Economic value of business networks

Tom Welsh
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WHAT is the value of a network? The economist Paul Ormerod recently wrote a fascinating article for City A.M. on the subject, which tried to explain the relative poverty of northern cities compared to the urban south. “Not everywhere can develop hi-tech industries,” he suggested. But firms can thrive anywhere if the location can sustain a dense web of vibrant connections between companies and individuals. He noted the example of Burnley – an ex-mill town fallen on hard times – which has seen its companies form a club to provide ideas and access to networks for members. Already, Ormerod notes, the rate of business formation has gone up and new companies attracted.

The potential of business networks – as a means of making connections with other firms, of discovering new ideas, investment or even employees – is also reflected in findings by Goldman Sachs, which is funding a four month course for high growth young companies called 10,000 Small Businesses UK. Run in collaboration with business schools, its aim is to provide structured and practical support to small business leaders who are seeking to grow their companies.

Beyond the course itself, however, which teaches a core syllabus covering things like financial management and sustainable growth, the aim is also to create a “dedicated community of like-minded entrepreneurs” to “increase confidence, morale and resilience”. The idea is essentially to build a new network between participants that will help to sustain peer relationships beyond the end of the course (and thereby directly improve their firms’ chances of growing quickly). Many of those taking part are from northern towns, and the approach seems to be paying dividends. Of the most recent cohort, 77 per cent reported creating new jobs in the previous year (against a UK average of 24 per cent small businesses doing the same), and 66 per cent reported an increase in turnover.

Tom Welsh is business features editor at City A.M. @TWWelsh