrong strength.
As we look at companies like Peloton, it is crucial to keep in mind their strengths and if the company's current state is a byproduct of losing focus on their strengths or if their competition exploited their weaknesses, significantly affecting the overall results. For many companies, losing focus on your strength causes you to make decisions that harm, ignore, or negate your strengths, which leaves you more vulnerable to having a competitor exploit your weakness and significantly harm your business. In Peloton’s case, the misunderstanding of their strength caused them to miss-prioritize their focus, allowing their supply chain and operation weaknesses to become more vulnerable.
By not truly understanding the connected fitness space, they failed to question whether their strength was integrating hardware and content delivery or just their premium content. Not grasping the importance of that question made it hard for the company to understand the tradeoffs they’d be willing to make. Peloton missed the ball by establishing its vision for connected fitness and not knowing why it was appealing. Without knowing the appeal of connected fitness, Peloton had a harder time distinguishing its features' role for its business. It also made it more difficult to understand if their current features were only “killer” for a select audience or everyone. Not recognizing the role of their features and how it played into their space and business model caused them to focus on all the wrong things and make so many terrible operational, pricing, and supply chain decisions.
Contrast this with Airbnb, which laid off staff and changed their business and business model because of the pandemic but is now seeing outsized growth. Even with new variants popping up and omicron threatening to shut the world down again, Airbnb’s refocus on its strengths allowed it to continue to thrive despite any new pandemic influence.
1nsight
To continue growing after the pandemic, companies need to build features that build from strength to strength to ingrain users into their system.
As many incumbents face plateauing growth due to their aggressive tactics over the past decade, allowing them to find users at cost, the new high-growth companies care less about sign-ups but more about their ability to retain and engage users. Rather than relying on growth hacks, the new high-growth companies have organic product growth caused by the stickiness of their features, which lets their customers peer pressure their other peers to use the service. Businesses that can do this see healthy growth despite the pandemic coming to an end, and past behaviors return to normal. The high-growth companies of tomorrow were never as focused on new users, which allowed them to not get drunk on their kool-aid, as the pandemic inflated sign-ups everywhere.
Focusing on sign-ups and growth plagued many early DTC companies even though they kept on using phrases like “owning the relationship” or “providing a bespoke experience” to describe an alternative to traditional retail. It proved for many to be a scam. Owning the relationship can help achieve better retention, but only if your business doesn’t rely on the traditional retail playbook. The only differentiator is that it's happening on a screen rather than in a store. But if a DTC business doesn’t truly own the relationship (so the customer and business are in constant contact), then all the business has accomplished is a new user sign up. So many companies misunderstand their strengths, which causes them to build the wrong features. Rather than thinking across the whole consumer value chain, many new businesses often find themselves with a single novel experience across the complex consumer value chain. Without understanding how a single unique novel experience might affect or change the entire pre-existing value, chain businesses continue to develop their business model and strategy around a single novel approach rather than across the whole customer value chain.
Rethinking an entire customer value chain is hard, which is why so many businesses have just taken traditional frameworks or methods and just added a screen or mobile component. And for many consumers, this is the path one needs to go down to onboard. However, as we saw from the pandemic, the services that continue to grow after the pandemic are doing so because they understand their strength and provide new or additional value to the value chain. Owning and knowing their strength, these companies deployed features built from the ground up, strength to strength.
When looking at Snap, we can see this executed in spades. Snap had a hard time achieving the same user growth or audience size Facebook accomplished early on. Everyone would compare Snap to Facebook because it revolutionized the social network. Facebook revolutionized friendship by redefining friendship and making it readily available on a screen. It was never easier to stay up to date with friends or let so many individuals feel that they were friends with famous individuals, ranging from influencers to celebrities. Facebook changed the value chain of friendship, and with their Feed, they created the most remarkable ad product in history. Yet, in a single move, Apple changed all of that the moment they changed the rules on their platform. The changes from Apple proved problematic for many, including Snap, who suffered early on. Facebook fared slightly better early on due to its massive user base, which was so entrenched with their Feed, that the ad products built for the feed proved to be still effective. The success of the feed blinded them to see how their work changed the customer value chain and how it continued to change it despite their intention.
Platforms like TikTok and Snap eagerly sought to provide new variations from content to function. While Facebook continues to struggle to deal with the realities of Apple’s changes, companies like Snap could recognize this and rather than try to make a new version of the Feed ad. Snap created a suitable workaround that made their platform better and more appropriate for mid-funnel prospecting. Given Snap's personal use and nature, creating a better product focused on driving awareness to friends of friends proved to be natural and effective.
Again Snap succeeded by understanding their strengths and then using them to build features that improve customer experience, from strength to strength. Rather than continuing down their previous path, they looked inward to create the right tools that better showcase their strength. Now, as they’ve changed the perception and value to their customers, they can’t rest on their laurels but will continue building out their product roadmap, so it helps the company grow, strength to strength. By recognizing their strengths, Snap no longer needs to make plans that adapt to an outdated value chain.