I wanted to write a short article on the peril of platforms and how basing a business on top of someone else's platform is risky. Levered Income is about how to leverage tools to maximize your incoming cash flow, but you do need to be aware of the leverage those tools have on your business.
What is a platform?
A “platform” is a support structure that you base your business on and use to operate your company. This support structure could be how you market your company, deal with operations, or even interact with customers.
For example, if you market your company using Facebook, you are using someone else's (Facebook's) platform to reach out to your customers.
Why would you use someone else's platform?
There are a lot of reasons to use a third-party platform for your business.
If you are trying to find new customers, you naturally go to where your typical prospect is and then market your goods or services to them.
If you are getting started, leveraging other platforms (and the previous investments made by others in those platforms) is a great way to jump-start your business.
What are some examples of platforms?
There are a lot of different platforms out there to leverage your business. I won't get into all of them (they are everywhere), but here are a few examples.
Instagram and YouTube are examples of artistic platforms for video and image posting.
Auction and eCommerce platforms such as eBay enable you to reach millions of shoppers worldwide. The entire customer experience (shopping, payment, fulfillment, and review) occurs within the eBay ecosystem.
Google and Bing are examples of search engines that drive traffic to your online properties (websites).
Booking.com and AirBnB.com are examples of travel booking platforms that hotels and vacation rental owners can use to market, book, and manage their rental businesses.
These Platforms are Great, What are the Perils?
All of these platforms are great and are great tools to leverage to drive more revenue to your business. What are the perils?
You do not own the platform.
You are building a business on someone else's foundation and infrastructure. You do not own it. The future of your company is controlled by a third-party.
If your business is 100% dependent on Google traffic, and Google blacklists your website, changes their search algorithm, or decides to compete against you, Google can turn off your website traffic.
Companies spent millions developing and marketing their Facebook business pages to their followers, only to have Facebook change their algorithm. Facebook wants to monetize its users, and now they charge for placement in user feeds.
I have seen vacation rental businesses have an entire season of bookings deleted due to some unexplained terms of service violation. Imagine watching $100,000 in upcoming bookings disappear overnight and having no recourse. Remember, these are not your customers. They are the booking portal's customers. Even though you, as the building owner, are putting hundreds of thousands of dollars of assets on the line, the booking portal will always side with their customers, not you as the host.
My Thoughts on the Perils of Platforms
Platforms enable you to apply tremendous leverage, and I use them all of the time for different businesses.
I use various travel booking platforms for vacation rental businesses, real estate platforms for long term rentals, social media for marketing purposes, search marketing platforms, web design platforms, and hosting platforms.
To mitigate the risk, I try as much as possible to diversify across competing platforms and reduce business reliance on a single support structure. Additionally, I try to own and develop as much business-critical infrastructure possible.
In online businesses, for example, I focus on the business website first and foremost. I own the digital real estate (domain) and the website. I can choose to market on Google, Facebook, television, or print ads to drive traffic to the site. The site is built on something that I control and is a solid foundation for that business.
The goal of Levered Income is to leverage tools and business models as much as possible to increase cash flow, but watch out for the perils of platforms that you are leveraging.
Good luck out there!