How to Grow and Measure Network Effects in Healthcare
When a company launches a multi-sided network, or transitions from a pipeline to a platform business model, many leaders have the same question: “what metrics should we focus on to know that we’re generating network effects?”
As monetization is often delayed in a platform model (read more here), revenue generation – the universal measure of market traction – is typically a lagging indicator. Therefore, alternative metrics are needed for a healthcare platform business to appropriately assess the growth and strength of their network, and thereby their business.
In this blog, we’ll focus on the following questions we often get from digital health platform executives:
How is driving network effects different in healthcare (than other industries)?
What is the most important network effect to focus on (and does this change based on the stage of the business)?
What metrics are most important to measure success (and how do these evolve as the business grows)?
If you need support determining and measuring the right network effects, please reach out. We’d love to chat.
Or get your copy of our Guidebook for Digital Health Startups: Building Network Effects-Driven Platforms in Healthcare.
Driving Networks Effects is Different in Healthcare
For those versed in seminal platform publications, such as Platform Revolution and The Cold Start Problem, you’ll be familiar with the three types of network effects: acquisition, engagement and monetization. While highly relevant in principle, within healthcare there are several key distinctions in platform strategy that require a revision to terminology, priority and approach. This is because most platform theory is based on successful B2C businesses (Facebook, LinkedIn, Apple, Amazon) and does not account for the complexities and nuances of B2B healthcare businesses.
The following table describes the network effects terminology we use in healthcare:
Driving Utilization is Paramount to Generate Early Network Effects
In healthcare, driving utilization is the top priority in building a network (not just acquiring users – adoption). A high volume of successful transactions between a limited number of users (in an atomic network) will be of greater value than a large network of users with a modest volume of interactions of variable quality. The fragmented nature of healthcare (geography, specialty, IT, etc.) means regional success is more important than national scale - at least early on.
This diagram depicts the process to validate and grow a healthcare platform by focusing on each of the 3 types of network effects, in sequence:
Once you’ve identified your validation market(s) and attracted the minimum required volume of users, on each side of the network, your goal should be to focus the majority of your resources on increasing utilization in those select markets. This will help you to substantiate the flywheel and understand which tactics best spur utilization before scaling to new markets.
The minimum threshold of users needed to prove out the flywheel will differ from company to company, depending on the value unit your platform facilitates.
We can help you determine the thresholds needed for each side of your network.
The Right Success Measures at the Right Time
Traditional success metrics used to assess the strength of a pipeline (pure software) business are inappropriate to evaluate the performance of a platform business - as they fail to capture the nuances and patience required to build powerful, self-sustaining network effects.
Further, as a platform business scales, the metrics of success evolve. Thus, measuring the right outcome at the right time becomes very important to assess a platform businesses’ growth over time.
This table shows how these metrics can evolve depending on the stage and focus of the company:
Finally, and perhaps even more important than the exact metric themselves, is ensuring that the entire organization is aware, aligned and accountable to your platform objectives. This is especially true for organizations balancing both pipeline (SaaS) and platform (transactional) businesses. If your Success team is optimizing for driving adoption while your Sales team is solely focused on driving revenue, you’ll have disconnected teams, confused customers and diluted results. Organizational alignment is critical to platform success.
If you’ve found any of these insights helpful or need help identifying and targeting the right success metrics for your platform business, Summit Health Advisors is here to help.
If you’d like to chat, please reach out to Summit Health Advisors’ Managing Director Seth Joseph or Partner Nick Webber.
Download your copy of Building Network Effects-Driven Platforms in Healthcare: A Guidebook for Digital Health Startups here.
