CEO Book Club Vol 5: “The Cold Start Problem”

Welcome back to the CEO Book Club! Ajay Patel, CEO of SMA, has a wide range of interests and is a voracious reader. This week he is reading “The Cold Start Problem” written by Andrew Chen from the venture capital firm, Andreessen Horowitz. What is a cold start problem, and should you care? If you develop software applications that engage and connect users to accomplish a common purpose, then you must read this book! These types of applications are called 2-sided because they connect two parties whether they are project collaborators or buyers and sellers. Examples of two-sided applications include Uber, Tinder, Slack, Upwork, and of course SMA’s TOD® platform.

“This is a fascinating book, and perhaps the only serious study of why and how some 2-sided software applications succeed and become ubiquitous in our daily lives, while others fail,” explains Ajay. Most applications, even the most innovative, do not succeed because they fail to create network effects “where a product or service’s value increases as more users engage with it” according to Andrew. He explains that one of the “sides” is typically the hard side. For example, the hard side for ride-sharing applications is getting sufficient drivers available at any time in a given market where the wait time for a ride is acceptable. When the density of drivers is sufficient to create low wait times, then the application starts to create network effects. Applications like Facebook and Slack are also successful because they solved the cold start problem. For example, the author tells the story of Slack and how they determined that when an organization has exchanged 2,000 messages in Slack (for a team of 10 people, that’s a week of messages), then the software takes off in the organization. He makes the concept of the cold start problem come to life with his own personal story at Uber during their early days. The book is filled with captivating stories about the challenges at iconic firms.

“I was immediately hooked after I scanned and read a few pages of the book. It was clear that the book was a serious study of network effects covering product technology, marketing, and business aspects,” said Ajay. Network effects are a poorly understood term, yet it is commonly used when describing highly successful technology products and services. The author helps us understand network effects and how to overcome the barriers to create them. Ajay said. “I immediately understood and discovered several areas in SMA’s operations and the TOD® platform where we can create network effects to improve its value to our users.” Andrew Chen reminds us that network effects are a core principle of game-changing technology, whether it was during the advent of the telephone, the rapid adoption of bank-issued credit cards, or simply getting a ride to where you need to be!

Published on February 21, 2023 by

Nicole Matar