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Ideas are the Only Currency in the New Economy

Social Capital is More Valuable than Money

May 3rd, 2011 · No Comments · Ideas

Big Ideas:

  • Social capital is the most valuable asset.
  • Startup incubators prove that very little money is needed to build hugely valuable companies.
  • 8 effective ways to build social capital.

Social Capital Cartoon

What is Social Capital?

Social capital is the idea that our networks and connections have value. We understand this idea in expressions like “It’s not what you know, it’s who you know.” However, it has only been in recent years that people are are really starting to understand and exploit their own social capital.

Let’s start off with a few questions. (I would love to see your answers in the comments.)

As an entrepreneur, what would you rather have; $100,000 in cash or strong connections with potential customers interested in buying your services? It would be pretty easy to burn through that much money without cost-effective ways of generating leads and an efficient conversion process.

Taking that first question further, would your rather have $100,000 now or solid introductions to venture capitalists and angel investors that could potentially provide millions of dollars in financing and provide the expertise to skyrocket your business?

How much money is a successful social media network of thousands of friends, followers and blog readers worth? Imagine if you had to use traditional advertising to convince that market to trust you.

With low start up costs for most technology or service businesses, access to money is nice but certainly not a barrier to success (I have a related post on this called, Is Venture Capital Dead?. Our social networks, however are invaluable in gaining valuable attention in a world awash in information.

Startup Incubators

I often point to the amazing success of start up incubators like Ycombinator and Techstars to demonstrate the power of social capital. With just $20,000 to $30,000 of investment and a few months in the programs, businesses with million dollar valuations have been repeatedly created. Two popular successes have been AirBnB and Dropbox.

Access to mentors, investor networks and just the camaraderie and support of fellow entrepreneurs is a major accelerator to business success.  A good idea and motivated team, supported with the social capital of the incubator are all that is needed.

Economics of Abundance

Unlike financial, resource or physical capital, social capital is not a scarce resource. This is a big idea. The way to get more social capital is through generosity. The more value you create for others, the more social capital, you create for yourself. You don’t need money, education or family connections to accumulate social capital, all that is needed is time and kindness.

How you build Social Capital

  • Create insanely great content and give it away for free.
  • Get involved in meetups and real world events.
  • Be a connector and introduce people who need to meet.
  • Share the valuable content of others with your network.
  • Be there for your peers with an ear or a helping hand.
  • Celebrate your supporters and fans with recognition and genuine appreciation.
  • Connect with others without asking for anything.
  • In summary: give, share, help, connect.

More Resources
Social Capital on Wikipedia
Academic Definitions of Social Capital from a variety of researchers.

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