Venture capital is often referred to as an apprenticeship business because so much important learning comes from day-to-day experiences. Yet, as an article published by the Business Development Bank of Canada (BDC) explains, you can shortcut the learning process by learning from experts: “Your learning curve can be shorter—and your results better—if you learn from pros who’ve already mastered key … ... read more
The Psychology Behind Why Introductions are Invaluable to Startups
Not all too long ago Facebook was but a fledgling idea confined to the walls of a Harvard dorm room. While investors are all too eager to invest in the social media juggernaut today, they weren’t always clamoring for a piece of the action.
In 2004 (when the company was still known as “The Facebook”), Peter Thiel took a leap of fate by investing in it a critical $500K. What prompted Thiel to take the plunge and invest in Facebook? It was a warm introduction to Zuckerberg, facilitated via Sean Parker, a mutual friend.
References and warm introductions are immensely powerful in B2B sales. According to LinkedIn, 84% of B2B decision makers begin the buying journey by way of a referral. Not surprisingly, the power of referrals and personal interactions is driven by human psychology. To understand what makes personal referrals and introductions so influential, it’s important to understand the psychological principles at play:
According to a Nielsen report, referrals are the most trustworthy form of advertising. 92% of people trust referrals from people they know. In today’s world where consumer trust in traditional advertising channels has markedly decreased, personal endorsements exude an odor of credibility.
When we engage in any decision (whether to accept funding, make a purchase, develop a partnership, etc.), our brain immediately weighs the pros and cons. We expend a lot of brainpower. Researchers at the University of Minnesota have found that the mere act of making a decision depletes our cognitive resources.
The more difficult the decision, the more depletion. To reduce complexity, we try to seek reassurance from reliable sources to confirm or discredit our beliefs. When a valued friend or peer expresses his/her content with a particular individual, product, service, we are better able to mentally conceptualize ourselves reaping the benefit.
Birds of a feather flock together, so the adage goes. Research has shown that individuals prefer associating with those who share similar attitudes, attributes, and personalities (the “self-similarity principle”). When introductions and referrals originate through peers and close connections, there’s an implied similarity that speaks to reliability.
Since we prefer people who are similar to us, current customers are more likely to identify customers that will share their satisfaction with a product or service. This explains why the lifetime value of a referred customer is 16% higher than a customer surfaced via other channels.
There are powerful elements of human psychology at play in the context of referrals and introductions. Affinity helps you effectively leverage your network and identify the people who are best positioned to make critical personal introductions.