How Do You Value a Community?

0:00If 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.

0:32Hey, 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. 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. 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.

1:18Like 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. I'm 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.

2:08What 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.

3:12It 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.

4:01Lots 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 and transformation that they can't get on their own. More people are going to go and talk about those results and transformation and bring new people into your network effect, your people magic business.

4:40And 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.

5:31Typically, 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 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, which is 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.

6:22Facebook, Meta, it's worth$1.5 trillion. Disney, it's 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 an 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.

7:22And 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 an 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.

8:24Now 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.

9:36And 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, you know, 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.

10:30Mighty Networks, People Magic is there so that 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.

11:14We 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. Woo!

11:50Thank 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.