I am a huge fan of the Lean Startup philosophy (and Eric Ries / Steve Blank who have done so much to evangelize it).  Recently, i have been thinking a lot about the relationship between this approach and network effects.  For most web services, network effects are the key (only?) sustainable competitive advantage.  But for every hyper growth network effects story (Twitter, Zynga, etc), I am convinced there are hundreds of web businesses that could have meaningful network effects, if only they kept at it.  Instead, many startups run out of steam while still on the flat part of a (potentially) exponential growth curve.   This can take many forms other than actually running out of cash.  It could also be a sudden change in business model, e.g., from direct-to-consumer to whitelabel businesses (hard to pull off!).  Or it could be a pre-mature merger in an attempt to force critical mass, which rarely works because of the inevitable integration friction.  The huge benefit of the lean startup approach is that it allows for patience instead.  It is important for entrepreneurs to keep this in mind especially after they – or their competitors – have raised new rounds of financing.  As an investor, I find I constantly need to remind myself of that as well!

I am a huge fan of the Lean Startup philosophy (and Eric Ries / Steve Blank who have done so much to evangelize it).  Recently, i have been thinking a lot about the relationship between this approach and network effects.  For most web services, network effects are the key (only?) sustainable competitive advantage.  But for every hyper growth network effects story (Twitter, Zynga, etc), I am convinced there are hundreds of web businesses that could have meaningful network effects, if only they kept at it.  Instead, many startups run out of steam while still on the flat part of a (potentially) exponential growth curve.   This can take many forms other than actually running out of cash.  It could also be a sudden change in business model, e.g., from direct-to-consumer to whitelabel businesses (hard to pull off!).  Or it could be a pre-mature merger in an attempt to force critical mass, which rarely works because of the inevitable integration friction.  The huge benefit of the lean startup approach is that it allows for patience instead.  It is important for entrepreneurs to keep this in mind especially after they – or their competitors – have raised new rounds of financing.  As an investor, I find I constantly need to remind myself of that as well!