Good entrepreneurs are masters in the trade of trying. They see what everyone else overlooks, and attempt what has never been done before. With a team of just a few people – and often without footing in their industry – they outpace larger, well-resourced and well-staffed organisations. They discover and seize opportunities at every turn, without losing focus. How do they do it? How do resource-constrained startups successfully enter an established market and reinvent it from the ground up?
The answer is, they excel at building trust. In order to innovate, you need users and investors to trust in the utility of something entirely new. I define trust as the value we place on our relationship with a person or entity. Graduates from elite universities receive better opportunities because companies trust in the quality of their education. Branded home appliances sell at a premium because people trust in their performance. Jobs requiring high levels of interpersonal trust – doctors, lawyers, consultants – rank among the highest-paying professions.
This principle holds for trends (we pay much more for cold-pressed juice because we trust in its health value), recent events (the Volkswagen emissions scandal, a classic trust breach, literally made us value the company less hence the major drop in stock price) and interpersonal communication (your loved ones are people you trust unconditionally).
Put simply, we value people and companies as well as products and services by the trust they manage to build with us. Your commercial self interest makes you pay for things that you trust will have value to you. It is a basic principle in economics that in order for a trade to happen, the involved parties need to trust in their mutual gain from it. Trust enables value creation, and this makes it everyone’s most valuable asset.
Build trust, capture value
Businesses that build trust well capture exponentially more value than industry peers. The stock market valuation of companies like Tesla and Alibaba are perfect examples for this. We buy a stock because we trust the company will use its assets – such as employees, technology, customer relationships, and so forth – to harvest profit and appreciate in value in the future. Balance sheet, brand and reputation are all just proof points for its value creating (i.e. trust building) potential. A company’s valuation is determined by how much trust it builds with people, and this trust becomes a quantifiable financial reality on the stock markets.
The same logic applies to startup funding. Investors will entrust entrepreneurs if they are hoping for them to succeed – the more trust they build, the more investment they are likely to receive.
In a similar vein, startups that successfully enter and transform an industry manage to quickly surpass the trust incumbents have earned with users and stakeholders over years. Many tech companies today do this without ever owning much of the assets that make up their business.
Instead, they create trusted intermediaries such as Silicon Valley unicorns like Airbnb, Uber or Stripe. This genius feat allows them to capture value without owning the property, vehicles, payment terminals, etc. involved in their services.
Therein lies the power of platforms that establish trust among strangers, so that these can safely share their (underutilised) resources with the world. Perhaps this explains why the fintech startup space is so hot at the moment – its main proposition is to create trusted intermediaries for the transfer of value that are much better than what exists today.
The magic of working consistently in order to be trusted
Let’s take a look at the broad picture – trust is more than a value maximisation strategy; it exemplifies the core spirit of entrepreneurship. Good entrepreneurs trust in what they are doing. They have only themselves and their team to rely on, and the rest of the world to convince.
They trust in the need they are addressing with their business, and in the voice of the market to help them discover sources of value. Every day, they make countless decisions based on trust in the direction they are taking. This culture of working remarkably and consistently drives innovation.
Indeed one remarkable trait of Silicon Valley is its engrained culture of mutual trust. As INC writes: “This fusion of innovation, culture, and customer-focused productivity – combined with transparency and trust – that creates the secret sauce with which Silicon Valley brews its special mix of magic.”
In my upcoming book, Fair Advantage – how to quickly build the hard earned trust that makes innovation easy, I distill my research on trust into the world’s first systematic trust-building methodology. Drawing on personal experience of building a prominent startup community in Singapore and my work in the startup scene and contributions to the innovation domain, I present a simple six-stage model for entrepreneurs and intrapreneurs to swiftly build the essential trust of users, investors and key decision makers.
I hope it will be of use to everyone who wants to start up.
The views expressed here are of the author’s, and e27 may not necessarily subscribe to them. e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested in sharing your point of view, please send us an email at elaine[at]e27[dot]co
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