The process of building a business or passion project is never an easy undertaking, and it certainly does not make it easier when you embark on one of these endeavours alone. The means by which you can bring your ideas and business to life are countless and there has never been a better opportunity to do so within the digital space than today.
However, this also begs the question around the best way to go about building your business and bringing your idea to life in the context of the wider market. What is the optimal strategy for your own success?.. And is your own success mutually exclusive from others within your sphere? Many would argue that it is not.
Kickstarting a business, building a minimum viable product or getting any project off the ground involves participation from others. Whether this is direct feedback from potential customers or clients, or whether it is the mentorship or keen eye from someone who has built something similar before, engagement with whatever you are building is going to be key from the start.
In the context of building a startup, we can think about the process of bringing it to life with multiple iterative feedback cycles. We can think of these various cycles per the diagram below as iterations of your product and the cycles of talking with customers to gather feedback as you move through time.
These feedback cycles rely on you having others to share your product with and gather insights from. In moving past the point called “Proof of Concept” in the diagram above we often say that a business has reached traction or “Product-market fit”.
So how can community and collaboration play a role in helping you reach critical mass?
With the digital and social landscape of the internet today, network effects have become an even more important factor in the success of your business. In the longer run, network effects are also the key to you creating a moat for your product or service offering and building a barrier to entry against competitors. All things being equal, it is more beneficial to be connected to a bigger network than to a smaller one.
Network effects exist when the value of a system depends on the number of users. It is therefore true that direct network effects take place when the value of a product or service to your customer increases exponentially with the number of the other people using the same product or service.
It is also worth considering Metcalfe’s law when it comes to network effects and creating your own value protocol. Metcalfe's Law states that the value of a network is proportional to the square of the number of connected users of the system. The internet itself is a great example of this in action. One computer connected to the internet is not of much value; but as soon as you connect another computer and you have someone else to connect with, you are building a network. As more computers are added to the network, each additional computer represents value for you as well as the rest of the network.
We can also apply Metcalfe’s law to your business and your network. This is why building alongside a community of others is so important for early adopters of your product or service. Getting as many people adopting and using what you are building as early as possible is key to reaping the benefits of network effects.
“People and things want to be connected. When you connect things together you can create value.”
As we can see from the network effects example above, cooperative strategies have a great potential of improving network performance. As the long tail of creativity plays out on the internet, collaboration between individuals and businesses to share costs and reduce time-to-market becomes more and more common, with increasing market competition and globalization (Jbid Arsenyan, Gülçin Büyüközkan, Orhan Feyzioğlu).
This means that sharing of knowledge about markets, technologies and facilities all increase. The implication of collaboration goes beyond just revenue sharing though, and expands to include knowledge, trust, innovation and costs. While usually the primary function of game theory is to formulate an alternative strategy to competitors in order to compete with one another, there are clear benefits to collaborating.
A key learning that can be gleaned from studying a system like Bitcoin and decentralized networks is the importance of collaboration with the view to progressing the whole. This type of system gives rise to the idea that we should all be competing to become the best collaborator. Bitcoin works so well as a system because it solves the Byzantine General's problem.
The Byzantine General's problem can be summarized as a question:
“How do you make sure that multiple entities, which are separated by distance, are in absolute full agreement before an action is taken?”
In Bitcoin's case, all nodes in the distributed system must agree on a certain set of rules, and be able to move forward by agreeing on a particular transaction before it is added to the database.
In the case of us building your business with others in a community, we can think of the nodes in the network as us and our businesses.
It may be best to ask oneself the question:
"What is the best strategy to take in relation to growing my business, that will also help the growth of the economy/market as a whole".
Taking this line of thinking means that we should all be competing to become the best collaborator. Collaboration is all about progressing as a whole. Achieving profitable growth in any business is heightened if the business has a positive growth strategy and strong execution infrastructure. Your execution infrastructure is further strengthened by having a community of similarly motivated actors driven by growth.
Bringing it all Together
Combining both network effects and game theory allows us to see the benefits of leveraging community for building in the early stage of growing your business.
Leverage existing online communities and social networks to over index on value creation related to your area of expertise. The network effects of creating content, sharing your business and building your own network will compound over time. Co-creation is at the heart of network effects for many companies today. This is especially true in the digital space. Companies that can create value alongside their customers can reap the benefits of their co-creation together.
Catherine is the head of Operations at Soar.sh, a marketing services agency for growing startups. Soar helps digital companies grow faster with...