An 18-year-old associate at a venture capital firm almost sounds like something out of a satire, but over at Binary Capital, it’s reality.
So what wisdom does someone as precocious as Tiffany Zhong have to impart to aspiring entrepreneurs?
In a profile published Monday in the Wall Street Journal, Zhong, analyst, said her investment philosophy is to look for a natural network effect. She describes it this way: “The platform is so useful that you literally force your friends to download it--like Snapchat.”
Put another way, the network effect is when a product becomes more useful as more people use it, which can create a sort of virtuous feedback loop of an ever-growing pool of users attracted by the increasing utility. Add in a dash of potential virality, and you’ve got something that might interest Zhong.
Here are three examples of companies that have used the network effect to their advantage.
The social network is a pretty obvious example of network effects at work. Initially offered to students at select universities, Facebook had a firmly interconnected user base from which to pull as it grew in its early years. The more students joined, the more useful the network was to students, and the more who had profiles, the more people there were to tell potential new users to get profiles.
More riders mean more reason for Uber drivers to turn on their driver apps and pick people up. More active drivers mean quicker rides for riders. The network effect works for Uber in a similar feedback-loop kind of way as it does for Facebook, except that if you stop using Uber you don’t all of a sudden lose a potentially large stash of photos and contacts as you would with the social network.
The New York-based startup launched last year offers a job networking platform exclusively for college students and recent college graduates. In part by focusing on a group of job seekers (students) that already have a system of relatively tight nit networks (college campuses), the site has been able to net tens of thousands of users. That network in turn attracts a number of companies seeking interns, part-time employees and entry-level workers.