#550: Andrew Chen — Growth Secrets from Tinder, Uber, and Twitch; Exploring the Metaverse; the Future of Startup Investing; Games as the Next Social Networks; and How to Pick the Right Metrics | The Tim Ferriss Show

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Key Takeaways

  • Network Effects are the foundation of many great Silicon Valley technology companies
    • You need users to make a product work – network effects are the results of positively connecting people through technology which organically makes that technology better
    • Metcalfe’s law is wrong – the value of network effects does have a limit, it eventually gets to a point of supply that is difficult to navigate and has an increased number of ‘trolls’ and illegitimate users
      • Think about the animal kingdom, imbalances occur when populations become too large
  • “[Twitch] solves the original sin of the internet, which is having an advertising-based system…We decided to go with banner ads over paying each other online” – Andrew Chen
    • We are entering a new age of creative work – pay the creator, not the company
    • Incentives to create content change when there are clear economic opportunities
  • “Games are often the canary in the coal mine for a lot of new computing platforms” – Andrew Chen
    • Roblox is a great example of experimentation with AR/VR, the technological risks are super low when the main objective is to have fun
    • Roblox is also an example of what the metaverse could look like- the new generation’s form of social media
      • The future is at the intersection of economic and game design
  • Startup advice: Pick your strategy first (product vision) -> Identify what retains and generates business value -> Set metrics to validate if your strategy has causation

Intro

  • Andrew Chen (@andrewchen) is a general partner at Andreessen Horowitz with a focus on investing in consumer technology. He is also a prolific writer and the author of the new release, The Cold Start Problem. Tim and Andrew discuss how network effects are the foundation of many successful tech companies, how game design is a canary in a coal mine for tech, and advice for startups.
  • Host: Tim Ferriss (@tferriss)

Andrew Chen Early Inspirations

  • My Life in Advertising by Claude C. Hopkins
    • Written in the early 1900s and has become public domain, no longer subject to copyright
    • Emphasized direct marketing at a time where advertising was very brand-driven
      • Claude Hopkins invented coupons leveraging an interesting strategy:
        • Originally, you had to go to each grocery store and try to get your product on the shelf, very difficult without proven demand
        • Gave coupons to newspapers to get ahead of the demand curve – consumers would be angry if the store didn’t have the product the coupon promised
    • The principles of marketing durably persist over time, they just use different mediums and technologies
  • Geoffrey Moore and Andrew shared an office in the early Silicon Valley years
    • He coined the technology adoption curve:
      • Early Adopters -> Early Majority -> Late Majority
  • Sean Ellis attempted to redefine the word ‘marketing’ in the technology space
    • Invented the term ‘growth hacker
    • Much more about products and data than traditional advertisements
      • Features > Campaigns

Writing & Silicon Valley’s Foundation: Network Effects

  • Andrew did daily journaling, wanted to find ‘the secret of Silicon Valley’ – what made this machine work?
    • The biggest finding = “Network Effects
    • You need users to make a product work – network effects are the results of positively connecting people through technology which organically makes that technology better
      • Andrew tells the story of Tinder: You needed to download the app to get into this college party. The next day, people went to Tinder to see if they could connect with the person they met or wished to have met last night.
    • Metcalfe’s law is wrong – The value of network effects does have a limit, it eventually gets to a point of supply that is difficult to navigate and has an increased number of ‘trolls’ or illegitimate users
      • This is similar to animal populations, if the population is too large, it creates imbalances
  • Treated himself as a journalist to his life
    • Marc Andreessen actually responded to his blog and scheduled a meeting for their introduction
    • You never know who your writing will reach, writing today is extremely scalable

Twitch

  • Twitch started as ‘JustinTV’ named after the founder, Justin Kan
    • All day, every day he would live to stream his life
    • Watching his stream sometimes felt like a ‘critique of your own life’
      • Expanded to allow anybody to stream but the ‘everyday life’ content wasn’t gaining traction
  • Pivoted towards gaming and a creator-supported model rather than a viewership model
    • Incentives to create content drastically improve when the creator has clear income opportunity rather than creating for views/engagement
    • The market wasn’t huge for gaming at the time but the engagement and participation was extremely high within the niche
  • “[Twitch] solves the original sin of the internet, which is having an advertising-based system…We decided to go with banner ads over paying each other online” – Andrew Chen
    • We are entering a creative age where there are incredible outlets to monetize your creativity

Games and the Metaverse – Is Roblox a Canary in the Coal Mine?

  • “Games are often the canary in the coal mine for a lot of new computing platforms” – Andrew Chen
    • Many games (like Axie Infinity) are a natural way to ease casual people into crypto
    • Great introduction to AR/VR, the stakes are super low when the main objective is to have fun
  • Roblox is an example of what the next generation of social networks could look like
    • Multiplayer and deep network effects embedded in the 3D/VR/AR metaverse experience
      • “The metaverse gives you a bit of a double life” – Andrew Chen
      • You work, organize, and gather in this digital reality
      • Empowering reward and ownership to these realities will be the next interesting layer to this technology
  • “100% of game developers have some plan for web3 at this point” – Andrew Chen quoting Chris Dixon
    • The future is at the intersection of economic and game design
    • Tim’s counterpoint: Many people’s livelihoods could be switched off at the point of digital governance
  • Ready Player One is a movie that captivates what the metaverse could be but is ultimately dystopian under monopolistic control
    • We’ve seen the ramifications of this with the duopolies of Apple and Google
    • Andrew hopes the metaverse is a genre rather than a company

Startup Q&A

  • What types of questions does Andrew ask to understand a founder’s growth mindset?
    • Questions with infinite depth:
      • What happens when you internet search something? – The more technical depth in this answer, the more passion one has for how growth works
      • How would you 10x a current startup? – Not looking for tactics, looking for organizing principles that generate recurring ideas
  • What are the right metrics to use?
    • Understand what people actually use your product for – define your high-value users
    • Pick your strategy first (product vision) -> Identify what retains and generates business value -> Set metrics to validate if your strategy has causation
  • What are common errors among founders?
    • Brand marketing is overused in customer acquisition
      • Big companies can do this because they are on a multi-decade growth strategy
      • For startups, you learn a lot more from direct marketing to acquire one unique customer at a time
  • Sometimes it’s better to design and not to scale in the beginning
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Notes By Drew Waterstreet

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