I originally read The Cold Start when I was inside a startup studio with an abundance of marketplace ideas.
This book helped clarify for me that no successful marketplace starts out as a marketplace - simply because you need to start out with ready access to one side (likely the supply side as in the Uber & AirBnB examples) and build demand.
The marketplace/network then emerges strategically as more suppliers are onboarded.
This insight helped quickly focus and filter the marketplace ideas we didn't have any business pursuing.
Paying for users (he calls it "subsidies") is mentioned but Chen talks about the fact that if you do it at the wrong time and you don't have hard side users or value and you're k-factor is too low, those users just churn. Theres a whole section dedicated to the strategic use of subsidies which have been used to great effect once you have a system of cyclic value generation.
> "Use Paying Up / Subsidies strategically and temporarily, primarily to bootstrap the hard side or overcome initial friction. Focus on building inherent, long-term network value. You should generally avoid deploying significant spending on subsidies until you have validated that the core product provides enough fundamental value to retain users."
Yes, you're right, I totally did not put 2 and 2 together here.
You brought up solid points I did not really consider.
yeah this was actually a horrible book because it gives the vibe of greater discovery on how these work but as usual with most of these things it badly hides either by choice or by stupidity the real way these network effects came into being.
So for example, Uber and Airbnb started by breaking laws and helping people make money. If you are okay breaking laws, you can get many networks started.
PayPal grew by bribing people with money.
LinkedIn grew with massive amounts of spam, maybe the spammiest company in history of tech.
Clubhouse tried to be cool for a while with a few Silicon Valley famous names, but is dead.
Slack grew because the founder was very famous and could seed a large amount of initial customers based on his profile.
I can go on and on.
Out of these reddit might be the only one that actually broke the cold start problem with some light levels of seeding and pretending to be different users and also digg collapsing.
I actually hate these kind of books written by VCs who are purposely hiding the truth about a lot of these businesses.
All you're doing is listing that they utilized different strategies to grow faster. Which they all have in common with normal businesses.
PayPal grew by incentivizing usage. You say "bribe" to give it a negative connotation when it's not at all. Like a store giving away free samples. Or a freemium service plan. It's no different, the business is eating a cost to grow, and that technique is used a zillion times over across all commerce. PayPal was de facto spending money on marketing.
Your Clubhouse example isn't even a negative example, you're just trashing on them.
Slack grew by leveraging an advantage, like all businesses do and without exception. You might as well disqualify all founders of all businesses because they have any number of advantages, including being born with a superior mental capability (Joe Smith is a genius at math, it's totally unfair). The Slack founder advantage was earned, he had every right to leverage it. Before that he built Flickr with others and he wasn't nearly so famous then and Flickr was also a network example.
The premise you're floating is: guy that started a convenience store was able to get a loan/investment or otherwise had capital. It's unrealistic because he used an advantage someone else didn't have. Therefore not a valid business strategy.
Hotmail put a promo at the bottom of each email. Totally unrealistic that they leveraged their existing scale to grow even faster. What normal businesses can do that? (answer: most of them)
I think theres value in the books analysis of the early Cold Start strategies, which to me are reminiscent of the excellent blog post from Paul Graham https://paulgraham.com/startupideas.html
In fact you could read that and get a lot of the same value, particularly around "solving hard problems" and single-player / come for the tool, stay for the network.
But I do think his assessment that the whole thing is a paradox is true, and perhaps lends some credence to your point which is that, you kind of can't entirely engineer (or predict) success because the outcome is often different to how it started.
Yeah, there are so many examples. I’ll never forget when I heard the tactics from the second stage Facebook growth team (100m - 1bn users). They were super shady.
Agreed that behind every success is something which can be viewed retrospectively through a negative lens. The king of this is Uber.
Perhaps this is more a reflection of hyper-capitalism than tech itself but the is book is more about the ends and less about justifying the means. The word “hustle” is doing a lot of heavy lifting.
I imagine stories like gumroad and Basecamp are much better ones to idolize on a better way to create value in the world.
In some ways network effects and monopolies can be used synonymously and most would agree the later is a negative thing.
>The professional networking site LinkedIn has agreed to a $13 million out of court settlement in a class action lawsuit that claims reputations may have been damaged by multiple emails the company sent on behalf of users.
>The suit originated in California in 2013, when LinkedIn users sued the company claiming its “Add Connections” feature hurt their professional reputation by relentlessly messaging their email contacts with requests to connect on LinkedIn, Fortune reports. In the complaint, users described being embarrassed by the emails and complained that it was very difficult to stop LinkedIn from sending more emails once the barrage had begun. The settlement affects users who signed up for LinkedIn’s “Add Connections” feature between September 2011 and October 2014.
I originally read The Cold Start when I was inside a startup studio with an abundance of marketplace ideas.
This book helped clarify for me that no successful marketplace starts out as a marketplace - simply because you need to start out with ready access to one side (likely the supply side as in the Uber & AirBnB examples) and build demand.
The marketplace/network then emerges strategically as more suppliers are onboarded.
This insight helped quickly focus and filter the marketplace ideas we didn't have any business pursuing.
Am I right in thinking this is only the second blog post by this author? If so, wow - way to start with excellence.
Hi Yodon, yes this is my second blog post. I'v been one of those people who reads and watches for years and decided its time to post as well.
I hope you keep it up!
Thanks for the encouragement.
http://nfx.com/ was always a good source on Network Effects on Digital Products.
I always also liked Andrew's Chen blog posts, he ended up hired by a16z
Oh awesome! I didn't know about that, thanks.
I am kind of surprised that two obvious solutions to the cold start problem are not mentioned:
1. affiliate marketing
2. paid ads
I am not a marketer, but I would certainly consider those 2 options for growth.
Paying for users (he calls it "subsidies") is mentioned but Chen talks about the fact that if you do it at the wrong time and you don't have hard side users or value and you're k-factor is too low, those users just churn. Theres a whole section dedicated to the strategic use of subsidies which have been used to great effect once you have a system of cyclic value generation.
> "Use Paying Up / Subsidies strategically and temporarily, primarily to bootstrap the hard side or overcome initial friction. Focus on building inherent, long-term network value. You should generally avoid deploying significant spending on subsidies until you have validated that the core product provides enough fundamental value to retain users."
Yes, you're right, I totally did not put 2 and 2 together here.
You brought up solid points I did not really consider.
It's likely because they're both indirect and comparatively expensive.
Direct & laser-focused is far more cost-effective in the early days.
this reminds me - fediverse apps can build a network effect that incentivizes more fediverse apps to be activitypub compatible: https://www.augment.ink/bridges-the-last-network-effect/
Didn't we already have The Last Network with email and/or websites, and megacorps captured it anyway?
Oh wow thats a cool pattern.
yeah this was actually a horrible book because it gives the vibe of greater discovery on how these work but as usual with most of these things it badly hides either by choice or by stupidity the real way these network effects came into being.
So for example, Uber and Airbnb started by breaking laws and helping people make money. If you are okay breaking laws, you can get many networks started.
PayPal grew by bribing people with money.
LinkedIn grew with massive amounts of spam, maybe the spammiest company in history of tech.
Clubhouse tried to be cool for a while with a few Silicon Valley famous names, but is dead.
Slack grew because the founder was very famous and could seed a large amount of initial customers based on his profile.
I can go on and on.
Out of these reddit might be the only one that actually broke the cold start problem with some light levels of seeding and pretending to be different users and also digg collapsing.
I actually hate these kind of books written by VCs who are purposely hiding the truth about a lot of these businesses.
All you're doing is listing that they utilized different strategies to grow faster. Which they all have in common with normal businesses.
PayPal grew by incentivizing usage. You say "bribe" to give it a negative connotation when it's not at all. Like a store giving away free samples. Or a freemium service plan. It's no different, the business is eating a cost to grow, and that technique is used a zillion times over across all commerce. PayPal was de facto spending money on marketing.
Your Clubhouse example isn't even a negative example, you're just trashing on them.
Slack grew by leveraging an advantage, like all businesses do and without exception. You might as well disqualify all founders of all businesses because they have any number of advantages, including being born with a superior mental capability (Joe Smith is a genius at math, it's totally unfair). The Slack founder advantage was earned, he had every right to leverage it. Before that he built Flickr with others and he wasn't nearly so famous then and Flickr was also a network example.
The premise you're floating is: guy that started a convenience store was able to get a loan/investment or otherwise had capital. It's unrealistic because he used an advantage someone else didn't have. Therefore not a valid business strategy.
Hotmail put a promo at the bottom of each email. Totally unrealistic that they leveraged their existing scale to grow even faster. What normal businesses can do that? (answer: most of them)
What I am saying is that these "incentives" are what books like these do not mention.
Hotmail is also interesting because they had two of these: the free email clickable link and a strategic partnership with Four11.
This book is a class of books I classify as "bullshit books" to my mentees. It is inspired by the bullshit jobs idea.
Makes all the right noises, but tells none of the actual tactics.
Also PayPal famously started doing funny things forcing sellers to use it once it bought out Ebay.
But yeah you have always to have in mind who is writing what you read and what the unsaid things are, great points
I think theres value in the books analysis of the early Cold Start strategies, which to me are reminiscent of the excellent blog post from Paul Graham https://paulgraham.com/startupideas.html
In fact you could read that and get a lot of the same value, particularly around "solving hard problems" and single-player / come for the tool, stay for the network.
But I do think his assessment that the whole thing is a paradox is true, and perhaps lends some credence to your point which is that, you kind of can't entirely engineer (or predict) success because the outcome is often different to how it started.
Yeah, there are so many examples. I’ll never forget when I heard the tactics from the second stage Facebook growth team (100m - 1bn users). They were super shady.
Agreed that behind every success is something which can be viewed retrospectively through a negative lens. The king of this is Uber.
Perhaps this is more a reflection of hyper-capitalism than tech itself but the is book is more about the ends and less about justifying the means. The word “hustle” is doing a lot of heavy lifting.
I imagine stories like gumroad and Basecamp are much better ones to idolize on a better way to create value in the world.
In some ways network effects and monopolies can be used synonymously and most would agree the later is a negative thing.
Can you give specifics as to the LinkedIn 'spam'?
>The professional networking site LinkedIn has agreed to a $13 million out of court settlement in a class action lawsuit that claims reputations may have been damaged by multiple emails the company sent on behalf of users.
>The suit originated in California in 2013, when LinkedIn users sued the company claiming its “Add Connections” feature hurt their professional reputation by relentlessly messaging their email contacts with requests to connect on LinkedIn, Fortune reports. In the complaint, users described being embarrassed by the emails and complained that it was very difficult to stop LinkedIn from sending more emails once the barrage had begun. The settlement affects users who signed up for LinkedIn’s “Add Connections” feature between September 2011 and October 2014.
https://time.com/4062519/linkedn-spam-settlement/
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