The Power of Problem Definition and Network Effects: Insights from SmartNews and Andreessen Horowitz

The Power of Problem Definition and Network Effects: Insights from SmartNews and Andreessen Horowitz

In the world of product management, defining the right problem to solve is crucial for driving business growth. According to an article titled "スケールする問題を定義せよ。スマートニュースに学ぶ、プロダクトマネージャーの責任" (Define the Scalable Problem: Lessons from SmartNews for Product Managers), the responsibility of a product manager lies in identifying the problem that, once solved, can lead to significant business growth. It's not about solving 10 easy problems but rather tackling one difficult problem with meaningful implications.

The article emphasizes that the most critical responsibility of a product manager is the ability to define the problem accurately. By correctly defining the problem and creating an environment where the team believes that solving it is an incredible opportunity, a positive spiral can be set in motion. The article also mentions the importance of hypothesis testing throughout history. For example, in the advertising industry in 2008, the hypothesis was formulated to understand how the industry would change in the next three months.

On the other hand, an article titled "Two Powerful Mental Models: Network Effects and Critical Mass" by Andreessen Horowitz discusses two influential mental models – network effects and critical mass. The concept of network effects is one of the most crucial mental models in business. Nothing scales as effectively as a software business, and network effects create a significant competitive advantage. In the world of technology, network effects can lead to demand-side economies of scale, where the benefits increase nonlinearly, especially in software businesses.

However, not all network effects are equal. Some are strong, while others are weak, and different markets are impacted differently by multi-sided markets with network effects. The ultimate goal for an entrepreneur is to achieve demand-side economies of scale, which can lead to a market tipping in favor of one company, creating a winner-takes-all scenario.

The strength of network effects is not solely determined by the number of participants in a network. As seen in the case of Friendster, even with a large number of users, the weak bonds between them caused the network to unravel. The burden of dealing with a new user interface outweighed the benefits of remaining in the network. This insight raises the question of whether content network effects can solve this issue.

Critical mass, on the other hand, refers to the level of users required to create strong network effects that build a moat around a particular business. In some cases, when network effects are strong, there is no second place in the market. Achieving critical mass is essential for platform businesses, as it creates self-reinforcing adoption of innovations within the system.

To create a flywheel effect, two essential variables come into play – the size of the market and the strength of the value proposition. The bigger the market and the stronger the value proposition, the more runway a business has for exponential growth.

The articles highlight the importance of understanding the laws and principles that govern social systems, similar to how physical laws govern the natural world. Social, economic, and political scientists have started exploring the idea of a "physics of society" and how complex human activities can be understood as collections of interacting agents.

In conclusion, understanding the power of problem definition and network effects is crucial for driving business growth. Here are three actionable pieces of advice:

• 1. Prioritize problem definition: Invest time and effort into accurately defining the problem you are solving. This will set the foundation for successful product management and business growth.

• 2. Harness the power of network effects: Identify opportunities to leverage network effects in your business. Understand the different types of network effects and how they can create a competitive advantage.

• 3. Aim for critical mass: Work towards achieving critical mass in your market. This will help create self-reinforcing adoption of innovations and establish a strong position in the industry.

By incorporating these insights and taking actionable steps, product managers can navigate the complexities of problem-solving and leverage network effects to drive business success.