What entrepreneurs can learn from the TikTok debacle

The main culprit behind this international fiasco TikTok has found itself in? Data privacy. And here the key takeaways for entrepreneurs.

Today, TikTok requires no introduction. Together with parent company, ByteDance, the pair are among the hottest keywords on the web and in the papers. Following an executive order issued last week by President Trump banning transactions with ByteDance and its subsidiaries, namely TikTok, the video-sharing social media app has found itself in hot water once again.

Alleged by the US government to be capturing vast swaths of information from its users and potentially allowing Chinese government access to their personal information, TikTok has denied these claims. The main culprit behind this international fiasco the app has found itself in? Data privacy. And here the key takeaways for entrepreneurs

Rise of data-driven decisions

Accelerated by the pandemic, the importance of making data-driven decisions has never been stronger

Renowned data scientist W. Edwards Deming perfectly sums up the importance of data today by stating that, “Without data, you’re just another person with an opinion.” Making data-driven decisions is the process of utilising data to inform your decision-making process and validate a course of action before committing to it.

Famed frameworks such as The Lean Startup methodology by Eric Ries are examples of data being infused in business decisions. A study by the Harvard Business School (HBS) has shown that making data-driven decisions bring about a host of benefits.

Ranging from cost savings due to increase in efficiency by using data to pinpoint loopholes to making more confident decisions based on concrete data, it is no surprise why a survey conducted by PwC showed that data-driven organisations are three times more likely to report significant improvements in decision-making compared to those who rely less on data.

TikTok, like the majority of other social media platforms, utilise user data to tailor content for its consumers. Crucial to TikTok’s re-engagement strategy to retain users was the enjoyment users had derived from its content. Therefore, data played an important role in deciding the right content to showcase.

Personal data collection involving an individual’s interests and interactions drove algorithms that curated personalised and engaging content for users and in turn, significantly increased the appeal of TikTok.

Research conducted in 2019 by McKinsey has shown that personalised content will be the prime driver of marketing success in the next five years. The acceleration in the adoption of digitalisation, driven by the pandemic, has certainly brought forward the timeline. The desire for curated content has never been greater.

Thus, entrepreneurs, particularly those in the B2C sector, need to effectively harness data to understand customers and improve the user experience.

Ultimately, given the consumer-centric business model many of these startups adopt, founders should aim to connect with their customers on a deeper level and customise their offerings to their unique pain-points. The enabler for that to happen? Data.

How much data is required?

Having discussed the important role data plays in businesses today, an ongoing dilemma facing firms is the quantity of it required. With the rise of data privacy, first brought to light by the Facebook-Cambridge Analytica data scandal in 2018, authorities are clamping down on errant firms that collect excessive user data. Therefore, it is no coincidence that TikTok was banned by the American government due to excessive data collection.

The app starts collecting data the minute you download it. According to the company’s privacy policies and terms of service, TikTok tracks website users are browsing and how they type, down to keystroke rhythms and patterns.

Furthermore, for most users that unknowingly grant the app the full permissions required, TikTok has full access to photos, videos, and contact information of friends stored in the device’s address book. Even after users close the app, TikTok tracks their whereabouts using IP addresses and GPS coordinates, providing the app with precise location while users work, exercise, or travel.

The amount of personal data harvested by TikTok is bewildering and begs the question of why so much is required. For example, it is difficult to rationalise the collection for certain data, such as keystroke rhythms and patterns.

With the likelihood that consumers will feel betrayed because of the excessive “snooping” on them, trust is the name of the game when it comes to data collection. Therefore, entrepreneurs should be mindful of both the amount and type of data their startups seek to collect and only store meaningful data which improve product offerings and the experience for users.

Importance of data security

The vast swathes of personal data stored online have got hackers beaming with joy

Although TikTok has denied claims that government agencies have access to personal data of its users, the crux of the issue here is the amount of data the firm stores in its data centres located in the US and Singapore. With over 800 million active monthly users and over two billion downloads worldwide, TikTok’s database stores personal information of over 10 per cent of the global population.

As seen from the Cambridge Analytica scandal, huge amounts of in-depth personal information make social media firms the prime target for data breaching. Locally, studies have shown that there was a two-fold increase in hacking attempts in 2019 with more than 137 million malicious attempts to access personal details of users on media sites.

Given the high value of data stored in its database, it would not be surprising to read about a data breach, possibly on a larger scale than Facebook, occurring at TikTok in the future. Even though research by IBM has shown that the average cost of a data breach globally was US$3.9 million in 2018, perhaps the biggest long-term consequence of a data breach is the loss of customer trust.

A good reputation is often a company’s most prized asset and a data breach has the potential to tarnish even the cleanest of reputations. Therefore, founders need to build a culture of data security within their companies and invest in the needed resources to safeguard user data and build the element of trust with their customers that would ultimately, drive bottom-line growth for their firm.

Pursuing sustainable growth

The late Jack Welch, the former Chairman, and CEO of General Electric, shared that good management encompasses balancing both short and long-term goals and this is where founders, particularly for late-stage startups, need to focus on.

TikTok was arguably a victim of its own success. From its launch in 2017 to surpass two billion app downloads in 2020, the viral growth of the platform brought along its fair share of controversies too. Indonesian authorities banned TikTok in July 2018 for containing content promoting pornography and blasphemy. While the ban was lifted a week later after the app pledged to monitor such content, it marked the beginning of allegations against TikTok for promoting discriminatory content.

Other shocking allegations include platform moderators being asked to suppress users with “abnormal body shape”, “ugly facial looks”, “too many wrinkles” or in “slums, rural fields” and “dilapidated housing”. While TikTok has denied these policies are no longer in place, it was appalling they had existed beforehand.

TikTok resorted to focusing on short-term growth by prioritising aesthetically-pleasing users and promoting materialism, catering to the unhealthy needs of millions of teenagers on the platform. Given the young demographic of users on the app, TikTok chose the easy way out and rode on unethical trends to grow its popularity and chose not to actively police their content.

Even though it paid off handsomely in the short-term, the growth was simply not sustainable in the long-term. There were warning signs as various national authorities, ranging from Netherlands to India, started to open investigations into TikTok and their policies. This spate of inquiries culminated in the executive order to ban TikTok in the US, its second-largest market after India.

Therefore, entrepreneurs must have the discipline to look past instant gratification and focus on achieving sustainable growth. Being a founder entails additional responsibilities and the relationship with your business goes deeper than a conventional employee.

When things go south, the buck stops with the founder. Given the inherently greedy nature of humans, especially in entrepreneurs fixated on and desiring for success, it is therefore vital for founders to take a step back occasionally and evaluate whether their businesses are indeed achieving ethical and sustainable growth.

Learning from their mistakes

Due credit should be given to TikTok and its founder Zhang Yiming, for building an empire that connected global youths and gave rise to a new era of content creators and influencers. TikTok succeeded in the short-form video sharing industry where others, including Vine with over 40 million active users at its peak, failed.

Even though there were countless right decisions made along the way which entrepreneurs can draw insights from, what ultimately led to TikTok’s downfall were its mistakes.

Though mistakes were few and far between compared to the right decisions, the impact and severity of the former significantly outweighed the latter.

Therefore, founders should draw insights from this debacle on the importance of data collection, management, and achieving sustainable growth to prevent their firms from making the same mistakes which TikTok had made.

This article was originally published on e27.

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Tun Yong Yap

Passionate about start-ups that identify problems, develop ideas and execute solutions that value-add to the community. As the Content Manager at EDGE, I seek to connect with youth founders to share their story and inspire others to turn their ideas into reality.

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