How strongly do I recommend The Cold Start Problem?
9 / 10
Have you ever wondered how companies like Uber and Airbnb captured their market, built a robust network of buyers and sellers, and created a defensible moat around their business? The Cold Start Problem by Andrew Chen outlines the path that networked product companies like Tinder, Instagram, Dropbox, Airbnb, Reddit, and Uber used to drive growth.
The product strategies and tactics in this book feel surprisingly tangible. Chen presents a multitude of examples from the early days at these companies to explain how network effects can be created and leveraged for growth.
Top Ideas in This Book
Andrew Chen describes five stages of network effects, which he calls The Cold Start Theory:
Network effects work for you when your network is growing and healthy. But when your network is non-existent, network effects work against you. Users come to your app and it feels empty.
How many users does your network require before it becomes a good experience? With a product like Zoom that might be two users – just enough to have a video chat. But with a product like Uber, it doesn’t do much good to have just one rider and one driver in a city, you need many riders and many drivers.
During Cold Start and Tipping Point, you are building atomic networks, which are the smallest network that can stand on its own. Tinder in a single city, for example.
Once you find a pattern that works for creating atomic networks, your job is to rinse and repeat. Do things that don’t scale in order to get each atomic network running. Eventually you will connect your atomic networks into a larger network with even stronger network effects.
Most atomic networks are smaller and more specific than you imagine. Harvard University students for Facebook. Rush hour at Port Authority in New York for Uber.
Attacking these small and underserved pools of customers is a good way to stay under your competitor’s radar. To competitors and incumbents, these tiny networks look unattractive. They don’t drive significant revenue so your competitors ignore them. But you are in the business of building small and dense atomic networks, one by one.
For every 100 users on your platform, 10 will engage through more passive means such as commenting and liking. One user out of 100 will actually create content. In other words, most of the people on your platform will be lurkers.
Networks have an easy side to fill and a hard side to fill. Usually supply is the hard side. Take Uber, where drivers are the hard side of the network.
To build your supply side, you often need to subsidize their work. Uber guaranteed drivers a minimum hourly rate, created goals with monetary rewards, and instituted driver referral bonuses to get the supply side filled. As the supply side filled out, Uber could pull back on the subsidies.
Professionalizing your creator experience is another way that companies grow their supply side. For instance, Instagram created filters and made them easy to use. Over time, Instagram added more creator tools and professionalized their product for suppliers with features like subscriptions.
Having a strong SaaS offering will help support your network. Users will join for access to the SaaS tool, operating in single player mode. As they become familiar with the tool, they look for ways to distribute the content they are producing and that’s where your community features come in.
Tools often drive acquisition and networks drive retention. This is important for product managers to understand because it’s tempting to enter into a feature rat-race with your competitors. But features are easy to copy, it just requires time and money. Networks are much harder than features to copy.
Whereas most people talk about network effects as a singular concept – when a product becomes stronger the more people that use it – Andrew Chen breaks down network effects into three varieties:
I found this distinction useful for talking with product managers about network effects because it encouraged us to get more specific about what we mean.
Uber leverages underutilized driver time and underutilized cars. Etsy leverages producers’ free time. Airbnb leverages unused bedrooms and housing.
Building a marketplace is tough, but if you can help people leverage an underutilized asset then you might stand a chance.
Bundling products is not a panacea. Your combined offering is not instantly better than those products standing on their own and that’s because the products themselves still need to be superior products. You can’t bundle inferior products and hope to be successful.