So you want to build a Network?

Time to read: 12 minutes

Hello to all the Hacker News visitors! This is your space for discussion.

Today, I want to share my thoughts on one of the most enlightening books I have had the pleasure to read: The Cold Start Problem by Andrew Chen, a partner at a16z. This book goes in-depth into the nuances of building networked products and platforms, drawing from Chen's personal experiences and extensive research. It highlights some of the critical mistakes that many entrepreneurs encounter along the journey and offers actionable strategies to recover from these pitfalls.

Despite its length, the book is undeniably worth your time. However, if youre busy (and I hope you are, as you should be focused on building your network), let me share some key insights.

Its a Paradox

At the end of the book, Chen presents a profound insight that encapsulates the essence of network building:

But heres the paradox: To build a massively successful network effect, I argue that you must start with a smaller, atomic network. Use the success in the first set of networks to tip over the next set of small networks. Im not convinced this step can be avoided.

This statement is crucial. Chen emphasizes that there is no shortcut to bypassing the necessary phase of forming a small, foundational network before expanding into a larger network.

Defining the Atomic Network

According to Chen, an atomic network refers to the smallest cluster of users who can independently provide value to one another, thus establishing a stable and self-sustaining system. In this context, it's vital to focus on what he calls the Minimum Viable Network (MVN), which represents the smallest number of users capable of generating continuous actions within the system.

Each action performed by one user can trigger responses from others, creating a cycle that perpetuates itself. The network thrives because it offers value to participants, and in turn, their participation generates further value for others.

Understanding the Hard Side

Chen introduces the concept of the "Hard Side," referring to a group of users who generate disproportionate value for the network. This group typically consists of content creators, service providers, or product sellers who attract the "easy side"the consumers or buyers.

Notable characteristics of the hard side include:

• They are essential for the core value of the network.
• They usually represent a smaller segment of the total user base compared to the easy side.
• Acquiring and retaining these users can be more complex and costly.

Successfully engaging and satisfying the hard side is crucial for launching and scaling a network-effect business. Examples from the book include Uber drivers, Airbnb hosts, YouTube creators, and eBay sellers.

Mapping the Players

The book delves into various players in the network space, exploring how they began, their core users, the approximate size of their atomic networks, and the strategies employed to tackle the Cold Start problem and achieve network effects.

From Cold to Warm

Chen categorizes the strategies into two distinct phases: the 0 - 1 Cold Start phase, where networks are either nonexistent or extremely small, and the 1 - N Warm phase, where companies grow beyond their initial niches and compete effectively to gain network effects.

Strategies for the 0 - 1 Cold Start Phase

During the early stages, many successful networks utilize a few key strategies:

• Solving a Hard Problem: Create a solution that addresses a significant challenge for users.
• Come for the Tool: Attract users with a compelling tool or product that provides immediate value.
• Atomic Network: Build a small, engaged community to ensure stability.
• Killer Product: Develop a product that stands out in the market.

While the book does not explicitly mention certain concepts, I believe many of these networks included "magic moments"unique experiences that captivate users, like watching your Uber driver approach on the app.

Transitioning to the 1 - N Warm Phase

Once network effects begin to take hold, the strategies for growth and competition may vary significantly based on the specific product or company. This principle is aptly captured by Reid Hoffman in his book Blitzscaling: The strategy that gets you to your first hundred users is not the strategy that gets you to your first thousandor your first million.

Important Considerations

If your atomic networks remain non-existent, it's essential to revisit the common mistakes highlighted in Chen's book. Here are some key anti-patterns and suggested approaches:

• Launching Too Broadly: Instead of targeting a vast audience from the start, focus on building a dense atomic network. Dominating a niche market can lay the foundation for future expansion.
• Ignoring Network Density: Prioritize achieving high interaction and value exchange among initial users before scaling.
• Focusing Only on the Easy Side: Address the needs of the hard side first, as they create the value that will attract the easy side.
• Over-relying on Hard Side Users: Initially, you may need to create content or listings yourself to make the network appear active and valuable.
• Confusing Virality with Network Effects: Understand the distinction; network effects enhance the value of the product with more users.
• Neglecting the Early User Experience: Design onboarding processes that deliver immediate value to captivate new users.
• Avoiding the Big Bang Launch: Build your atomic networks organically before attempting larger rollouts.
• Not Anticipating Anti-Network Effects: Implement mechanisms for curation and moderation to prevent spam and maintain quality.
• Over-relying on Unsustainable Subsidies: Use temporary incentives strategically to bootstrap the hard side.
• Believing Software Alone Creates the Network: Recognize that user interactions provide the network's value.
• Defining the Core Interaction Clearly: Identify the primary reason users engage and build experiences around that.
• Giving Up Before the Tipping Point: Persistence is essential through challenging phases to build an atomic network.

In summary, as you embark on building a network, its crucial to monitor data regarding user interactions and engagement. Understanding their behaviors can guide you in optimizing user experiences and enhancing value exchanges.

Final Thoughts

To build a large and successful network, you must first master the art of creating a small, vibrant atomic network. Follow the gradient of user value, and let each achievement propel you forward. Remember, plans may be beneficial, but real-world results are what truly count. As Andrew Chen aptly puts it, recognize the importance of listening, hustling, and stacking momentum.

Regardless of whether youre in the cold or warm phase of network building, I highly recommend reading The Cold Start Problem by Andrew Chen for invaluable insights.

Good luck out there! And don't stay FROSTY!