How Hard Can It Be to Build a Billion Dollar Business?

In 2016, Sarah Tavel, then a partner at Greylock, published an article on Medium called “The Hierarchy of Engagement”. Based on her experience at Pinterest and Greylock, she suggested that user engagement — the “fuel that powers billion dollar businesses“ — has three levels:

1. Growing users

2. Retaining users and

3. Perpetuating users

This- perhaps obvious model- has implications for revenue.

At the first level, we would expect to see high expenditure on marketing in all its’ — appropriate- forms. Users flock to buy the product or service you provide, after being exposed to a carefully designed integrated marketing communications campaign (Don’t look so sceptical).

The second level is one of proof. If your product or service doesn’t work, you may engage temporarily, but users (now user/customers) will not stay. Eventually the number of user/customers leaving will exceed the number of user/customers staying and the money that you spent on advertising — which is irrecoverable- has been wasted. No second chances in venture capital.

The third level involves two sets of activity. The first is creating user/customer investment as either individuals or part of a network or set of networks. The second is to ‘turn’ your user/customer into a marketer on your behalf in a trust based collective approach. In theory, this should grow organically through the so called ‘network effects’ identified by Ronald Coase. Here revenues increase as your new user/customer acquisition costs move towards zero.

Tavel refers to this as a virtuous loop effect which she describes as being ‘very difficult’, and for which there are no easy to define rules.

But why?

User engagement has become part of the landscape of contemporary digital marketing. Various solutions are offered from ‘relevant’ content through user visit discounts on to satisfaction design.

You would think that — by now- we would have a proven and trusted formula for building user engagement.

Of course, engagement is a fluid target, but we can identify some core principles from physics, cultural anthropology and more worryingly -from complexity theory.

The first of these is that of the lazy universe. In both physical and social systems action and the requisite energy to perform an action will conform to the Principle of Least Action. Physics is well known as being concerned with grand conservatory principles such as the conservation of energy, but equally important is the optimization principle (such as getting somewhere in the shortest time or with the least resistance). Optimization principles underlie physics, and whilst we are often concerned with the statistical likelihood of a probability, we also need to concern ourselves with the Hamiltonian for energy.

The second is that of trust. In cultural anthropology and psychology trust has been described as a willingness to be vulnerable to another person or party based on some positive expectations regarding that party’s intentions or behaviour. Simply put, trust means users are willing to be vulnerable to others in the face of uncertainty. When users trust someone, they are more willing to become interdependent with that person, even though they can’t be absolutely sure everything will turn out well. Trust operates engagement in a number of ways. Facebook were both fortunate and clever in winning existing trust relationships, rather than having to manufacture them. Whether they can survive the enmity of mainstream media and governments remains to be seen

The third is that of complexity. In the study of complexity, one approach is in the consideration of spin glasses. Spin glasses are statistical mechanics systems with random interactions. Spin glass models have been deployed in a number of disciplines ranging through experimental condensed matter physics, theoretical physics, mathematical statistical physics and, more recently, probability. They have been used to solve problems in fields as diverse as theoretical computer science (combinatorial optimization, traveling salesman, Boolean satisfiability, number partitioning, random assignment, error correcting codes, etc.), neuroscience (Hopfield model and population genetics (hierarchical coalescence). But, the alternating sign of spin glass interactions generates a complex physical behaviour whose mathematical structure is still largely undiscovered.

So, the rules for building the engagement that creates a billion-dollar business might be simpler than you might think;

1. Enable the user to expend less energy

2. Build and maintain user trust

3. Keep interactions simple

Good luck!