The Cold Start Problem: How to Start and Scale Network Effects

Cold Start Theory lays out a series of stages that every product team must traverse to fully harness the power of network effects. The curve represents the value of the network as it builds over time, and is shaped as an S-curve with a droop at the end. There are five primary stages: The Cold Start Problem Tipping Point Escape Velocity Hitting the

Many months into Burbn, Kevin and Mike realized the product was getting too complex, and going to run straight into Foursquare—a location-sharing app that was rocketing into success at the time. It was time to refocus. The team looked at the best features of the product, oriented around photos, and stripped everything else out.

Startups have fewer resources—capital, employees, distribution—but have important advantages in the context of building new networks: speed and a lack of sacred cows.

PayPal’s early days are a perfect example of the Acquisition network effect, which utilizes the participants of a network to acquire new users—and the bigger the network, the better it works.

All of the examples in this chapter—coupons, Uber, crypto, Microsoft, etc.—involve the use of up-front efforts to bootstrap the network. One critique of subsidizing networks in this way is that it’s like “selling a dollar for ninety cents.” Yes, it would be ideal to be able to grow a network with positive unit economics from day one, but sometimes

Thus the order of operations, at least for most consumer-facing marketplaces, is “supply, demand, supply, supply, supply.” While supply might be easy to get onto the network early on through subsidies, eventually it will become the bottleneck.

In the workplace, an example might be an office worker that uses Google Docs to author a memo. Sharing the document as a link is easy, and coworkers will then add comments, suggest changes, and make edits themselves—these are the network features.

When you start a new product with network effects, the first step is to build a single, tiny network that’s self-sustaining on its own.

The Big Bang Launch is often the strategy of the larger player in a market, which uses its advantages in size and scale to quickly overwhelm an opponent. It’s particularly