Andrew Chen on how to start and scale network effects

What do Airbnb, Dropbox, PayPal, Reddit, Slack, Tinder, Twitch, Uber and Zoom have in common?

They all faced a seemingly impossible challenge at launch: create network effects by acquiring a critical mass of users AND have the users interact with each other. 

Andrew Chen — general partner at VC firm Andreessen Horowitz and former Uber exec — calls this “the cold start problem” and has just written a book by the same name.

He interviewed 100s of tech leaders (including CEOs of the aforementioned companies) to uncover how network effects start and, then, scale.

From marketplaces to social networks to collaboration tools, Chen lays out vivid case studies, detailed frameworks, and practical tips.

The Hustle spoke with him to find out more about The Cold Start Problem:

Why did you write this book (vs. continuing to post on your blog or another medium)?

Look, the startup advice out there generally sucks, and leans towards get rich schemes. You’ll see articles on “5 dumb tricks to get your first 1k users” or “10 tricks to launch your product”.

It makes everything seem easy, when it’s not.

I wanted to write about the opposite. Because when you are sitting across billionaire startup CEOs who have built their companies from zero employees to many thousands — and I interview several in The Cold Start Problem — what you learn is that it takes an insane amount of work and focus to get products off the ground.

And then, they have to hire huge teams to keep scaling the growth.

The ideas in The Cold Start Problem are purposely complex because running and scaling a massive startup is inherently difficult.

Yes, I talk about how a product like Tinder started by throwing parties at the University of Southern California (USC). But what happens after that? How does it eventually get to 10s of millions of users in every country?

That’s not autopilot.

Same with Slack, which started out with 7 or 8 early employees trying to get other startups to use its chat feature. Eventually, after they get going, they need to optimize their pricing structures, product features as well as go into new geographies and markets.

It’s complex, and a book is the best format to deliver these ideas — not TikTok videos!

You interviewed CEOs from Twitch, Dropbox, Zoom, Slack, Tinder and more. Was there a common theme across the organizations when it comes to scaling network effects?

Start small.

All of these companies started with very simple products targeted at very niche markets, with the idea of gaining saturation and density before going to the next market.

For example, Slack started by testing its chat product inside a half dozen other startups. Only once it started working did it start adding more companies, and more after that. The Slack team wasn’t tempted to go broad with a big unfocused launch.

But once these initial networks are built, and people are engaging each other in your app, then what you see is that every one of these startups pivots into “win the entire market” mode.

This is when they start hiring up a storm, adding new marketing channels, and competing hard with other companies. You can’t be small forever, and all of my conversations showed this pivot to try to hit escape velocity.

What was the biggest surprise regarding network effects from your research?

One big surprise: “Network effects” is an old idea that appears over and over again in the best products across history.

For example, AT&T referenced the idea that its phones were only valuable when more people used them back 100+ years ago.

And when you look at railroad networks, chain letters, or the way that studios and movie theaters work, there are many old examples of network effects. These were also the biggest and most important companies from decades ago.

Fast forward into the modern technology era, and the same ideas still apply, but we are building them in code rather than nails and wood and so on.

What business books influenced you the most?

I am a huge fan of Crossing the Chasm, which is a book about how products — mostly B2B — can go from early adopters to the mainstream market. I happened to share an office many years back with the author, Geoffrey Moore, and the structure of my book is inspired by his work. 

Similarly, my friend Eric Ries’ book The Lean Startup defined an entire generation of entrepreneurs — teaching them to iterate and learn quickly, and to focus on customers.

If you go back in time, I love The Mythical Man Month. That book is about building software in the IBM days (it has always been hard, buggy, and impossible to ship on time).  

And My Life in Advertising is a book from the turn of the 20th century about a guy that invents everything from coupons to stunt marketing. It is an amazing story of how to innovate in marketing, rather than just doing what everyone else does.

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You can pre-order The Cold Start Problem here.