When you're starting a company, picking the right opportunity to pursue is a hugely important task. Simply chasing a big market doesn't guarantee success, and the existence of an opportunity today doesn't mean you'll build a company that will last. The durability of an opportunity matters just as much as its potential size.

So how do you know where you should start? Here's a hint: look for networks. Investors love networks because they're much harder to imitate once they're established. In today's economic environment, product and services quickly become commoditized. Networks don't. Competitors can easily copy the features of your product or service. But networks are much more difficult to replicate. That's why businesses that build and control networks are valued significantly higher and raise more money on average compared to traditional companies. Nearly 50% of today's unicorn startups (companies valued at more than $1 billion) build and control networks.

If you want to chase the biggest and most durable opportunity today, build a network-based business. However, accomplishing this is no easy task. That's why building a network requires an entirely different business model: the platform.

The platform is the business model of the 21st century. What exactly is a platform? It's a multi-sided business model focused on creating value by facilitating transaction between two or more interdependent groups (usually consumers and producers). Many of your favorite brands and mobile apps are platforms - Android, Twitter, Paypal, Facebook, Alibaba, Apple, Uber, Snapchat, and Twitch, to name a few.


A platform enables producers and consumers to transact but the platform doesn't directly create any of the value exchanged. Uber doesn't own the cars its drivers use and Twitter doesn't own the content its users create. Snapchat recently disbanded its content development department, signaling to the market an increasing commitment building its network of content creators.

An important part of how platforms work is the notion of network effects. Platforms add network value as they grow, meaning that the more consumers on the platform, the more incentive a producer has to join the platform. For instance, the more drivers Uber adds, the more consumers will join the platform because the speed and ease of securing a ride will increase because of the larger and more active driver base. With more consumers paying for Uber rides, more drivers will join the platform because their earning potential increases. This snowball effect is called network effects and the reason why platforms can scale so quickly. Because of this, platforms typically dominate their industries. Successful platforms are Modern Monopolies. But unlike the monopolies of the past, they succeed by growing the pie. Platforms typically expand old industries or create entirely new ones.

So how can you decide when to pursue a platform business? As the Founder and CEO of Applico, the world's first platform innovation company, we've outlined five ways to spot a platform opportunity from a mile away.

1. Reduce high transaction costs or remove gatekeepers

ZocDoc is a perfect example of a platform that reduced high transaction costs. It used to be very time consuming and taxing to find a doctor because no one had centralized all the supply in one place. Furthermore, cancellations were very common, so there was no centralized and real-time hub for which doctors were available and when. Now, ZocDoc's platform allows users to book their doctor appointments online or on their phone, even for same-day appointments. Patients can see real-time availability for doctors in their area, confirm if a doctor will accept their insurance plan, and read feedback and reviews of doctors given by other patients.

On the supply side of things, ZocDoc integrates with doctors' calendars in real-time and helps them sell unused appointment times. As a result, it removes or reduces the need for back office staff who focus on managing and filling their schedules. Additionally, about 10 to 20 percent of medical appointments are cancelled or rescheduled at the last-minute, but ther patients have no way of knowing that those times are now available. ZocDoc helps doctors fill those empty slots.

2. Connect underserved groups that need each other

Look for groups with a strong mutual attraction. The stronger the connection between your user groups, the more value your network will create--and the more value you can capture. A classic example here is Grubhub. On one side of the platform you have hungry people that want food but don't want to have to get off the couch to go get it. They also don't want to deal with the hassle of calling a restaurant or having their order mixed up over the phone. GrubHub also makes it easy to pick what you want to order. Before GrubHub existed, it was hard to know which places in your area delivered. On the other side of the platform, you have restaurant operators who want the new business and exposure that the platform offers. Without GrubHub, they didn't have an easy way to connect with a large audience of shoppers. When you're looking for an opportunity, ask yourself: Which underserved audiences can I bring together via a platform?

3. Identify potential complements

There was a time when Apple didn't allow third-party mobile app developers to create apps for iOS. When the iPhone first came out, there was no App Store. Hard to believe, I know. When Apple introduced the App Store, developers saw a huge opportunity in iOS. Apple didn't need to hire developers to create apps, it allowed outside developers to do so. The point here being that Apple understood that the iPhone and apps were complements. Look for potential complements around your core business as a way to open up a platform opportunity,

4. Increase the value of latent supply

There's a lot of valuable activity out there that isn't part of the formal economy. Look for where you can bring this latent inventory into a market and turn it into a source of economic value. Airbnb is a great example. While its founders weren't exactly aware they were ushering in the "sharing economy" by putting up their apartment and some air mattresses for rent, the idea was obviously novel and innovative. Now you can rent out your apartment or house when it isn't being used--or even just your couch. There are countless companies using this model to their advantage, such as Breather ("Airbnb for workspace") and RelayRides ("Airbnb for cars").

5. Aggregate a large, fragmented supply

Finally, look for large, fragmented sources of supply. You want it to be large, because small industries often don't have enough scale to justify building a network. And you want it to be fragmented because the supply in consolidated industries won't see any need for you. Uber is a great example here.

Published on: Oct 16, 2015
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.