Social Capital: The Most Important Currency
Good startup founders are obsessed with money.
They have to be.
Money is the oxygen that a business needs to stay alive. When the human body experiences extreme cold, blood rushes away from the extremities to the most crucial areas of the body, sacrificing limbs for life.
Similarly, when money becomes scarce a startup may hive off resources, often having to let go of important staff to stay alive for another day. So the focus on money is not short-sighted, but there is another currency that may be just as important to a startup, and I would argue is usually more important in life: Social capital.
First of all, what exactly is social capital? The term seems to be thrown around fairly liberally. Wikipedia defines it as “The networks of relationships among people who live and work in a particular society, enabling that society to function effectively".
Well that’s all well and good if you’re a sociologist, but how can we define it at the individual level? And how does it help your startup?
All of us carry around a sort of virtual wallet of social capital based on our current and past relationships. Good experiences that people have had with you increase your social capital wallet balance and bad experiences decrease it. While social capital is not fungible like currency, it is a resource that can be earned and spent similar to currency.
Who in your life has built up a large amount of social capital with you? Who would you drop everything for and help if they were in trouble? You mother? Your child? A good friend you haven’t seen in many years? This is a form of social capital balance that they’ve accrued with you.
OK, so how does this apply to running a startup? Social capital can be accrued in many ways, but a few examples are:
Creating a positive and enjoyable work environment for your employees
Making helpful introductions to people
Just being incredibly useful to people as a way of life (my personal favourite)
“Social capital is earned when you do something for someone without a specific expectation of reciprocity.”
Startups are lean organisations and founders need help from outsiders to maintain business momentum. These outsiders could be investors, mentors, customers, employees.
When you’re in a jam and need help that’s when you can spend your accrued social capital.
Planning to launch a new content marketing strategy? You just happen to know someone who is a content marketer for a larger startup and you previously helped connect them to another parent at a school they wanted to get their child into. As a result, you’ve acquired social capital with them and they’ll be happy to meet you for coffee and help you get your campaign off to a good start. Boom! You’ve just cashed in some social capital.
The best thing about social capital is that unlike money, spending it can actually result in accruing MORE social capital. Each time you accrue or spend social capital you are deepening these relationships.
When meeting investors, social capital can be built up by:
Showing up on time (actually show up slightly early)
Dressing properly
Showing interest in the other people in the room (did you look at their LinkedIn before the meeting?)
Being pleasant and offering help where you may be able to.
After the meeting send them a thank you email or note via LinkedIn, WhatsApp or whatever platform you’re communicating on.
When they ask you for follow ups get back to them in 24 hours.
Overall, make the investor like you as a person and be someone that they would want to help, whether that be investing in your business, introducing you to someone useful or giving you constructive feedback.
You can do the same thing with customers: Be someone that customers want to do business with and they will refer you more business.
Employees: Be the boss that people want to work for and your employees will be loyal, outperform and refer in more and better talent.
An important aspect of social capital is how you act in potentially negative situations. How well do you treat an employee that you must let go? Or if you leave a company, how well do you manage that process such that the company would want you back or would say positive things about you if asked? Try to act as though you have visibility beyond the current situation and think of looking back on this experience: How would you want yourself to have handled it such that you feel it was handled as well as it could have been? You may be surprised at how much it means to the people on the other side of these situations that you handled it with high integrity and showed them respect.
Another way to look at this is empathy, or the Golden Rule: Do unto others as you would have them do unto you. You never know when having positive social capital with someone will come in handy down the road.
The concept of social capital builds on the themes of Dale Carneigie’s book “How to win friends and influence people”, which I highly recommend reading if you haven’t already.
Managing social capital is easier for some people than for others but if you’re conscientious and make the effort, anyone can learn how to do it better and it may mean the difference between closing that funding round….. or not.
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Disclaimer
In making an investment decision, investors must rely on their own examination of startups and the terms of the investment including the merits and risks involved. Prospective investors should not construe this content as legal, tax, investment, financial or accounting advice.