A startups social capital, the network of relationships that the founders have with friends, former co-workers and associates, and friends of friends represent a key resource for the team. It’s possible to activate this network to help you solve a variety of problems–e.g. finding a cofounder, finding early employees, finding contractors, finding early customers, finding investors, finding advisors–but you can normally only activate for one purpose at a time.
Tips For Activating Your Network of Relationships
Here are five tips for activating your network in way that is sustainable and
- Maintain your network: do favors when asked, if you can, or say no promptly. The fact that you were helpful will become known not just to the person you did the favor for but others in the same branch of your network. Keep people up to date on an annual basis about what you are up to and share relevant information about others they may be interested in every 6-12 months just to stay in touch. In the long run if all you do is ask for favors you will burn friends and associates out.
- Be as specific as possible in your request: for example, “I am working on a team that has recently developed an application that can be used by church choir directors who need to search for music by different criteria–for example by the number of different singing roles. If you know someone who is responsible for managing a choir I would appreciate an introduction.” Some phrases that people use that are not helpful in narrowing the search to reply to your request:
- “Small business” Better would be a company doing between 2 and 5 million dollars a year in revenue, or a company with between 10 and 50 employees, or two or three specific criteria that indicate exactly what you are trying to reach.
- “Need our product” => “has this problem” phrase the request in terms of needs or problems that a target prospect would know that they have.
- “Need a technical person” Better is to list a specific set of skills or accomplishments: for example, know Python, has built websites in WordPress, is an attorney who has supported other software startups…
- Contact a few people at a time: a mass mailing seems like it is much more time efficient than contacting people individually by phone or e-mail but personal request is far more energizing and likely to earn a response. There is another failure mode that an occur when you blast your 400 LinkedIn connections with a request: you can so many responses you do not reply in a timely fashion and you actually damage the relationship because it appears that you are ignoring them.
- Don’t try to run two or more searches at once: pick the most important conversation you are trying to have next and focus on that. A request that says I am looking for a cofounder like X and an early adopter customer like Y and an investor is unlikely to generate any action.
- Close the loop: always let people who make a suggestion or an introduction know the outcome. Say thanks.
One Common Tension: Customers or Investors
I recently did an office hours session with a team that was about halfway to break even cash flow. They had a few paying customers and needed a few more to get to break even. They had a complete team that was able to deliver a production ready product–they had customers in production use for a niche product. They had already been able to activate their network to generate viable leads and close them. And they understood the critical importance of references and case studies as risk reducing components of the sales process: they were weaning themselves from the need to reach to friends or “friends of friends” and were laying the groundwork for selling to strangers by establishing references and other substantiation of their value.
The challenge they were wrestling with was that they had switched their focus to seeking investment and were now asking their network for help in getting meetings with investors. This was problematic for several reasons.
- They had a clear understanding of who their prospects were. A turn down from a prospect allowed them to refine their presentation and proposal template. A lack of interest on the part of an investor provided much less information. A suggestion from a prospect for what was missing from product before they could buy was useful information. A suggestion from an investors for what was missing or new markets to pivot to was much less valuable.
- The opportunity cost of seeking investment at this time was coming at the expense of additional non-dilutive revenue.
- Each sale provided additional proof of value and increases long-term viability. It would allow them to make a pitch in 6-18 months (post break-even) that they need funds for growth not to complete the product or meet payroll.
In a situation where a team has satisfied customers in production use of their product but they are not at break-even I normally suggest:
- Sell what you have based on a roadmap the current team can deliver.
- Focus on getting to break even cash flow by continuing to leverage your extended network for prospects.
Note: “break-even” can mean:
- Covering the out of pocket expenses of the startup. Founders are working full time and moving the startup forward on nights and weekends (with the occasional sales call at lunch time or an afternoon coffee break).
- Allowing the founders to work part time and work on the startup part time
- Allowing the founders to live a basic existence without having to work (“ramen profitable”)
- Allowing the founders to live a normal existence.