Rand Fishkin on Network Effects for raising capital

At the 9Mile Labs Milestone 9 event, Rand Fishkin of Moz was given the Entrepreneurial Einstein award voted on by the nine accelerator companies for his talk on “12 Lessons Learned Building Moz.”

Throughout the talk Rand constantly referenced the TAGFEE values and tenets of Moz. The TAGFEE Values are:

  • Transparent and Authentic
  • Generous
  • Fun
  • Empathetic
  • Exceptional

It is hard to argue with these values and having heard several CEOs pay lip service to values over the last forty years, I stopped paying attention and checked my email. Then, Rand stopped me cold when he shared that while it is good to document and live your values, if they are really good values they will ALWAYS BE IN CONFLICT WITH EACH OTHER. “It is what you do when your espoused values collide, that illustrates to your stakeholders how serious you are about your values.”

He definitely had my attention now and I quickly put my iPhone away.

I really liked his example that came with a common bit of wisdom “The Price of Success is Failure after Failure after Failure.” When I teach, I use the term “failing forward.” The Geraldine he references is his wife.

Failing Forward

Failing Forward

Failing Forward

With this lesson as background, Rand moved to a discussion of his latest round of fund raising for Moz where he acquired $18M, with $15M from Brad Feld and the Foundry Group. He shared this process in an insightful blog post:

“Nearly every entrepreneur and person connected to the startup field knows of Brad Feld and Foundry Group through the exceptional reputation they’ve built. Brad’s been named the most respected VC in the business, makes hilarious music parody videos, funds dozens of successful companies, co-founded Techstars, is a two-time entrepreneur himself, runs inhumanly long distances and sponsors lots of public bathrooms. He’s a very awesome, very weird and very Mozzy guy.”

“How do I know Brad? Through three of the more unlikely sources imaginable: first, Brad + Seth had looked at SEOmoz briefly in our 2009 raise attempt, but, like a lot of others, passed at the time; second, through my blog poston failing to raise money (which Brad read and wrote about); and last, through my wife Geraldine, whose blog and tweets are apparently a topic of enjoyment between Brad and his wife Amy. Side note: Next time someone asks what Geraldine’s blog monetization strategy is, I’m replying with “it already made $18mm, what more do you want?!” 🙂

I’d like to repeat his side note: Next time someone asks what Geraldine’s blog monetization strategy is, I’m replying with “it already made $18mm, what more do you want?!” 🙂

Buried in this example is one of the hardest lessons to get across to entrepreneurs as they embark on the funding trail – raising investment money is full of mostly unseen network effects. Entrepreneurs have very little idea who is influencing either positively or negatively their reputation and credibility. Most blindly think that when they are successful that it was all about them, not about the behind the scenes support.

One of the most neglected part of the entrepreneur toolkit is strategic networking and investing in the network long before you need it. Harvard Business Review provided an excellent academic article on strategic networking “How Leaders Create and Use Networks.” Jeffrey Gitomer in Little Black Book of Connections: 6.5 Assets for Networking Your Way to Rich Relationships provides lots of practical advice on how to network. Both resources share the same principle – you have to invest in your strategic network long before you try to get something out of it. Or as my colleague David Robinson would say “you have to flip your perspective and think in terms of what you can BRING to a relationship, not what you can get out of it.”

Gitomer really hits home with the message that it is not “who you know,” rather it is all about “who knows you.”

“Who knows you?”

“This is the most powerful part of making a connection. And also the hardest.

“If you have put yourself out in the marketplace as a person of value, others will want to connect with you. Not all of them will be good. Not all of them will be valuable. Most of them will not lead you to the Promised Land. But some will.

“Your job is to expose yourself to the marketplace in a valuable way so that you create some law of attraction, and some method by which others can connect with you, so that this ‘most powerful element of connecting’ can occur.”

I’m not sure that I really believed this “who knows you” advice until I experienced the strategic network effect at a LegalTech conference several years ago. The manager for the eDiscovery organization (who I’d never met) at one of the “too big to fail” investment banks came up to me and said “You’re Skip Walter, right? You’re the guy that does those Riedel glass tastings at your house? When I’m in Seattle can I come visit you for a glass tasting? I don’t want to talk about eDiscovery, but I am very interested in your thoughts about fine wines.” I laughed to myself and thought about Gitomer – it’s not who you know; it’s who knows you. And I knew we’d talk a lot about eDiscovery and our Attenex Patterns product.

David Robinson in his blog post “Take One More Step” writes about being persistent and investing in your strategic network one day at a time.

Fl!p and the gang get right to the heart of how most entrepreneurs experience network effects:

preemptive rejection

For a humorous look at the wonderful world of innovation and new ventures, checkout Fl!p and the gang at Fl!p Comics.

This entry was posted in Entrepreneuring, Relationship Capital, Teaching, Value Capture, Values, Working in teams. Bookmark the permalink.

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