The network is an entrepreneur’s best asset

Data-driven practices will improve the chances that your contacts will come through with information and resources

Credit: Edmon De Haro

Waverly Deutsch

Waverly Deutsch | Feb 24, 2020

Sections Entrepreneurship

Entrepreneurs have a lot to think about when building a business, and one of the most important may be strengthening and tapping their networks. More than 20 years of academic research has tied business networking to entrepreneurial success, demonstrating that networking is an important way to validate opportunities, connect to resources, and access information. 

Research has suggested that entrepreneurs have on average twice the number of online network connections as nonentrepreneurs. Although the raw size of an entrepreneur’s network does not necessarily correlate with startup success, engagement with a tightly connected subset of that network does. An MIT study demonstrates that university-educated entrepreneurs who had large, active alumni networks were more successful, as measured by the number of employees at and revenue associated with the companies they started. And research done here at Chicago Booth finds that it’s not enough to just have a network; how you use your network is important, and trusted contacts can be particularly helpful at overcoming early challenges. 

So with that in mind, when I was chartered this past summer by the deans’ office at Booth to undertake a project to figure out how the school could better support its global network of entrepreneurial alumni, both from Booth and the University of Chicago at large, I was excited to investigate how our alumni leverage their networks. Before the university rolled out some grand plan, perhaps involving an expensive technology app with a boatload of features that no one would use, I decided to do some customer discovery to understand how our entrepreneurial alumni use their professional networks, where their existing networks do a good job of supporting them, where these networks fall short, and how a curated and facilitated network could provide value. 

I interviewed nearly 100 University of Chicago alumni—entrepreneurs, angel investors, and venture capitalists—and I conducted a survey that received 350 responses from 40 countries—217 responses from the United States and 133 from internationally located alumni. As several of the alumni were both founders and investors, we had a total of 279 entrepreneurs and 157 angel and venture investors represented. Of the alumni surveyed, 60 percent were members of either their local Chicago Booth or University of Chicago alumni club, and 16 percent said these were their most useful networking groups. While this survey does not represent a random sample of entrepreneurs, it is interesting to examine the findings. 

Online networking tools 

In our alumni community, the use of online tools is pervasive. Only 24 of our respondents, less than 1 percent, reported using no networking tools of any kind. LinkedIn, Facebook, and WhatsApp were the top three social networks for both the US-based and international alumni.

Fifteen of our alumni in Asia said they used WeChat, while Twitter was only mentioned by nine US-based respondents.

According to the entrepreneurs and investors in our survey, LinkedIn was by far the most important online networking tool they used, ranking No. 1 with 55 percent of the US-based respondents and 38 percent of the international alumni.

Startup players’ top networking tools

Share of entrepreneurs, angel investors, and venture capitalists who use each

Deutsch, 2020

Does professional networking deliver?

The survey asked respondents about 12 ways to use a professional network. Our alumni entrepreneurs and investors found their professional networks to be most effective in helping them do due diligence on a market or opportunity (42 percent of respondents said this was the case), get management advice (41 percent), learn about a new industry (38 percent), find professional service providers (37 percent), and identify best practices (37 percent). On the other hand, more than 20 percent of respondents found their networks to be less than helpful in getting customer introductions, raising capital, or sourcing talent to hire. More than 30 percent of respondents reported that they did not need their networks to help them find a job or obtain introductions to suppliers or software recommendations, or for emotional support.

Networking activity varied a lot among the respondents. While 31 percent of the respondents reported that using their networks produced mixed results, an equal number could be considered very successful networkers, whose networks were effective in delivering everything they asked of them. There were also 61 disappointed networkers (17 percent of respondents) who had found little to no success when they reached out to the network for help. Surprisingly, 35 percent of our respondents used their networks for two or fewer professional activities, with 12 percent who hadn’t used their network for any of the 12 methods we had listed. Several respondents suggested other things that they use their networks for, the primary one being identifying opportunities and sourcing deals (28 mentions), followed by getting mentoring and socializing, each of which had less than 10 mentions. Eleven percent of the respondents stressed in comment fields that the most effective networking they did was in person, not online.

If we look at how founders compared with angel and VC investors, the entrepreneurs were less likely to effectively raise money and find talent using their networks and were more likely to ask for emotional support. 

There were also some differences in the way that US-based founders and investors, compared with their international counterparts, used their networks. US-based respondents were more likely to have effectively used their networks to source talent and conduct due diligence, and the US-based investors were more likely to use the network to learn about a new industry.

Founders’ and investors’ use of their networks

Share of survey respondents reporting to what extent they had tapped their professional networks for business help

 

FOR FUNDRAISING

Founders

Investors

Found help

effectively

29%

41%

Tried unsuc-

cessfully

25%

20%

Had not

yet tried

35%

27%

Had

no need

13%

11%

FOR TALENT SOURCING

Found help

effectively

32%

43%

Tried unsuc-

cessfully

30%

22%

Had not

yet tried

30%

31%

Had

no need

8%

5%

FOR EMOTIONAL SUPPORT

Found help

effectively

34%

27%

Tried unsuc-

cessfully

11%

9%

Had not

yet tried

26%

30%

Had

no need

25%

38%

Numbers don’t add up to 100 percent due to rounding.

Deutsch, 2020

Information is the currency of online networking

Leveraging the network specifically for learning about an industry and conducting due diligence may provide an advantage for US-based founders and entrepreneurs. As the noted physicist and creator of the atom bomb, J. Robert Oppenheimer, said, “The best way to send information is to wrap it up in a person.” This is especially true for entrepreneurs. Much of the information they need isn’t published in a book or sitting on a website; it is in the head of someone who has expertise or experience. Data analyzed by the authors of the earlier-mentioned MIT research paper suggest that information exchange is the biggest benefit of online networking, and it’s important for entrepreneurs to actively build their networks to add and leverage information experts. The researchers find that having connections with information brokers such as lawyers correlated with future entrepreneurial success, whereas connections with resource providers such as venture capitalists, for example, did not. Another key value proposition of the alumni network identified by the researchers was an entrepreneur’s ability to connect with alumni who had reached senior levels of management in established companies, or who had had entrepreneurial success themselves and therefore had achieved a level of expertise.

The net result of all this analysis? The project I was given and which we have now named the UChicago Global Entrepreneurs Network should, in fact, help advance our alumni’s startup success. As the authors of the MIT paper put it, “For a university this means that it should foster and encourage students to build up more and closer connections with alumni.”

Approaches in the US versus internationally

Share of survey respondents reporting to what extent they had tapped their networks

 

FOR TALENT SOURCING

US
founders

International
founders

US
investors

International
investors

Found help
effectively

Found help
effectively

36%

25%

49%

31%

Tried unsuc-
cessfully

Tried unsuc-
cessfully

22%

42%

22%

22%

Had not
yet tried

Had not
yet tried

36%

23%

27%

37%

Had
no need

Had
no need

7%

9%

2%

10%

FOR CONDUCTING DUE DILIGENCE

Found help
effectively

Found help
effectively

47%

29%

59%

47%

Tried unsuc-
cessfully

Tried unsuc-
cessfully

11%

13%

14%

13%

Had not
yet tried

Had not
yet tried

32%

50%

26%

36%

Had
no need

Had
no need

10%

9%

1%

4%

FOR LEARNING ABOUT A NEW INDUSTRY

Found help
effectively

Found help
effectively

38%

36%

49%

33%

Tried unsuc-
cessfully

Tried unsuc-
cessfully

8%

7%

8%

6%

Had not
yet tried

Had not
yet tried

33%

44%

30%

53%

Had
no need

Had
no need

22%

13%

13%

8%

Numbers don’t add up to 100 percent due to rounding.

Deutsch, 2020

Advice to entrepreneurs

Using the network means reaching out and asking people you don’t know well or have only a weak online link with to help you. Asking for help is one of the most valuable skills an entrepreneur can cultivate. There are plenty of blogs out there that will give you advice on getting the most out of your networking, but here are a few data-driven best practices to improve the chances that your network will come through with valuable information and resources for your company:

Leverage LinkedIn. Venture capitalists, customers, and potential employees will use LinkedIn to check you out, and you should use it to do due diligence and for meeting preparation, as well. Make sure you keep your profile and company profiles up to date. This is a simple fix. According to LinkedIn’s data, profiles with professional headshots tend to get 14 times the number of views as those without. As the business-focused social network, LinkedIn generates 80 percent of B2B leads, so having endorsements from investors, advisors, and especially customers can help build credibility for your startup. Use LinkedIn to tell the story of your company. Highlight your milestones and learnings. The investors in our survey were very interested in being able to use their networks for sourcing great companies to fund.

Activate your technologists’ alumni networks. Some 30 percent of our alumni founders were unsuccessful in tapping their networks as a source of talent. But research from Rowan University’s Lee Zane and Drexel University’s Donna De Carolis looked specifically at people who launched technology companies and finds that, for these founders, having a large alumni network correlated with an ability to recruit and hire technical talent. Make sure your top technology employees invest in building out and using their university and college networks.

Adopt double opt-in procedures for making and asking for introductions. Having contacts online is useless unless you connect with people. Asking for introductions to investors, potential customers, or experts is not impolite or invasive if you do it well. Put together a brief paragraph explaining why you want the introduction and how the other party will benefit from knowing you. Then ask your contact to check with the person to ensure she is open to the connection. That way, if the introduction is made, you know she is willing to talk to you. Do the same for the people in your network. Don’t surprise them with an introduction, tell them about the person you want to introduce and ask if you can make the connection.

Diversify your network. Research by Arizona State University’s Christopher S. Hayter highlights the way in which tight academic networks are important for spurring and supporting startups but can constrain their growth if entrepreneurs don’t expand and evolve their professional networks as they scale their companies. Diversity provides advantages in the early stages of company creation, increasing the likelihood of finding the right information, resources, and skills needed; and it becomes more essential as the company grows. In the MIT study, the most successful entrepreneurs, those who had created large companies and received the most outside funding, had more links beyond the alumni network compared with founders of slightly less successful ventures.

Waverly Deutsch is clinical professor at Chicago Booth and the Polsky Director of the UChicago Global Entrepreneurs Network.