Building A Viral Business Isn't About Alchemy

from the an-insult-to-hard-work dept

Adam Penenberg is a fantastic tech journalist whose work I've admired for many years. However, I simply can't figure out what made him write a huge fluff piece in Fast Company magazine that makes a number of stunningly bad claims. Mostly, the article is a love note to Marc Andreessen's Ning social network in-a-box startup that has had its ups and downs but has been able to raise a lot of money. You get the feeling that Penenberg is trying to pick up on a "trend" that can be flipped into a trendy business book. In this case, the trend is: "viral expansion loop," which Penenberg makes out to be a secretive "magic sauce" known only in Silicon Valley that will turn your startup into a huge success with investors shoving each other aside to throw money at you.

This is wrong for so many reasons, it's hard to know where to start. Rafat Ali at PaidContent goes through the piece bit by bit to trash it, while Owen Thomas at Valleywag dissects what Pennenberg got wrong about Ning. But much more important is the overall message that Pennenberg's article sends: that all you need to know is this "secret formula" and you'll build yourself "a billion dollar business."

The thing is, there's no secret -- and so far, there's been no billion dollar business based on these concepts. "Viral expansion loops" may be a new term, but it's just a repackaging of "the network effect," which has been widely known and discussed for ages. There have already been multiple books on it, so, if Penenberg thinks this is a book, he's late to the game. But, personally, what's even more dangerous to unwitting entrepreneurs is this thought that if you can create a product where each user gets new people to join, you're an automatic success that will grow forever. Penenberg promises that using such a system "almost guarantees a self-replicating, borglike growth" and that "you can build a billion-dollar business from scratch." Yet, he gives no actual proof to support either statement.

Sure, there are companies that have grown virally -- but that's nothing new at all. And, if you look at the most successful "viral" growth stories, almost all of them kicked off with well-known, well-connected or well-funded founders. Thay've had a lot less to do with some "engineering alchemy" (as Penenberg claims) than with a group of folks who seeded the process and got it running. I've seen tons of "viral" apps out there that went nowhere. And it wasn't because they lacked that "engineering alchemy" or a "viral expansion loop." It was because building a business is difficult and takes a lot of effort, and not everyone succeeds at it. Penenberg's article is the worst kind of business fluff article: not only is it wrong, but it will get people to think that it's easy to do something that's actually very, very difficult.

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  1. identicon
    Howard Plumley, 23 Apr 2008 @ 9:41am

    Infinite growth isn't!

    Viral marketing, network effect, ponzi schemes - what happens when dreams meet math. The downfall is the limit of people to buy into the dream. "If each new member gets two more ...", is mathematically 2 to the nth (number of generations) cummulative. Two to the tenth is imaginable your 512 members need 1024 new members. The 16th layer your 32768 users need 65,536 new customers. It always breaks down. And if you use investments of the new members to pay profits of the older members - you will go to jail.

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