I was meeting with a very successful local founder this week and he was describing his current strategy - after years of honing it - of finding a group of initial "happy customers" for a new product. Like this founder, over the past year it seems like I'm constantly telling founders...
"Distill the main assumption of your business down to one thing and validate it very early with an initial group of customers who love your product."
I say this so often that I find myself always looking for ways to validate or invalidate this advice.
One type of startup that wouldn't seem to be able to use this type of advice is one that requires scale to work well (otherwise known as a network effect). In other words, businesses where the value of the product or service goes up as more people use it. Marketplaces like Craigslist & eBay are good examples of these types of businesses.
In this podcast/video, the grandfather of The Lean Startup movement describes how even network effect businesses can be tested early.
A powerful example that Eric uses to describe how to validate that a network effect exists early is Twitter. His story just blew me away...
The growth curves of high-growth businesses look flat early, but if you look closely there is very quick growth from the beginning. When Twitter had 300 customers, they were so embarrassed by their “top line” (vanity) results that they offered to give the money back to their early investors. The reality was that the vast majority of those users were blowing up their phones with text messages because they were using the service so much.
This story gives me even more confidence that any startup can be validated very early with very little resources if you do it right.
Update: A great deck from Andreessen Horowitz on network effect is here.
Update: A great podcast from Andreessen Horowitz on network effect is here.
Update: TechStars article here on network effects.
Get Right to the Lesson
I’d recommend listening to the entire thing, but to get right to the point go to minute 1:04:56 of this podcast/video.
Thanks to these folks for helping us all learn faster
Eric Ries (@ericries) of The Lean Startup (@leanstartup)
This Week In Startups (@TWistartups )
Jason Calacanis (@jason)
Jacqui Deegan (@jacqKD)
Jacob Beemer (@jacobbeemer)
Please let me and others know what you think about this topic
Email me privately at email@example.com or let's discuss publicly at @davempayne.