Friday, August 09, 2013

What type of networking do you prefer?

There was a fascinating study out of INSEAD Singapore (although he collected data from Indian entrepreneurs in Bangalore and Hyderabad) from 2012 that I finally got around to reading about entrepreneurs and the networking strategies they used to grow their businesses – finding investors and finding new customers and suppliers.

He hypothesized that there are two basic strategies that entrepreneurs can use.  One strategy is when the entrepreneur goes through their existing business ties to get referrals.  The benefit of using referrals is that you leverage the mutual trust relationship and the referred relationship tends to be more stable.   He lists the costs that you owe the referring connection a favor and that you also might need to suck up your ego when asking the favor.  I disagree with these costs because there is a lot of evidence that asking and giving favors can strengthen a relationship.  Perhaps this is a cultural artifact in Bangalore?  I don’t know.

The other strategy is to go to strangers.  The benefit of this method is that you have a wider population to approach – more people and more variety of people.  You also don’t owe any favors. 

But here is what I found interesting. The study discovered that a lot of the entrepreneurs fell into the two extremes of the distributions – either using referrals almost exclusively or going to strangers almost exclusively.  People who used referrals tending to have smaller total networks because they didn’t branch out as often.  They also had more homogeneous investors and suppliers.  On the other hand, entrepreneurs on the other extreme got used to approaching strangers, did this more often, and had much wider and more diverse social networks, investors, and suppliers. 

Do you fall into one of these categories?  I spent most of my career in the second category.  Part of this was my interest in so many different areas – I had my human factors network, my industrial engineering network, my dotcom startup network, chamber of commerce networks – and few of these groups knew each other.  It might also be that I never wanted to ask for a referral because I had a fear of rejection. If a stranger rejected my request it was just that they didn’t know me very well.  But if a colleague said no – well, that was too big a risk to take.