Does Your Balance Sheet Have An Asset Called Social Capital?

Time and time again, we read about a new spectacular company that, just a few short years ago, was started in someone’s garage, financed with a meager $700 from personal savings or a gift from a friend or relative, that quickly skyrocketed into a huge, successful company worth millions of dollars.

How did they do that? What makes them so very different from the millions of companies that start up every year that either fails or flounders for a period of time, until the owner decides to do something else?

Were Bill Gates and Mark Zuckerberg just lucky, or were they smarter than the rest of us?  Was there something else that significantly contributed to their enormous success? And what about Steve Jobs and the tandem electrical engineers, William Hewlett and David Packard? They all had co-founders, as did Google and many others of America’s top companies, and all saw huge markets for their ideas.

Each year thousands of new businesses are conceived with very high hopes and dreams of success, which in fact do become very successful and profitable contributors to communities across the country. Success is not limited to the Fortune 500.

What made these successes possible? For sure, they all incorporated excellent systems, procedures and controls early in their inception. They could be used as textbook cases for how to implement and use classic management tools. All of them possess bright minds and enormous talents.

But they also shared something far more significant. They had social capital: the trust, knowledge, reciprocity and shared norms that create quality of life and help make a group resilient. In any company, you can have brilliant individuals—but what prompts them to share ideas and concerns, contribute to one another’s thinking, and warn the group early about potential risks is their connection to one another.

None of them reached success alone. A team of MIT researchers analyzed groups that proved exceptionally effective at creative problem solving. Their goal was to identify the salient features that made some teams much better than others. What they found was that individual intelligence (as measured by IQ) didn’t make the big difference. Having a high aggregate intelligence or just one or two superstars wasn’t critical. The groups that surfaced more and better solutions shared three key qualities. First, they gave one another roughly equal time to talk. This wasn’t monitored or regulated, but no one in these high-achieving groups dominated or was a passenger. Everyone contributed and nothing any one person said was wasted.

The central premise of social capital is that social networks have value. Social capital refers to the collective value of all “social networks” [who people know] and the inclinations that arise from these networks to do things for each other.

The term social capital emphasizes not just warm and cuddly feelings, but a wide variety of quite specific benefits that flow from the trust, reciprocity, information, and cooperation associated with social networks. Social capital creates value for the people who are connected and, at least sometimes, for bystanders as well.

Social capital refers to the many resources available to us through our personal and business networks. These resources include information, ideas, leads, business opportunities, financial capital, power, emotional support, goodwill, trust and cooperation. Without well-built and closely managed networks, however, these resources remain hidden. They also remain hidden if we take refuge in the myth of individualism, pretending that we are masters of our own fates, or thinking that relationships really don’t matter. Even natural talent, intelligence, education, effort, and luck are not individual attributes at all; they are developed, shaped, and expressed by and through relationships with others.

There is also a business case for social capital—hard evidence that social capital boosts business performance. Individuals who build and use social capital get better jobs, better pay, faster promotions, and are more influential and effective, compared to their peers who are unable or unwilling to tap the power of social capital. Organizations with rich social capital enjoy access to venture capital and financing, improved organizational learning, the power of word-of-mouth marketing, the ability to create strategic alliances, and the resources to defend against hostile takeovers. And social capital is a bulwark of democracy.

Extending social capital beyond the business case, links networks with the quality of life. A network of good relationships leads to happiness, satisfaction, and a meaningful life. A strong network also improves health and lengthens life. But it’s more than that. Building networks is a major mode of participation and involvement in the world. Networking enables each of us to contribute to others. Accordingly, there is a moral duty to consciously manage relationships in ways that serve others. By doing so, we not only reap the personal benefits from networking, we make the world a better place by creating a more connected society.

Great companies have farsighted and grand visions from their inception. They also learn to use all of the tools and resources they can find in order to develop a very precious asset, social capital.