How To Make It as a
First-Time Entrepreneur

How to Make it as a First-Time Entrepreneur

Vinicius Vacanti is co-founder and CEO of Yipit. Next posts on how to acquire users for free and how to raise a Series A. Don’t miss them by subscribing via email or via twitter.

Adam Smith, in Wealth of Nations, talked about an “invisible hand“.

Basically, by businesses pursuing their own interests, they end up helping society much more than they had intended, led by an “invisible hand”.

“…he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention… By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

This same “invisible hand” is behind the success of many of the most popular web and mobile services that exist today. And, by understanding how it works, it can dramatically change your initial product decisions.

What is the Invisible Hand of the Internet?

The best way I can explain is to use an example almost all of us are familiar with: Delicious.

The amazing thing about delicious wasn’t that it allowed you to save and tag your bookmarks on a site. I liked that functionality and it was useful. But, ultimately, not everyone really needed that service.

The truly remarkable thing about delicious was that when enough people saved and tagged their bookmarks, you could see what the most popular bookmarks were for a tag like “python“. That collective wisdom was truly amazing.

But, users weren’t really uploading their bookmarks to the site and tagging them so that others could benefit from them. They were uploading their bookmarks out of their own self-interest. People wanted to save a bookmark with tags so that they could easily search for them next time they needed it. If people really didn’t need to tag their bookmarks, most of them wouldn’t have done it just for the benefit of the overall site.

The self-interested actions of delicious users ended up promoting the interests of the delicious community much more than they had intended to, led by the same “invisible hand” Adam Smith talked about in 1776.

How Does it Affect You?

I was recently talking to some struggling founders. They were telling me about how great their startup was going to be.

Founder A: “Once users start doing X, imagine how awesome the aggregated data will be for everyone.”

Me: “That does sound interesting but why would a user do X in the first place?”

Founder B: “Because they will be contributing to the aggregated data.”

Me: “But, if you assume they are selfish and busy, why would they do it?”

Founder A: “I guess we’re still working on that.”

People are largely driven by their own self-interests. As entrepreneurs, it’s too easy to fall into the mentality that people will use your product because it will help the overall community of your product. They won’t.

Do not get caught underestimating how much your product needs to personally reward a user for their actions. People’s time is a zero sum game and you’re competing against Facebook, YouTube, pictures of LOLcats, and way much more.

Before you can start thinking about how big your network effect will be, you need to really nail the single player interaction.

And, hopefully, if enough people use it, you can create an even more powerful service by leveraging all of their individual uses, just like Delicious did.

Vinicius Vacanti is co-founder and CEO of Yipit. Next posts on how to acquire users for free and how to raise a Series A. Don’t miss them by subscribing via email or via twitter.

  • http://www.thegetdownguy.com willcole

    You have to go one of two ways (at least initially) – Build network effects allowing users to be as lazy as possible, or build super user effects that allow late comers the ability to be lazy.  It may be easier to create content online, but there’s still a ridiculous ratio of generators/consumers.  In the end, the massive networks are monetized through the lazy folks piggybacking off of the mother hens (for genealogy), commissioners (fantasy sports), prolific bloggers (RSS, Twitter).

      

    • http://viniciusvacanti.com Vinicius Vacanti

      Definitely want to consider read/write ratios. YouTube is great at that.

  • Stephen Jones

    What a great concept: “Invisible hand of the Internet”

    Your two-point formula for success (“attract selfish/lazy attention, reap network effects”) is fundamental but missing a 3rd component also learned from LOLcats: Make your app/product easy/fun/valuable to share with your peers.

    On the Internet, if “selfish attention” is the new currency, “viral” is the new advertising medium required for growth.

    • http://viniciusvacanti.com Vinicius Vacanti

      Definitely very important. Want to make it something people are willing to share.

  • palbi

    I’ve mostly heard people refer to this as single player mode vs. network effect but your Invisible Hand analogy is pretty legit

    • http://viniciusvacanti.com Vinicius Vacanti

      Thanks!

    • Eric R.

      I agree! I’ve heard of this concept explained in a number of different ways. It’s not anything new. But the “Invisible Hand” analogy is a classic, and it can be applied to economics and not just the Internet.

  • http://twitter.com/SwissAriKnife Ari Rose

    One of the highest-yielding ways of making single-player, selfish-mode amazing is through a beautiful interface and UX. And I’m not talking just about the visual elements of the design: I’m also talking about the copywriting, the hierarchy of information, the beautiful interactions, the anticipated responses, the intelligently timed follow-up emails. When a user feels at one with the interface, they don’t need to be compensated as much in other ways. Like you’ve said in a previous post, many massive startups like Facebook were simply interface plays at the beginning.

    Look out for an upcoming job application! Sounds like a great place to work and get things done.

    • http://viniciusvacanti.com Vinicius Vacanti

      Great point that great UI/UX can overcome lack of other people using the service.

  • http://twitter.com/domenicm Dom Manganelli

    the wealth of networks (The shorter summary is here: http://cyber.law.harvard.edu/wealth_of_networks/12._Conclusion:_The_Stakes_of_Information_Law_and_Policy) dives into this new economic paradigm of peer production. Of course the book is a wiki.

    • Anonymous

      Great book.

  • Randall

    “Before you can start thinking about how big your network effect will be, you need to really nail the single player interaction.”
    That is fantastic.