The Power of Hidden Networks: Leveraging Unconventional Network Effects for Success

The Power of Hidden Networks: Leveraging Unconventional Network Effects for Success

Introduction

Hidden networks, which are network effects that may not initially appear obvious, can be a powerful advantage for companies. These hidden networks often fly under the radar, allowing founders to build their products and networks in a sustainable and defensible way. In this article, we will explore three types of hidden networks: slow networks, unfinished networks, and throttled networks. Additionally, we will discuss the concept of latent networks and how they can be activated to unlock their full potential. By understanding and harnessing these hidden networks, entrepreneurs can gain an edge in the competitive landscape.

1. Slow Networks

Slow networks are characterized by a time delay between when the network is created and when it starts to show value. A prime example of a slow network is Lambda School. While it may take years for the true value of the Lambda network to reveal itself, once built, slow networks are difficult to displace. The long-established network effects of top universities demonstrate the lasting power of slow networks. Identifying a slow network requires recognizing if it possesses the features of a network effect business and if it has long product loops or insufficient saturation. Patience and resources are crucial for founders, employees, investors, and users to allow the network to come to fruition.

2A) Unfinished Networks

Unfinished networks are networks that are temporarily incomplete due to a product feature or strategic decision. OpenTable serves as an example of an unfinished network. As OpenTable built up its database of restaurants, it eventually completed the network by investing in consumer-facing products to help diners discover restaurants. Unfinished networks can be risky, as not all companies successfully complete their networks. It is important to understand which part of the network has been built and the difficulty of completing the network. Emergent behavior on the incomplete side of the network indicates the presence of an unfinished network.

2B) Throttled Networks

Throttled networks are networks that are limited in size or engagement due to product features or strategic decisions. While the network effects of throttled networks may not be immediately apparent, they can be unlocked in the long run. Chief, a professional network for women, is an example of a potentially throttled network. By strategically increasing opportunities for engagement, adjusting pricing based on network value, or expanding the membership pool, Chief may unlock the value of its network. Exclusivity-based networks often have an upper limit to their network effects. To determine if a network is throttled, one must assess the impact of relaxing constraints such as price, network growth, or engagement.

3. Latent Networks

Latent networks, also known as "come for the network, stay for the tool" networks, are built before the actual product or tool. This approach involves building a community that acts like a network, with users interacting and creating value for each other. Savvy game developers often follow this playbook by setting up Discord servers to build a community before launching a game. Identifying latent networks can be challenging, as not all communities transition into true networks. The key distinction lies in whether the users are engaged with each other or solely with the central node. Activating latent networks requires introducing a product that catalyzes or amplifies network engagement.

Conclusion

Hidden networks offer a unique advantage for companies willing to invest time, resources, and patience. Slow networks, unfinished networks, throttled networks, and latent networks all have the potential to provide significant benefits. By understanding the characteristics and nuances of hidden networks, entrepreneurs can leverage these advantages to build sustainable and successful businesses.

Actionable Advice:

1. Identify potential slow networks by analyzing if they possess network effect characteristics and exhibit long product loops or insufficient saturation. Patience and resources are key for founders, employees, investors, and users to allow the network to mature.
2. Assess if your network is unfinished by evaluating if any product features or strategic decisions have left the network temporarily incomplete. Understanding the difficulty of completing the network is crucial for success.
3. Determine if your network is throttled by examining if product features or strategic decisions limit the size or engagement of the network. Relaxing constraints such as price, network growth, or engagement can unlock the full potential of throttled networks.

By recognizing and harnessing the power of hidden networks, entrepreneurs can gain a competitive edge and build successful, sustainable businesses.