Unlocking the Power of Hidden Networks: Insights from Across Industries

Unlocking the Power of Hidden Networks: Insights from Across Industries

Introduction:

In the ever-evolving landscape of technology and innovation, it's crucial to identify the hidden advantages that lie beneath the surface. These advantages, often disguised as slow networks, unfinished networks, or throttled networks, can be the key to building efficient, sustainable, and defensible products and networks. In this article, we will explore different examples from various industries to shed light on the power of hidden networks and their implications for founders, employees, investors, and users.

1. Slow networks:

Slow networks, as the name suggests, are characterized by a time delay between their creation and the manifestation of their value. One compelling example of a slow network is Lambda School. The true value of Lambda's network, comprising students, employers, and alumni, takes years to reveal itself. As more high-quality students join Lambda School, the network attracts a greater number of employers seeking to hire its graduates. This virtuous cycle fosters a deeper and more valuable network over time. The advantage of slow networks lies in their resilience and difficulty to displace. Just like the top universities that have built their networks over centuries, slow networks possess enduring strength.

Actionable advice: If you identify a slow network in your industry, ensure that everyone involved has the patience and resources necessary to allow the network to come to fruition.

2. Unfinished networks:

Unfinished networks refer to networks that are temporarily incomplete due to product features or strategic decisions. Once completed, these networks exhibit clear network effects. OpenTable serves as a prime example of an unfinished network. Initially focusing on building a network of restaurants, OpenTable eventually completed its network by investing in consumer-facing products. As the number of restaurants on the platform increased, it became the go-to place for diners to discover new dining options. The completion of the network resulted in a positive feedback loop: more diners attracted more restaurants, leading to stronger network effects.

However, it is important to note that unfinished networks carry inherent risks. Many companies have failed to complete their networks, leading to their demise. Understanding the difficulty and feasibility of completing the network is crucial, especially when the supply side is involved.

Actionable advice: Assess whether there is emergent behavior on the incomplete side of the network, indicating users' willingness to complete the network. This can help you determine if you have an unfinished network with untapped potential.

3. Throttled networks:

Throttled networks are networks that deliberately limit their size or engagement through product features or strategic decisions. While the network effects may not be immediately apparent, they can unlock significant value in the long run. Chief, a professional network for women, serves as an example of a throttled network. Although Chief's network effects may seem non-existent in the short term, they have the potential to unlock value through increased opportunities for engagement, rising pricing tied to network value, or a larger membership pool. Exclusivity-based networks, such as dating apps or members clubs, often have an upper limit to their network effects.

Identifying a throttled network with strong network effects involves understanding what would happen if the constraints limiting the network were relaxed. If the network's potential is positive or neutral under different scenarios, it may be a throttled network waiting to be unshackled.

Actionable advice: Consider the potential value that could be unlocked by relaxing the constraints on the network. This can help you determine if you have a throttled network with hidden network effects.

4. Latent networks:

Latent networks, also known as "Come for the network, stay for the tool" networks, are built by first creating a community that acts as a network. Users interact, engage, and create value for each other within this community. Once the network is established, a product or tool is introduced to amplify and catalyze the network's engagement. Savvy game developers have successfully utilized this approach by building vibrant communities on platforms like Discord before launching their games. These latent networks can be challenging to predict and execute, as they require a deep understanding of user behavior and the ability to transition from an audience-driven model to a true network.

Actionable advice: Distinguish between a network and an audience. Look for signs of engaged user-to-user interactions within the community. Assess whether the entry of new users creates additional value for existing users.

Conclusion:

Hidden networks, with their unique characteristics and advantages, are often overlooked in the startup landscape. However, recognizing and harnessing the power of slow networks, unfinished networks, throttled networks, and latent networks can lead to the development of resilient, defensible, and successful products and networks. Founders, employees, investors, and users should consider exploring these hidden network effects to unlock their full potential.

Actionable advice:

1. Embrace patience and allocate sufficient resources when building a slow network.
2. Assess the feasibility of completing an unfinished network before investing significant resources.
3. Evaluate the potential value that could be unlocked by relaxing constraints on a throttled network.

By understanding and capitalizing on the power of hidden networks, we can navigate the ever-changing landscape of technology and innovation with a strategic advantage.