The Economics of Networking

Tuesday, 28 February 2017 10:55
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What's an introduction worth?

Greetings! Business professionals can attach high value to having someone selectively connect them with another professional to explore collective benefit. What's this networking service worth?

Curious to learn more? Read on, dear friends....

The Economics of Networking

If you doubt at all that business professionals attach high value to selectively accessing other professionals, then Microsoft grossly miscalculated its $26.2 billion acquisition of LinkedIn, the world's premier business networking site.

Networking is big business and very often it's integral to how business gets done. Achieving connections is good. Securing a warm introduction to a target contact from a respected, mutual friend/colleague is much, much better. Don't think so? Then good luck with your cold calling efforts.

So, what's an introduction worth? Here are a couple of common connection scenarios and my views on them.

Common Networking:
This generally involves connecting two professionals via an intermediary, where a business proposition isn't being discussed. An example of this might be Ted facilitating an introduction to Mary to assist John in conducting his job search. If the Ted-Mary relationship is strong, then an intro may only require Ted to call or email Mary to seek her assistance. The existing goodwill between them should be sufficient to earn Mary's time and interest. It is common to treat such introductions as a professional courtesy with no costs/fees attached. (It is also worth noting that this courtesy is typically reciprocated, as is often the case with friends/colleagues).

New Business Development:
Sue is a Sales Director for Acme Company. Sue wants to reach Carl, Marketing VP for Beta Company to discuss a business proposition. The potential for money to change hands between Sue and Carl's company as a direct result of this connection will create a basis for the negotiation of business terms required to secure an introduction from Barb, whom is known by each of them.

Terms may differ depending upon whether Barb is being asked to make a simple introduction, or is expected to invest effort and or reputation/goodwill in Sue's behalf (meaning that Barb will advocate for Sue and/or Sue's value offering). The relative strength of the Barb-Carl relationship will influence the value that Sue places on Barb's role as advocate (and the value that Barb places on it, as well) and the business terms attached to it. A history of, and or the prospect for reciprocity may influence the business terms for this introduction. In other words, even if Sue doesn't compensate Barb for this particular intro, she likely will expect her to reciprocate at some point in the future).

What might compensation look like? It might be a percentage of the money received by the seller from the customer if a deal between them materializes. Alternatively (though less often), it may be a fee for service, independent of the outcome of the dealings between the parties who have been introduced.

My point is that professional matchmaking and advocacy have tangible value to the participants. Importantly...if they didn't, the parties seeking the connections would simply seek to make them by themselves and wouldn't seek to involve an intermediary. The type and extent of the value delivered by an intermediary will define the terms supporting any business agreement between the principals.

"Connecting You With The Right Solutions" BFS Innovations, Inc.

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