The Cold Start Problem: How to Start and Scale Network Effects

Imagine a network launch as tipping over a row of dominos. Each launch makes the next set of adjacent networks easier, and easier, and easier, until the momentum becomes unstoppable—but it all radiates from a small win at the very start. This is why we so often see the most successful network effects grow city by city, company by company, or campus

The Big Bang Launch is often the strategy of the larger player in a market, which uses its advantages in size and scale to quickly overwhelm an opponent. It’s particularly

because a wide launch creates many, many weak networks that aren’t stable on their own.

Twitch, Instagram, and TikTok innovated in a similar vector, giving creators new tools and media types to express themselves.

Once tagged, the dual-apping drivers in the city could be sent a myriad of offers to compel them to change their behavior.

First, by setting a goal of exceeding a billion dollars of valuation—thus being in a position to achieve an IPO—and working backward. Hitting a $1 billion valuation generally requires at least $100 million in top-line recurring revenue annually, based on the rough market multiple of 10x revenue. You’d want to hit that in 7–10 years, to sustain the

Snapchat’s Stories format—allowing people to broadcast a set of asynchronous photos and videos to their friends—can sit alongside their core photo messaging app, and increase usage. Some photos are better for 1:1 communication and others are better for a broadcast format—Stories allows Snapchat to collect both sets of photos instead of just one.

In both of these cases, the Economic effect doesn’t aid Uber at all, and the company is no more efficient than its peers in the same market. In these cases, Uber has to differentiate through other means, which is hard in a utilitarian market with the expressed goal of “transportation like running water.”

At its core, the Uber playbook for competition worked by relying on the Economic network effect—when it was the larger player in a city, it could subsidize the driver side of its network more efficiently.