In this episode, we talk about a common problem founders face when they need two things to happen simultaneously for their startup to actually have value.
How do you solve the chicken and egg problem for your early-stage startup? So a lot of startup founders, when they're first starting building their startup, they run into this issue that they describe as the chicken and egg problem, and the chicken and egg problem is when you need two things simultaneously to happen for your startup to be operational and for your startup to actually have value.
So, for example, if you are developing a two-sided marketplace and you are bringing together supply and demand, well, those are two different customer lists that you're putting together, that you have to have simultaneously for your startup to have any value. So, for example, let's say that you are building a marketplace for blog writers. Will the supply for blog writers will be people that write blogs and the demand for blog writers are going to be people that will either buy these blogs or they're hiring blog writers or etcetera. And you need to have the demand side and the supply side at the same time for you to have a marketplace, for you to actually be operational.
Another way that you might have the chicken and egg problem is if your platform needs critical mass for it to have value. So what I mean by critical mass is this is the inflection point that you've reached with your network where your startup actually starts becoming operational and has value. So it's like the minimum amount that you need in your network for your startup to be operational. So for example, Facebook needed critical mass for it to take off. Right? The more people that are on Facebook, the more people there are creating content on Facebook, and the more people that are consuming content on Facebook.
So how do you solve this chicken and egg problem? Well, let's see, let's look at how Facebook solved this chicken and egg problem. To solve the chicken and egg problem. It doesn't matter if you're looking for critical mass or if you're trying to build a two-sided market, what you do is you decrease the size of the network that you're going after. If you're trying to go after the entire world and go after eight billion people, well then it's going to be very difficult for you to reach critical mass. But if you reduce the size of that network by going vertical and drilling down into a single niche, then you can actually reach that inflection point much faster because you have a smaller network size and you only need a smaller number of people for you to start reaching critical mass.
So, let's see how this works with Facebook. Instead of going after several billions of people all at once, they only went after Harvard students. So they went after a very small network size. And this was at the same time when Myspace was out. Friendster was out,\. There were a lot of other social media networks out there, but Facebook, they only solved one problem. And that was to help Harvard students date other Harvard students and for the entire Harvard student community, for the active Harvard student community, this was a very easy way for Mark Zuckerberg to actually hit critical mass because all you need is a pretty decent number of Harvard students for other Harvard students to try to want to get on it.
So if you're I'm not exactly sure what the critical mass number, but let's say that you reach 50% of Harvard students, then it's likely you're going to get the other 50%. And it's much easier to reach 50% of Harvard students than it is to reach 50% of all Ivy League schools or 50% of all colleges or 50% of the entire world. So to hit critical mass and start creating value right away, decrease the size of the network, instead of going after a huge network, go vertical, drill down into a psychographic niche, decrease that network size. And then this will allow you to build a system where you can solve the chicken and egg problem by talking to fewer amount of people and starting something valuable that way. I hope this helps. Let me know if it doesn't. This is Robin Copernicus. Boom bam. I'm out.
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