How to approach chicken-and-egg problems strategically
You have probably heard the “chicken-and-egg problem” phrase many times in your professional and personal life. It is often used in situations when one cannot decide which of two related things needs to happen first. It seems like an impossible question to answer. A common scenario is entering a new market, building a business, or setting up a new platform. If there was no answer to the chicken-and-egg problem there would be no new entrants, no new start-ups, and no platforms.
I view the chicken-and-egg problem as an expression of uncertainty. We tend to use it when we are faced with a situation where no answer seems like the straight path to success. Business challenges rarely present us with a simple linear solution – ie. if you do A you will get B. Yet, the answer to the chicken-and-egg problem is simple. But before we get into it let us look at what is the consensus.
I posted a poll on LinkedIn asking one question: What came first, chicken or egg? My post received over 13,000 views, 185 votes and more than a dozen comments in 3 days. The result was close, with 56% of voters choosing the egg. People commented on why the egg was first, some said it depended on who is asking, some wondered what happened to the rooster. My favourite answer was: “It depends on what is ordered first, surely.” In a restaurant scenario, I could not agree more, and it would be the chicken for me.
The right answer to the question is the egg though. As Neil deGrasse Tyson eloquently put it: “What came first? The egg – laid by a bird that was not a chicken.” Bringing this to the business world, I often talk with partners about entering a new market/geography, starting a new practice, or co-selling with Microsoft to a new customer segment.
As a business owner, you might be thinking: “How can I start selling to enterprise customers with Microsoft when I am just starting a new practice. I have no customers. I have no case studies. I have no leads. I cannot get customers without leads. Others are not going to share leads with me just because I started a new practice. It’s a chicken-and-egg problem.” This is when I tell partners that the egg is always first. With that in mind, they can focus on how to build that “egg” and take the first step. An organization should be thinking about the ideal customer, why the customer would buy from them and then build an offer that solves a specific problem for that customer. Next step could be creating a webinar and promoting it. In marketing we often talk about 4 Ps – product, price, promotion, and placement. A key step is to place your product/service and market it through various channels. One of the steps should be publishing your offer to the Microsoft Commercial Marketplace. And like that, brick by brick, you are building the egg. Over time the chicken will hatch.
If you are building a platform, the chicken-and-egg problem gets more interesting, but you still have to make a decision and take the leap. There are various strategies to deal with network effects. First, think about both sides of the platform and the value proposition for each of them. You can induce early participation with zero prices for one side, develop one side on your own, or collaborate with partners to tap into their network. Lastly, think about how strong the network effects really are. If your platform can be differentiated from others based on something other than size of the network, network effects will be weaker.
Whatever you are building towards, remember the egg came first. Be the egg and the chicken will hatch.