How Do You Value a Community? - People Magic: How to Build a $1M Community

Summary

People Magic: How to Build a $1M Community

Episode Summary: "How Do You Value a Community?"

In this insightful episode of People Magic, Gina Bianchini, founder and CEO of Mighty Networks, delves deep into the valuation of community-driven businesses. She distinguishes between traditional content or audience-based models and the burgeoning network effect (People Magic) businesses, offering a comprehensive framework for entrepreneurs aiming to build and scale a $1 million community.

I. Introduction to Valuing a Community Business

Gina kicks off the episode by defining the essence of People Magic businesses. She emphasizes the unique ability of these businesses to harness the network effect, leading to higher revenue, increased membership, and sustained engagement.

[00:00] Gina Bianchini:
"If you're running one of these network effect businesses, or as we like to call them, People Magic businesses, you can charge more money. More people are going to join, more people are going to stick with it. More people are going to get results in transformation that they can't get on their own."

II. Market-Based Valuation

Responding to a listener's question, Gina explains that the true value of a community lies in what the market is willing to pay or invest. She challenges the notion that proprietary content alone drives valuation, highlighting that connections and identity within the community are paramount.

[01:05] Gina Bianchini:
"What the market will bear. Like, if there is somebody out there who is willing to pay you or invest in you for X reason, that's actually ultimately the value of what you're creating."

III. Network Effect vs. Content/Audience Business

Gina contrasts People Magic businesses with content or audience-based models. She argues that while content businesses like Disney focus on creating and distributing content, network effect businesses like Meta derive value from the interactions and relationships between members.

[01:45] Gina Bianchini:
"When you have been able to reach an identity for people and relationships that reinforce that identity with people, that is the most valuable thing that anybody in a modern business era can build."

She further illustrates this with a comparison of market capitalizations:

Gina Bianchini:
"Disney is worth about $90 billion versus Meta at $1.5 trillion. That's the difference between a content business and a network effect business."

IV. The Power of Identity and Connections

Central to Gina's argument is the concept of identity within a community. By fostering strong connections and a shared identity, People Magic businesses achieve high retention and engagement rates. Members feel a deep sense of belonging, making them less likely to leave and more likely to advocate for the community.

[04:30] Gina Bianchini:
"Identity is the pinnacle where people don't tend to leave. Relationships keep them coming back and getting a lot of value from it."

V. Scaling Your Community: The 30 Members Strategy

Gina shares practical advice on growing a community, highlighting the importance of initial traction. She recommends aiming for 30 members in 30 days as a benchmark to validate the community's potential.

[05:15] Gina Bianchini:
"30 members in 30 days is kind of our sort of magical number. And so as you have 30 members in 30 days and then it grows from there, that tends to be where you know you've got something."

VI. The Impact of AI on Business Valuation

Gina discusses how advancements in AI are transforming the landscape for content creation, making it easier and cheaper to produce high-quality content. This shift further underscores the advantage of network effect businesses, whose value is derived from human connections rather than mere content volume.

[08:20] Gina Bianchini:
"AI is making content trivial in cost to produce and having so much of it from so many people. The faster that you can translate your content into frameworks that human beings can organize and build relationships to be able to apply it in their lives and achieve results and transformation that they cannot get on their own."

VII. Investment vs. Organic Growth

Gina advises entrepreneurs to prioritize building a strong, self-sustaining community over seeking external investment. By focusing on delivering value and leveraging member experiences to attract new members, businesses can achieve substantial growth without heavy reliance on marketing or investors.

[10:00] Gina Bianchini:
"The most efficient and effective use of your time is not necessarily taking on investor, but finding ways to charge up front to be able to bring more people in, to be able to charge a premium and then not have to spend a lot of money on marketing."

VIII. Conclusion and Resources

In wrapping up, Gina reiterates the importance of building a network effect business centered around people and relationships. She encourages listeners to leverage Mighty Networks to create and scale their communities, emphasizing ownership and long-term value.

[12:30] Gina Bianchini:
"Set up Mighty Networks so that you can build a business that you can sell, that you can get investors, you own it. We are a partner who can support it and host it so that you can get the most value from it."

Gina concludes by inviting listeners to engage further through the Mighty Networks website and to submit their questions for future episodes.

Key Takeaways:

Market Willingness: The value of a community is determined by what the market is willing to pay or invest, not just by revenue or content.
Network Effect: People Magic businesses derive their value from the relationships and identity formed within the community, leading to higher retention and growth.
Identity and Connection: Strong identities and connections within the community are crucial for sustained engagement and value.
Scaling Strategy: Achieving initial traction with 30 members in 30 days can validate and propel further growth.
AI's Role: AI enhances content production but underscores the superior value of network effect businesses centered on human relationships.
Organic Growth Over Investment: Focusing on delivering value and leveraging member advocacy can lead to organic growth, reducing reliance on external funding.

For entrepreneurs looking to build a valuable and self-sustaining community, Gina Bianchini's insights offer a robust framework grounded in the principles of People Magic.

Resources:

Mighty Networks Website: [Link in Show Notes]
People Magic Profit Framework: Detailed frameworks available on Mighty Networks.
Engage with Gina: Submit your questions in the podcast review section.

Transcript

A (0:00)

If you're running one of these network Effect businesses, or as we like to call them, People Magic businesses, you can charge more money. More people are going to join, more people are going to stick with it. More people are going to get results in transformation that they can't get on their own. More people are going to go and talk about those results in transformation and bring new people into your network effect, your people magic business. Hey, I'm Gina Bianchini, and this is People Magic, where I show you the easiest way to create a $1 million community and hopefully a business that you can be really proud of.

B (0:45)

Hi, Gina. How do I go about valuing my community as a business? I'm at a privileged place to grow and get investors. And in your opinion, is it really just about revenue? Because I think the content that we've built in the community adds significant value. But I also want to be realistic, and it's hard to value what that is.

A (1:05)

This is a fantastic question. I'm going to break this down in a couple of kind of key ways. When we're talking about value and valuation, probably the most important thing to remember it is what the market will bear. Like, if there is somebody out there who is willing to pay you or invest in you for X reason, that's actually ultimately the value of what you're creating. I see a lot of people that think the absolute pinnacle of business is taking on an investor or that the proprietary content that they are creating needs to be scaled in such a way that requires an investor, and that that investor or that buyer, if you want to sell your business, should be valuing your content, going to offer something that is potentially controversial. But I think there's a lot of data to back me up, which is content increasingly is worth next to nothing. What any of us are building is valuable. It is about creating connections between members, creating identity such that nobody's going to want to leave your membership or stop paying for your next set of courses or stop coming to your events because their identity is associated with it. Seth Godin said this at our last People Magic Summit, which was, people like us do things like this. People like us do things like this. That is the ultimate value of a business. Because when you have been able to reach an identity for people and relationships that reinforce that identity with people, that is the most valuable thing that anybody in a modern business era can build. It is actually why LinkedIn, Facebook, Instagram, Twitter, now X, even Snapchat. This is why these businesses are so valuable, because they have created what's called a network effect, where the value of the network to any single member goes up. It increases with each new person who joins and contributes. And typically, these have been businesses that could only be valuable when you got hundreds of millions, if not billions of people today because of the way software's evolving and the ability to make connections between people at smaller numbers. It means you can create a really valuable membership with really valuable identity associated with it, lots of very strong retention, very, very high engagement and rapid growth because your existing members are bringing new members into the fold. It means that you can charge more money. If you're running one of these network effect businesses, or as we like to call them, people magic businesses, you can charge more money. More people are going to join, more people are going to stick with it. More people are going to get results in transformation that they can't get on their own. More people are going to go and talk about those results in transformation and bring new people into your network effect, your people magic business. And the reason I wanted to go into such detail with this is because I want to hold that in stark contrast to a content business, which otherwise known is a audience business. So in a content or audience business, you as the writer, producer, creator, actor, whatever role you have, produce content, and you produce that content and you make it available to people, and lots of people buy it as an audience. Now, by definition, an audience is. I talk out at you in modern social media, you talk back at me. But for the most part, no one's talking to each other. Like, you're not making your best friends in the world. In a comment thread, typically, you're getting interesting information. You're showing your support for that person, that creator, that brand. You're feeling like you're connected to something bigger than yourself. All of those things are really powerful, as demonstrated by the fact that there are people that, that have really amazing 1000 true fan kind of followings all the way to people who have 125 million followers. But let's just take a step back here. When you put the best content business in the world, just called Disney, against the best network effect business in the world, it's called meta. You see starkly the difference between the value of content and audiences and the value of a network effect or a people magic kind of business, Facebook Meta. It's worth $1.5 trillion. Disney fluctuated, but their market capitalization, or what the market says they're worth, is about $90 billion. So $90 billion versus $1.5 trillion. So now let's take this all the way back to you've got something cooking, you've got your community you're trying to figure out. Like, you know, do you take on investor in general, don't you can generally earn more money through setting up the right kinds of programs and charging the optimal price and using your network to create those first 30 members. 30 members is really our data that says this thing's going to work at 30 members, especially if you have about 30 members in 30 days, is kind of like our sort of magical number. And so as you have 30 members in 30 days and then it grows from there, that tends to be where you know you've got something and you can charge for those 30 members in 30 days. So in general, the most efficient and effective use of your time is not necessarily taking on investor, but finding ways to charge up front to be able to bring more people in, to be able to charge a premium and then not have to spend a lot of money on marketing because you're utilizing the fantastic experiences of your members to bring more members in. So that is the best case scenario. In general, this whole content or audience business versus a network effect or people magic business, the $90 billion for Disney versus a $1.5 trillion market capitalization for Meta, that was even before AI. Now what's happening is that AI is making content trivial in cost to produce and having so much of it from so many people. Because now it's not just what are 3 billion people posting on Instagram or Facebook, it's also how do we create for a fraction of the cost, high production value video or movie from just being able to code it up with no actors and no writers except for you, the tldr, which is the faster that you can translate your content into frameworks that human beings can organize and build relationships to be able to apply it in their lives and achieve results and transformation that they cannot get on their own. The more successful your business will be, the more valuable your business will be and the more revenue that you can generate that then you can go and invest in your business and growing that business. And when you do those things, that is when investors tend to come over and take a look and say, hmm, what is it that you are building and how can I invest? It shouldn't be the goal. It should be a nice side effect of building a really strong business based on a network effect or based on people building and creating value for each other in the context of what your content is encouraging people, readers and audience to do. That's how you move from that $90 billion upper, upper limit of value that is Disney into a network effect, or the upper, upper limit of something like meta at $1.5 trillion. Mighty Networks people Magic is there. So you can take those same dynamics that start with just 30 people and then can scale to 300 people and then 3,000 people and provide tremendous value for people who are in that network and again, relationships. So they keep coming back and they're getting a lot of value from it. And then identity, because identity is the pinnacle where people don't tend to leave. Hopefully that's helpful. Obviously, I think about the value of these businesses. Certainly we have set up Mighty Networks so that you can build a business that you can sell, that you can get investors, you own it. We are a partner who can support it and host it so that you can get the most value from it, create the most impact and value from it as well. So hopefully that is helpful in a summary of how to think about valuing a community or a network effect business and how it is similar or different from a content or audience business. I'm Gina Bianchini. This is People Magic and I'll see you in the next episode. Thank you for being a part of People Magic. If you want more of a deep dive in any of these topics, but certainly having the framework of People Magic profit, head on over to the website. The link is in the show notes. Have your own burning question about creating People Magic? Well, I want to answer it. So here's what you're going to do. You're going to just drop your question in the review section, wherever you're listening to this podcast and keep tuning in.