Start-ups can have a very tough time with the Membership Economy because of the “chicken and egg” problem. They need a critical mass of members before they can provide value to the first member. Yet, many membership organizations have successfully navigated this challenge.

What too few entrepreneurs realize is how important it is to figure out all the details around pricing, value proposition, and customer acquisition and retention before they invest in growth. A compelling start-up offers something valuable on the first day. Or it needs to bring in a whole group of members at once. (Or both.)

To gain insights about how to go from idea to start-up, we look at some companies that are big and successful now like LinkedIn, RelayRides, and Facebook, to see how they established themselves in the early days.

If you are thinking about starting a Membership Economy business, whether online or offline, this chapter can show you tactics for the early days that can get you up and running. You will see that many organizations have been able to prove that their concepts work, even with a small budget. Keeping things simple—especially with membership—is the right way to start. Focus on the key market and harness viral growth. Finally, it’s critical to do a lot of testing while you’re small, because the bigger you get, the harder it is to turn the ship in another direction.

LinkedIn: Start with Clear Brand Identity and a Forever Transaction Idea

We discuss LinkedIn’s use of freemium and leveraging a core engine of free memberships to build a huge revenue-generating business in Chapter 12. Now, let’s go into some detail about how it started.

Allen Blue is one of the founders and vice president of product management. He is responsible for LinkedIn’s content, community, and communication. Blue told me the company started with a value proposition not that different from that of many professional associations. “We knew we wanted to capture relationships between people, and not just the person’s content itself. We wanted to make sure that there’s an ongoing value from that first point on.”¹

As LinkedIn designed the organization, founders thought about where they wanted to be in the long term, as well as what they needed to do to get things started.

The LinkedIn founding team was thoughtful from the start about the kind of organization they wanted to build, improving on the models they had built in the past. Blue, with cofounders Reid Hoffman and Jean-Luc Vaillant, had ideas about the kind of culture that was needed.

Language mattered from the beginning. Blue remembers, “Just before we launched in April 2003, we began having a conversation internally about how we needed to talk to our members. How to address them. Members? Users? We knew subscription would eventually be part of our business model. Most importantly, we wanted to provide an experience for each individual user—so basically that they would recognize value to themselves and act on it by inviting other members. We needed to establish a long-term value proposition.”

Another important element was building a “forever transaction” and a true relationship with each member. Blue and Hoffman both had had experience working at dating sites—but there, once members found their soul mates, they were out. The system had no further value. With people’s careers, however, “We knew we could have you for 40 years—if we made it clear we could provide value.”

Blue commented on the power of the brand, which he defines as the expectation set by the enterprise during early interactions; it informs expectations regarding the entire relationship. He cautions organizations to think about the brand early on. It can be hard to change people’s expectations once those expectations have been set.

Blue thinks of membership as a relationship between a person and an organization of other people, where basically there’s a barrier between members and nonmembers. To become a member, there must be some kind of vetting and initiation which results in a change in status. The member goes from being someone with little access, value, and power to someone with those things, through his or her participation or investment or both.

Founders of LinkedIn chose the word “membership” over “user” to describe the relationships they wanted to establish with the beneficiaries of LinkedIn. While Blue doesn’t see the language of membership as the most important element in LinkedIn’s success, he does believe words have an impact on how employees think about the people using their offerings. The word “membership” transforms a purely transactional feeling into a lasting relationship with an entity. Blue believes that language has power in organizing efforts of people and connotations in the business design. When you start with “user,” he says, what you create is more tool-like, more high tech. When you start with “member,” it’s a bit more high touch, a bit more focused on a member’s needs and values.

LinkedIn’s challenge in getting started had to do with providing value on the first day, which it did by letting people use the site as a place to store and share their résumés. Over time, it layered on the value of the community—making LinkedIn a place where people could manage professional connections. Today, LinkedIn is much more—it’s almost a requirement for any professional and provides a broad range of services and benefits for professionals, but also for sales people, recruiters, and market researchers. It’s important to remember the early days and how the company started with a narrow value proposition and the right infrastructure, culture, and vision for growth.

Like LinkedIn, RelayRides had a challenge moving from the idea stage to implementation. While LinkedIn simply needed to provide one point of value in a professional’s life in exchange for a résumé, RelayRides had to convince people to let strangers drive their car. How they did it, through a localized approach and high touch, is instructive.

RelayRides: Recruit Members One by One

In 1999, Alex Benn, a young Stanford-educated lawyer, left Cooley Godward, one of the leading law firms in Silicon Valley, after having met Pierre Omidyar at eBay. eBay, the person-to-person auction site for collectibles, had recently gone public. Omidyar needed a great, business-minded attorney to help the company grow faster through partnerships and acquisitions so that he could quickly take peer trading to the masses.

Benn was initially reluctant to adopt Omidyar’s perspective. A street-smart New Jersey native, Benn describes growing up with a worldview that “everyone’s out to get you.” It was hard for him to believe that a large group of strangers would behave fairly and honestly, especially behind the shield of the Internet where anonymity is common. But Omidyar explained to Benn his view that “people are basically good.” Benn joined the young membership organization, where he executed many of its formative partnerships and over 15 merger-and-acquisition transactions, representing more than $1 billion in value. His experiences at eBay sold him on Omidyar’s optimistic view of humanity.

Benn shared his long-ranging perspective on membership and community with me: “People—generally—go out of their way for strangers.… There may be cultural differences, but as a planet and a species, we are alike in that way.… If we couldn’t band together as tribes, we never would have gotten here.”²

Today, Benn is the COO of RelayRides, often called the “Airbnb” of car-sharing. RelayRides is the nation’s largest car-sharing marketplace, enabling owners to rent their cars out to people who need them. RelayRides is based on the idea that there is unused value stored in cars, an expensive, underutilized asset, and that advances in technology could unlock that value.

Figuring out the technical side of RelayRides, using geotracking, big data, and General Motors’ Onstar’s remote car unlocking system to track and unlock members’ cars was the easier part. The harder part was convincing owners to rent out their cars and convincing people who needed a car to feel safe driving a car that belonged to a stranger. It was expecting a lot to ask members to let the organization put technology into their cars and make their precious personal asset available for rental at any time. RelayRides initially had to recruit each member in a very hands-on, personal way, calling each individually and discussing the process before the community began growing virally. Eventually, the company moved to an automated system, once it had critical mass and a proven concept, but early on, it actually brought in drivers and owners one by one, and city by city.

RelayRides had a tough time getting started because it needed to establish trust. Later it could rely more on word-of-mouth and the brand it had built.

Benn is often asked, “Is there a future in sharing?” (“Sharing” being the buzzword used to describe companies like RelayRides and Airbnb that act as marketplaces for the rental of personal property.) His response is to look at the past as a way to anticipate the future.

He takes a long view, starting with early civilization and pointing out how each innovation in shared infrastructure strengthened and expanded the way we build trusting communities. Shared roads, communications advances, currency, and legal protections have constantly increased the span of trust. Today we can build highly trusting relationships with organizations and individuals we’ve never met.

RelayRides started with the trust between real people and over time was able to expand that approach to a digital community. By staying focused and being willing to tinker with the model and use a labor-intensive approach until it reached critical mass, RelayRides was able to build a totally new model.

Facebook did something similar, growing cluster by cluster, but in that case, it started with a community that already existed in the physical world.

Facebook: Start with a Homogeneous Group

The first members of Facebook were Harvard undergraduates who attended the college when Mark Zuckerberg was a student there. Harvard had long distributed so-called facebooks, bound books with names and pictures of everyone in a dorm or class, indexed by first name, last name, hometown, and major. Students used them to identify new friends and potential hookups although that certainly was not the administration’s intent. During Zuckerberg’s time at Harvard, the university was experimenting with bringing the facebook’s content online, in a very rudimentary way. According to Harvard’s student paper, The Harvard Crimson, Zuckerberg hacked into several websites of Harvard dorms, known as “Houses,” to gather the photos, and then wrote the codes to compute rankings after every vote.³

Zuckerberg first created a “hot or not” copycat site (vote for one of two pictures) called “Facemash.” From there, he continued to tinker, using student data to build his next site, known in its early days as thefacebook.com, turning it into what is today the basis for the Facebook we know and love. Facebook initially grew school by school, building a membership cluster by cluster. Facebook needed people who knew and trusted each other in order to provide the social network experience. Without other members who knew one another, the site had little value to an individual, so bringing on a group of members was critical.

It’s hard to think of a time when Facebook was just an idea and “the Facebook” had little meaning outside Harvard University. If not for Zuckerberg’s ability to make his model relevant to the homogenous group of people who were the very first to use his fledgling service, it never would have expanded to provide the breadth and depth of services it has today.

Netflix: Pick One Key Benefit and Deliver It to a Focused Audience

Netflix had a different challenge. While not heavily committed to community interaction, Netflix had an equally ambitious idea—to make sure that its subscribers always had three great DVDs on hand. In the early days, the company had several benefits that it could have marketed. These could have included the convenience of having DVDs delivered to one’s home, the range of movies available through the central distribution center, and the ability to keep a queue of DVDs on file so people would get a movie that they actually wanted whenever it was available.

Many companies make the mistake of wanting to talk about all the benefits right from the first day. There are two problems with this approach. First, if you promise too many things, it is hard to deliver on all of them. Second, if you promise too many things, customers get confused and might not be able to find the benefit that really matters to them.

Netflix kept things very simple in the early days. It focused on one key benefit: no late fees. This benefit positioned the company against the big video stores, especially Blockbuster, and appealed to consumers who were already renting lots of movies. It was also a benefit that Netflix could deliver on in the early days. Later, Netflix touted other benefits, like 2-day delivery, 10,000-plus titles, and original content. But in the early days, the focus was on late fees to win over disgruntled Blockbuster customers.

Netflix also used a simple pricing model—with one primary option for all members. Keeping the subscription simple reduced barriers to entry and friction in the sign-up flow. Netflix invested heavily in member research from the outset and was able to adjust offers and messaging in response to the research. Too many small organizations are unwilling to invest early on in market research and therefore either trip into failure or stumble into success. Early in an organization’s lifecycle, talking to prospects and customers is among the most important investments. By staying focused, solving one problem really well, and communicating that benefit, Netflix was able to get from idea, to start-up, to mature industry leader.

What Can We Learn from This Model?

Start-ups are sometimes stymied because they can’t offer the full benefits envisioned by the founders from day one. And yet there are many ways to start with a focused or even mass-customized strategy as a first step toward achieving the full vision.

Every organization needs to provide value to the first member. Sometimes that’s like LinkedIn, starting with a single offer and expanding over time. Sometimes it is by limiting growth or growing region by region to ensure that new members will feel the benefits of the community, like RelayRides. Other times, an organization uses a manual approach until it has confidence that it can automate the process and build out the model. In the Membership Economy, splashy is not necessary—steady growth is.

Remember

    Start at the bottom of the acquisition funnel. Be sure benefits, products, and members align before you invest in acquiring members.

    Establish a membership-oriented culture within the organization from the beginning—titles, language, and processes all matter.

    If you can’t “import a group” to seed your community, you must provide value independent of the benefits that a growing membership can offer prospective members.

    Start small and focused with a specific audience. Multiple targets multiply budgets!

    When you’re getting started, it’s okay to use a manual, labor-intensive approach until you figure out what process is going to work for you.