Dollars & Sense

Referrals: Johnny Softwareseed 👨‍🌾 🍎

In the book The Cold Start Problem, Andrew Chen says that the 'network effect’ is really three effects: 

• The acquisition effect 
• The engagement effect
• The monetization effect 

In the beginning, a business seeking to build a network has to concentrate on acquiring users, even if they are non-paying. Companies often give away the service, especially software companies, and we can see that with Facebook, Slack, TikTok, and many others.  Bridge didn’t do this, sadly, but not because we didn’t want to. Unlike those other companies, we didn’t have venture capital funds backing us to pay the bills and we charged for the Product Syncing service.  Today, it’s different. We now have a revenue stream (via the registry service and the commissions) and we give away the Product Syncing service. The heart of a good network effect company is giving away a free service that can be shared and enjoyed between members. This seeds the service with many users, preparing the service for future phases (i.e. engagements and monetization). We want to be the Johnny Appleseeds of software, giving away our ‘apples' to everyone. Johnny Softwareseed.

How Are We Currently Growing?
The key question is: how are we giving away our ‘apples,' and getting others to grow the apple trees for us? A failure to do this efficiently means fewer orchards and apples for us to pick (and profit off).

Let’s look at our existing growth (seeding) methods. Bridge has taken many steps over the years to get Bridge to spread, with some paths being more effective than others. 

• I have a mantra: "invite or implode." Aka:  If software doesn’t have an invite button, it’s paying too much for customer acquisition. With this in mind, Bridge has a built-in invite tool, which is key to any business growing efficiently. We encourage members to use this invite button to invite other members. 
• We pay members to use the invite button. We initially paid $25 for helping sign up a store, and now pay up to $400.  
• Recently, we tried a new approach:  instead of paying a sales rep $400 to sign up a store, we offered to pay the store $200 directly. 
• We attend trade shows. (We’ll be at two shows in January next month ~ See our events calendar.)
• We call stores to encourage them to join. 
• We ask brands to email their customers and promote Bridge (See examples of emails that brands have sent to their stores). 
• We pay 15% of a brand’s print ad costs. 
• We team up with brands to give retailers $200 towards their wholesale orders.

When I read Chen’s book, I was surprised to learn about the importance of referrals in growing a service. Chen shares that PayPal  used paid referrals to grow by 7% a day in its early years (circa 2000) and cost it $60m. (That was money well spent since it sold to eBay for $1b+ years later.) Chen shares that Uber uses a strategy called ‘give-get’ (also known as a two-sided promo) where a user gets, for example, $20 to refer a friend and the recipient gets $20 when they sign up. 

Notably, Bridge has never tried this give-get referral approach.  We will. Instead of giving a rep $400, we can give a rep (or store or brand) $200 when it gives a store $200 and it signs up. They both get $200. Previously, only the promo giver had the incentive to promote Bridge. Now, we are motivating both parties, but not spending any more than the initial $400 outlay.  This approach makes the promo giver look good, and relies on two parties helping each other—which is part of our network’s purpose. 

We may find with this approach that we can even get signs up for less than the outlay of $400. We can try $100 give-gets that in total cost us just $200. When the new member signs up, we’ll give them a $100 give-get, so the cycle of promotion continues. 

Give An Apple - Not A Lease On An Orchard
We want prospects to take the free apple—we don't expect them to agree to operate an orchard.   The goal is to get a customer to sign up for a free experience—that requires low commitment, and then have that person send invites to their circle. This is what Uber or PayPal do. Then, a member can gradually increase its usage of Bridge services. Likewise, we want members promoting signs up for services that are easy, beneficial, and free.  What’s the lowest threshold service a retailer can sign up for? Product syncing. It’s free.  But, we'd not market the same service to brands. (Product Syncing is more work for brands.) The goal is to get brands to sign up for just a Bridge account. 

Once they sign up for Bridge, we can increase their engagement and encourage them to participate in syncing. We expect members to work their way up the Bridge engagement ladder of services. We don't expect a member to join and quickly subscribe to complex services.   We want to offer businesses easy services to sign up for. Once we have them sign up, then we are going to encourage them to add more services. Mr. Chen, who calls this phase the engagement effect, would be proud.


Ensuring Members That Give Out Apples Get Paid
Currently, Bridge does not have a digital solution to track money owed for referrals. (We manually track referral payments.)  A give-get promo, and a massive referral system, relies on a digital solution—like what Uber and PayPal built.  Shopify’s referral program is also all digital. We have to build this ability. We’ll give each Bridge member a unique tracking code for their referrals and earnings.   We want to give users a link to send their business friends, and then track their earnings.  We want to turn everyone into an evangelist who has an economic incentive to promote us. The goal is to seed the audience with little amounts of cash that gets their attention.

On our Sales site, we’ll offer a give-get promo, such as getting $20 when one signs up another store.  When a business signs up, we’ll offer to pay them either $20 via ACH, or we’ll allow them to redeem it via a wholesale purchase. (Collecting ACH information has other benefits; if one becomes a paying member, they can be billed via ACH.) We can enable them to double this $20 if they use it for a wholesale purchase. 


Helping Merchants Spread Apple Seeds
Give-gets can work for Bridge, as well as our members. We can help our Bridge merchants offer give-gets to gift registrants and their customers. (The merchant can choose to opt out.)   Notably, stores can’t do this without our help. They don't know the marketing statistics on referrals (they’re not likely reading Andrew Chen), and they don’t have the technical ability to build the program (they are not website programmers). 

We can have a retailer’s Bridge Store give a registrant $20 when it gets another registrant to sign up for a registry. This amount can only be redeemed in-store. This is money well spent because stores typically pay $20 to a third party to get a customer into a store. In this case, it just gave out $20 in product cost. New sign ups should in turn bring in more new sign ups, repeating the cycle. 

At the bottom of a gift registry, we could say: "When you open a registry at this store, we’ll get $40 toward our funds at [insert store name]. And you’ll get $40.  This is an easy way to boost our wedding funds. Thank you.”  If a bride has 100 guests, and 10% of guests signed up, the registrant earned $400 (10 x $40). The store paid $800 to get 10 new wedding registries, and they may produce $10,000 in online sales for it (the average registry produces $1,000 in online stores for a store.). 

Notably, most in-store credit will go unused, so the store will likely give out much less than this $800.  (Read about the profit made on gift cards by stores here.)

This is especially true when gift credit is only redeemable in store like the gift credit Bridge Stores give out. Currently, our software does not allow customers to redeem gift cards online. Customers have to visit the store.  (The easier the promotion is to redeem, the lower the promo amount should be.) Requiring people to visit the store is a high barrier to redemption.

We are at the start of expanding our network via smart acquisition strategies that we’ve not tried before. I hope that we have the problem of giving out $60m in referrals like PayPal. This referral strategy may be the ’seed money’ to growing Bridge’s membership base and success.   Thank you for helping us spread the fruits of our labor. 


PS - We’ll keep our eye on referral and affiliate programs. 

The brand Waterford offers an affiliate program:
https://www.waterford.com/en-us/about-us/affiliates

The retailer Opal & Olive offers an affiliate program:
https://www.opalandolive.com/pages/affiliate


PSS - Thanks to Viral Loops for the PayPal information: 
https://viral-loops.com/blog/paypal-referral-program-case-study/

Tags:
Network effect PayPal Uber cold start problem Andrew Chen referral

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