Effective networks

If you have a business where your customers need to connect to different service delivery points around the country, then you should investigate a business model which has a network effect. Think of a network as a series of nodes connected by lines where the nodes are points of service delivery and the lines link the customer to the service delivery points. A business based on a network has a compound benefit effect as each new node is added.

When you sign up for a mobile plan, you are interested in coverage. If you travel around the country you want a mobile network which gives you the greatest coverage. The telecom company with the greatest coverage has a real competitive advantage. A similar argument can be applied to package and courier delivery businesses. Each additional node added is not only a point of delivery but also a point of service initiation. Thus the next node not only picks up new business but expands the reach of every other node in the network. A similar argument can be applied to a bank ATM network.

Network business models work best where the customer needs to connect to multiple points of service delivery or where the customer is highly mobile and needs to be able to receive service at many locations. Customers who have many locations and want a consistent service prefer to deal with one company who can provide the same service but on a local basis. Accounting firms and legal firms attempt to do this by opening their own offices, by franchising or using a cooperative business model.

If you have a business which has clients who have multiple locations or are mobile and need a dispersed service delivery, it is worth investigating how you could provide a consistent service on a wider geography. One way to do this is to franchise a business model. Where the systems and processes can be tightly defined and monitored and where the staff can be trained to deliver a consistent outcome, franchising can work.

Another way to achieve a similar outcome is to build a loose network of providers who agree to work under a common banner to deliver a common service. A network service to dispersed customers is a very powerful marketing proposition. You make the task easy for the customer because you take care of the problem of where to get service rather than the customer having to deal with multiple suppliers, often with inconsistent functionality or delivery quality.

Many customers would willingly pay a premium to have a consistent service across multiple locations, wether this was through the same company, a franchise or a partnership model. The customer wants to know what they are getting for their money but also to be able to have one conversation about what they want and get it delivered consistently across numerous locations. This informs us that the model needs to work from one location but involve and commit the other service delivery points. Network business models are very powerful when done properly.

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.