In 1970’s, salesmen have a problem to sell the new invention for corporate communication devices. They just invented a machine called tele-copier. Tele-copier is a machine that combine two devices into one, which are telephone and a photocopier machine. When salesman approached potential clients, client will ask who else do have this thing? If nobody else are using this, it will be useless.
The machine that known as tele-copier, today is known as facsimile. By 1990’s almost every organization will have their fax machine because it is one of the most useful devices at that time. Can you imagine if you are the only one that using facsimile? That device is pretty much useless. But the more people are using it, it create a different value to the users.
Robert Metcalf was the founder of ethernet. He define the Metcalf’s Law as:
Economic Value of a Network = (no. of users)2
|Illustration of Metcalf’s Law|
In other words, if you are connected in a network of computer, the economic value is square. In other word, a computer connected into a system relatively have 1 economic value. If you have two computer in a network, the value is 4 and if you have three computers connected in a network the value has increased to 9. If we have more number of users, the economic value will increase exponentially, not arithmetically.
How does this apply in business world?
In business, the impact of the law remains the same. Imagine company like facebook or google, they know the important of Metcalf’s Law. That is why they are giving certain things for free, just to increase the number of users. They would then offer something meaningful later which in turns making them the big bucks. Company who don’t understand this law are focusing on making money everytime they do anything to the customer.
If we think about restaurant that operate franchise, which name that came first to our mind? Of course McDonald’s will come out first. Why? They do have the numbers, or in other words the network of the premise.
It also applied in corporate world. In Malaysia, we have one of the biggest conglomerate operated in the country, which is Sime Darby. Before 2007, Sime Darby that we know today was a three separate entities which are Golden Hope, Guthrie and Sime Darby itself. When they merged, they combined these three names into one entity which is the Sime Darby. And before the merger took place, the total value of the three entity was RM24 Billion. After they merged, the value of the corporate entity has increased into RM60 Billion, the day they listed out in the Bursa Stock Exchange. Same resources, same assets but almost triple in value.
How do we apply this in our own business?
Most entrepreneur out there are focusing on the technology they created, the production of the product, or pleasing their stakeholders. They might overlook on the importance of building their network. Business can be done much easier with a proper networking strategies. People are more comfortable to refer your product to customers if they know you personally and if they trust in you. Some people called it word-of-mouth marketing.
All successful businessman that I know will have a group of people that they know that continuously helping them to build their business. Called it friends, cronyism, or cable; all of these are network that they have built before.
In business, if you are not networking, you are not working. As a business owner, we need to constantly ask ourselves, are we building our network, or are we focusing on work.
There are platform for business owner to network such as BNI. (For malay speaking chapter search for BNI Solusi).