Want to know how to manage rapid business growth? What are the most common issues of rapid-growth companies?
According to Andrew Chen’s book The Cold Start Problem, once you’ve achieved rapid growth, you also inherit a unique set of problems. In the book, he explains how to manage rapid business growth by explaining methods for navigating the three most common issues you’ll encounter.
Read on to learn how to manage rapid business growth, according to Chen.
How to Manage Rapid Business Growth
Author and venture capitalist Andrew Chen warns in his book, The Cold Start Problem, that at a certain point, extreme growth instigates a unique set of new problems. If you don’t learn how to manage rapid business growth and ways to solve these problems, they’ll degrade the quality of your product and halt your rapid growth.
(Shortform note: Because there will always be problems for you to solve, even after you’ve achieved “success” by growing your company into a market leader, trying to solve all the major problems your company faces will likely cause you to feel burned out. For this reason, in Clockwork, Mike Michalowicz recommends designing your business so your team can successfully run it without your direct input. This way, you can take vacations as necessary to preserve your physical and mental health and renew your motivation to build a great business.)
The Negative Effects of Growth
Let’s take a look at three problems uniquely inherent to rapid-growth businesses and explain how to resolve them to maintain growth, according to Chen.
Problem #1: Market Saturation
In explaining how to manage rapid business growth, Chen notes that at a certain point, your network will reach a natural maximum size. Chen explains that this occurs when you’ve effectively captured the entire market: All the users that would feasibly use your product are already using it. This is called market saturation.
To solve this problem, Chen argues that you must innovate beyond your original idea, creating new features or products that do one of two things: Either target new kinds of users and integrate them into your existing network, or offer new paid features to the users you already have. Both strategies allow you to tap into new revenue streams and continue growing your company.
To illustrate, let’s return to our board game app example. Once everyone in your market (social board gamers) is using your app, you’ll need to expand into a new market. You could target a new kind of user by expanding your app into a tool for hobbyists of all kinds, or you could offer a new paid feature to your existing users—for instance, turning your app into a platform that lets users play board games with each other online.
|Market Saturation Shouldn’t Be Your First Assumption|
Although Chen’s advice on how to manage rapid business growth covers the issue of market saturation, take care not to make big, risky business decisions like targeting new users or introducing new features until you’re sure that your market is saturated. In How Brands Grow, Byron Sharp argues that often, entrepreneurs falsely assume they’ve become the leaders of a saturated market. They fail to recognize that they’re competing in a much bigger market than they think they are; consequently, they set sales goals that are too low for the market they’re selling in. This complacency prevents them from diagnosing flaws with their business that keep them from attracting more customers.
For example, if user growth for your language-learning app has stagnated, don’t jump to the conclusion that the language-learning market is all tapped out. Instead, consider that there may be obstacles dissuading users in some demographics from using your product. In this case, perhaps your app’s cartoonish design or beginner-focused advertising is keeping more serious language-learners from using your app.
To avoid making this mistake, Sharp recommends making your target audience as broad as possible—aim to recruit everyone who might find value in your product, across all demographics. Then, set aggressive growth targets until you’re the clear market leader. For example, if you’re running a social network, don’t assume the market is saturated until you have a user base as big as Facebook’s.
Problem #2: Community Dilution
According to Chen, to manage rapid business growth, you should also be aware of what happens when your network reaches a certain size. He calls this community dilution: when certain kinds of users joining your network make it less valuable. This occurs when you have an influx of malicious users such as scammers, abusers, and trolls, but it can also happen simply when your product goes more mainstream. Users who are accustomed to interacting with a specific close community may leave the platform if a broader audience is likely to be there.
For example, this is arguably what happened to Facebook when they achieved rapid business growth but didn’t manage to retain their younger user base—when Facebook fully saturated the market, many younger users didn’t want everything they posted to be seen by loose acquaintances and older relatives, so they fled to Instagram, Snapchat, and TikTok.
Depending on your product, one potential solution to community dilution is to allow users to create their own subnetworks. Then, if one subnetwork becomes diluted with people that ruin a user’s experience, they can create another one. For example, users can create private Snapchat stories and handpick which of their friends can see them.
You’ll also likely need tight moderation tools to regulate malicious users abusing your network. Since it’s difficult to manually moderate a large network, Chen suggests creating automated moderation tools as well as giving users the ability to flag malicious users for manual moderation.
(Shortform note: When regulating the malicious use of your product, be cautious and intentional about what content to remove. Many social networks have been criticized for heavy-handed moderation that some users deem to be censorship. To avoid this criticism, publish a transparent set of rules governing what actions are allowed, and make sure to apply them consistently across your network.)
|Shifting User Motivations Can Dilute Your Community|
Even if you give users the tools to create their own subnetworks, community dilution is arguably inevitable if users’ motivations to use the platform fundamentally change. For instance, some people argue that when a social network gets big enough, users begin to care more about building an audience than connecting with others on a personal level. This causes a drastic shift in the network’s culture that’s arguably impossible to undo.
Allowing users to create their own subnetworks may further exacerbate this shift, as it allows them to create forums purely devoted to their broadcasting. For example, although users can use Snapchat stories to keep in touch with their friends, influencers use them to create content channels with millions of followers. This new lucrative goal incentivizes users to care more about gaining a following than connecting with their friends, changing the culture of the network and resulting in dilution.
Problem #3: Too Much Content
Finally, Chen explains that when a network grows to a certain size, it often begins to offer more content than users are able to effectively sort through. This can degrade the user experience and cause users to leave. For example, if your board game app receives too many postings about different groups that play a wide range of different games, it becomes more difficult for users to find the few groups relevant to them. This also hurts group organizers, who find it harder to stand out amid the ocean of postings.
To manage the “too much content” issue that comes with rapid business growth, connect users to the content they came to the network for. Chen highlights one solution in particular: Since you have access to a huge network of user data, you can create precise discovery algorithms to help users find the experience they’re looking for.
(Shortform note: Algorithms designed to solve the problem of “too much content” by giving users more of what they want to see unfortunately have some harmful side effects. Researchers both inside and outside of social media corporations have concluded that some networks’ discovery algorithms disproportionately spread political disinformation and hateful sentiments. Similarly, one study found that Facebook’s algorithm favors news outlets that align with the user’s existing beliefs, contributing to political polarization.)
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Here's what you'll find in our full The Cold Start Problem summary:
- How to build a billion-dollar tech company from the ground up
- Why you need to understand the network effect if you're in the tech industry
- How to overcome the negative effects of rapid growth