If you’ve read our post on solving the chicken and egg problem, you’ll have a good background for what we’re about to discuss.

When you want to build a network or marketplace, you’ll run into a paradox. Your platform has no sellers, so there’ll be no buyers. And the buyers won’t start to show until you have sellers on the platform, and vice versa. This is called the chicken and egg problem.

There are several ways to solve this. When you do solve this problem, network effects take over.

That is, the marketplace gains a certain momentum whereby your users do the marketing for you. This post is about the things you need to do, to make sure you are  maximizing that momentum and milking it for all it’s worth.

Optimising a content-based network

If your network or marketplace is content-based (i.e. if content is taken out, the network effect is halted) then here are a few things to optimise it:

1. Keep upping the quality of content created

The quality of the content your platform generates or is able to handle should be on the increase. Also, examine the quality of the interactions around this content. What else can your users do with this content? A good example is YouTube. With YouTube, we now have HD content and it comes with likes, shares, play count meters, and they are also embeddable in other web pages.

2. Convert occasional users into regular users

You’ll have a lot of data coming in from your network and the users. One stat you want to have handy is how many occasional users and regular users you have. Obviously, the occasional users find your product useful. So, your task is to convert them into regulars.

3. Find the right balance between content creation and consumption

Depending on the type of marketplace you’ve built, users will usually favour doing one of the two (consuming or creating) over the other. Although, if you create something like Reddit, you’ll have an almost 50/50 split. But not every network is Reddit. Find and facilitate the right fit for yours.

4. Monitor your engagement funnel

How many stages of engagement does your network have? Keep your eye on all of them. How long does it take users to convert to subsequent levels of engagement? What’s the rate of this conversion? Is it high enough? If not, your best bet is to focus on the transition points in your engagement funnel.

5. Make notifications strategic

Notifications come in many forms. They can be audio or visual. In product or outside it. Fortunately, it can all be measured. How well do your notifications drive your users back to your network?

Optimising Interaction-based network effects

Nowhere is the chicken and egg problem more pronounced than in interaction-based networks. Think of dating sites. You need both the women and the men on the platform for your network effects to take over. The interaction between users is what creates content – and consequently, value.

Here’s how to ensure your network is optimised for this:

1. Know how fast you are growing, or not growing

You want to know how fast you’re gaining both types of users – the chicken and the egg.

Manage how fast you’re gaining one type of user over the other. You want to maintain a type of balance, whatever that balance means for your network. In dating sites for example, ideally, you need more women than men.

2. How fast are you gaining actual users?

It’s one thing to gain numbers, it’s another thing to gain people that are actually using your product. Remember, this is an interaction-based network. The goal is to get people to engage each other.

It’s that interaction that will keep them coming back. If the figures are not encouraging, you know that something is broken and needs fixing.

3. Optimize your search tool and build on insight from users’ searches

The search function is a critical tool to know what users want. User queries that return zero results tell you your users have unmet needs. these unmet needs give you some useful and actionable insight about your users and their interests.

4. Segment your users

This segmentation can be based on their profile data or their engagement with your network. The next thing to do is to monitor their journey through your network. What are their network habits? This will help you create strategies to push them further down the engagement funnel.

5. Track and promote user sentiment

Sentiments are usually tracked with ratings and reviews. That is, users, quantify other users in your network based on their experience. This achieves several things: It informs other users that the network is healthy and active, it offers other users extra information and improves their experience, and finally, it also gives you extra data about your users.

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Growth is the only essential thing you need to be a startup. Startups are created to grow fast. Everything else that happens within a startup is a derivative of growth.

Everything – ideation, product validation, product management, team building, fundraising – follows from growth. Without growth, early stage startup is just a small business losing money.

That is why founders are encouraged to focus on one metric – the one that matters. This is because, as a startup, your limited resources are a deterrent to wasting your time trying different things.

Depending on your type of business, growth will mean different things to different startups. And your one metric that matter changes over time. Getting rid of distractions enables you to focus your already limited resources – people, time, and money – on the one thing that moves the needle.

What is the one thing that signifies that your business is growing at a particular point in time?

In the beginning, growth for a lot of startups has more to do with user acquisition and engagement than revenue. The advantage of defining your growth metric is it tells you the most important thing about your startup and how should drive it.

You need to consider the followings when choosing your growth parameter.

1. Your business model

The way you monetize your product is an indication of the value that will be created by your business. It’s not always about the money, but revenue metrics provides a standard benchmark for growth metrics.

2. How you acquire your customers

The rate at which your products gets into the hands of users is a substantial measure of how scalable and successful your product can be. Inherent in the DNA of startups is the ability to build products that have the potential of being ubiquitous and viral within a short time frame.

That is why most startups are tech-enabled companies because technology enables innovation not just in the way products are made, but how they are distributed. You can measure your growth based on metrics such as unique web visits, page views, app downloads, partner signups, user signups, conversion rate, churn rate, etc.

3. The stage of your business

The stage of your company will determine what to focus on. Early stage business should be obsessed about metrics that validates their product-market fit more than mid or late stage companies.

In the beginning, your growth metric is based on time-based milestones you need to reach such as partnerships, signup at a particular time, user signup rate, number of feature releases, etc. It is important that you wrap this with specific numbers as much as possible to measure progress.

4. How you measure growth

Answering this question will help you make right decisions. Let’s assume you decide to measure your growth by the number of subscribers to your email list. First, you’ll have to optimise your product, website, app, content and every potential user interactions to grow this list.

You then measure the results of all your actions on a regular basis against this metric. You hold yourself and your team accountable with data and see whether you are making progress or not. You deep dive into all your acquisition channels to identify where you are getting the most number of subscribers. You look at the numbers every day and experiment with various tactics and tools to see how you can grow the subscription rate.

As you focus on a particular growth metric and optimise your products accordingly, magic happens. You identify particular big hairy destinations to drive your startup towards and you can measure the how and the rate at which you are getting there. And as you grow, your goal may change, and you redefine your growth metric.

You build, you measure, you learn.  And you continue the cycle until you reach your true north.

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