Ever since Malcolm Gladwell wrote the eponymous book, tipping points are popular. I see many a start-up presentation that tries to convince me their venture is almost at a tipping point, or that with just one more round of funding they will be at their tipping point.
I’ll give just one quick example. There’s an interesting little public company trying to become an Industry in the Cloud (IC) provider in the North American upstream oil and gas space. (It’s an intriguing and still fragmented space.) The company is called Cortex Business Solutions, it is public in Toronto and trades under the symbol: CBX.V. Cortex have raised $20 million so far and used about $12 million in the last two years, but they are adding buyers (which they call hubs) and their associated supply bases. Their investor presentation shows growing transactions, growing recurring revenue, and describes the growth as “viral”. Indeed, they conclude: “We have reached a tipping point.”
Gladwell defines a tipping point as “the moment of critical mass, the threshold, the boiling point.” Gladwell states, “Ideas and products and messages and behaviors spread like viruses do.” Mr. Gladwell gives examples in his book, almost of which come from consumer markets. I loved his book and his subsequent ones, even though they seem to take some liberty with the underlying data. But with all due respect, I don’t think Mr. Gladwell ever participated in a B2B commerce buying or adoption process. The only thing that spreads like viruses among large enterprise buyers are, well, viruses!
As all B2B veterans know, the security, economic, technological, business process change management and political considerations large companies have are effective in thwarting the best efforts of any IC provider whose task is to convince industry participants to get on board on new platform!
There’s no question that e-mail spread quickly throughout enterprises, as did word processing, spreadsheets, PowerPoint, but none of these directly dealt with inter-enterprise commerce. There’s also no question that multi-tenant, on demand, SaaS approaches aimed at non-commerce processes within SMEs can grow very fast (i.e., Salesforce.com’s nearly 100,000 customers over 10+ years). But the closer a platform gets to real commerce, the less likely they are to see a tipping point. Workday is a great company–with 240 customers over the past six years. Netsuite is the most successful on-demand ERP in the world and it has 10,000 customers over the past 12 years. Tipping points, I think not. Not in B2B enterprise commerce.
My strong advice and counsel to companies trying to build B2B IC providers is not to expect a tipping point–it does get better and easier, but management should not expect a day or month when things change in a dramatic way. A better analogy to describe the growth trajectory of a B2B platform is the flywheel.
Maybe you remember the concept of a flywheel from high school physics. It is a large, very heavy disk mounted on an axle. It is so heavy, that it is really hard to turn at the beginning. But once you put enough energy in–which takes a long while–it starts to gain momentum and then, after a while it can spin very fast, ultimately becoming very hard to stop! A great practical example comes from childhood. Remember those metal playground merry-go-rounds for kids? They were slow to start, but once you got them going you had kids flying off left and right. (Perhaps this is why they are no longer in playgrounds?)
In his book, Good to Great, Jim Collins uses the flywheel analogy to describe the transition from good to great for companies. I think the analogy works just as well to describe how IC platforms are built. Collins points out that it is a series of thousands of actions and activities that start the momentum building and keep it going–and no one action stands out. This is what building an IC platform feels like–pricing, strategy, on-boarding, sales integration, technology, training and thousands of other decisions and small activities get the platform started and over time help build momentum. But there is no one activity that completely stands out and no one moment when everything changes.
So, the bad news for IC providers is that their platforms are slow to start; the good news is that they pick up momentum and can continue going at a really impressive pace–for a very long time–if managed properly. They really can be almost unstoppable. Think about EDI. It took ages to get going, but grew at double-digit rates for about three decades. (Then it blew its chance–but more on that in a future post.) Likewise, P-cards have grown at double-digit rates for 20 years. Business ACH has grown at similar rates for a couple of decades. E-invoicing is growing the same way right now. Growing 20% per year for twenty years is nothing to sneeze at, but especially when you are pushing the flywheel, it does not feel very viral!
If I were Cortex Business Solutions, I’d be making the same pitch to investors, so I’m not throwing stones by any means, but I hope their management team and investors understand that they are likely in for a longer, harder slog than the tipping point analogy might imply.