The cold start problem is challenging for an emerging company's growth marketing as they find product market fit and successfully scale. The cold start problem involves finding and leveraging an active core of new users to onboard early for the product to thrive later. A product can die quickly without a small but enthusiastic early network of new users, called the atomic network.
For an easy example, a social network is useless unless someone you know is already there, and it becomes more valuable the more people you know participate.
This principle is not just for two-sided marketplaces like Uber or social networks like Tik-Tok. Every technology product and userbase needs to become a community to scale network effects and grow successfully. And regardless of whether you're advocating for a marketplace or a product, it's harder to get momentum when there are no enthusiastic new users to bootstrap your growth (called anti network effects).
The most challenging problem a start up faces at inception is attracting initial buyers. But using community and network principles, there is a framework emerging that companies can use to overcome the cold start problem and succeed. It’s called the atomic network.
The key takeaway for creating community/network effects and solving the cold start problem is by first building the smallest functioning network you can create, the atomic network. Then, and only after you discover the right combination of utility and density can you successfully scale up by linking atomic networks until you hit the tipping point.
The ideas here are encapsulated from Andrew Chen's excellent book 'The Cold Start Problem'. Every startup founder needs to read this to understand the dynamics behind growth.
The cold start problem is a common challenge for new companies with ambitious growth plans. It refers to the difficulty of growing your network/users when you have little or no participants/customers. This is a chicken-and-egg problem. It's difficult to attract users without having a critical mass of other users to create credibility and validation.
Solving the cold start problem is essential for emerging companies because it can stifle growth or even kill off a company altogether. With insufficient early users, getting feedback and improving the product is difficult. New users like to see that you have success with other like-minded individuals before they agree to try or buy your product.
Additionally, cold start businesses miss out on network effects. Network effects refer to the idea that a product or service becomes more valuable as more people use it. For example, Facebook is more useful to people because of the number of friends and connections they can make on the platform.
Cold start businesses have a harder time generating these network effects, as they need to attract enough users early to create and grow a valuable network. As a result, the cold start problem can be a significant barrier to startup growth.
The problem is solvable if you know the right approach. Chen proposes the following steps to building a thriving network/community:
We’ll cover this step in more depth than the others. The atomic network is what Chen refers to as the "smallest possible network that is stable and can grow on its own." The challenge is to find the right combination of utility (the benefit for users), participant type (plumbers, drivers, marketers, the possibilities are infinite), and density (the minimum number needed to be a useful network).
The atomic theory is like the theory of overcoming procrastination. If you think of completing a large project in its entirety, it can overwhelm you into paralysis, and you never start. It's the same if you think about trying to build a large community early.
Many procrastinators use a trick to break a project into smaller, atomic steps and strive to complete a single task by a deadline. Then move on to the next task and finish it. Building a thriving community uses the same principle.
Don't think that you must create the next Facebook in six months. Instead, work to find the minimal critical threshold (participant + utility + density) that forms a connection with your product and work towards that scale.
Here is what we mean with examples from successful companies:
Participants: People meeting online
Utility: Easily meet with video across devices
Density: 2 or more people in a meeting (really, that's all Zoom determined was an atomic network...two people in a meeting)
Utility: Book a stay with a host quickly and easily
Density: 300 homes with 100 reviewed
Uber in Los Angeles
Utility: Book a ride that arrives in less than 15 minutes
Density: 15 concurrent drivers needed in downtown L.A.
This is when you focus on building a small but passionate group of customers who will help to spread the word about the product. The key to success in this phase is to create a compelling product message, the utility. The product idea should be as simple as possible—easily understandable by anyone as soon as they encounter it.
And at the same time, it should simultaneously bring together a rich, complex, potentially infinite network of users that is impossible to copy by competitors.
For example, Zoom combined a simple interface with high-quality live video and a forever freemium tier. This simple feature experience proved so compelling that users were willing to evangelize it to their friends and colleagues. This allowed Zoom to win in an established space that WebEx and Citrix GoToMeeting had dominated for years.
Startups are often answers to questions. Try to answer your key question and communicate the answer to your buyers. If a company can create and clone an atomic network, it will be well-positioned to scale.
Once you have the optimal use case and density for atomic network 1 up and running, invite these early adopters to join a community platform that can support ongoing engagement, grow with the network, and keep attention on the jobs to be done using your product.
Discord is today's de facto standard platform for community engagement. There are other ways to build an online community, such as LinkedIn and Facebook. However, they own your community and monetize it for their gain. You want to facilitate and capture the interaction between humans around your brand (not shared with social media). You want to create a real community where people can go to connect, learn, and plan meetups outside of the digital world.
To have engagement, the community participants need to understand their options for interaction and the rules of engagement. A formalized set of features and rules will create a better user experience that invites continued usage.
Web 3 is introducing alternatives to 'command and control' communities through the concept of community ownership via Tokens (aka NFTs), blockchain, and smart contracts. If you decide to introduce these features into your community, you are adding a new dimension to utility, educational, and social incentives: financial incentives.
The idea is to create a social or utility token backed by the value of your products and the demand for participation in the community. As both increase, the value of the token will increase.
You encode token ownership rules and rewards in the smart contract for the community that rewards participation and allows the members to vote on key issues within the community. We strongly believe that in 5 years, all industry communities will be run this way.
Once atomic network 1 is established and has a platform to keep the engagement going, you can look to scale by repeating the successful formula for network 1 to add more participants and invite them to join the community.
At this stage, you may hit the 'hard side' of the network. The hard side is the participants who power most of the value in the network but are difficult to recruit because their effort takes a considerable commitment on their behalf. For example, think about drivers for Uber or the 4% of editors on Wikipedia who add 80% of its content.
Again, with Web3, you can codify into the smart contract financial rewards in the form of additional tokens to incent these 'alpha content creators' to grow the hard side and help keep the network alive and thriving.
This is where atomic networks join with other networks where each network tips faster participant-by-participant, city by city, company by company. The tipping point is where your atomic networks clone rapidly and join up and accelerate your growth.
For technology companies, the path to success often lies in getting to the tipping point network stage. This is when a company has enough users to create a network effect, where the value of the product or service increases as more people use it.
For emerging companies, finding your atomic network doesn't happen organically (unless you are fortunate) without a solid marketing plan to get the attention of your target buyers. The sound principles of growth and demand generation marketing to initially attract users still apply. It would be best to start with a messaging framework like jobs to be done (JTBD), lean canvas, or brand purpose/why.
Once you have your high-level messaging and core feature set, you can start using marketing tactics/experiments to find the right messaging in the right marketing channels (message/channel fit).
Here are some ideas:
Create a simple spreadsheet or Airtable base to track each experiment with the metric you are measuring, the desired outcome, and the actual outcome. Success in the right marketing channels will be apparent. You can put more effort and budget into the winners and remove ineffective marketing channels to power your atomic networks.
Successfully solving the cold start problem is essential for any startup. The key to bootstrapping your startup is not to worry about scaling a large network from the start. Instead, work on building the smallest workable network first, your atomic network. Once you have your first successful atomic network you can scale network effects by linking atomic networks. Remember that you still need a strategic marketing plan to add value to your industry instead of just selling products. Using personal networking, product virality, content marketing, social media, events, and partnerships, you can create a grassroots buzz around your company that will help increase awareness and drive growth.
To grow your emerging company, think small to go big!