Some businesses grow slowly, inching their way into relevance. Others explode overnight, becoming indispensable almost instantly. What’s the difference?
Network effects.
Andrew Chen, an investor at Andreessen Horowitz and former growth lead at Uber, breaks down the mechanics behind products that scale exponentially—why they take off, why they stall, and how to engineer momentum from nothing.
The Thesis:
The hardest part of building a network-based business isn’t growing—it’s starting. Getting the first users, the first transactions, the first engagement is the defining challenge. But once a network reaches critical mass, growth becomes self-sustaining.
Key Takeaways:
1. The Cold Start Problem
Networks are only valuable when enough people are using them. No drivers? No riders. No sellers? No buyers. The biggest challenge for any network-based product is reaching critical mass—the point where momentum takes over and demand fuels itself.
2. The Network Effect is a Force Multiplier
Once a product reaches critical mass, every new user increases its value. A single fax machine is useless; a million of them make faxing an industry standard. Strong networks don’t just grow—they become more necessary as they expand.
3. The Atomic Network is the Key to Scale
Every great network starts small. Instead of trying to reach everyone, the goal is to build a successful, self-sustaining micro-network—an “atomic network.” Think: Facebook starting with Harvard students before expanding.
4. The Tipping Point & Escape Velocity
Once a network hits a tipping point, growth accelerates rapidly. But to stay successful, a product has to maintain engagement, fight off competition, and prevent stagnation.
5. The Reverse Network Effect
Networks don’t just grow—they decline. If engagement drops below a critical threshold, the network effect works in reverse: fewer users make the product less valuable, accelerating its collapse. This is why some platforms die seemingly overnight.
6. The Dark Side of Network Effects
Strong networks can be a moat (defending against competitors) but also a weapon—locking out new entrants, creating monopolies, and sometimes leading to unintended consequences (e.g., misinformation spread on social platforms).
Final Thoughts:
The Cold Start Problem isn’t just about startups—it’s about how ideas, communities, and businesses gain traction. If you understand how networks grow, you understand how to make things stick.