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

by Andrew Chen

The good news is that networked products often have more tools to counteract this plateau than products that lack network effects. For example, take a new consumer goods brand that sells clothing online—they will see declines in their marketing efficacy as it scales. However, this product category lacks network effects. As their social media advertising costs go up, the team will try to optimize creatives, media buying strategies, and product features—but it won’t be enough. It’s a tough problem to try to double revenues while trying to keep marketing costs the same, all without network effects. The outcome is an early plateau on growth, which is part of why consumer goods companies are often good businesses but not necessarily great ones that can be worth tens of billions.