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Cover image for Community-Driven Companies: What They Are and Why We’re Investing in Them

Community-Driven Companies: What They Are and Why We’re Investing in Them

lolitataub profile image lolitataub ・3 min read

Hi all! My name is Lolita Taub. I’m Co-Founder and General Partner at The Community Fund (TCF) where our mission is to leverage the power of our incredible operator-investment team to invest in community-driven future unicorns. We believe that companies with community at the core will become unicorns and produce outsized returns.

What’s a community-driven company?

At TCF, our partners all have various takes on what community-driven companies are. It’s part of what makes this model so special. But we all coalesce around a few key points including…

  1. customers identify as members
  2. members are able to create value for other members
  3. members start the marketing and sales flywheel

Side-notes: a community-driven company can have the community be its product or have a community built around its product. They can also come from any sector and can be both B2B (e.g., MongoDB, Salesforce) or Consumer (e.g., Peloton, Glossier).

Why is now the time to invest in community-driven companies?

The timing is right for community-driven companies to rise and build the companies of the future because:

  1. people more than ever are seeking community
  2. platforms to unite/create communities are abundantly available (e.g., Slack, Facebook Groups)
  3. traditional ways of attracting customers are expensive

Why do you believe that community will be a strong indicator of success for companies?

Community-driven companies are faster growing due to their passionate members and sticky products, they have better gross margins because engaged users support others and engage in sharing product feedback, and these businesses have lower operating and sales costs from that marketing/sales flywheel I mentioned above. All of this leads to a far superior P&L and higher multiples.

Also, we’ve noticed that when comparing companies to their competitors, valuations prove to be higher when companies leverage community. I’ll share two examples of community-driven companies and their valuations. Consider AirBnB and VRBO. AirBnB, who built a community around its hosts, is valued at $26 billion; while VRBO, a rental site that does not have a community, is valued at $3.6 billion. Community-driven Peloton is valued at $27 billion, while Life Fitness, a fitness company without community, is valued at $0.5 billion.

What are the business benefits of building a community-driven company?

We believe that community-driven businesses will produce…

  1. customers who are passionate and mission-aligned
  2. sticky community around products
  3. engagement and feedback loops on product development

The community members of community-driven companies will…

  1. spread the word about the company and that word-of-mouth will decrease customer acquisition cost
  2. create bonds with the community and keep coming back
  3. which will lead to higher retention and lower churn of customers allow for opportunities to expand revenue

How can founders build a community-driven company?

Our community-driven company playbook includes…

  1. Defining the purpose of the community and how the community will interact
  2. Setting up the community so that members both add value to each other and inform the company’s product (in the case that the community is not the product)
  3. Leveraging the marketing/sales flywheel that a community can generate
  4. Measuring community return on investment (CROI). Here’s the formula we use: (VALUE GAINED — COST) / COST = CROI

Where can I learn more about the community-driven investment thesis and The Community Fund?

You can learn more about the community-driven thesis in this thread. You can learn more about The Community Fund in this thread. And if you’re a community-driven company, please let us know at thcommunity.vc!

This post was originally posted in Medium. Image by Alexandra Koch from Pixabay.

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iamcesarromero profile image
cesar

I believe that "community" will be the unfair advantage of the future, especially in a world where more people crave connection and belonging. It's an exciting time to be part of the community industry.