Aug 11th 10

Bringing a Network Effect Business to Market

Below are my slides from Lean Startup LA, where I introduced recommendations for bringing a network effect startup to market. There is still plenty to figure out, so I appreciate any feedback (positive and negative).  The presentation was also recorded on video here.

Startup Marketing Slides from Lean Startup Circle LA

View more presentations from Sean Ellis.

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14 Responses to “Bringing a Network Effect Business to Market”

  1. Jasper Morgan
    Aug 11, 2010 11:25 pm

    Thanks for sharing the slides, they certainly provide food for thought. It would be great if there were a YouTube/Vimeo movie where you talk to the slides. Just a thought.

  2. Sean
    Aug 12, 2010 7:16 am

    Thanks, video should be online today. I will post it as soon as I get it.

  3. Brennan
    Aug 12, 2010 3:57 pm

    Your simple pyramid illustration of how a normal startup differs from a network effect startup is going to save me countless, useless hours debating with people. Now I can just draw the upside down pyramid and the logic of the steps we’ve taken at our startup will be clear.

    Thanks!

  4. Daniel Kim
    Aug 12, 2010 8:00 pm

    Thanks for coming down, I really enjoyed the presentation. It was good to get some strategy ideas on how to bring a network effect startup to market. Good luck with your own network effect start up and hopefully, you can share some lessons learned experiences in the future.

  5. J. Anthony Miguez
    Aug 13, 2010 4:52 am

    Good presentation to remind all that network effect start-ups have a different path. On This Week in Start-ups last week Calacanis was interviewing a company CEO and the CEO pointed out that they needed to create “network independent value” for their start-up offering to help in getting early adopters on board (priming the pump). For them it was some functionality that was helpful to their target market regardless of whether they had 10 people or 10K on the network.

  6. Tristan Kromer
    Aug 13, 2010 10:47 am

    Hi Sean,

    I think the video may answer some of my questions. A lot is implied here and a lot of questions remain. I would love to see someone address some of the core issues:

    What are the different types of network effects?
    - Are all users one type? Or is it a marketplace?
    - Are the users different from the customers? (iow – who pays?)

    Other than “faking it”, what are some strategies that networks can employ?
    - Alternative products geared to one side of the market or single users. (e.g. quizes for OKCupid, single player versions of multiplayer games, etc.)
    - Targeting the in-demand group (e.g. hot girls)

    How can networks establish what is a critical mass number?
    - Single user type network vs. market network

    How can networks reposition to reduce the critical mass number?
    - Focus on a niche
    - Promote via social networks
    - Target the 10% that produce 90% of content

  7. Victor Richardson
    Aug 23, 2010 9:07 am

    Great presentation in Santa Monica, Sean, I learned a lot.

    You made a strong point about constantly learning, and that sometimes failure is more informative than success. Success can lead to false assumptions about what created it, and you’ll never know until trying to apply a process from a previous endeavor to a new one and failing horribly.

    Well, here is a terrific quote(from an interview in Wired Mag) from Fred Brooks, author of the legendary 1976 book “The Mythical Man-Month” (which still sells 10,000 copies per year) which debunked the theory the flawed assumption that more manpower meant predictably faster progress. Brooks oversaw the hardware and software development of IBM’s most successful mainframe computer – the IBM System/360.

    There are several impressive insights contained in the interview which imply that Brooks has developed a Lean Startup process of development over his decades of hardware and software engineering managment

    Wired: You say that the Job Control Language you developed for the IBM 360 OS was “the worst computer programming language ever devised by anybody, anywhere.” Have you always been so frank with yourself?

    Brooks: You can learn more from failure than success. In failure you’re forced to find out what part did not work. But in success you can believe everything you did was great, when in fact some parts may not have worked at all. Failure forces you to face reality.

    Wired: In your experience, what’s the best process for design?

    Brooks: Great design does not come from great processes; it comes from great designers.

    Wired: But surely The Design of Design is about creating better processes for great designers?

    Brooks: The critical thing about the design process is to identify your scarcest resource. Despite what you may think, that very often is not money. For example, in a NASA moon shot, money is abundant but lightness is scarce; every ounce of weight requires tons of material below. On the design of a beach vacation home, the limitation may be your ocean-front footage. You have to make sure your whole team understands what scarce resource you’re optimizing.

    Wired: How has your thinking about design changed over the past decades?

    Brooks: When I first wrote The Mythical Man-Month in 1975, I counseled programmers to “throw the first version away,” then build a second one. By the 20th-anniversary edition, I realized that constant incremental iteration is a far sounder approach. You build a quick prototype and get it in front of users to see what they do with it. You will always be surprised.

    Wired: You’re a Mac user. What have you learned from the design of Apple products?

    Brooks: Edwin Land, inventor of the Polaroid camera, once said that his method of design was to start with a vision of what you want and then, one by one, remove the technical obstacles until you have it. I think that’s what Steve Jobs does. He starts with a vision rather than a list of features.

    The short interview for his follow up book, , can be found here – http://www.wired.com/magazine/2010/07/ff_fred_brooks/

  8. Victor Richardson
    Aug 23, 2010 9:08 am

    Oh, I forgot to mention his new book is titled “The Design of Design”

  9. Christopher Griffin
    Sep 19, 2010 9:54 pm

    Hi Sean:

    One thing I’d like to point out about a network effect businesses is that they don’t all fit the upside down pyramid you laid out. For instance, if you have a product like Farmville that has a good single player experience, you can get PMF early on and then build in the viral mechanics to scale it to critical mass for the networked experience.

  10. Sean
    Sep 20, 2010 8:50 am

    I agree. It’s a great strategy for a network effect business to have a value proposition that works well for a single person, but improves will critical mass. One startup that did this well was HostelWorld out of Ireland. They started with a bookings engine sold to hostels and eventually rolled it into a bookings site with user reviews, etc.

  11. Quora
    Sep 20, 2010 2:33 pm

    How do you apply Steve Blank’s customer development methodology when “users don’t even know their problems”?…

    My guess is that this question is trying more to make a point then obtain an answer BUT I do think it is a great question nonetheless (and deserves a good attempt at answering it) and moreover, embedded in the question are many interesting complexities…

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