Kirsimarja Blomqvist Thoughts from The Journey – Mietteitä matkalta

Start-ups are all about relationships – and relationships are all about trust

Global connectivity and low entry-costs make it possible to start a knowledge-based company anywhere around the globe. The times when Silicon Valley venture capitalists could be sure that the best business ideas could be caught by hanging around Palo Alto California Café are past.  Today interesting business ideas can from anywhere in the world: Shanghai, Helsinki, or a remote place one has never heard about. Increasingly, many of the start-ups are also born global, serving and competing in the global markets.

However, for a growth oriented start-up Silicon Valley may still be the best place to attract funding and develop the business model. Valley’s diverse talent, risk finance, openness and entrepreneurial culture are hard to match. For a tech start-up it is a magical place, where weeks well spent may equal for months or years of learning elsewhere. As one of the tech start up founder said: for techies Valley is the heaven on earth…

What every start-up needs is a diverse network of people with resources to develop the business idea to a working business model. Several start-up accelerators offer entrepreneurs guidance on how to incubate their ideas to a business concepts in the Valley. One of them, Blackbox, specializes in connecting global, non-US based start-ups to Silicon Valley. http://blackbox.vc/connect/

During my stay 2-week stay in Blackbox I got to know the talented European start-up co-founders participating in Blackbox connect program to learn how to connect to Silicon Valley risk financers, successful entrepreneurs, potential customers and partners. A common thread of the many presentations and discussions was the relational approach to business vital in getting the referrals and reputation required.

That’s why understanding relationships and trust that comes with every valuable relationship is a key to entrepreneurship. Well then, what is trust and how does it work for start-ups?

Trust can be seen as the willingness to accept vulnerability based on positive expectations.  Usually individuals evaluate each other’s trustworthiness more or less intuitively by signals of competence, goodwill, and the identity.

Even if the technological and business competence (either existing in the team or to be acquired from the networks) is important for a start-up, also goodwill is of paramount understanding.  In dense networks like Silicon Valley the reputation for integrity and playing fair, essential elements of goodwill, become one of the most valuable assets.

Identity is about who the founder is. Is s/he aware of the strengths and weaknesses, values, and what is important to her or him? Here I quote Blackbox founder Fadi Bishara’s experience of the “founder/market fit” that he finds as an important success factor in start-ups. For a risky venture requiring lots of personal knowledge, resources and perseverance it makes a lot of sense to align the business idea with the founder’s personality and interests.

Nell Watson, founder for Poikos http://www.poikos.com/ and co-founder for Scry foundation http://scry.strikingly.com/#scry also notes that it is critically important that investors understand founder intentions and priorities. Where this fit is in place, investors can trust the founder to have the best interests of the company at heart even if the investors may not always perceive the benefits of a particular decision.

In the early stage funding the start-up founder doesn’t have much tangible elements to build trust on. It is important for both parties to realize that they understand each other and can work together. At its simplest this means that founders are able to see the other Venture capitalist’s interest, e.g. what is important to her/him and in what kind of project s/he is willing to invest. Shared values and ideals, taking the perspective of the other as well as mutual appreciation become very important. Venture capitalist has to be able to sense that the entrepreneur is coachable, and the entrepreneur has to respect the VC.

Also the so-called third party trust works well in dense networks such as Silicon Valley. By this is meant that the person recommending a meeting between two unknown persons borrows his reputation and related trust to these people.  Even then, if the start-up founders are introduced by a trusted person to a venture capitalist, the question is how to get the VC or potential customer’s attention very fast? Most valuable contacts are highly sought after, and VC’s attention span is short.  As successful founders have told me, if you don’t’ get the VC’s attention in the very first minute, the rest of the valuable one hour meeting may be wasted!

Especially in a short meeting with limited information the positive feeling provides information of the other persons’ goodwill.  Secondly, positive feeling helps us to find something similar in another person seemingly very different. Thirdly, positive feeling makes us see opportunities and take action, whereas negative feeling makes us to focus on the risks and withdraw. Related to this, Bishara advices the start-up founders that first, it always helps if you try to find something likeable in the other person. Secondly, it is important to keep the meetings in good emotional climate.  He further reminds that VCs know that start-up plans change, figures are made up and hypothetical. Therefore VCs want to meet with the founders several times to make sure that the experience of passion, goodwill and positive connection is consistently present in their interaction with the founders. The person and the feeling will be remembered, if the facts are forgotten.

Reputation for fairness and integrity are important factors both for VCs and founders.  Also start-up founders looking for mentors and investors are not looking only for the money and resources, but also for the identity and goodwill of the person they will trust their venture and much of their future.

 

About The Author

Professor for Knowledge management, Vice rector (International affairs) at LUT. Interested in new ideas, knowledge co-creation, innovation, networks and trust.

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