The 3 ways you can solve the chicken and egg problem
Strategy 1: Buy the chickens 💵
This strategy involves either directly paying users to start using your product, partnering with an existing supplier, or leveraging existing marketplaces and platforms to direct traffic to yours. This strategy works if you have big piles of cash lying around that you don’t mind using to get customers on board. As a result, this strategy is not a realistic option for myself or most indie hackers.
A company that succeeded following this strategy was PayPal. PayPal was fortunate enough to get started at a time when insane amounts of money were pouring into internet ventures. They were able to create a referral model where they spent $60 million paying people to start using it. If you joined PayPal, they would give you $20 and if you got a friend to join they would give you another $20. But it wasn’t straightforward, they still worked extremely hard to make it catch on, focusing on the eBay power-seller community and doing everything in their power to reduce friction and inspire confidence.
Strategy 2. Become the chicken 🐓
In this strategy, you make yourself the first customer and develop a product that solves your own problem before selling it to others. This means becoming the first supplier on a marketplace or content-producer on a platform and making it work well for you before inviting other suppliers or creators to start using it. Being your own customer is generally the most recommended path for inexperienced founders as you can compensate for a lack of real customer feedback.
An example of a company that has successfully followed this strategy is Amazon. Amazon started as an online bookstore, and they expanded their range of products until they had built a site with enormous sales volume. Later on, they began allowing other businesses to sell their products directly through Amazon using the online selling software Amazon developed.
Strategy 3. Create Chicken food 🌽
This strategy is the most powerful and elegant in my opinion, and here's why: The biggest advantage of platforms and marketplace businesses is that they create something called network effects. Network effects happen when products get better as more people use them, and this creates a natural barrier to competitors. For marketplaces and social networks, the more people use them, the better they get. Unfortunately, network effects are exactly the cause of the biggest obstacle for platforms and marketplaces, they are useless if nobody else is using them.
The way to overcome network effects is to create a product that is useful even if nobody else is using it, and creates network effects as a byproduct. Simply put, you make people come to you for the tool and then stay for the community.
The best example of this Instagram. When Kevin Systrom started Instagram, it was a tool for adding filters on photos to enhance the photos and easily share them onto Facebook or Twitter. After a while, as more people used it, users realised they could explore and engage with other users and their photos without leaving the app. Instagram exploded because people came for the easy-to-use photo filter tool and they stayed for the social network.
Conclusion
To solve the chicken and egg problem you can buy the chickens, become the chicken, or make chicken food. If you found this content useful please consider following me 😊
If you happen to be looking for an easy-peasy online ordering system that works for many different business models give us a try by going to zeltta.com
Have someone else promote you heavily
Tap an existing community
Be the first such network/marketplace
Reddit owes its early success to a combination of most of these.
Thanks for the additional strategies! Numbers 4 & 5 could come under the heading "Use somebody else's chickens" 😄
I think you are definitely right that creating a product that would exist even without any network effect is the most successful strategy, but I think you also forgot one scenario. It's possible that both supply and demand exist, but one of them just don't know about the other. Here's a founder of a two-sided marketplace explains how they had to educate all their suppliers on the value of the market and even then it was an uphill battle, until enough users signed and, and it wasn't.
Marketplaces are a hard nut to crack, but once you've got a strong hold, it's incredibly hard to pull people away to somewhere else, and as long as you keep adding value, you can add more and more alleys of revenue to the business.
Thanks for your comment! Super interesting point, and very true. Normally buyers are the toughest audience to win over but in some cases, it's the suppliers that need the most attention.
p.s. On Zeltta's landing page, consider enabling controls on the video. I spent the first 10 seconds reading words on that page, and by the time I got to look at the video, it was already 1/3 way through. Now I've got a choice: (a) watch the rest and restart (b) don't watch at all.
You're a legend! Thanks for the tip :)