Hi, I’m Jaryd. 👋 I write in-depth analyses on the growth of popular companies, including their early strategies, current tactics, and actionable business-building lessons we can learn from them.

Plus, every Friday I bring you summarized insights, frameworks, and ideas from the best entrepreneurs, writers, investors, product/growth experts, and operators.

If this is your first time reading, join the other folks interested in growing a company and learning about startups by subscribing for free here:

Happy Friday, friends! 🍻

Welcome to the #10th edition of this weekly series! To everyone who’s recently subscribed, you can always catchup on our previous 5-Bit’s here anytime you like.

 Housekeeping done. ✌️

Here’s what we’ve got this week.

• Pipelines vs Platforms

• Startups are cheaper to build, but more expensive to grow – here’s why

• How to get people to choose your product

• 10 things to do as a PM joining a new company

• Maximizing CLV — understanding the key drivers and their relationship

Let’s dive in. ⛏️

Pipelines vs Platforms

There’s a great post in the HBR where three platform strategists answer this questions: To give you the short answer: Apple bought a platform to a pipeline business fight.

And they go on too convincingly argue that when a platform enters the marketplace of a pure pipeline business, the platform nearly always wins.

• Pipeline businesses succeed by making their value chains more efficient.

  • e.g Apple, Nokia, GM, Netflix, Glossier, Marriot Hotel

• Platform businesses succeed by bring together producers and consumers in high-value exchanges more efficiently. It’s about generating value on both sides of the market — creating network effects (and a flywheel), which grows both S&D within the platform.

  • e.g Apple, Uber, YouTube, Amazon, Airbnb

You might have noticed that Apple is in both the pipeline and platform business. That’s because the physical iPhone is a classic pipeline — get the inputs at the top for the best price, move it through to the end customer as quickly and cheaply as possible, and sell it to them for as much as possible. But, unlike any of the other players when Apple entered the market — nobody had an App Store.

Takeaway: You can be both a pipeline and a platform, and it’s worth figuring out how to add platform-ness to your business.

So let’s see what these three strategists from HBR suggest:

3 strategic shifts to move from pipeline to platform

• Resource control ⇒ resource orchestration.

  • In a pipeline world, resources = tangible assets (i.e raw materials, warehousing) and intangible assets like IP. You can see how control is important here. But for platforms, the key resource is the network of producers and consumers and the resources they control (i.e cars, rooms, money to rent a room). The platforms job is connecting S&D efficiently.

• Internal optimization ⇒ external interaction.

  • When you do the above shift, the focus and priorities of your internal teams should shift too. It’s about moving from “dictating processes to persuading participants”.

• Focus on customer value ⇒ focus on ecosystem value.

  • Pipeline businesses need to maximize the customer lifetime value (CLV) of people who sit at the end of a linear process. Platforms on the other hand are not linear, they are circular. And by being circular, they need to max the total value of an expanding ecosystem. If you look at any marketplace business, you’ll see that often requires subsidizing one type of consumer in order to attract another type. (i.e Uber subsidizing drivers to build supply).

So that’s a deeply simplified look at how to start getting out of the pipeline ring and into the platform era. 🥊

But once you’re playing against other platforms (or if you’re still a pipeline going up against platforms) …competition, and therefore your strategy, becomes different.

How platforms change strategy

• Forces within the ecosystem. Since platforms are not about control and instead deal with the fluid dynamics of two different sides of a market — the roles that people play can be additive or depletive based on how they see the platform provider. E.g if a host thinks Airbnb is unfair, they will try bypass them. And because of that, platforms need to be built in such a way that the value distribution works fairly so that people keep growing the ecosystem and don’t try work against it.

• Forces exerted by ecosystems. If you’re a pipeline business, competitive threats usually follow one of these three patterns:

  • A platform with superior network effects uses its relationships with customers (i.e community) to enter your industry.

  • A platform targets an overlapping customer base with a distinctive new offering that leverages network effects. i.e Airbnb vs hotels

  • A platform that collects the same type of data that your firm does suddenly goes after your still emerging market. i.e in health care where traditional providers, companies like Fitbit, and pharmacies like Walgreens are all launching platforms based on the health data they own.

• Focus. Pipeline businesses focus on growing sales. Platform businesses need to focus on interactions, balancing value and volume. As a platform, its first about defining what the right core interaction is (i.e getting into the Uber), which often means starting with just a single type of interaction that generates high value even if, at first, low volume.

• Access and governance. Pipeline businesses are about control and creating barriers to protect it. With platforms, the strategic focus is on eliminating barriers of interaction to maximize the value being created inside the ecosystem

I’ve said it before in previous posts…businesses that help other people make money stick around.

Startups are cheaper to build, but more expensive to grow – here’s why

But, while it’s generally becoming much more affordable and accessible to create a new startup, Andrew Chen goes on to argue that the more important part…growing the damn thing…is becoming much more expensive.

This is analogous (kind of) to the buy-now-pay-later model. Getting the thing you want in yours hands has never been easier (symbolic of the wave of new startups), but the payments with interest are coming for you (symbolic of the wave of startups that fail).

And according to Chen, growth costs are rising for 2 high-level reasons:

• Acquiring and retaining talent is way more expensive than it used to be (high comps)

• As growth becomes harder, growth is shifting more to paid channels to scale amidst lots of competitors

So, what’s happening as a result?

1. Startups are raising more money to get (and maintain) traction. Cash raised often goes to fund bigger and more expensive paid acquisition efforts — because that upward growth curve is really all investors care about. Spend to grow so you can raise again, meaning rounds are getting bigger. The classic adage once you go the VC route.

2. Companies are trying paid marketing earlier. And because more companies are trying paid, the costs go. The plus side though is that because companies start sooner, they can test and master paid spend much earlier, giving them an earlier and better understanding of unit economics and how to optimize the other steps in the funnel.

3. There’s an increase in emphasis on paid referral programs rather than virality. More companies are using referral campaigns to juice their acquisition. These paid referral programs help build user engagement and get companies to faster network effects.

4. Companies are going for deeper monetization in order to open up paid channels. To spend more on paid channels, companies need to either raise more money, or make more money. As a result, companies need to optimize for better LTVs to justify higher CAC and increased competition across the board. “In short, better monetization is a competitive advantage for growth”

Takeaway: As you build your company, don’t underestimate the rising cost of distribution

Speaking of being cheaper to build and trying to keep your costs down…check out the first bonus link at the end of this post.

How to get people to choose your product

In a short and punchy article, Justin Jackson takes a stab at answering the question: why choose product X over Y.

Justin writes about “bootstrapping, the good life, building calm companies, business ethics, creating a better society, and introspecting the tech industry”. You can find his newsletter here.

10 things to do as a PM joining a new company

There’s loads of advice out there on how to onboard when you’re joining a new company as a product manager, but most of it focuses on getting up to speed with the product and the customer first.

And while obviously super important, Aatir Abdul Rauf has some other advice focused around people.

Aatir also writes on Substack, you can learn more about his newsletter, , here.

Maximizing CLV — understanding the key drivers and their relationship

If you’re building a consumer subscription business, then one of your most important metrics is Customer Lifetime Value, or CLV.

Substack is a consumer subscription business, and since I started this newsletter, also my new favorite platform. So when I came across a post on CLV by Reid DeRamus (Growth at Substack), I knew he’d have words of wisdom to share on the topic.

Reid lays out four primary drivers of CLV:

1. Customer lifetime — how long someone will remain a paying subscriber before they cancel (if ever).

2. Revenue — average revenue per user ("ARPU"), expressed on a monthly basis (monthly recurring revenue, "MRR") or annual basis (annual recurring revenue, "ARR"). ARPU usually ties closely with your subscription price but can fluctuate based on discounts, special offers, and price increases.

3. Marketing costs — the cost to acquire customers ("CAC").

4. Variable costs — costs that scale or have a close relationship with revenue growth.

The thing is, these factors are all interdependent. Meaning if your play with one of them (like charging people more), then at least one of the other drives will change to —likely in the other direction.

Reid lays out an example: Increasing your price to boost CLV.

What happens?

Obviously there are endless scenarios, but he emphasizes the key point: “improving CLV is a delicate dance of inching all the drivers in the right direction. If we focus too much on one driver, we'll likely harm the other drivers, which could lead to a net-negative impact on CLV.”

For more on CLV and growth frameworks, checkout Reid’s newsletter — .

And that’s it for this week! I just want to say, thank you so much for reading and subscribing to How They Grow. I don’t take you giving me your time lightly. I know how much amazing content there is out there (this series is me taking a stab at aggregating some of my favorites for you), so, thank you for choosing to invest your time here with me. I’m very grateful. 🫶

I hope you have a great weekend, and I’ll see you on Wednesday. Got a long weekend of research ahead of me.

Until then.— Jaryd ✌️

[Bonus] Other interesting things if you have time 🧠