Over the years entrepreneurship research has been unclear about indentifying the factors that contribute to success when founding and growing a new venture. Researchers have largely struggled to find the magic recipe for entrepreneurial success. However, the one thing that has emerged as a robust predictor of entrepreneurial survival and success, is a network of relationships.
How networks promote success
Research has clearly highlighted that both personal and organisational networks contribute to the success and growth of a new venture in at least five different ways:
- Networks influence the breadth of ideas and technologies that a person is exposed to as they search for a new business idea.
- Relationships provide people with links to funders of new ventures.
- People in your network often open doors to cheap sources of supply and are very often the link to hiring talented employees.
- The first few sales of most entrepreneurs will be to people they already know.
- A strong network of relationships provides more flexibility in dealing with crises and contingencies when they arise.
Getting by with few resources
To make this a little more real, it is valuable to reflect on aspects of my own entrepreneurial journey; I discovered the value of relationships as I walked this road. In 2003 I decided I wanted to be master of my own destiny and escape the trappings of the corporate world – I wanted to launch a new business.
I entered the financial training industry because that is what I had been doing internally at my previous employer and I was familiar with the latest ideas, technology and concepts in corporate training. My business partner and I developed a suite of offerings and products to fill market needs that we learned about by talking to colleagues and associates in the corporate world. As we built the business we drew on a broad base of relationships to help us get up and running. A friend I had helped set up a Web design company three years earlier did all our Web and IT work free of charge. A student who had been in one of our classes did all the graphic design and we drew on family and friends to test all our products, often around the kitchen table with a bottle of wine and a take away pizza on hand.
Our first client was our previous employer; our former boss hired us to deliver some of our products in the organisation where we had worked. Our second client was introduced to us by a university friend of my business partner; he commissioned us to create a financial literacy board game for the company where he worked. Our third client came from a referral; one of our previous colleagues referred us to her husband who owned a company that had a need for training. We did not take on any outside capital; the capital to fund our first year of operations came from the sales revenue from our first three clients. As I reflect on the diary that I kept of my first 12 months in business I am amazed at how we managed to do so much with so little and it was largely because we were drawing on the people we knew to help us keep the business afloat. The bottom line is that a network of relationships is a very valuable resource when starting and growing a business. In this article we will explore what kinds of relationships are valuable in an entrepreneurial context and how to build an entrepreneurial network.
Types of relationships
It is important to recognise that not all business relationships are the same and that different kinds of relationships serve different purposes in developing an entrepreneurial venture. One way to distinguish between diverse relationships is the strength of the tie. Strong ties are deep relationships that develop over an extended period and usually take effort and energy to maintain. Weak ties are looser relationships that form as a result of relatively brief interactions with others. Both weak and strong ties serve useful purposes in an entrepreneurial venture but their purpose is distinctly different. They each take different amounts of energy and effort to maintain and entrepreneurs need to maintain a balance between strong and weak ties to give their venture the best chance of success.
Strong ties are important for three reasons:
- Bouncing ideas for new products, services or business strategies.
- Mentoring and support.
- Information sharing.
Firstly, entrepreneurship is about creating something new and doing things differently. Developing new products or services is an uncertain activity. When engaging in an uncertain activity we need people we can trust with whom we can share our ideas and get honest feedback. Such a discussion is best had with someone with whom you share a good relationship – a strong tie.
Secondly, an entrepreneurial journey is a tough and lonely road and one reason that entrepreneurs fail is because they give up. They become drained and disheartened when things don’t go well or they take it personally when people don’t buy their products. It is at times like these that you need to get support and advice from someone you can trust. Thirdly, in an entrepreneurial venture, information is often a source of competitive advantage. If an entrepreneur hears about a request for tender or a new piece of technology before anyone else then they can quickly position their venture to take advantage of that situation. Really valuable information very often flows only through close relationships. Therefore strong ties are regularly a source of the most valuable incoming information in an entrepreneurial venture. Because of the depth of relationships in strong ties, they take time and effort to maintain and require reciprocation – doing for others what they do for you. It is often challenging to maintain many strong ties and successful entrepreneurs often supplement a few deep relationships with a broad base of loose relationships, or weak ties.
Weak ties extend the reach of an entrepreneur across a much broader base of people and provide valuable information flows for a lot less effort than strong ties require.
Weak ties, or loose connections as they are often called, serve three clear purposes:
- They are often the source of information about a new sales opportunity.
- They provide connections to potential employees and service providers.
- They serve as a source of reputation in the market place.
Because entrepreneurial firms often work from a very low resources base, they cannot hire expensive sales people, invest in big media and marketing campaigns or use the services of a professional recruitment firm. They depend heavily on a network of loose connections to keep the business alive with word of mouth marketing and referrals, accessing free or low cost suppliers and hiring friends, or friends of friends. The key to effectively using a network of relationships as a valuable resource in developing a new business is balance. You need to maintain a few strong ties to serve as a critical support system and source of information when required, while broadening your reach with a vast number of weak ties to garner the benefits of information, referrals and leads.
Steps to build your own strong networks
If you become sold on the idea that it is valuable for you to foster a broad set of relationships as you build and grow your business, what does this mean practically? Fostering relationships is not rocket science. It requires the application of a few simple practices. Although these practices may seem obvious and uninteresting, they are incredibly powerful. Disciplined application of these practices can create huge leverage for a business owner by extracting big results for relatively little effort.
Practice #1: Be honest and genuine
Valuable relationships are based on trust. Trust is forged when people are honest with each other. People you interact with will very quickly assess whether you are being fully honest with them and this will set the tone and the parameters for the rest of the relationship. If they decide early that you are dishonest or untrustworthy, you are doomed. That relationship is unlikely to be of any value in the future. If others trust you, you will probably be allowed to forge a relationship with them that may serve you well in future.
Practice #2: Ask and listen
Relationships are built around connecting points. Connecting points emerge as a result of disclosure. To find connecting points with others you should ask open-ended questions that allow people to disclose something about themselves or their business. Then listen carefully to the answers they provide. Build on their answers as you follow up with another open-ended question and before you realise it you will be involved in a valuable conversation that can forge the foundation of a new connection.
Practice #3: Share your story
Stories are one of the most powerful mechanisms for enabling others to remember key ideas and insights. This is why The Bible is filled with passages phrased as stories and why so many people can remember the key message from the fable “The Tortoise and the Hare”. Our minds are more able to latch onto ideas that are shared within a story and if you want people to remember who you are and what you do, tell them a story. Spend a bit of time crafting your personal and business history into an interesting and concise story. The next time someone asks you what you do, tell them your story and you will be blown away by how much more they remember. The more you tell your story, the better you will become at telling it concisely and effectively and the more people will connect with you and remember you.
Practice #4: Follow up
Research has shown that a single follow up from an initial interaction can significantly change the trajectory of a relationship between two peple. Dropping someone an email or a call or sending them a thank you note after that first engagement changes peoples’ perception of the relationship and significantly increases the likelihood that the parties will interact again at a future date. If you want to benefit from the interactions you have with others, get in the habit of following up with them.
Practice #5: Connect others
The value of a network moves to a new level when you are able to effectively connect others in your network with each other. People will begin to truly value their relationship with you if you are able to connect them with others in a meaningful and valuable way. To do this effectively you need to understand the needs and abilities of both parties and have a trusting relationship with both. As you begin connecting people in your network with one another, they will begin connecting you with others in their network. Over time your network of relationships will begin to multiply many times over.
Practice #6: Maintain an up-to-date contact book
This piece of advice might seem absolutely obvious but I am amazed at how many business people don’t have all their contacts in one easily accessible place. A contact will only create value for your business if you can quickly call on that person at the time that you need them. Creating value from contacts is often about timing and if you cannot find a person’s contact details to call on them at the right time, the window of opportunity might pass you by. These days one can easily use technology to maintain a database of contacts and that database, if well populated, will undoubtedly serve as one of your business’s most valuable resources.
Invest in relationship assets
Relationship building in business is not a new recipe for success; it’s not a fad or some amazing new discovery. It is one of the oldest and most fundamental principles for business success. Yet it is more relevant today than it has ever been. In a world where we have access to more information than we could ever imagine and in which people are often fickle and fast, having a broad but balanced network of people you can call on and trust will be one of your business’s most critical assets. If you are serious about business then it is worth getting serious about your business relationships.