The Platform Risk Conundrum

Before Shopify’s platform went supernova, my cofounder Finbarr and I grew Shogun (W18) to eight figure ARR by filling gaps in their product, and leaning into their ecosystem. As interest in Shopify soared in the public markets during COVID, so did interest in Shogun. We ended up raising over $100M in venture capital in less than 12 months.

While platform dependence can be dangerous; when leveraged appropriately, it can be a great beachhead for getting your startup off the ground. It can also serve as a massive growth unlock if the platform you build on experiences exponential growth. Knowing how to work the angles on the opportunities and the pitfalls of platform partnerships can be a delicate balance.

Below are some of the key lessons that we learned becoming one of Shopify’s biggest partners - and I wouldn’t be surprised if some of these end up applying to Open AI's partner platform.

Go “All In” at the Start

Fortune favors the bold here. Especially when the developer platform is new.

Commit to building deep into the platform partnership, taking advantage of all the technical access and partner program perks that they offer. Maximizing this quickly is very important, as they will often realize they shouldn’t be giving that much access and perk, or can’t give that much at scale. You want to try to get grandfathered in.

Integrate deeply and solve specifically for the current pain points felt by their largest customers. While it may feel like it makes the opportunity smaller to begin with, this can serve as your “wedge” for a much bigger problem set as you satisfy customer pain points. Platforms sized companies can’t move at the speed of startups. Even when they have something on their roadmap, there’s probably a 2-3 year opening before they start addressing meaningful customer need there.

Put serious effort in learning how the platform’s partner distribution channels work, how much growth each of them can yield, and how to optimize them. There are many forms of this, including semi-permanent channels like an app store, in-product integrations, a partner directory, etc. and ephemeral ones like being “featured” at a keynote, event sponsorship, newsletters, guest blog post, etc. Exhaust partner channel discovery early on, and work to shamelessly “game” the channel that has the most growth yield.

Get to know the people who work at the platform, and build relationships with them. Attend and sponsor their events. Visit their headquarters. Take your partner manager and their friends out to dinner and drinks, and consider hiring some of them to work at your startup when they move on. They can provide key intel and unlock a broader set of useful relationships within the platform.

Despite initial impressions, things can be very malleable with partnerships. If you can get in with the individuals who actually control the partner perks and the API access: they can often hook you up at their discretion. Focus on these folks and not people with VP or C-level titles- they aren’t hands on with the access and won’t give a shit about your startup.

Enmesh yourself in the broader partner ecosystem. Beyond other tech startups with use case crossover and mutual integration potential: look to the service providers. Partner ecosystems often have professionals (agencies, solo developers, creatives) that become users, advocates, and affiliates for the platform- and they can do the same for you too. There are often directories of partners put out by the platform or by 3rd parties - and those can be scraped, the data augmented, and put in a CRM to map and monitor the ecosystem.

Important to note that radical focus counts for a lot. If there are multiple large platform partners for your business; focus on the one that is growing the fastest. Splitting focus between multiple partners is likely to distract from getting a major foothold in one or the other be it in product development or distribution edge. (I learned this the hard way) Stack rank your potential partners by growth rate and market dominance, and take them one at a time.

Control the Money

First and foremost; don’t do platform billing. Handle your own billing.

To clarify this point: some platforms will offer/insist they handle billing for your app, and provide a billing API. The customer pays them and the fee for all their 3rd party “apps” in one bill, and they pay you at the end of the month.

Don’t give up the billing relationship with your customer unless there is literally no other option. This is important for many reasons, from sign up UX, to customer service and refunds, to revenue recognition and accounting. For these reasons and many more: it’s imperative to control billing.

If the platform partner seems to stipulate usage of their billing and billing API in their partner program terms: have legal counsel review. The partner agreement and terms will always be overly favorable to the partner, and may be unenforceable in areas. The partner may know this, and condone a grey area of operation.

Related to billing is revenue share. Some platforms may not ask for revenue share. Others may ask for up to 50% of partner revenue attributed to their platform distribution channels or API usage. Around 20% seems to be commonplace.

Work with counsel to understand under exactly what conditions you owe revenue share. See if the revenue share amount is negotiable. And if you control billing, consider if it’s better to ask for forgiveness later - especially if you’re the one driving customer acquisition.

Keep in mind that billing and revenue share partner terms may change, especially as the platform matures. The best thing to do is to get in early and establish a precedent of handling your own billing and payout of any revenue share from the start.

Diversify your Customer Acquisition ASAP

Organic growth from a platform partner’s distribution channel (e.g. an “app” store) is a double edged sword. The word “addiction” comes to mind.

When you go all in on a platform, and it clicks, you can start experiencing organic growth from one of their channels really fast. Optimizing this channel becomes focal - and it should be! But ultimately you do not control this growth channel. And that can be a real problem as you get bigger.

The platform partner can change the structure and rules of the distribution channel at their whim. They can favor your competitors over you in the channel. They can change the revenue share terms attributed to the channel. They can kick you out of the channel.

When you’re small, and you don’t make much money, this is all less of a concern. You’re focused on validating your startup, and any growth looks like good growth. As you get larger, you may find that the platform’s distribution channel can only provide you with so much growth in a given period. And you may find that your success attracts the attention of the platform… and the commercial arrangement you have.

So don’t be lazy! Assume and work against platform dependence from the very start by diversifying your acquisition. Invest in your foundational blocks; content for visibility in LLMs/ SEO, outbound, paid, social, PR, etc. - whatever works best for your business model. And keep in mind that other service providers and partners in the platform ecosystem can become advocates for your tech, and this “channel sales” motion is much more in your control than the platform’s distribution channels.

The more customer acquisition you control through your owned channels, the more optionality and leverage you’ll have later on.

Build for the Highest Common Denominator

In my opinion, this is your best defense against the platform copying you into obsolescence.

When a tech company becomes a platform, they’re probably still building product for the Lowest Common Denominator user. This is because building for the most advanced users at the outlay risks complicating the product experience and alienating the masses that make up the largest customer segment. There is a tradeoff between product power and usability.

Simply put, platforms often have to start by building product for use cases that are more aligned to SMB than to Mid Market / Enterprise.

But like many businesses, platforms revenue streams are often power law distributed! Even though they’re not building product for their largest customers initially; those customers often still make up the lion’s share of their revenue.

Build for the use cases and platform pain felt by these customers. They have more money than the other users, and the sophistication of their use cases can become your R&D defense. Because if you are successful, there is a high likelihood that your platform partner will copy your business. But they can only copy so much!

Deal with the Devil, Go Agnostic, or Sell

There will likely come a moment when you need to decide if you’re going to be “All In” with the platform for the duration, or if that’s too perilous and you need to pivot out.

If you ask Perplexity “What do Affirm and Klaviyo’s S-1s tell us about their relationship with Shopify?” you can get a good sense of exactly how deep it can go when you’re overly dependent on one of your partners. And maybe that’s okay! If the platform is willing to truly “king make” you, and the platform is big enough and growing rapidly - it could help to propel your company through IPO. Even if they do take 5-10% of it…

If going all in: go as deep as you can. Work your way from the partnerships team to the corporate development team. See if they make strategic investments, and consider bringing them into your next round of fundraising. Network to their VP and C- level executives. And be prepared to make concessions in their favor during negotiation.

If making a deal with the platform isn’t in the cards, or you otherwise sense that they’re going to start harming you with their product roadmap, partner distribution channel, or terms - it’s probably time to be bold or bow out.

Consider what it would look like to become platform agnostic. Revisit the stack rank of potential platform partners - what would it look like to integrate with all of them? Or can your product truly stand on its own without a platform partner? Should you copy your platform partners features and compete head on with them?

If these questions lead to dead ends, there is another option: maximize your revenue and growth with the platform you’re dependent on and sell! Markets are often ephemeral. If you truly believe that you have reached the apex of your market, you should consider selling.

We start companies with IPO aspirations, but if that’s not in the cards, the next best thing we can do is time the sale when we think the growth is about to stop.

In Summary

• Go all in on one platform at the start. Maximize your access to APIs and partner perks before the platform dials them back. Build relationships with the individuals that control the access.
• Avoid platform billing. Handle your own billing and any revenue share payouts. Understand the partner terms and what the grey areas are on both of the aforementioned.
• Mitigate atrophying of your own customer acquisition competence by diversifying acquisition channels early on. Consider ecosystem service providers as affiliates.
• Build for the sophisticated use cases of the platform’s largest customers. This is likely your best defense against the platform copying you into obsolescence.
• Consider whether you ultimately want to try to be “king made” by the platform or need to break your dependence on them. If neither is viable - optimize your growth and time your exit.

Hope this helps!