Apples And Oranges: Why Multi-Sided Networks Are a Business Model, Not a "Go-To-Market Strategy"
For more insights into network effects, marketplaces and platforms in healthcare, see our 2023 Healthcare Platforms Report.
Even if you haven’t dipped your toes into the worlds of startup or venture capital, if you’ve been on LinkedIn the past few years, it's likely you have seen the term “Go-To-Market (GTM) Strategy.” Often in the same conversations or posts, you’ve seen the terms “two-sided network” or “network effects” mentioned as types of GTM strategies. While there may be some overlap between two-sided networks and GTM strategies, there seems to be an emerging misconception in the startup world that developing a two-sided network is a GTM Strategy.
So how do network effects and two-sided networks relate to GTM strategy, and vice versa? Are they really two sides of the same coin?
In our view at Summit Health Advisors: no, they are not. A two-sided network is a business model. Each side of the multi-sided network in such a model requires its own GTM strategy.
What, really, is a GTM?
What is a Go-To-Market Strategies (GTM)?
A go-to-market strategy is a collection of tactics used to assess market needs and develop an approach to successfully drive product adoption. They provide answers to the questions of Who, What, When, Where, Why, How:
What are we building?
Is there demand for this?
How are we going to sell this?
What are the organizational capabilities we need to bring this to market?
Who are we going to sell this to?
The answers to these questions are crucial to successfully launching a product or expanding into new markets.
Here are a few strategies that are often coupled to develop a comprehensive GTM plan:
Competitive Analysis
Product-Market Fit
Product Messaging
Notably, while a GTM strategy or approach directly impacts a company’s performance metrics by driving adoption, it does not add value to the product or the business model. GTM approaches also fail frequently, which is why companies frequently pivot from one GTM to another. It is difficult to address a market’s needs, and if your analysis and assumptions are incorrect, you must reassess your GTM plan.
What are Two-Sided Networks and Platforms?
Two-sided networks (often used interchangeably with ‘platforms’) create value for users in two fundamental ways:
Reducing search costs: They provide curation services and facilitate more efficient and timely connections between two or more distinct user groups (e.g., producers and consumers) that otherwise have higher costs associated with finding prospective partners
Reducing transaction costs: they provide a common method for exchange between network sides (e.g., providing a common contracting mechanism between buyers and sellers), reducing the duplication of effort that is occurs when those same entities contract with each other on a many-to-many basis
The functions of a two-sided network can be as simple as enabling you to find band-aids options in an online marketplace to something as complex as facilitating a prior authorization from your health insurance in a matter of seconds.
Two-sided networks can create massive value by facilitating relationships among fragmented markets. Oftentimes, they bridge a gap that industry stakeholders do not even know exists, bringing a hidden demand to light.
As we have transitioned from an industrial economy to one that favors informational assets and utility, digital platforms have begun to trade at a premium in both private and public markets. If you are asking why that is, the answer is how platforms cultivate powerful connections among users called “network effects.” Network effects occur when an increase in product adoption and usage directly increases the value that product provides to its users. An example: if you joined a “Discount Taylor Swift Tickets” Facebook group, but you were the only member, the group would provide you zero value. But if there were then 10,000 eager sellers in the group, that network would provide you with significant value.
To a large extent, the business model - creating and capturing value based on the interactions among users - is the product itself. Accordingly, building a two-sided network should be the result of forethought centered around (i) whether the current interaction process is painful or inefficient enough for users to want to use a common network to interact with each other (or another side), (ii) how the platform can align incentives between different groups of users, (iii) whether alternatives or competition exists and how to distinguish one’s own network, and (iv) how the network will capture value, or how it will make money. Oh, and of course, how it will bring its network to two or more markets (GTM).
Two-Sided Networks and Go-To-Market Are Like Apples And Oranges
If developing and executing a GTM strategy were easy, healthcare’s problems would be fixed by now. Likewise for building a two-sided network platform. Each of these concepts have nuances and wrinkles that present challenges for both founders and investors.
The fundamental difference between the two concepts: one speaks to the business that a company is in (two-sided network), while one speaks to how that business finds and acquires users (go-to-market). One creates demand, and one follows it.
As described above, a two-sided network needs to figure out effective GTM “motions” (literally, the repeatable steps to make a sale) on at least two sides. This adds significant complexity to the business of a two-sided network: if its ability to create and deliver value to any one side of users is contingent upon its ability to connect it to another side of users, then it can be incredibly difficult to find early customers. This phenomenon is known as The Cold Start, and it’s a big enough problem that an entire (excellent) book was recently written about it.
It’s true (as written about in The Cold Start) that network effects can help drive virality and hyper growth: this was key to Facebook’s early growth. But in healthcare, our experience (and research) suggests that the type of product-led growth and concepts around virality tend to run into a brick wall thanks to HIPAA.
Why do we think all of this matters?
Clarity, communication, and alignment between founding team and investors are critical for early stage, risky ventures. Knowing what problem to work on, what expectations to set, and how to measure the impact and progress of initiatives, are important. GTM strategy is critical to any venture, especially for two-sided networks. But a GTM should be a means to achieve an end, which is the success of the business itself.
About Summit Health And Network Effects
At Summit Health, we go deep on network effects, marketplaces and platforms in healthcare because we believe in the power of platforms to have a profound and positive impact.
To learn more about Summit Health’s approach to assessing and measuring network effects and marketplace/platform opportunities in healthcare, contact us or schedule time with us.
