The Cold Start Problem: How to Start and Scale Network Effects

by Andrew Chen

The “Acquisition Effect” is the ability for a product to tap into its network to acquire new customers. Any product can buy Facebook or Google advertising, for instance, to attract new users, but only networked products can tap into viral growth—the ability for users in its network to tell others in their own personal networks. This keeps customer acquisition costs low over time, fighting against the natural rise that comes with market saturation and competition. The types of projects that amplify the Acquisition Effect are oriented around viral growth: referral features that reward users when they invite others, tapping into contacts to create suggestions for who to add to an app, and improving conversion along the key moments in the invitation experience. All of these help increase metrics like new user sign-ups, the so-called viral factor of a product, and bring down the cost of acquiring a customer (CAC).