AndFound: Strategies For Revenue Generation

AndFound's History

Question:

Discuss about the Strategy Case Analysis of AndFound for VV and Reza.

The strategies adopted by an organization should be in alignment with the vision and values of the organization (Gamble and Thompson 2014). The case is about AndFound, an online platform for connecting investors with selected start-ups. The main actors of the case are VV and Reza, the founders of the online platform.  The service of AndFound was launched in 2012 and it gained immense popularity among users.  AndFound was first started as a blog which provided entrepreneurs useful information on how to find funding and entrepreneurs soon approached VV and Reza and were seeking referrals to angel investors. VV and Reza thus decided to make use of the information collected from investors, for instance the past funding history of investors and the kind of business they were interested to fund was analyzed. The next step for VV and Reza was to develop technology for their online platform. This online platform helped the start-ups to create online profiles like Facebook pages. Investors could search for entrepreneurs using filter criteria, for instance, they could filter entrepreneurs who have studied in MIT or Harvard but the services of AndFound was free. Instead of worrying about the revenue VV and Reza focused on the growth and quality of their business (hbr.org 2017). An organization must analyze its mission, values and vision before implementing major strategies (Hubbard, Rice and Galvin 2014). 

Organizations should analyze its current strategies to create operational efficiency and gain competitive advantage (Harrison and John 2013).AndFound managed to raise seed capital from angel investors and a foundation, however after the first round of seed funding, the organization did not raise a single penny. It is difficult to build a two-sided capital like AndFound which comprises of entrepreneurs on one side and investors on the other side. In the initial years of business, focus of AndFound was to increase the customer base and improve the experience of its users.  The founders of AndFound VV and Reza were of the opinion that if they charge money from the users of the site; it would drive away high-caliber entrepreneurs and investors. They wanted to make their site valuable to the start-up community and had the firm conviction that they would manage to find some way to fund their business later.  But the problem with the case is that investors prefer to see cash flow potential of a business. On the contrary AndFound was not chasing revenue, instead they wanted to deliver “best’’ and   “free” services to customers.  VV and Reza were stuck in a dilemma about the timing to raise funds for their business and they discussed about which business model to follow. VV feared that if their business does not adopt the revenue model, it would not mature (hbr.org 2017). The strategic choice of a start-up organization is of paramount importance for its success (Hill, Jones and Schilling 2014). For a start-up organization, the strategic choice is important as the organization has limited resources (Peppard and Ward 2016).

Importance of Strategic Choice for Start-ups

The process of monitoring and implementing strategies are of paramount importance for an organization (Morden 2016). 

Talent Portal is a source by which AndFound can generate revenue. A section of the AndFound site was set up by VV and Reza to connect jobseekers with start-ups. The start-up organizations could apply filter to select the potential candidates for their organization and AndFound could make around 2000 introductions every week for 30,000 candidates and this amount can enable an organization to save around $25000 in recruitment fees per candidate. However, AndFound provided this service for free but this service can be a source of cash for the AndFound (hbr.org 2017).

Pros-This option is in alignment with the mission of AndFound to connect investors with entrepreneurs.

Cons- This business is not a core business of AndFound and the online platform will face competition from recruitment agencies.

VV and Reza can generate revenue from the tools and documents that they have developed to make the funding process easy for entrepreneurs by connecting them with investors. Most of the features and services in the online platform are available for free, for instance, the online platform provides valuable information in the form of blog posts, but AndFound can set up a paid membership or charge subscription fees from users to access the services. AndFound has many active and engaged investors and start-ups companies in the site, VV and Reza should have the confidence that they have already created a sustainable online platform to connect entrepreneurs with investors and have gained the trust of consumers (Stead and Stead 2013).Customers are already getting great value from the online platform, so they will definitely understand the need of AndFound to grow into a sustainable business. Users will definitely pay for some of the services and features of AndFound if VV and Reza are transparent about the fees (hbr.org 2017).

Pros- AndFound can take leverage of its Customer Perceived Value and charge fees for some services.

Cons- Monetization efforts can alienate customers.

Option 3

AndFound has partnered with one broker-dealer so that small investors can easily invest in micro VC funds rather than individual start-ups. Andound was providing services to customers as a facilitator without charging any money from them, but it can charge the broker dealer a percentage of the fees.

Pros- This option can generate revenue for AndFound.

Cons- Paid products can generate less word-of-mouth.

Option 4

Options for Revenue Generation

The other option is to offer a product that can help angel investors utilize their expert knowledge by aggregating funding from other angels on the online platform. Each of these investments could be structured as a separate fund.  AndFound can charge a portion of the profit from the investors when they make money upon cashing out (hbr.org 2017).

Pros- AndFound can learn about customer’s willingness to pay.

Cons- This method can halt momentum of business temporarily.

Option 5

Starting with a Token Fee

The 10,000 users of the site could be charged $ 2.29 a month. Only this meager amount of money can result in a revenue of $300,000 a month or $3.6 million a year (hbr.org 2017).

Pros- $ 2.99 is a very small amount for the value that AndFound is creating.

Cons- This is only an interim source of operating funds

Option 6

Subsidize one side of the market

AndFound has another option to charge fees from investors but the services for start-ups should remain free (hbr.org 2017).

Pros- This option can help AndFound experiment with revenue sources.

Cons- This option can’t be adopted as a long-term revenue model.

Option 7

Focus on the product

VV and Raza can adopt the Facebook approach of building a great product first then worry about revenue later. AndFound has an incredible database of investors, so if they focus on building a great product, they will find sources to fund their business in future (hbr.org 2017).

Pros- This option is in alignment with AndFound’s vision and mission.

Cons- Without experimenting with revenue options, the business of AndFound can never reach maturity.

Conclusion

 A hierarchy of strategy statements is mission, values, vision, strategy and balance scorecard (how to monitor and implement the strategy).According to me, for a start-up company like AndFound which performs in a rapidly growing sector, six months is a century to adopt the revenue model. Most of the tech companies charge fees from inexperienced entrepreneurs who try to raise funds for their business like FundersPlatform that charges exorbitant fees from the entrepreneurs.But AndFound has set up a trustworthy and transparent business platform and users which include investors and entrepreneurs have been using the site since several years. AndFound should stick to its mission of making the fundraising process transparent and providing the entrepreneurs greater access to capital. AndFound has already gained Customer’s Perceived Value (CPV) and should start testing revenue strategies. The organization can’t live on seed capital forever. VV and Reza should contemplate on how and when they can introduce paid features to AndFound. For instance, the best option for AndFound could be to charge fees from non-core activities for instance, the Talent portal of AndFound. A quarter to a third of a new hire’s first year salary is paid by Companies to a professional recruiter. So such business organizations will definitely pay AndFound a fee for similar services. Thus AndFound can keep its core business free for its users but can make non-core activities like the Talent portal chargeable. By this process, AndFound will not deviate from its noble mission of connecting entrepreneurs with investors, at the same time VV and Reza will be able to experiment with different revenue options on a small scale by targeting segments of users of AndFound. This will help AndFound to maintain commitment to core business model and generate revenue simultaneously, because AndFound can’t rely on seed capital forever. This option can enable AndFound to ignore traditional industry boundaries and product definitions and to focus on creating value as well as to focus on customer’s experience. AndFound must consider its perspective (mission), position in the industry, plans and goals and patterns of action for successful implementation of strategy .The intended strategy for AndFound is to connect entrepreneurs with investors through an online platform by providing free service. The emergent strategy of AndFound should be not to commit to a revenue model but to experiment with interim sources of revenue like the Talent Platform.

References

Gamble, J.E. and Thompson, A.A., 2014. Essentials of strategic management. Irwin Mcgraw-Hill.

Harrison, J.S. and John, C.H.S., 2013. Foundations in strategic management. Cengage Learning.

hbr.org. (2017). Strategy Case of Andfound. [online] Available at: https://hbr.org/2015/09/case-study-should-this-startup-take-vc-money-or-try-to-turn-a-profit [Accessed 19 Oct. 2017].

Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.

Hubbard, G., Rice, J. and Galvin, P., 2014. Strategic management. Pearson Australia.

Morden, T., 2016. Principles of strategic management. Routledge.

Peppard, J. and Ward, J., 2016. The strategic management of information systems: Building a digital strategy. John Wiley & Sons.

Stead, J.G. and Stead, W.E., 2013. Sustainable strategic management. ME Sharpe.