👋 Hey, Lenny here! Welcome to a ✨ special edition ✨ of my weekly newsletter. Normally, each week I tackle reader questions about product, growth, working with humans, and anything else that’s stressing you out about work. If you’re not a subscriber, here’s what you missed this month:
Earlier this week, Andrew Chen (GP at a16z, ex-Uber Growth, ex-founder, prolific blogger) published his long-awaited book, The Cold Start Problem. In it, Andrew explores the powerful role of “network effects” in kickstarting and scaling some of Silicon Valley’s most successful companies.
Here’s what Twitter looked like for many of us this week:
So much so that it became a meme:
Clearly, Andrew knows how to solve the cold start problem 🥁
Below, I’m honored to share an exclusive excerpt of my favorite chapter in Andrew’s new book: The Atomic Network. In it, Andrew teaches us precisely how to solve the cold start problem for products that need a critical mass of users before they’re useful—marketplaces, communities, social networks, dating apps, collaboration tools, etc. Essentially, he argues that if you can create a small, stable, engaged network that can self-sustain—an atomic network—then likely you can build a second network adjacent to the first one. This could be a single city, college campus, or small beta test at an individual company. And if you can build one, and then two, you can probably build 10 or 100 networks. Copy and paste many times, and you can build a huge interconnected network that spans the entire market. This aligns with my own research, and gives you a guide for getting your business off the ground. Enjoy!
If you want to read more of Andrew's book, stop by your local bookstore or a major book retailer near you.
The Atomic Network
Whether for credit cards, multiplayer games, or business collaboration software, the “atomic network” is the smallest network needed that can stand on its own. It needs to have enough density and stability to break through early anti-network effects, and ultimately grow on its own. I liken it to an atom because it is the unit upon which larger networks are ultimately built. If you can build one, and then another, you can build the rest of the network—this is the base unit to build everything else.
In Slack’s case, the atomic network turned out to be pretty small. The threshold was just the team of people around you—under ten in a single company might be enough—and there would be enough chat activity to sustain user engagement. Contrast that to the credit card, which needed to launch in an entire city to make it work. After all, they had to sign a critical mass of retailers and consumers, and it makes sense to sign up most of a downtown commerce district as part of the strategy.
To build an atomic network requires a hodgepodge of different tools. Common themes emerge when you look at Slack’s strong network launch as well as the successes across marketplaces, social networks, developer platforms, and dozens of other categories. Many of them are counterintuitive: The networked product should be launched in its simplest possible form—not fully featured—so that it has a dead simple value proposition. The target should be on building a tiny, atomic network—the smallest that could possibly make sense—and focus on building density, ignoring the objection of “market size.” And finally, the attitude in executing the launch should be “do whatever it takes”—even if it’s unscalable or unprofitable—to get momentum, without worrying about how to scale.
Embedded within Slack’s strategy, and the strategy of many early-stage networked products, is a series of short-term boosts—often called “growth hacks”—which are important in forming the initial atomic networks. In Slack’s case, it was their incredible buzz within the early-adopter startup community, and their invite-only launch. There are other famous examples: The $5 referral fee that lit up the original PayPal network, or Dropbox’s demo video on Hacker News that created a huge line of folks excited to try the magical cloud-storage product. Or the “Uber Ice Cream” promotions letting people order soft-serve ice cream, on demand, via the rideshare app. In the early days, local news-papers and social media would often cover the ice cream promotion, which helped build out the rideshare network. Each of these growth hacks gave an important, quick lift that established an atomic network, kicking off future growth.
Once a single atomic network can be built, it becomes straightforward to build many others by repeating the same playbook. For Slack, an early-adopter team might start using the product regularly, until it starts to grow organically inside the company. Eventually the entire company upgrades to become paying customers. Rinse and repeat. Slack’s earliest customers were other startups, but eventually, atomic networks started to form inside larger customers like IBM or other Fortune 500 companies. Once Slack could build a dense network that sustained a single team, it could eventually take over an enterprise.
Why Starting with a Niche Works
The atomic network is a complementary point of view to Clayton Christensen’s Disruption Theory. These small networks often grow in niches, slowly growing to take over the entire market. Chris Dixon, my colleague at a16z, summarized the idea in an essay titled, appropriately, “The next big thing will start out looking like a toy”:
Disruptive technologies are dismissed as toys because when they are first launched they “undershoot” user needs. The first telephone could only carry voices a mile or two. The leading telco of the time, Western Union, passed on acquiring the phone because they didn’t see how it could possibly be useful to businesses and railroads—their primary customers. What they failed to anticipate was how rapidly telephone technology and infrastructure would improve (technology adoption is usually non-linear due to so-called complementary network effects). The same was true of how mainframe companies viewed the PC (microcomputer), and how modern telecom companies viewed Skype.
I think Chris is right, but I would extend this idea further into the target audience, too. Not only will the product initially look like a toy, but as a corollary to Disruption Theory, there is a huge benefit to picking a smaller and more targeted starting point. Nail this initial niche network, establish an atomic network, and grow from there. In other words:
The next big thing will start out looking like it’s for a niche network.
Networked products often look like toys, and moreover, toys for a weird niche. This is why they are easy to underestimate. The atomic networks are forming in niche audiences like teens or gamers, and picking up a lot of buzz, but it’s not clear yet that it will be interesting to the mainstream. But that may soon change, as the network gets built out. In the meantime, you’re not in the target audience, and that’s okay.
Underestimating new products in this way is the number one way to make dumb predictions in the tech industry. It’s what leads pundits to say a product won’t work, isn’t interesting, or has a small market size—followed by that product proving them wrong just a few years later. These erroneous predictions are understandable, because it’s hard for a product to resonate when its network doesn’t include you, your friends, or your colleagues. The addressable market will seem small, and it’s not until relevant people join that the product will feel like it’s for you. It’s not that product changes are needed—it’s that the network needs to fill out to the point where the people and content are relevant.
Picking Your Atomic Network
The first step to launching an atomic network is to have a hypothesis about what it might look like. My advice: Your product’s first atomic network is probably smaller and more specific than you think. Not a massive segment of users, or a particular customer segment, or a city, but instead something tiny, maybe on the order of hundreds of people, at a specific moment in time. It was similar for Uber, whose networks we tend to talk about as “San Francisco” or “New York,” but in the earliest days, the focus was on narrow, ephemeral moments—more like “5pm at the Caltrain station at 5th and King St.” The general managers and Driver Operations had an internal tool, called Starcraft—referring to the real-time strategy game popular at the time—that allowed them to click on a group of cars, text them “Go to the train, lots of riders!” and direct them in real time.
Once rides start to consistently happen at these moments, then the discussion might shift to focus on the wider network defined by the 7x7 square miles of the city, then adding the suburbs of East Bay and Silicon Valley as the next step. Years later, a company might talk about entire countries or mega-regions, like EMEA or APAC, but in the early days, it’s about something much more focused. It should be about building the smallest possible group.
Whereas our typical business verbiage revolves around aggregations of millions of people—that’s usually what we mean when we talk about “markets,” “segments,” and “demographics”—the language of launching new networks should be focused on groupings of a handful of people, with the right intent, in the right situation, at the right time. This is true in dating apps, marketplaces, but even in workplace products. The wedge begins with “The Q2 planning cycle in the Product team at Chase Bank.”
The more users you need to get to an atomic network, the harder it is to create. There are networked products with small minimum size requirements, for example the telephone, a communications product like Snapchat, or Zoom for videoconferencing. This makes it much easier to get started—because as long as you can get each new user to find a friend that’s already on the network, or to invite a friend, then it’ll work. No wonder these are some of the stickiest, fastest-growing products, too. But there are drawbacks, too, because what’s easier for you will be easier for your competitors—they just need a few users to get started as well, which is why there are so many messaging apps and chat features inside larger products.
Let’s look at the other end of the spectrum on network size. There are enterprise products like Workday (a financial HR management tool) that require the company to implement them before there’s any value. Here, a viral growth strategy is difficult, because it’s not enough to dribble in a few users at a time. If you need hundreds of users on the same platform at once, company-wide coordination is needed. In this situation, a top-down enterprise sale that gets a company to mandate usage for everyone might work better.
The Power of Atomic Networks
Growing city by city, campus by campus, or team by team is a surprisingly powerful strategy. It leads to dense, organic connections of users that strengthen network effects across multiple dimensions: Engagement goes up, because users are more likely to find other relevant users. Viral growth goes up when prospective users of a product see that their friends and colleagues are all using the service.
The concept of atomic networks is powerful because if you can build one, you can probably build two. Each one often becomes easier, because each network can be intertwined with the next—Slack’s success within one company can help it become successful in another, as employees move about and introduce the product to new workplaces. Facebook’s early campus launches became easier over time as students’ friends at different schools began to demand the product more and more. Build a few atomic networks, and soon you can copy and paste them into many, many markets.
Thanks, Andrew! Grab your own copy of The Cold Start Problem, and follow Andrew on Twitter @andrewchen.
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"The next big thing will start out looking like it’s for a niche network."
Not sure why, but why does no one mention the chasm? As the characteristic of people in early adopters and the early majority is different, and the latter needs an achievement of the product before installing it, so it's better to focus on a niche market first and expand it vertically.