Unleashing the Power of Hidden Networks: A Path to Sustainable Growth

Unleashing the Power of Hidden Networks: A Path to Sustainable Growth

Introduction

In the world of product development and growth strategies, there is a common misconception that total user numbers are the ultimate metric of success. However, as Sarah Tavel highlights in her article "Engagement Hierarchy: Core Actions," growing users without growing users completing the core action is akin to empty calories. It may feel good momentarily, but it lacks long-term value.

On the other hand, Andreessen Horowitz's article "Hidden Networks: Network Effects That Don't Look Like Network Effects" sheds light on a different perspective. It reveals that some of the strongest network effects companies may not initially seem to possess strong network effects. These "hidden networks" can provide a competitive advantage that goes unnoticed by many.

Understanding Core Actions

At the heart of every successful product lies a core action. This action is the very essence of the product and defines its purpose. For example, Pinterest would not exist without pinning, and Twitter would not exist without tweeting. These core actions are the foundation upon which the product's success is built.

However, it's not enough to have users simply engaging in the core action; there must also be a network of users who read and engage with their content. This is where the true value of a product lies. To optimize growth, it's crucial to focus on increasing the number of users completing the core action, rather than solely chasing total user numbers.

The Power of Slow Networks

One type of hidden network effect is the slow network. These networks are characterized by a time delay between their creation and the realization of their value. A prime example is Lambda School, an online learning platform. As more students join Lambda School, the network effect kicks in, attracting more employers seeking to hire Lambda graduates. The true value of the Lambda network takes years to reveal itself.

The advantage of slow networks lies in their durability. Once established, they become difficult to displace. Top universities are a testament to this, as their networks have taken centuries to build and show no signs of weakening. Identifying a slow network is the first step, but it requires patience and resources from everyone involved to let the network reach its full potential.

Unlocking Hidden Networks

Another type of hidden network effect is the unfinished network. These networks are incomplete due to a product feature or strategic decision. However, once completed, the network effects become immediately apparent. OpenTable exemplifies this scenario. As they built up a robust network of restaurants, they were able to invest in consumer-facing features that made it easier for diners to discover and book reservations. More diners attracted more restaurants, resulting in a powerful network effect.

The key to unlocking hidden networks lies in understanding which part of the network has been built and how difficult it will be to complete it. If there is emergent behavior on the incomplete side of the network, it's a strong indication of an unfinished network.

Unleashing Throttled Networks

Throttled networks are networks that are intentionally limited in size or engagement through product features or strategic decisions. This masking effect prevents the true strength of the network effects from being evident in the short run. However, once the constraints are relaxed, the network effects can flourish.

An example of a throttled network is Chief, a professional network for women executives. While their network effects may not be immediately apparent, their value proposition has the potential to support a larger network in the long run. Exclusivity-based networks, such as dating apps for elites, often have an upper limit to their network effects.

Identifying latent networks

Lastly, latent networks are those that prioritize building a community before launching a product or tool. This approach, known as "come for the network, stay for the tool," focuses on creating a vibrant ecosystem that amplifies user engagement once the product is introduced. Game developers often employ this strategy by setting up Discord servers to build a community of gamers before launching a game.

Differentiating between a latent network and an audience is essential. In a true latent network, users derive value from each other rather than solely from the central node. Assessing whether the network engages or the audience consumes is a crucial test to identify a latent network waiting to be activated.

Conclusion: Unleashing the Power of Hidden Networks

Hidden networks may require more patience, conviction, and capital, but they offer a unique advantage that is often overlooked. By understanding and harnessing the power of slow networks, unfinished networks, throttled networks, and latent networks, entrepreneurs, investors, and employees can unlock sustainable growth and create products with a lasting impact.

Actionable Advice:

1. Focus on growing the number of users completing the core action of your product. Total user numbers may feel good initially, but without engagement, the momentum will fade quickly.
2. Identify if your network falls into the category of slow, unfinished, throttled, or latent. Each type requires a different approach to leverage the hidden network effects effectively.
3. Have patience, conviction, and allocate sufficient resources to allow the network to come to fruition. Building strong network effects takes time, but the rewards are worth it.

By embracing the power of hidden networks, entrepreneurs and investors can uncover untapped opportunities and build products that stand the test of time.