The Three Constituencies

No – this isn’t going to be a post about the father, the son, and the holy ghost. 

I’ve done a number of investments in the past few years that have three possible constituencies: (1) subscribers, (2) publishers, and (3) advertisers.  While I won’t try to map them to a particular member of the trinity, they share one thing in common with the trinity – if you believe in them, they are all critically important.

Early in my career, I ran a custom software company.  We built PC-based business applications primarily for small and medium size companies back when dBase II was considered state of the art and a Novell fileserver took 24 hours and 600 disk swaps to build (assuming you had the right drivers for v2.0a.)  We had our equivalent trinity: (1) cost, (2) speed, and (3) quality.  After a while, we learned that we could solve for two of these, but not all three. So – we started explaining to our customers that we could deliver on any two of cost, speed, and quality, but not all three. 

I’ve been pondering the same trend today, just with a different set of constituencies.  The metaphor is a little different this time around – I’m finding most successful companies serve one constituency and get paid by another.  For example, Google serves the subscriber (or user – although I prefer to call end-users “subscribers” in this metaphor because I think you can map “user” to any of the three categories) and gets paid by the advertiser. 

Interestingly, I’ve run into a number of companies that can’t decide who they are serving and who they are getting paid by.  In a number of cases, I’ve run into people that think they are serving all three but getting paid by none, or who present potential revenue models to me where they get paid by all three.  Now – a company can have different segments of their business where they shuffle the constituencies around (Microsoft is a classic example of this) – but this is really hard for a startup.

As with my experience with my first company, I’m finding that when companies understand how they are serving their constituencies, they are much more effective at accelerating their business.  It also makes partnering a lot easier, as you know that someone who serves the member of the trinity that you don’t should make an easy partner (e.g. neither of you is a threat to the other), while someone that has perfect overlap with you is a more difficult partner to solve for.

Time to go pray (I mean work.)

  • Brad,

    An interesting thought but how does this extend beyond the consumer Internet model? Where would your investments in Newmerix or Rally fit into this paradigm?


  • Very interesting framework. Our business lives and dies by our own little trinity (Employers, Jobseekers and Advertisers), and it took us close to 5 months to understand the point you are making and another 3 months to be able to change strategy accordingly.

    Once we began to focus on the right segments, all three of our constituents responded positively, and our revenues have soared.

    In retrospect these types of insights are obvious, but unfortunately it is not easy to figure them out when engulfed in the day to day workings of the company.

    Thanks for all the great posts and insights.

  • In our portfolio, and more often with new entrepreneurs we talk to, we have experienced an analogous effect, characterized generally as the “trying to be too many things” syndrome. We have found that the degree of complexity of intermediation proposed by a new company (i.e., how many different constituencies will they try to serve at once?) is correlated with their lack of understanding of any of them and/or their inexperience in building a successful startup. Laserlike focus on solving a need that is clearly compensated is a reliably prosaic pathway to success. Entrepreneurs usually don’t get the luxury of taking a portfolio approach to a market like a VC does.

  • Jason – great point. I should have clarified that this is focused only on the consumer Internet stuff. Enterprise software has a different trinity.

  • This reminds me of the basic model we learned in biz school. Price, Quality, and Time. Pick any 2 but if you try all three you’re just setting yourself up for disaster.

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