The Community Business Model

Community business models are blossoming into big businesses everywhere we look nowadays.

A community business model, ideally, produces an exponentially higher level of value than the individuals could produce on their own.

  • how do we even define a community?
  • what makes a ‘community’ business model ?
  • what are the key success factors (KSFs) to their growth?

All that and more is covered in the following post.

Community Business Model

What is a connection?

First and foremost, communities form around some form of ‘connection’ and shared interest, values, or ideas.

But what even is a connection?

According to Dr. Brene Brown, it revolves around the energy between people when they feel seen, heard, and valued.

Creating that ‘energy’ is usually the initial foundation of successful community. How do inspire and motivate people to come together for a common cause?

Therein lies the challenge – we need to look deeper into what the major components of a community are.

Key Components of a Community

Key Components of a Community Model

Adapted from Profi

Shared Values & Purpose

Everyone moving towards a similar goal or vision.

Simple Value Creation

An easy way to create value for other participants in the community, whether via content, connections, or other tangible benefits.

Simple Value Consumption

A clear path to consume that value, which is typically some form of digital and/or physical space to access any products or services.

Clearly-defined Rewards

A system to reward those users for their participation, particularly as it pertains to the shared vision or goals. Incentives are a powerful way to drive behavior.

Leadership & Accountability

There must be a leadership structure in place to maintain the growth of the community relative to the vision and goals, and those who will take responsibility to make decisions.

Transparency and Governance

Transparency and governance are the keys to maintaining trust. Trust is arguably the most valuable ‘commodity’ for any community in the long-term.

Membership & Belonging

With the key pillars in place for a community, the most obvious next question is how to capture the benefits each community member derives from participating.

The most common form of community business model is membership. This typically manifests in a monthly or annual fee that members pay in order to access an online or physical space, where the various layers of the community become visible:

  • leadership and moderators (or community managers)
  • other members of the community
  • content specific to the shared values or purpose (educational content, etc.)
  • events, job boards, and other ways to participate with other members

Strategy wise, it is not uncommon to populate a community with ‘free’ members in the early stages so that when others are charged a membership fee (annual or monthly), there is a community dynamic, content to engage with, and people to connect with.

The overarching goal is to create a community where everyone feels like they ‘belong.’ This obviously translates into several emotional and social benefits for each user, but it also translates to LTV (Lifetime Value) for the company or organization hosting the community.

The Power Laws of Online Communities

Within each community, there are going to be ‘power users’ who drive more activity in the form of posting content, engaging with others, and driving new members to join.

In social networks, we often see the 90-10-1 rule, which can be extrapolated into those ‘communities’ where users can create or edit content (UGC):

  • 1% of users create the content
  • 10% of users contribute to the ‘created content’
  • 90% of users consume or engage with the content

A community business model will not be the same as a social network, but there is still a distribution in activity within a community that leads to a certain hierarchy. This tends to manifest itself in certain privileges or rights being granted to a subset of users.

Typically, we will see early-stage communities offer incentives (financial or social) and/or status (moderator, posting privileges) to those who help build the community and its corresponding brand. Those users will often then benefit in the mid to long-term as the community becomes more and more successful.

Hub and Bridge Connections, Community Model

The typical network model is full of hubs, with various nodes then attached to each hub. In this way, early-stage ‘power users’ act as “hubs” of connections. They can also become a ‘bridge’ towards other networks. Without some form of incentive, these types of connections are unlikely to accelerate.

Ideally, a community wants to grow in a non-linear fashion up to the level where the membership still carries a high-level of value. With network theory in mind, we can imagine that the ideal point of growth is one where the community maintains a low CAC (Customer Acquisition Cost), high referral rate, and a high retention rate.

Vision, Values, and Shared Success

If all of the value accrues towards a small group of people in a community, is it truly a success?

The obvious answer would be no. There may be some ‘edge cases,’ but the whole idea of the community business model is for value to accrue across various layers.

Vision is important because without a vision, defining the success of a community business model can be difficult.

Values help to anchor the decision-making and usher in transparency. If there is no values, trust will be eroded, and many potential ‘top performers’ will shy away from contributing.

Shared Success doesn’t mean ‘communist’ in the sense where rewards are distributed equally regardless of effort – a community is not a commune. But if a business builds a ‘community’ to harvest value uniquely for its own benefit, then it is just a marketing channel.

There is nothing wrong with building a new marketing channel anchored around the concepts of ‘community’ but that is not a ‘community business model.’ Pushing discounts and sales is more aligned to a direct-sales model like Avon, or multi-level marketing schemes.

A community business model, ideally, produces an exponentially higher level of value than the individuals could produce on their own.

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