I’ve been working with a visionary client whose ideas always excite me.
Right now he’s building an app that rethinks how we share and connect, in some really innovative ways.
I’m excited by it. But there’s always a beast lurking in the shadows of this kind of brilliant concept.
You know it. I know it. Every product maker knows it.
The dreaded Network Effect challenge.
This is the chicken-and-egg problem that’s wrecked thousands of promising social products: An empty network is worthless, but you can’t get users without active EXISTING ones.
It’s like throwing a party where the only reason to attend is that other people are there.
But nobody comes in, because… no one is there yet.
For my client (who I know reads these emails — happy Cosmonautics Day to ya!), this presents a major strategic puzzle.
His app will be genuinely useful to you only when a critical mass of your friends are already using it.
But why would your friends join if YOU aren’t there?
In I Need That, I discuss how products must overcome several Status Quo Biases — our natural resistance to change. With network-dependent products, this bias is compounded because early adopters pay the highest “switching cost” while receiving the least value for their effort.
The first fax machine owner in 1982 had a super expensive paperweight until someone else bought one too. (It cost US $20,000, or $62,350 when you adjust for inflation.)
This dilemma has inspired some of the most creative growth strategies in tech history:
PayPal famously gave new users $10 for signing up and another $10 for referring friends. The startup literally PAID people to solve their chicken-and-egg problem, burning through millions in venture capital to build a network. Nutso at the time. Brilliant in hindsight.
Clubhouse manufactured artificial scarcity with an invitation-only model, making membership feel exclusive while cleverly masking the app’s small initial user base.
LinkedIn started with the founders (including Reid Hoffman who had been a VP at PayPal) importing their own address books, then methodically targeted specific professional networks, creating utility within small clusters before connecting them.
Slack leapfrogged the problem entirely by selling to teams instead of individuals. When a whole company adopted Slack, everyone joins at once — instant network effect within that organization.
The main insight: you don’t need EVERYONE on day one.
You need enough people in specific clusters to create value (and gratification) within those micro-networks.
Product Payoff: As a cyclist, this one resonates with me. The activity tracking app Strava solved the network problem in a smart way by focusing first on hardcore cyclists in specific geographic regions like Portland and San Francisco. Strava created valuable “Segments” (competitive stretches of road where users race against each other’s times), making the app immediately useful to a tiny but passionate group. These cyclists became raving fans who brought in THEIR riding buddies. By creating value in micro-clusters first (and smacking the experience part out of the park), Strava grew to over 125 million users across 195 countries today.
Action for today: If you’re building a business that relies on (or can thrive on) network effects, identify the smallest viable network that can still deliver real value. What’s the minimum cluster size where your product becomes for-real useful? Can you target certain communities, geographic areas, or interest groups to build density BEFORE breadth? Focus on creating value islands before trying to build the entire continent.
It’s also a lot easier to support and tweak an app (and give WOW service to users like Strava did) when your customer base is a micro size!
Facing a network effect challenge with your product? Or have you seen a really clever solution? Tap that reply arrow — I’m interested in both successful and failed approaches to this huge challenge.
I ALWAYS write back to my valued network!
Or you can reach out anytime to my amazing team of product strategy experts at Graphos Product.