Network DynamicsPosted on .
Over the holidays I came across an article about Geoffrey West. Geoffrey spent his career as a Physicist at Stanford University, but I was more interested in his retirement project where he developed a set of universal equations to predict everyday life.
In the 1990s West published his first retirement paper on biology. The research had three key components. The first is that animals become more efficient as they get bigger – for instance, whales use 100x less energy per pound than hamsters. The second discovery is that efficiency is due to networks inside animals, such as capillaries and respiration, all of which get better as animals get bigger. The third discovery is that these networks have predictable outcomes – for instance, big animals tend to live longer than small animals. Using this math you could predict all sorts of surprising things about an animal just by knowing its size.
West then went on to publish a second paper on cities. If you squint at a city map you can see how roads and alleys match veins and capillaries, and West uncovered a number of surprising similarities. For instance, cities also become more efficient as they get bigger. They have fewer gas stations per capita, less road per capital, fewer electrical lines, etc. He also found that, on a per capita basis, as cities get bigger wages increase, incomes increase, colleges increase, and the same with inventions and patents. He attributes all this to human networks – literally people bumping into each other and sharing ideas. This bodes well for life in New York and Los Angeles, the two largest cities in the US.
As a final study West looked at modern companies. In every respect companies are the inverse of the prior two examples. As companies get bigger they become less productive. They file fewer patents per employee. They have less profit per employee. They consume more resources. Modern management practices actually inhibit network effects. In West’s terms, “Beaurocracy conquers innovation”.
This is why all companies eventually fail (contrast that to cities, some of which have existed for thousands of years). In fact, the average lifespan of a company has gotten shorter over the last few decades. If you extrapolate from West’s equations, in a hundred years everyone will be self-employed.
With that in mind, I think the next big area in digital media is helping companies make better use of networks. We are investors in both Buddy Media and Klout, leaders of the social marketing revolution. But that is just a start. I am looking for social applications across sales, recruiting, HR, lead generation, procurement, knowledge management, and on and on. I believe this phase of “network-based” innovation is required to save corporate America from itself.
So my prediction for 2012: While Facebook and LinkedIn will be valuable, the tools built on top of them will be transformational. I can’t wait to find them.
Ian is a co-founder and partner at Greycroft Partners in New York City. He has been a venture capitalist since 2001.
Posted on 9:42 pm January 23, 2012.
Great post Ian – thanks for sharing