Rule 2: Our Network shapes us

Posted by on August 2nd, 2016

When the people you are connected to become better connected, it reduces the number of hops you have to take from person to person to reach everyone else in the network. You become more central.

Did you ever wonder how is it possible for some entrepreneurs to start a company, raise money asap and have huge exits within a few years or even months? First of all, this is a rare case. It shouldn’t be your benchmark. Let’s move on to see why this is doable for some and let’s be straight up front: it’s not about deep knowledge, inspiring leadership & perfect execution skills. You can find thousands of people with all or some of these traits. Perhaps you can find the sharpest operators in Germany or Japan, the most inspiring leaders in the world of sports and many academics with deep knowledge, teaching in universities all around the world.

But for some reason the most impressive startup outcomes happen by people living in a radium of 30 miles around Palo Alto. I am living here for a couple of years now and let me assure you, it’s not something about the water we drink or the air we breath. It’s not about the individual atoms, it’s all about the connections they are forging. When you are a part of a network that exchange high value you are shaped by it. You see & understand the big trends, you see where innovation is being focused, you get insights from people with very different expertise than yours, you learn to better express your thoughts but most importantly you become part of a new tribe that shares the same culture. What does this tribalism offer? It lowers the transaction costs between nodes of the network. You speak a lingua franca with your peers that builds trust. Trust is the cornerstone of innovation & value creation. Trust is the currency of innovation. And so is money anyway…

Think for a moment how irrational is to quit your job and try to build something from the ground up. You already know that most probably your endeavor will crush and on top that you need to persuade others to do the same and join you. They will do so, only if you inspire trust, and trust is what they will redeem for exchange of their precious time. They will trust that you will be fair, that you know what you are talking about, trust that you will do your best, trust that you will find the resources to keep the company afloat. Trust creates positive sum outcomes in a world of zero sum outcomes and this is the beauty of innovation & startups.

Participating in a strong network shapes you. You will need to play along nicely in order to participate and once you learn the rules you will raise your first “funds”, not in monetary value but in the form of trust by your peers in the network.

As you become more trusted you become more central to your network(s), as others reach out to you for knowledge, introductions, advice, capital, you start enjoying network effects. Let’s assume you are now starting your second startup:

You need to hire? You reach out to some of your LinkedIn or Facebook contacts. You need to fund raise? You make a few phone calls to the investors you talked in the past. Are you bringing a new product to market? You just call your previous customers and let them know you have something new. Everyone in the examples above is one hop away. One hop away means there is trust already. It is more likely you will get the meeting and broadcast your message. This is not the case if you are out of the network (cold blood emails) or if you go through an introduction. Your network will shape you. It will give you confidence, knowledge and save your energy.

Being more central makes you more susceptible to whatever is flowing within the network.

As you become more central to a network your perspective changes as well. Networks that exchange high value can give you pointers on what is the next big thing. For example, in the B2B software world we usually see spectacularexits from people who were working in large enterprises before. They may even do it serially. In their previous gigs entrepreneurs saw what new products are needed, what new architectures are emerging and what are customers’ struggles. In their previous workplace they formed a network of engineers, salesmen and customers. If they also have some contacts in the VC world that’s great. Did they use to work at startup that got acquired by the company where they used to work? Even better! Their network will help them form the right team, execute fast, find product market fit instantly and eventually get acquired or funded by the company where they used to work before. Now let’s assume that a first entrepreneur in Poland or Greece tries to do the same. What are the chances of success? How easy would it be to get those customers? Build a specialized sales force with a great contact list? Partner with incumbents? Find experienced advisers in your industry? The reality will be much harsher. You can still make it though if you are focused on your strengths while you are entering a blue ocean where the incumbents are not focused yet and you stay focused building your network from ground zero. It will require more effort and most probably you will create less value without having all the ingredients available from the start.

Nothing today binds technologists to the soil besides other people. In this sense Silicon Valley is nothing special; it is best conceptualized as just the most common (x,y) coordinates of a set of highly mobile nodes in a social network whose true existence is in the cloud. Source: http://www.wired.com/2013/11/software-is-reorganizing-the-world-and-cloud-formations-could-lead-to-physical-nations/

Every technology company is now a global company. Customers are everywhere and the barrier to purchase software are lower than even thanks to SaaS. This doesn’t mean though that you shouldn’t try to be central to a network. Nowadays, human networks don’t manifest necessarily as a concentration of people in a physical location. Participating in popular Open Source projects, subcontracting for bigger companies, posting original content, running large events can be your gateway to the right networks. Let the Network change you. After all, you are not what you are now, you are a process.

We help ambitious founders build world-class companies

© 2017 Marathon Venture Capital