A business model is a firm’s framework for creating, capturing, and delivering value for generating revenue and achieving profitability. It is critical to a company's emergence, existence, and survival; networks are integral to all business models.
Every business model depends on the domain connections to function, and the dynamics of these networks greatly influence how successful a particular company is.
According to research by Wharton, network-based business models produce the highest average returns on capital, average profit margins, and average revenue growth rates.
In the digital age, there are numerous examples of such network-led growth stories, including Uber, Spotify, Zomato, and Airbnb, to name a few. It is also worth acknowledging the countless independent creators and small, home-grown businesses that have found a foothold through Patreon, Facebook, and Instagram.
This blog post discusses some interesting and important aspects of networked models and the transformations these powered connections are bringing to the world of trade.
Network-led Growth Architecture: An Outline
The networked structure of the business can take several forms depending on how the following three factors are integrated,
- The duration of the association
Firms collaborate for short-term objectives or can have long-term associations like joint ventures or strategic alliances.
- Vector of the linkages
It indicates what type of firms are coming together in a network. The vertical linkage connects businesses of various operations along a supply chain, whereas a horizontal link connects enterprises in the same industries.
A diagonal relationship unites players from complementary functional areas or industries.
- Geographic scope
Geographic scope defines where a business extends its operations. Businesses might have a local outreach, a regional/national presence, or a multi-national footprint.
Network-led business models are two-dimensional or three-dimensional manifestations of the above three aspects.
- Zomato’s composite approach
Consider Zomato's approach, which is national/regional + diagonal + long-term strategic alliance with local restaurants and wholesalers to deliver food items and groceries (Blinkit).
- Google Pay’s network-led business model
Another example is Google’s ubiquitous wallet Google Pay which has integrated into online shopping apps and merchant outlets using QR codes. It operates on a global + diagonal + strategic networked model.
The Dynamics of Network-based Businesses
A market is the totality of its constituent firms, their actions, and the inter dynamics between them. These firms' integrated practices impact the market, affecting the creation of business models.
The network-led growth models of businesses are not abstract concepts. These dynamic entities must adapt and evolve to bring innovation to value generation.
Some characteristics of the networked business models include the following:
The positioning of a business inside a network affects resource flow and, consequently, its performance. The position of firms within the value chain may shift with time.
The perceived competency of other network participants triggers and drives the businesses to join a network. Also, firms in a network are constrained by the constant strategic movement of other players.
Network-embedded businesses occasionally realign their goals to create shared value. In comparison to small, emerging enterprises, larger or dominating firms are likely to experience the least amount of readjustment.
Big enterprises and small businesses hold diverse roles and exist in the network for varying lengths of time.
Smaller businesses are far more transient and come and go much more frequently, whereas large corporations occupy a longer timeframe on the network.
Set of challenges
The benefits of an open business model do not accrue equally to all network participants. Similarly, small innovative firms and large corporations in a network face different challenges in managing network dynamics.
Network-led Growth: Understanding the 3 Types of Business Networks
A network is rich with opportunities, and networking is an activity packed with possibilities. However, a lot of business executives dislike actively networking.
Leaders and entrepreneurs can effectively utilise their affiliations for economic advantage if they understand the whys and hows of networking.
For a businessman, there are three types of networks:
- Operational networks are built around tasks that keep the firm running effectively.
- Strategic networks link companies with similar goals and combine varied talents and capacities to create shared value.
- Personal networks are made up of human interactions made through personal and professional development activities.
Each of these networks has a specific role and different stages of business development.
These networks are even more necessary for startups to build successful business models, so even the most introverted entrepreneurs should not shy away from building connections.
Ensuring Successful Network-led Growth: 4 Strategies
Here’s how you can channel network-led growth optimally:
- Utilise personal connections
Social networks are places where one can find contacts, resources, and opportunities for growth.
Conversations among personal relationships can help to uncover previously unknown prospects. Personal contacts can also attest to a business owner's ability and dependability.
- Create a network based on trust
Networks created on trust foster proactive and long-term partnerships.
- Develop multi-dimensional relationships
Establish links both laterally and vertically. Horizontal connections with peers can help with routine functions and tactical decisions.
Also, upward connections with industry veterans and successful entrepreneurs, on the other side, help in gaining strategic depth.
- Diversify the networks
Professional and personal networks function as business support systems.
Being part of broad networks with conflicting viewpoints allows one to be creative in their business approaches.
The network-led growth models allow businesses to scale much faster than the conventional modes of business growth. These models consider openness and sharing to improve value proposition while reducing costs.
Recent research by experts from Harvard University and the University of Oxford establishes that deeper supply networks benefit industries and nations. It also emphasises the importance of networks in enhancing value creation by businesses.
An important point to remember about networks is that there is always room for improvement. This is why you should consider expanding your network and becoming a part of India's vibrant startup ecosystem by joining Scalix’s startup community.
Contact us today to connect with your peer founders!