Network Effects is the most hyped and confused topic amongst startups and investors.
"Network effects have been responsible for 70% of all the value created in Tech since 1994. Founders who deeply understand how they work will be better positioned to build category-defining companies."
- James Currier @NFX, SFO based VC.
Here are 7 questions to help you bust those false claims.
What is the difference between Uber's network effects vs Airbnb such that uber is swimming amongst so many competitors like DiDi, Lyft, Grab, etc whereas Airbnb seems to dominate with no other clear competitors?
Why do every additional user on Airbnb or Cameo add value but not every supplier on Fiverr or Upwork?
What's does it mean when a network effect is strong but score weak on defensibility? Or what if a startup scores well on the strength and defensibility but is not the first in the market? Is it still worth building a slightly better version? What are some network effects that will really be advantageous to have as a first-mover? In this Platform Series with Prof Julian Wright and A. Prof Andrei Hagiu, (>10HBR) world experts in Platform Strategy and Network effects + Angel Investor in >200 startups, we talked through the above questions and gave examples of companies evaluated on those questions.
Another way to use this video, is to flip it and ask what can I do to build the network effects and increase the defensibility for my business. We even have Brian Cox from Succession (TV Series) mentioned in an example. (Beware of swearing n video!)