The Lean Startup: The Million Copy Bestseller Driving Entrepreneurs to Success

by Eric Ries

By contrast, a marketplace company that matches buyers and sellers such as eBay will have a different growth model. Its success depends primarily on the network effects that make it the premier destination for both buyers and sellers to transact business. Sellers want the marketplace with the highest number of potential customers. Buyers want the marketplace with the most competition among sellers, which leads to the greatest availability of products and the lowest prices. (In economics, this sometimes is called supply-side increasing returns and demand-side increasing returns.) For this kind of startup, the important thing to measure is that the network effects are working, as evidenced by the high retention rate of new buyers and sellers. If people stick with the product with very little attrition, the marketplace will grow no matter how the company acquires new customers. The growth curve will look like a compounding interest table, with the rate of growth depending on the “interest rate” of new customers coming to the product.