As a startup CEO, one of the strengths you bring to the table is an ever-expanding network of people who can add value to your company.
You should always be building your network, of course, but here's something I learned late in my entrepreneurial career: It’s how you build that network that matters. And it's only when you truly understand why you need your network that you'll realize how to build it to your advantage.
Once you do that, your network goes from strength to superpower.
Build Your Network on a Foundation of Trust
I recently received a question from a startup CEO about where to draw the line on investor due diligence that was becoming invasive and painful.
In my answer, I talked about which functions of her startup needed to be an open book to investors (e.g. historical financial results), which areas needed more protection (e.g. proprietary source code) and how to apply that protection.
But I also speculated on why that investor’s due diligence was so invasive. The startup CEO noted that she had no prior relationship with this particular investor. The investor had come out of the blue. But now, what had seemed kind of like a windfall opportunity was turning into a drag on her business and her patience.
That was the root of it: a lack of trust. Everyone wants the new relationship that brings a windfall of funding or advice, but no one wants to work on it in order to establish that trust.
Transactions Are Built on Relationships
Let's think about due diligence for a minute and consider why it's necessary. You know that old saying, “Trust, but verify”? That's due diligence in a nutshell.
Why Relationships Matter in Startup Funding
But the need for due diligence doesn't end there. What we tend to overlook is that each of those transactions is only the starting point on the path to a greater goal:
- A sale is the beginning of a mutually beneficial relationship between your company and your customer.
- An investment is the beginning of a growth plan developed by your company and your investor.
- An acquisition is the beginning of a new entity designed to be greater than the sum of its parts.
None of those things are successful without trust. Due diligence is the awkward and invasive path to verify that trust.
Prior Relationships Are a Shortcut To Trust
Think about your last few high-dollar purchases. I can guarantee that in almost every case, a big factor in the purchase decision — maybe even the top factor — was how much trust you had in the product and the seller.
The toughest purchase decisions are the ones where you don't have a lot of experience with either seller or product. You’ll likely end up doing a lot of research. You’ll want to know everything about how the product works, what options you're looking for, what you should stay away from, the features, the benefits and the build quality.
Then once you have a rough grasp on what you're buying, you'll look for a couple of sellers and try to figure out which ones are trustworthy, which offer the best product at the best price, and which are going to support that product when you need support. You’ll probably also check to see if the people who have done business with them are happy.
I mean, I go through a lot of angst when I’m buying a $1,500 laptop. How much work needs to be done to invest $1 million or more in an unknown company selling an unknown product in an untested market? The answer is “a lot.”
But here's the thing: When I need a new laptop, I buy the latest of whatever Apple is selling. That’s because I have a prior relationship with the company and their products.
And sure, I'll grumble about the increased price, the decline in build quality, the lack of decent support and probably a dozen other things. But that's the devil I know. I'll let that devil slide on a lot of things, even when there are machines out there that are probably a better choice for me.
Look, I'm not saying be the devil so others will let you slide. I'm just saying that having a prior relationship in place eliminates the need to answer a lot of invasive and unnecessary questions in the name of establishing trust.
Build Relationships Before You Need Them
Your superpower network needs to come together long before you need it. And it needs to be built the right way for the right reasons at the right time.
Trust has never been established in a 15-minute session running through a pitch deck or picking someone's brain. Not once. Trust takes time. Building it is a process, not a foregone conclusion. As an example, I'll freely admit there are people I've known for more than 20 years whom I don't trust one bit.
In the case of a startup CEO, or any business leader, for that matter, trust starts with who you are, what you're doing, where that's headed now and where you want to take it next. It doesn't start with the transaction.
Think about it this way: How many friendships do you have that started when one of you asked to borrow money from the other?
Start building those superpower relationships today, and start by figuring out how to make them mutually beneficial, both now and in the future. That way, when you need to establish trust for a high-dollar transaction, you won't have to jump through a dozen hoops and hand over your source code to prove your software does what you say it does.
They’ll already believe you.