What networking activities should first-time entrepreneurs focus on to increase their chances of success?
Startups can rarely afford to pay what something is really worth and thus must use personal contacts—that is, their network—to obtain whatever is required, including investments, customers, employees, or lab space. Studies have shown that while accessing social networks and developing better networking skills does increase the entrepreneur’s probability of success, the link between networking and success is not as direct as one might think.
Thus, busy entrepreneurs are left wondering how much time they should spend networking (perhaps to the detriment of other internally focused tasks), when the focus on networking should occur in the development timeline of their businesses, with whom they should network, and whether he/she has the networking competence required.
The thrust of my doctoral research was to find out if there are a handful of networking activities that entrepreneurs should make their central focus. Six hundred forty-four entrepreneurs, 10 percent of whom are from the San Francisco Bay Area, responded to a 70-point questionnaire designed to test a series of hypotheses about the effect of networking on the success of a startup. After sifting through more than 60,000 data points, I came up with six findings that, in addition to many other factors, including a sound business model, a product or idea that serves a market need well, and outright persistence, boost an entrepreneur’s chances of success. I lay out the broader concepts below, and then I’ll go further in depth to explain what I mean and how these key points relate to each other.
Networking keys for success
- You as an entrepreneur must focus on a wide range of networking factors. There is no small number of actions that is important enough that the entrepreneur can focus on to increase the probability of success significantly.
- Get others talking about you. If you as the entrepreneur can create a buzz among competing managers and make them feel that you have adequate contacts, this will bolster the reputation of your company. At the same time, you also need to follow up with contacts, ensure that people get value from conversations with you, be in regular contact with people outside your team, and attend networking events often.
- Know the people you need to know before creating your startup. Having the right people before starting off is a strong foundation for the acquisition of paying clients.
- Your networking confidence as the company’s leader affects your success—that is, success measured by how much you learn from people outside your team—which may impact your startup’s acquisition of paying clients. Learning from others outside the startup team requires that you as the entrepreneur have the confidence to admit that you have something to learn.
- Learning from people outside your team—that is, leveraging your network—increases the reputation of your startup.
- Your comfort with networking won’t affect your startup’s success. The difficulty or ease with which you ask for advice, follow up leads, or talk about your startup, will neither hinder nor help your venture. What is important is that you do network, whether or not it comes easily.
Digging Deeper: Important Takeaways
Starting a firm is not easy, requires many different activities and competencies, has a low probability of success, and should probably be attempted only by those who understand these challenges.
The second and third points relate to the so-called “halo effect.” First identified in 1920, the halo effect describes the basic human tendency to make specific inferences on the basis of a general impression, according to Rosenzweig (2007). For example, if competing managers are talking about you, the implication is that you and your startup must be doing something good, or in some way you are a worry to these competitors. Put another way, if you know a lot of people, you give the impression that you and your company must be successful. In a similar vein, if you are inquisitive, one might infer that you are intelligent, thus improving your reputation. To put it another way, the way in which you network and how you interact with people can indirectly boost your company’s reputation and therefore its success.
Hite and Hesterly (2001) found that the networks that entrepreneurs have at the time they start their companies are likely to depend heavily on their prior social and work-related ties, which is demonstrated in the third point. If you did not have the “right” contacts prior to founding your company, your venture could be severely limited. This point is also supported by Hansen (1999), who found that the size of an entrepreneur’s network at the founding of a company correlated positively with an increase in the startup’s monthly salary expenditures, which we can presume is a measure of success. The thought is that if a company is paying its people more and hiring more of them, it is likely doing well.
The fifth point speaks to the need to talk with people who are different or distant from you professionally. This key to networking success goes all the way back to Granovetter’s work (1973) on weak ties. Weak ties—the people we do not know well or see very often—have a high probability of bringing us information that we are unaware of or unfamiliar with.
Thinking through points four and five, we come back to the old idea that great networking is about giving AND receiving. Learning from others, and allow them to learn from you.
Finally, though the sixth point might sound counterintuitive, it should be encouraging to socially awkward or timid entrepreneurs. You don’t have to have the networking ease of the extroverted salesman to be successful! But, linked to point 4, you do need to approach, open up, and learn from others, even if you are not comfortable selling your idea or pushing your technology.
My research began with the assumption that one or just a few networking factors were very important for an entrepreneur’s success, and that once these factors were determined, we could devise a simple “recipe” for nascent or inexperienced entrepreneurs. However, I concluded that there are many factors that contribute to the success of an entrepreneur, even if we narrow our focus to just “networking factors.”
My first piece of advice to entrepreneurs: Do not assume that doing a few networking activities well, simply improving your networking skills, or just increasing the size of your network is enough to ensure success. But networking and networks can be valuable, and there are a few things that you must consider.
Create your network before you need it, ideally long before you get the urge to strike out on your own. Would-be entrepreneurs should be thinking about their networks—in terms of size, strength of relationships, and variety of contacts—throughout their careers, rather than waiting until the moment they need the network. If you didn’t have the foresight to do this, realize that you are at a disadvantage, and hire people to mitigate this: As you consider each potential new team member, explore whether they have contacts useful to you and if they are connected to disparate networks that your startup could exploit. If the prospective employee is a strong tie of yours—that is, someone you know very well—ask whether that person really brings any new insights, as his/her network will likely be similar to yours.
Networking can increase and improve your venture’s reputation, but as the entrepreneur, you must also follow up with contacts, ensure that people get value from their conversations with you, that you are regularly in contact with people outside your team, and attend events often that are explicitly for networking purposes. The networking goal here is getting competing managers to talk about you. If it’s not easy for you to follow up with contacts or leads or talk with people outside your firm, you might start by asking yourself why. What aspects of networking are you uncomfortable with? Can members of your team who are more socially adept take over this task?
Your self-confidence has an impact on your networking success, as measured by how much you learn from people outside your team. Do you have the self-confidence necessary to expose gaps in your knowledge to people outside your team? Can you ask questions without the fear of being ridiculed for what you don’t know?
It is important that you understand that learning from people outside your team correlates well with the reputation of your venture. Talking with others, with a real interest in learning from them, improves the reputation of your startup. As Professor Bill Fischer of IMD often says, “Be interested and be interesting.”
In short, doing all of the above (and more) will be helpful to your startup. Though there’s no simple networking recipe for entrepreneurs, I hope that my research will be helpful to those brave souls who every day attempt to create something from nothing, the entrepreneurs who are creating our future.