Using Network Effects to reduce your cost of acquisition

Now more than ever, businesses need to preserve their precious dollars to extend their runway for as long as possible.

I’ve been speaking to a number of founders who are caught in the predicament of how they can grow their customer base while being conservative with their spending.

One of the reoccurring bits of advice I give is not to rely solely on ad spend to acquire customers, but look to create network effects within your product to organically bring more customers in.

Pretty simply, a network effect is when more people use your product or service it makes the experience more valuable. Social media services (like Twitter and TikTok) are great examples of this, as the more users they have engaging and creating content, the better the experience is.

There are 3 core types of network effects:

Direct
When more people use a product there is a direct increase in the value of that product for its users.

2-Sided
When there are 2 different types of users; supply and demand. They have different needs, and by engaging with the product or service, they provide complimentary value for the other side. So each new supply side user directly increases the value for each demand-side user, and vice versa.

Tech performance
When the more devices or users on a network means the network is able to be faster, cheaper or easier to use.

This is a great playbook for anyone wanting to dive deeper into these: https://lnkd.in/gc6xtFEX by NFX

Not sure what to do?
Feel free to get in touch and we can discuss how you may be able to build network effects into your product (via the link in the comments below)

Anyone got some great examples of network effects that they've successfully been able to build?