blue world technology background

Lessons to learn from the growth of Facebook

When it launched at Harvard ten years ago, Facebook achieved phenomenal growth right away, making it the most successful startup of the last decade. Today it’s no longer a startup; it’s a $225 billion (or quarter trillion!) company.

While many think this success is due to a ‘great idea’, in reality, it is a result of excellent execution that every consumer app startup should learn from. Here are some of the lessons:

Using Network Effects of Small Customer Segments

At the time when Facebook launched, social media was already a fad. There was Friendster, Myspace, and many others. What Facebook did differently was that, instead of going right after the mainstream market, it launched on Harvard and scaled gradually across, first the Ivy League universities, then all other universities, high schools, US and then the rest of the world.

This tactic has been used by many other startups, such as AirBnB or Uber, who launched in San Francisco and scaled city by city; LinkedIn, was launched among tech professionals, also in SF and scaled to other industries; and PayPal, that focused on eBay users first etc.

The reason it works is that small communities are dense and offer strong network effects, making marketing cheap and easy. Also, it’s easier to build a product that users love if they are fall under a very narrow demographic. Lastly, mainstream users are slow to adopt because they require security and brand reputation – places like Harvard, tech industry or SF are full of early adopters that prefer novelty over established brands.

Grow on Top of Bigger Platforms

High customer acquisition costs are the top startups killers. A close look at the history of many billion dollar apps like Instagram, Facebook, LinkedIn, AirBnB, and WhatsApp reveals a surprising pattern – many spent $0 on marketing.

What Facebook and LinkedIn did in their early days was that they leveraged another existing platform – email. Today, email is a norm, and most of us are used to all the promotion we get from it, but at the time when LinkedIn and Facebook launched, getting an invite from a friend or colleague was still something people paid attention to. Both startups successfully leveraged email by letting users import their contacts and invite their friends, effectively turning their users into a free marketing channel. Likewise, Instagram grew on top of Facebook and Twitter, AirBnB on top of Craigslist, and WhatsApp on top of mobile networks.

Build a Habit-Forming Product

One reason why Facebook scored so much in venture capital investments were its insane daily user and engagement stats – it seemed like its users were addicted to it. If you look at the most successful products, many of them are practically our habits – we don’t plan or think about using them; we do it automatically. A typical habit loop is composed of 3 core elements: trigger, routine and reward. Trigger is something that initiates the habit, such as a notification (apps) or feeling tired (coffee), routine is performing the habit, and reward is what makes you do it again (e.g. getting a caffeine boost or finding an important message).

Facebook nailed all these aspects perfectly. Firstly, it initiates so many triggers – a new friend joins the network, you get tagged in a photo, get likes, friend accepts your request, you get a message, etc. Secondly, using Facebook was just seamless – it worked perfectly, unlike Friendster, which was too slow. There were no ads early on and the entire userface was just simple. Lastly, it offers one of the most addictive rewards: social proof and interaction. In Maslow’s hierarchy of basic human needs, these are ranked at the top.

Build a Great Team

Great startups are built by great teams. As mentioned above, before Facebook, there were Myspace and Friendster. There are very specific reasons why both startups failed to achieve a long term success, while Facebook made to IPO. In the case of Myspace, both founders were quite inexperienced and ended up in a deal with investors, who basically took over the control and sold the company for $580 million. The founders only got about $3 million in total from that acquisition. Friendster began to lose its traction once it started to experience technical issues, due to a poorly engineered product.

Facebook, on the other hand, made several key moves. The entire team moved to Silicon Valley, where you can attract top talent and investors, and took a startup veteran, Sean Parker, on board. Parker had already two big successes turned into failures on his resume and had learned his lessons. He helped Facebook to hire top talent and made sure Mark Zuckerberg didn’t repeat his mistakes. For example, he designed the deals with investors so that Mark never loses his control over the company – this proved very useful when some of his investors planned on selling Facebook to Yahoo for a mere $900 million. Mark also surrounded himself with many valuable mentors and advisors who were more experienced than him, such as Don Graham, CEO of The Washington Post or Steve Jobs of Apple.

According to data from 100,000 startups, helpful mentors can help you grow faster and raise more money.