The Power of Network Effects: Building Stronger Products and Protecting Software Companies

Kazuki

Hatched by Kazuki

Sep 02, 2023

3 min read

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The Power of Network Effects: Building Stronger Products and Protecting Software Companies

In the fast-paced world of technology, understanding network effects is not only crucial for building better products but also for creating a strong moat that protects software companies from competitors. Network effects refer to the phenomenon where the value of a product or service increases as more people use it. This can create a powerful advantage for companies, as it becomes increasingly difficult for competitors to eat away at their margins.

When it comes to success in Silicon Valley, it's not just about skill and luck, but also about the people involved. In a blog post titled "Figma: A Random Walk in Palo Alto," the author shares an interesting perspective on the importance of how founders treat people with less power. This observation is reminiscent of Paul Graham's belief that mean people fail. The way individuals interact with those who have less power can reveal a lot about their character.

The author highlights that successful software cultures often strive to avoid hierarchy. The rapid pace of change in platform capabilities means that even the most experienced professionals may not always see opportunities that younger engineers can. The key is to approach problems with an open mind and avoid falling into the destructive HiPPO anti-pattern, where decisions are solely based on the highest paid person's opinion. By fostering a culture that encourages diverse perspectives and collaboration, companies can tap into the innovative ideas of their entire team.

Furthermore, the author emphasizes the importance of building strong connections in one's career. Opportunities often arise from connections with co-workers, "weak connections," and individuals who may not hold a higher position in the power hierarchy. As an angel investor, the author looks for a strong, authentic connection between founders and the products they are building. Investing in founders who are tackling significant problems and possess qualities like intelligence, trustworthiness, and ambition is key.

Our careers are shaped by the networks we build. Every school, job, and company we engage with presents an opportunity to connect with people who may have a profound impact on our professional journey. While it may be difficult to predict which connections will generate the most value in the long run, it's important to approach each interaction with an open mind and recognize that everyone has something to teach us.

The author shares a personal example of their investment in Figma nine years ago and how a relationship with Dylan, who later became an investor in the author's new startup, Daffy, developed over time. Roles may change quickly, but strong relationships with good people can last for decades. This highlights the enduring value of fostering meaningful connections throughout one's career.

In conclusion, understanding network effects is vital for building successful products and protecting software companies from competition. It is also important to recognize the significance of people in the technology industry. By embracing diverse perspectives, avoiding hierarchy, and building strong connections, individuals and companies can unlock new opportunities and achieve long-term success.

Actionable Advice:

  • 1. Foster a culture of collaboration and open-mindedness in your company to tap into the innovative ideas of every team member. Avoid falling into the HiPPO anti-pattern and make decisions based on merit rather than hierarchy.
  • 2. Take the time to build meaningful connections throughout your career. Every interaction, whether it's with a co-worker, a "weak connection," or someone who may not hold a higher position, can potentially lead to valuable opportunities.
  • 3. When evaluating founders or potential business partners, look for a strong, authentic connection. Invest in individuals who are tackling significant problems and possess qualities like intelligence, trustworthiness, and ambition.

Remember, success in the tech industry is not just about the product or technology itself. It's about the people involved and the relationships we build along the way.

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