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Andrew Chen | The Cold Start Problem: How to Start and Scale Network Effects | Talks at Google
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Startup executive and investor Andrew Chen discusses his book "The Cold Start Problem: How to Start and Scale Network Effects", revealing what makes winning networks thrive, why some startups fail to successfully scale, and, most crucially, why products that create and compete using the network effect are vitally important today. Although software has become easier to build, launching and scaling new products and services remains difficult. Startups face daunting challenges entering the technology ecosystem, including stiff competition, copycats, and ineffective marketing channels. Teams launching new products must consider the advantages of “the network effect,” where a product or service’s value increases as more users engage with it. Apple, Google, Microsoft, and other tech giants utilize network effects, and most tech products incorporate them, whether they're messaging apps, workplace collaboration tools, or marketplaces. Network effects provide a path for fledgling products to break through, attracting new users through viral growth and word of mouth. Yet most entrepreneurs lack the vocabulary and context to describe them—much less understand the fundamental principles that drive the effect. What exactly are network effects? How do teams create and build them into their products? How do products compete in a market where every player has them? Andrew Chen is a general partner at Andreessen Horowitz where he invests in consumer technology, including social, marketplace, entertainment and gaming experiences. Today, Andrew serves on the boards of All Day Kitchens, Clubhouse, Envoy, Hipcamp, Maven, SandboxVR, Singularity6, Sleeper, Snackpass and Substack. He is a prolific writer and leading voice on mobile, metrics and user growth. He is also a board member and instructor at Reforge, which offers selective growth-focused programs for experienced professionals in marketing, product, data and engineering. Get the book here: https://goo.gle/3F5CklE. Moderated by Ali Norup.
Segments Timeline
Introducing Andrew Chen
Ali Goldstein introduces Andrew Chen, a general partner at Andreessen Horowitz and author of 'The Cold Start Problem.' Chen discusses his background in consumer technology and his role in investing in startups. This segment sets the stage for the conversation about network effects and the challenges startups face in scaling.
"hi welcome to this talks at google virtual event my name is ali goldstein europe and as the head of america's for our google cloud for startups program for vc relationships i'm very excited today to i..."
The Genesis of 'The Cold Start Problem'
Andrew Chen shares the inspiration behind his book 'The Cold Start Problem,' explaining how he spent three years writing it. He emphasizes the importance of network effects in successful technology products and how they connect people, which is crucial for startups aiming to grow and scale.
"wherever books are sold lastly a quick disclosure for you that none of the following should be taken as investment advice from andrew and we're going to be able to talk to him about a number of things..."
Understanding Network Effects
Chen defines network effects using the invention of the telephone as an example. He explains that the value of a product increases as more users engage with it, highlighting the importance of having a connected user base for products like Airbnb, GitHub, and social media platforms.
"there if that works for you perfect um so let me let me share my screen hold on one second um so so this book just to give a little bit of the the genesis um it is uh it's a book that i've been writin..."
The Cold Start Problem Explained
In this segment, Chen elaborates on the cold start problem, explaining that new products struggle to gain value without users. He discusses how this challenge can hinder startups and emphasizes the need for strategies to overcome it, setting the foundation for the book's framework.
"which is they have network effects um and of course literally the product we have we're using right now for this presentation you know it's a way to connect people it has network effects a lot of the ..."
Framework for Overcoming Cold Start
Chen introduces a five-part framework to address the cold start problem. He discusses the importance of forming atomic networks, understanding the easy and hard sides of a network, and reaching the tipping point for growth. This framework is essential for startups to build and scale effectively.
"all and so you're just not going to use a product um like like some of the products that i've been discussing unless other people are also using it um in the same way and so just to run through a coup..."
Challenges of Scaling Network Effects
Chen discusses the challenges that successful products face as they scale, including market saturation and user experience issues. He uses examples from Dropbox and social media to illustrate how products can become less effective if not managed properly, emphasizing the need for continuous innovation.
"yes when you when you build one of these products and you hear about how um whether it's instagram or it's um discord or it's slack or any of these products when they have a lot of users if the produc..."
The Importance of Defensibility
In this concluding segment, Chen talks about the concept of defensibility in products. He explains how startups can build competitive advantages to withstand new entrants in the market. This discussion wraps up the key themes of his book and the significance of network effects in the tech industry.
"slack it's like an amazing product when you have 50 people on it or 100 people but you know i i was using slack in a 20 000 organization and starts getting really hard because it's very very overcrowd..."
The Power of Writing in Building Networks
Andrew Chen shares how his passion for writing helped him understand and create networks, leading to the development of his book. He reflects on his teenage years of journaling and how writing about ideas in the Bay Area sparked his interest in concepts like viral loops and growth hacking, ultimately culminating in his exploration of the cold start problem.
"your own network right to some of the parts of the cold start problem and and you definitely saw the additional effects what was it specifically that that made it so that you were prompted to write th..."
What Makes Silicon Valley Special?
In this segment, Chen discusses the unique impact of Silicon Valley companies on the world. He contemplates the core idea that these companies excel at building networks, which is a fundamental aspect of their success. This insight serves as a foundation for his book, 'The Cold Start Problem.'
"thousand essays kind of on this topic um what i decided at one point is um i just needed to bring it all together and try to answer this question that's kind of been um in the back of my head for a lo..."
Lessons for Startup Founders
Andrew Chen emphasizes the importance of understanding the 'atomic network' concept for startup founders. He explains how successful startups often begin in niche markets, where a small number of users can create significant value, and shares insights on how to identify the necessary user connections for product success.
"start problem i i love it so one of the things that you say at the beginning of the book is sort of like the network of networks um you reference metcalf's law of you know the network effect um if you..."
The Importance of Starting Small
Chen elaborates on the strategy of starting small to build a dense network. He uses Slack's early days as an example, illustrating how focusing on a small team allowed them to create a product that met the needs of its users, ultimately leading to broader adoption and success.
"two or three people and you can actually just keep talking and talking and talking and it's great and there are products that are like slack that are more more valuable when five to ten people on the ..."
The Rise and Fall of Glitch
In this segment, Chen recounts the story of Stuart Butterfield's failed game, Glitch, and how it led to the creation of Slack. He highlights the importance of pivoting and adapting in the startup world, showcasing how a small team can regroup and refocus to build a successful product.
"market just like did not work um and stewart saw that immediately and he did this wonderful thing of actually um of uh of continuing on of continuing on and he um he brought the team down all the way ..."
Understanding the Easy and Hard Sides of Networks
Chen discusses the concept of the 'easy side' and 'hard side' of network products, using Tinder as a case study. He explains how understanding the dynamics between these sides can help startups create better experiences for their users, particularly for those who are crucial to the network's success.
"approach as opposed to just announcing on you know tech crunch or whatever and then like a bunch of random people show up and then it's like oh none of my co-workers use this and then they're just gon..."
Demystifying Network Effects
In this concluding segment, Chen summarizes key concepts from his book, including the importance of building dense networks and the strategies that successful companies use to grow. He emphasizes that understanding these principles can help entrepreneurs navigate the complexities of launching and scaling their products.
"study this is fantastic so so every network product has a um has has what i describe as an easy side and a hard side of the network exactly and the easy side of a network is is like uh you know a yout..."
Tinder's Cold Start Problem
Chen shares the story of Tinder's early challenges in building a user base, illustrating how they initially struggled despite having a well-designed product. He explains the significance of having the right network in place and how Tinder overcame its cold start problem by creating a compelling event to attract users.
"start problem is meant to sort of unpack a lot of these um historical patterns and ideas into a cohesive framework so i love it you've um you've done a couple of things there right you're demystifying..."
The Power of Local Networks
Andrew Chen discusses Tinder's strategy of leveraging local networks, particularly through college campuses. He explains how they targeted specific demographics to create a strong initial user base, which ultimately led to broader adoption across multiple locations.
"features the problem with building all the right features is that um then they went and they started to invite their friends and um um and they went on their address books and they started texting the..."
Throwing Parties to Build Community
In this segment, Chen recounts how Tinder organized a birthday party to gather users in one location, requiring attendees to download the app for entry. This innovative approach helped them create a critical mass of users, demonstrating the importance of strategic events in overcoming initial user acquisition challenges.
"exactly yeah and it's very easy that uh for them to potentially have just stopped right there and just have said like you know okay like like this isn't working okay let's let's move on but instead wh..."
Building a Network of Networks
Chen elaborates on Tinder's growth strategy, explaining how they expanded from one campus to another by targeting schools with strong Greek systems. He emphasizes the importance of understanding local dynamics and how winning in smaller networks can lead to larger market penetration.
"pick another school and another school in another school and the next school they picked wasn't a you know tiny liberal arts school on the west coast what it was was they actually started to go after ..."
Lessons from LinkedIn's Growth
Andrew Chen shares insights from his interview with Reid Hoffman about LinkedIn's initial user acquisition strategy. He highlights the importance of targeting users who are already somewhat successful to create a compelling network that attracts others, illustrating the strategic thinking behind building a professional community.
"so um i said we were going to go to linkedin i may steal a little bit of time and take us to reddit as a case example but i just really want to pull out a couple of the amazing nuggets that you have t..."
The Manual Path to User Acquisition
In this segment, Chen discusses the necessity for startups to manually recruit users in their early stages. He emphasizes that founders often need to step out of their comfort zones to build initial traction, highlighting the challenges and rewards of this hands-on approach.
"of y combinator has an amazing essay from years back still very relevant called do things that don't scale so that title is very compelling but then he actually has one line that i just want to um to ..."
Building the Initial User Base
Andrew Chen discusses the challenges of acquiring the first hundred users for a startup. He highlights the importance of targeting users who have some level of professional success, using LinkedIn's strategy of inviting early adopters like Mark Pincus to build a foundational community. This segment emphasizes the manual effort required to kickstart user engagement and the significance of creating a network effect from the ground up.
"the very beginning to get your first hundred users or customers it actually is it tends to be very manual um and and you're trying to kind of put in the teams the startup team the founding team is try..."
The Reddit Launch Strategy
Chen shares the story of Reddit's early days, focusing on how founders Steve Huffman and Alexis Ohanian filled the homepage with content to attract users. They initially created fake accounts to post content, ensuring that the platform appeared active. This segment illustrates the creative and sometimes unconventional methods startups use to overcome the cold start problem and establish a vibrant community.
"literally manually just told everyone in the company let's all just you know send links like let's just go through our address books one by one and just tell our friends that they should be on this pl..."
Flintstoning: Manual to Automated Growth
In this segment, Chen introduces the concept of 'flintstoning,' where startups use manual methods to bootstrap their growth before transitioning to automated systems. He uses Reddit as a case study to explain how early manual efforts can lead to sustainable network effects. This approach highlights the importance of human involvement in the initial stages of product development and community building.
"for a concept that um is uh that i that i in the book i call flintstoning which is you know fred flintstone fred flint's if you if you remember the old cartoon the flintstones they had a car and if yo..."
The Power of Invite-Only Launches
Chen discusses the effectiveness of invite-only launches, using Gmail as a prime example. He explains how this strategy not only manages user influx but also leverages existing connections to enhance network effects. The segment delves into the psychological aspects of exclusivity and how it can drive user engagement and growth in social products.
"i love it and it's you know sir at the flint starting i was hoping you would get there and just sort of call it out what a great terminology for sort of thinking about that manual to the operational t..."
Disrupting Traditional Markets with Network Effects
In this segment, Chen explores how startups like Airbnb disrupt traditional markets by leveraging network effects. He contrasts the existing hotel industry with Airbnb's model, emphasizing the potential for innovation in markets that have historically been stagnant. This discussion highlights the importance of understanding network dynamics in creating competitive advantages.
"fantastic, i, think, there's, there's, a lot of other playbook elements that i talk about um you know there's there's coming for the tool and staying for the network um there's using subsidies um you ..."
Quality Over Quantity: The Airbnb Advantage
In this segment, Chen contrasts Airbnb's quality of inventory with that of its competitors, particularly Wimdu in Europe. He illustrates how Airbnb's superior network connections and traveler demand allowed it to thrive despite facing a well-funded rival, emphasizing the significance of network quality in competitive dynamics.
"now the problem is like at the time you know no pictures no inventory no booking you literally would just like email them and then you'd kind of just go back and forth it was very like kind of a inter..."
The Challenges of Network Effects in Different Markets
Chen shares insights from his experience at Uber, discussing the challenges of building a global network effect in the ride-sharing industry. He contrasts it with Airbnb's model, highlighting how local successes do not necessarily translate to global advantages, and the importance of interconnected networks in scaling businesses.
"world they grew on top of google's like seo kind of platform you could talk about that way and then of course all the mobile apps grow on top of the apple ecosystem and so for for airbnb it turns out ..."
Web3 and the Future of Network Effects
Andrew Chen explores the potential of Web3 technologies, particularly in gaming and the creator economy. He discusses how these new platforms can teach entrepreneurs about building networks and solving cold start problems, emphasizing the decentralized nature of Web3 and its implications for future business models.
"is that they really showed that actually the quality of your network the density of connections um you know matters a lot and they actually just had better inventory um they had travelers from the us ..."
NFTs and the Cold Start Problem
In this segment, Chen delves into the challenges of launching NFT projects, highlighting the necessity of building community and interest around them. He draws parallels between the value of NFTs and traditional art, emphasizing that their worth is often derived from collective perception and network engagement.
"it's so helpful to build connections between companies not just within companies because then you can build kind of an industry-wide um ecosystem and so so those those are some of the things that uh y..."
Gaming and Network Effects in Web3
Chen discusses the intersection of gaming and Web3, focusing on how successful games leverage network effects to enhance user engagement. He highlights the importance of building compelling multiplayer experiences that can attract and retain players, illustrating the inherent advantages of network-driven games.
"base case um you could take bitcoin's source code and the pre-existing blockchain and fork it all and build your own thing and um and and and and you could you could call it uh you know uh bitcoin and..."
Decentralization and User Incentives
Andrew Chen emphasizes the need for decentralized platforms to consider user incentives and interactions. He discusses how the absence of a central authority in Web3 requires a deeper understanding of network dynamics, urging entrepreneurs to think critically about how their products will engage users over time.
"but in the same way all these games all have cold start problems like if you're gonna build a new game and it's going to be the next minecraft um then but no one plays it none of your friends play it ..."
The Future of VR and User Experience
In this closing segment, Chen shares his excitement about the future of virtual reality experiences, particularly through his involvement with Sandbox VR. He envisions a world where immersive technologies enhance user engagement, highlighting the potential for innovative experiences in the evolving tech landscape.
"i love it um we'll get into it at a different time how axiomfinity has built and their tech infrastructure audit is on-prem some is on a blockchain they built it's very interesting but what i love abo..."
Travel Dreams Post-Pandemic
In a light-hearted moment, Andrew Chen shares his travel aspirations once it's safe to travel again. He reminisces about his experiences with Sandbox VR and his travels to Taiwan, Tokyo, and Europe. This segment captures Chen's personal side and his longing for exploration and adventure after the pandemic.
"uh well i i did uh i have a um i have a board with um uh with a company called sandbox vr which does these amazing um retail vr um experiences and you can shoot zombies and it feels you know and you h..."
A Unique Academic Journey
Andrew Chen reveals a fun fact about his early academic life, attending the University of Washington at just 14 years old. He shares anecdotes about living in dorms and navigating college life at a young age. This segment highlights Chen's unique background and early achievements, setting the stage for his later success in technology.
"all right so i'm picking on you on your birthday um fun fact about you that some people might not know yeah um well uh uh i am um i'm from seattle originally and my early early um uh uh actually my my..."
Well-Being Through Nature
Chen discusses his favorite well-being activity of converting Zoom calls into phone calls while walking along the beach in Venice. He emphasizes the importance of being outdoors and staying active, showcasing how he balances work and personal well-being. This segment encourages viewers to rethink their work habits for better mental health.
"i love it yes you know only 14 year olds go and learn about certain laws and meerkats and the behaviors around them and all of it it's it's it's fantastic okay that's great favorite well-being activit..."
Essential Google Products
In this segment, Chen shares his reliance on Google Workspace, particularly Google Docs, for collaboration and productivity. He discusses the importance of these tools in his work and how they facilitate his writing process for his book. This highlights the significance of effective tools in the tech industry.
"that well jokingly i'll come down to the venice office and not have you in the office we'll just go for a walk instead it will be it'll be yes i walk past the the google venice office all the time yes..."
Optimism for the Future
Chen concludes with his personal motto about believing in a better future, referencing Steven Pinker's work on progress and violence decline. He expresses excitement for technological advancements and the positive impact they can have. This segment encapsulates Chen's optimistic outlook on technology and its potential to improve lives.
"awesome i love it early birthday present we'll just keep wrapping it um with that you know i know um i know it's one of those things of with the book and it's phenomenal i have my copy here it was a g..."