07 December 2021 |

Community, but why?

By Adam Ryan

DEEP DIVE

Community, but why?

In the last few years, the word community has been thrown around… a lot. 

Nike claims they have a community of athletes. OnDeck raised some serious cash by claiming they’re building a community of builders. Even I dropped “Working at the intersection of content, commerce, and community” into my LinkedIn bio. 

Thing is, most of us say we’re building a community, but can’t tell anyone how we’re actually doing it. Part of the problem is that definitions of community and audience are often misinterpreted. 

This is how I think about the two terms… 

Community has three parts:

  • When your audience connects with each other
  • When your audience shares a similar intention 
  • When your audience has a high level of trust or attachment for the overarching brand

Audience has one part:

  • A collective of people who opt-in to receive information from your brand

Reasons why it’s special

When you ask an investor about community, the first thing out of their mouth is that it extends LTV and increases ARPU (Annual Revenue per User) with a cohort. 

They’re not wrong, but growing ARPU shouldn’t be the sole focus of a community. If it is, the vibe of the community will be off and the flywheel of the community will be short-lived. 

If a community does have a great vibe, with organic engagement and high pride in what the community represents, then there are some massive benefits. 

Marketing
Referral programs are slowly becoming outdated and saturated. Do they work? Sure. But the best marketing is FOMO — always has been, always will be. 

How do you create community FOMO? You create buzz outside of the walled garden about what’s happening on the inside. Then, as your members start to feel like they’re “in the room where it happens”, the status of being “in the room” becomes a referral mechanism. 

If you can pull this off, your growth ratio can be 1:many with a viral loop built off of UGC. 

PMF with higher velocity 
This might be the biggest value prop of a community. Product-Market Fit (PMF) is a term that isn’t thrown around in media as often as it is in SaaS, mostly because it’s harder to measure in media.

While there are some quantitative metrics, the best way to determine media PMF is by speaking with your audience. Ask them about the problems they’re experiencing via surveys, interviews, and panels. 

As a startup, building a community first may seem like a loss leader — but if you do it correctly, your community should enable you to build a product with a much higher chance of adoption on a much faster timeline. 

If you’re an exec wondering how to 10X your business, having a strong community will provide that unlock.

Extension of products & RD
Every media company should be thinking about creating revenue-driving opportunities that come directly from their audience. When a group of like-minded people is talking about their own problems, it naturally introduces solutions. 

Community gives you a sneak peek into what you should be building. 

Food52 has shown how to use a community to launch new SKUs. I’ve seen communities host gatherings in certain cities where there was enough traction to throw a large conference. There are many more examples of big products introduced from the comment section of a community. 

R&D can be the most expensive piece of expanding products, but if your community is begging you for something? Make it. 

Potential of communities with web3

Web3 is opening the door for building a brand new type of company — one that is truly built with the community. 

Historically, companies have been 80/20 owned by Founders & Team. Then, investors come in and dilute 20% for each round. After 3 rounds, the Founding team probably has ~40% ownership. Statistically, 84% of startups who raise 3 rounds still fail to exit or have a liquidity event. 

That means most founders give up a huge portion of their ownership… and still have a huge chance of not making any money. 

Web3 changes this. 

Founders launch the company with (these are estimates) ~40% for the community, 25% for investors, and 35% for the team. It may seem crazy to immediately dilute yourself as a Founder, but what you’re doing is building a community that is bought into your mission from Day 1. 

Hypothetically, this also replaces the cycle of diluting yourself for VC money that is directly transferred to Facebook and Google for advertising. Your community replaces your advertising budget. 

This is the value of dilution for a community-driven DAO.  

On top of that, liquidation is easier. Instead of having an 84% chance of failure and living on 10-year time horizons with a possibility of no exit, you have a possibility of many, smaller exits earlier. 

The lower-barrier to liquidation also forces you as an operator (or in this case, a moderator) to continuously ask yourself if the community is retaining the value it creates. If you don’t, you fail — and fail fast. 

There are a lot of possibilities with community and media, and DAOs are setting themselves up to be the structure to bring them to life. 

The playbook is there

Is building a community total BS? Not at all, but it’s not as simple as saying “Oh look, people responded to my newsletter I have a community!”. 

Community takes investment. As a brand, you need to create the rails for your community to meet with each other, work your ass off to ensure engagement stays consistent, and have a strategic vision on how to maximize the impact of your community members. 

Universities have nailed this. They get you to fall in love with their brand for 4+ years, they host football tailgates, they have the band lead you in song — and they have the fundraising team call you the day after you graduate. 

The playbook has been made. As media operators, we often just can’t see the forest through the trees. 

Perpetual’s Perspective

TCG gets the credit they deserve

TLDR: Peter Chernin’s firm, TCG, raised a $1.2B fund. The firm has been at the forefront of content to commerce investments such as CrunchyRoll, Food52, MeatEater, Barstool Sports, and Lovevery. Now, they’re investing in crypto-based companies like Zed Run, OpenSea, and Dapper Labs (NBA TopShot).

Perpetual’s Perspective: This article is such a pump for TCG and it’s completely deserved. Peter Chernin may be one of the most influential media operators of our time (Avatar & The Simpsons, c’mon!) and he’s hired the very best minds to work with him. Ironically, TCG has historically lacked a content/distribution strategy of its own, despite having a reputation of being the best firm in the content game. But with a flood of hires who are internet native (like Jarrod Dicker, who will help them become the go-to crypto firm), I see few competitors who can catch TCG’s deal flow on this next wave of investments.

BuzzFeed loses its buzz

TLDR: BuzzFeed went public yesterday. The SPAC deal lost more than 94% of investor cash, which is nearly 3.4X worse than all other SPACs in the first half of the year — and 50% worse than SPACs in the last few months. Today, the stock is down more than 11%. BuzzFeed wanted to go public last year, but faced headwinds with COVID. Instead, they spent last year private and acquired Complex and HuffPo… but They finally made it happen this week, despite the headwinds.

Perpetual’s Perspective: Jonah Peretti is on the Mount Rushmore of web2 media companies. If AOL was the cultural winner of web1, then BuzzFeed was the cultural winner of web2. BuzzFeed created viral content and brands like Tasty, which onboarded the world to short-form video (you’re welcome TikTok). I found this letter that Jonah wrote back in June to be quite intriguing and forward-thinking. The issue? BuzzFeed has a pretty shit business model that’s getting more outdated by the day. Can they turn it around? Maybe. How about their acquisitions? Makes me bearish. They’re following the ole’ path of acquiring crap assets for cash arbitrage. I do hope Jonah and the team can turn it around because they deserve it, but it’s hard to exit a game you created — even if you’re losing.

TikTok Algo 101

TLDR: Ben Smith and the NYT got their hands on a leaked document from TikTok that was titled “TikTok Algo 101”. It breaks down the 4 main goals of the algorithm: “user value,” “long-term user value,” “creator value,” and “platform value.” The extensive piece gives a glimpse into the power of the social media giant and how they think about their addicting app. The leaked document was written in clear, but nonnative English from a Chinese tech perspective. Though it doesn’t mention Facebook and Google by name, the main employee mentioned in the doc is a former Facebook worker who now leads TikTok’s algo development. 

Perpetual’s Perspective: The TikTok algo is so good that I have multiple accounts, each with its own unique set of interests, because it feels impossible to go down rabbit holes you haven’t shown interest in previously. This piece claims the algo isn’t all that complicated — it’s mostly based on how long users view a video — but that the amount of data TikTok is collecting is their secret sauce. This much data, with that much attention, has driven bi-partisan support from the US government to place restrictions on TikTok US and their parent co, ByteDance, based in China. Frankly, I wish the government would shift even more of their focus from Google and Facebook, and put that energy towards TikTok. It’s already the top app in the world and is rapidly growing — and I don’t want China winning this battle.