Hardware Business Models
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Your Extended Team
Urban Us Investment Memos
– Bowery Farming
– One Wheel (Future Motion)
Trust is critical to fundraising. Investors may ask questions such as: What school did you go to? What companies have you worked for? Who are your customers? What are you customers saying about you? Are your customers happy? Who have you persuaded to join your team? Who else is investing? All of these questions reveal things about who already trusts you and whether new investors can trust you to deliver on your promises.
Trust also fuels growth. Founders rely on introductions to prospective customers, employees, investors, lawyers, press, etc. Introductions require people to use trusted relationships to transfer some trust to the founders. Some of these new relationships will deliver immediate results, but most will still require that trust be built.
Mark Suster of Upfront Ventures explained how he invests in “lines, not dots.” While he talks about progress, we think he’s also talking about building trust. Each dot represents an interaction, which might be a meeting or an update or an experience with a product or service. Not all of these interactions will be great, but the important thing is that through multiple interactions, a trend of (mostly) unbroken promises begins to develop.
Traction is a good proxy for trust. Creating great products and services remains one of the best ways to build trust. There is nothing for the team to do or say; the experiences speak for themselves. At the same time, it’s easy to forget that successful experiences aren’t just about the product — they often benefit from great customer support that ensures that customers get the most from the products. Sometimes product issues are an ideal opportunity to let people interact with the team, and these interactions can be just the thing to build trust.
Even so, traction alone isn’t a true indicator of trust. If older customers begin to leave even as new customers join, that may mean promises aren’t being kept. Maybe too much is being promised. Perhaps the product isn’t delivering. Maybe customers aren’t getting the handholding they need to succeed. Churn is one of the most underrated metrics, since it’s often an indicator of loss of trust.
Startups need to understand how to build trust, but they also need to understand how trust impacts the organizations they depend on, such as venture funds, corporations, regulators, and the media. Trust in traditional media and social media is declining, even as trust in search engines (algorithms) and online-only news outlets is increasing. Interestingly, trust in owned media (content produced by startups instead of media outlets) has also increased.
Perhaps the most notable data is that peers are now as trusted as academic and technical experts. Peers are twice as trusted as CEOs and significantly more trusted than employees. It’s not clear where VCs might sit, but the very best ones are likely still some of the most trusted referrals. However, introductions and referrals from happy customers have never been more valuable.