Baking the network effect into your product

team photo - article

I’ve written three posts on this subject, though the term I used was “virality” vs. “network effect”. The latter term is perhaps better.

How Snapchat succeeded without built-in virality

Everyone talks about virality but no one knows how to create it

B2C – build in virality or bust

What’s really interesting in the article  by Alexei Oreskovic The founder of real estate website Trulia has a new twist on startup investing – and it involves building his own products is not so much the fact that they are hiring their own engineers, it’s what those engineers will be doing.

Flint, and the other cofounders of venture capital firm NFX, are on the hunt for “network effects” – products that increase in value as more people use it. That’s what propelled Microsoft’s Windows operating system to become the dominant computing platform , years before the internet was a factor. And more recently, it’s the secret to the success of giants like Facebook, Airbnb and Uber among others.

NFX recently closed a $150 million fund to invest in early-stage startups that fit the bill. The firm says it has identified 13 types of network effects, in industries ranging from synthetic biology to machine learning and blockchain .
I’ve found that customer acquisition is both the most difficult and most expensive part of building a startup. So by building in virality or the network effect into your product from the get-go you can let the product create its customers. What used to be called word of mouth.
It will be interesting to see how well NFX companies fare, and if indeed baking in the network effect into their products does eliminate or significantly cut down the cost and time to acquire customers.

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

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