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How to build an Ecosystem – 7 critical Elements of any Ecosystem

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In our last article we put emphasis on practically proven successfactors for winning ecosystems in the context of corporate venturing. Shortly after the publication a highly valuable discussion broke the ground. Feedback and questions touched a variety of relevant aspects: the importance of co-creation or the definition of “paying customers” in the light of GAFA’s data-driven business model and the respective consequences for building ecosystems to just name a few. Overall, the most discussed topic deals with important components, this is, elements of the ecosystems and the different approaches to build one. We thus decided to put things a little bit further and provide our battle-proven thoughts on defining crucial parts of any winning ecosystem as well as the different paths to successfully bring it to life.

As we pointed out in the last article, it is crucial to firstly deeply understand the definition of an ecosystem and be consequently capable to distinguish related terminologies and concepts. An ecosystem provides an individual with everything they could possibly need regarding a specific topic. This includes demand and supply but extends to all sorts of information and social exchange a specific topic could possibly ask for. We therefore define an ecosystem as a system that answers all needs customers or suppliers have regarding a specific topic. In other words it is vital to think, build, test, and iterate the ecosystem’s elements consistently along the journey of any stakeholder involved in the ecosystem right from the start and beyond.

In the following we thus firstly outline how to apply the customer journey as a focal point of all activities, secondly which elements predominantly respond to which customer journey steps and the therein incorporated paint points as well as respective needs, and thirdly frame two different ways to combine the chosen elements into a winning and constantly evolving ecosystem. Finally, we illustrate the different approaches in two case studies.

Detailing the customer journey.


We never get tired to stress the importance of constantly and holistically thinking about and jointly with the customer and any other relevant player when building a winning ecosystem is the objective. As we stated above, the predominant characteristic of any ecosystem is to respond to all stakeholders needs across the whole customer journey, this is, from awareness over transaction to retention. By evaluating the pain points and associated needs according to the underlying frequency (i.e., how often the particular pain point occurs) and severity (i.e., how severe is the pain associated with the particular job and thus consequently the need for helping services or products) not only the starting point for the ecosystem’s MVP is framed but also the basis to define potential future elements that collectively form the ecosystem’s interconnected and holistic value proposition.

Generic Customer Journey



Applying our evolving approach in building an ecosystem, one should initially focus on those customer journey step(s) with the highest degree of perceived pain associated with the respective customer job(s) as the probability of user acceptance for any product or service within this field can be determined as the highest. Once the first offering for the particular customer journey step(s) has achieved product-market-fit, the value proposition can be enlarged by focusing on further pain points and needs by either vertical (i.e. selected pain points are holistically and seamlessly addressed) or horizontal (i.e. further pain points are addressed but customer offer is only loosely or not all coopled) diversification. However, it is vital to build the ecosystem with the identified stakeholders by tirelessly and holistically keeping changing needs throughout the entire journey as a focal point. As no one can predict all existing desires of all players within an ecosystem and there is a high probability that those needs will change over time, this exercise should not be seen as an one-time task but rather as a constant and iteratively applied methodology throughout the whole course of building the ecosystem. This not only facilitates the validation of defined hypotheses but also ensures the ecosystem’s early and constant traction and thus ideally revenue.

Break out Box: Think Big, Start Small




If one elucidates the word ecosystem, it comes clear that the complexity of such business models is already inherent in its terminology. In biology an ecosystem is a community of living organisms in conjunction with the nonliving components of their environment, interacting as a system. By transferring this analogy to the digital age, the necessity of an evolving approach in building ecosystems is evident. The inflationary cited phrase “think big, start small” may sound buzzwordy but definitely holds true when it comes to building ecosystems. We therefore developed a model consisting of 4 phases to sequence the complexity in practical and applicable slices to successfully maneuver from a niche player towards an ecosystem.
To kick-start the market entry the preliminary objective is to target a very specific need of a very specific customer target group to gain traction early on building the foundation for the ecosystem. By (vertically) diversifying and iterating the business along the customer journey a broader audience and product-market-fit is achieved. This signifies the tipping point from a product-based approach to a portfolio-driven business. In order to respond to the requirements of an ecosystem the provision on an integrated and holistic value proposition consisting of multiple solutions orchestrated from one single point is decisive to fulfill all stakeholders’ needs. Leadership’s vision, commitment and endurance are inevitable throughout the journey as the business will operate as a cost center for some years before first profits will occur on the P&L.


Different Elements answer different parts of the customer journey.


Once the customer journey is understood, one can start thinking about suitable elements and value propositions that address the identified, clustered, and prioritized pain points and associated needs. As the thinkable options are multifold, we framed seven crucial elements that individually focus on selected customer needs and collectively provide an holistic value proposition for all wishes across the customer journey: (1) Editorial & Blogs, (2) Expert Community & Consultation Service, (3) Marketplace, Webshop & Comparison Portal, (4) Supply Chain, (5) Service Portal, (6) User Community, and (7) Experience Portal.


Ecosystem Elements




In the following we outline each of the illustrated seven elements, point out which customer journey step(s) each element is predominantly responding to, highlight potential selected revenue streams, and provide best case examples. We will not explicitly explain the necessity of (customer) data for all of the stated ecosystem elements. However, we strongly underline the importance of collecting, structuring and using (customer) data to completely unleash the full potential of each element and thus the ecosystem as a whole.


1. Editorial & Blogs


Blogs or any editorial element predominantly addresses the customer journey steps “awareness” and “interest” by providing insightful content about a few selected or several topics to raise attention, informing the user and thus nourishing the need for curated and aggregated information. The main features of this element consequently are the provision of themes to generate the content in a user-friendly way, the organization, this is, categorization of the content, and a topic tag system facilitating filter and search functionality. The provided content can either be made by an hired staff, external content contributors or both. Potential revenue streams for this element are for example (native) advertising and sponsored content, affiliate marketing, subscription/membership (i.e. access to exclusive content), and editorial services (e.g. ghost-writing, proofreading, etc.). The online publishing platform Medium for instance stands for highly valuable content that is provided by a hybrid collection of amateur and professional publications. The content is partly limited by a paywall (i.e. membership) and the content contributors are compensated by means of the partner program.


2. Expert Community & Consultation Services


Expert communities and consultation services are aimed at supporting the user throughout the decision making process, this is, from “awareness” over “intent” to “transaction”. Expert communities and consultation services are centered around the exchange with either like-minded profession- als (i.e. expert community) or highly skilled specialists (i.e. consultation services). Both, however, predominantly aim at establishing a trustful relation with the customer. Revenue can be generated for example by advertising, a subscription/membership and/or service fee. The best and probably most known example for an expert community is the professional network LinkedIn. Online consultation services are so far a rising field, especially in the healthcare industry. A promising example for consultation services within this field is Klara providing an end-to-end virtual care platform that helps practices virtually stay connected with their patients.


3. Marketplace, Webshop & Comparison Portal


The main aim of this element is to provide the means to guide the user from “interest” over “intent” towards “transaction”. Therefore, products are sorted in respective categories to make them searchable and comparable in order to facilitate decision making. The listed products are either provided by third-parties (i.e. marketplace) or by the platform operator itself (i.e. webshop). Comparison portals can be distinguished by mainly listing products and thus make them comparable but they often do not enable the transaction on the plattform. Depending on the chosen model potential revenue streams are for example a (re)selling premium, a commission fee or a listing fee. Commonly known best practice examples for marketplaces with large product portfolios are Amazon, Alibaba, and Ebay. Mobile.de and Check24 are successful examples for a special-interest marketplace and a comparison portal.


4. Fulfillment


Order or transaction fulfillment obviously is strongly connected with the previous element (i.e. marketplace & webshop) and aims at providing a good customer experience after the transaction has taken place. Nowadays, the customer expects a constant availability of goods as well as same-day-delivery or at least a distribution within a short period of time. Thus, any company has to excel in fulfillment, when a shop or marketplace is part of its ecosystem. A well-functioning fulfillment may be a good way to differentiate itself from the competition resulting in a higher customer retention (e.g. same day delivery). The allocated resources in providing or acquiring the needed supply chain can be compensated by a delivery fee. The highly efficient supply chain of Amazon is one of the main reasons why Amazon is often referred to as the leading marketplace.


5. Service Portal


The service portal mostly occurs as a service marketplace or at least an affiliate business model, which however remains a relatively untouched discipline by ecosystems or digital business models in general so far. Whereas the way how supply and demand of goods are brought together have been altered by the well-known e-commerce giants, the (digital) service economy lags behind. This is mainly due to the complexity and diversity of services, the fragmentation of service providers, the heterogeneity of service quality amongst providers, and the necessary real-world interaction. However, we strongly believe that new business models will unlock the digital service market and shape the new marketplace paradigm. First proven examples are the Brazilian startup Loft and the German equivalent McMakler, which provide a digital real-estate platform intended to buy, sell, and rent residential and commercial properties to facilitate or even make all intermediary brokerage services obsolete. Both successfully closed several two-digit $Mio. investment rounds provided by leading venture capitalists such as Andreessen Horowitz.


6. User Community


The user community aims likewise as the expert community at guiding the customer throughout the whole journey by providing not only valuable but highly credible information. As the counterpart of the interaction are other like-minded customers, the user community represents a valid means to build a highly trustful relation with the customer. Advertising, subscriptions and affiliate marketing are some exemplary revenue streams but the predominant strengths of the user community lies within providing a place to exchange experiences with others and thus build strong customer trust. Houzz has professionalized this approach by building a user community of more than 40 million homeowners and home design enthusiasts.


7. Experience Portal


Experience portals obviously aim at providing a good customer experience after the transaction has taken place, this is, bridging the steps from “transaction” to “retention”. By enabling a joyful and engaging interaction with a certain product or service, repurchase rate and average revenue per customer are positively influenced (i.e. higher CLV). Although, the customer’s willingness to pay for this “add-on” offer is often not at all or only weakly existent, gathered user and usage data are the equivalent currency of this element and should be used to understand the customer more deeply. Good examples for experience portals that efficiently keep customer retention high are Apple’s HomeKit or Amazon’s Alexa as they allow the customer to experience multiple devices and applications throughout one single portal or interface.

How to combine the elements to an ecosystem.


Combining the above stated elements into multi-sided business models is a challenging task. The necessity of an evolving approach to cope with the complexity in building ecosystems is thus evident. By applying the maybe inflationary cited but valid phrase “think big, start small” we use our 4-phased model to sequence the complexity in practical and applicable slices to successfully maneuver from a niche player towards an ecosystem. Detailing this framework we distinguish two different paths how to move towards the seeked ecosystem: (1) by starting with one single element and continuously adding further ones that are strongly linked from the beginning or (2) by starting with several elements or respective business models that are firstly not at all or only loosely coupled and will be interconnected later.

Two distinct Paths of Ecosystem Development



The main difference of those two paths lies within the strategic decision if a more focused or more diversified portfolio represents the more appropriate approach at the beginning. Both are valid and can also be applied in a hybrid strategy. There are various advantages inherent in the two paths. Generally, the first path aims at covering as many pain points within selected customer journey steps as possible to facilitate the testing and iterating of an interconnected value proposition fostering a deeper understanding of the customer and the desires within the addressed customer journey step(s) from the beginning. The second one enhances a less linked but more diversified portfolio and thus broader coverage of pains and needs. The applicability of the two approaches should be thoroughly evaluated according to the specificities of the desired ecosystem. The above stated customer journey analysis is hereby an efficient tool that helps to identify white spots and thus facilitates decision making.

In the following two case studies are stressed to outline how we applied both approaches in building two different ecosystems.


Case Studies.


1. €50 million backed ecosystem living


Throughout the last years Bridgemaker has started to jointly build an ecosystem with one of the leading insurance companies in Germany. The vision is to leverage the synergies of marketing not only products and services but also specifically tailored insurances to satisfy the customer’s needs along the journey of searching, selecting, maintaining and operating a property. In other words, the venture’s aim is to help customers to overcome the challenges of modern living by providing vetted ideas, solutions and support for a more secure, comfortable and healthier daily life. In order to do so a hybrid strategy is pursued. Firstly, path 1 has been followed by building a marketplace, a blog and a service portal. Whereas those three elements are strongly linked from the start the own-built experience portal demonstrating the customers possible sustainable effects of smart home product usage in a playful manner has been marketed with no linkage to the other elements. Thus, the second path has been pursued in order to freely test the MVP without potentially harm- ing the successfully installed marketplace. Once the problem-solution-fit will be achieved the integration of the experience portal predominantly aiming at collecting usage data to enhance custom- er retention will be integrated into the existing ecosystem.


2. €40 million backed ecosystem mobility


Together with a leading German energy provider Bridgemaker is building an ecosystem focusing on future mobility. The ecosystem is based on several different business ideas (ranging from car sharing and fleet maintenance to ai-based street maintenance) that are managed independently. After several years of constantly adding new loosely or not at all coopled elements to the ecosystem we recently started to connect the dots and identified the last missing pieces for an end-to-end ecosystem (which unfortunately has to stay a secret at this time). Following the road of the second path we had started as a single Niche Player, then became a multiple Niche Player and currently aim at acting as an ecosystem orchestrator by ensuring a seamless experience amongst all elements. It is important to note that this process started more than four years ago and will take at least four more years.



Conclusion.


Building ecosystems may be challenging but it represents the next logical step in the evolution of venture and startup building. By combining single business ideas along the customer journey to holistic ecosystems, true customer satisfaction can be achieved and long-term profitability is actually possible. However, building ecosystems is hard work. It not only requires organizational changes but also a consistent and strongly methodology-based and customer-focused approach and respective tools. We at Bridgemaker are one of the few Venture Builders in Europe that actually excels in building ecosystems in several industries. Feel free to contact our experts and ask for a free sparring to jointly enhance your approaches and thoughts at any time.


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Authors: Jonas Hammes (Senior Venture Architect) & Kilian Veer (Partner)