Johnson said, “We show up with this new Nike, and it’s totally untested, and frankly it’s not even all that good — and you guys are buying it. What gives?”
The man laughed. “We’ve been doing business with you Blue Ribbon guys for years,” he said, “and we know that you guys tell the truth. Everyone else bullshits you guys always shoot straight. So if you say this new shoe, this Nike, is worth a shot, we believe.”
- Shoe Dog: A Memoir By The Creator of Nike
Investors need to trust start-ups, so they ask questions like: 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 the team. Trust is core to fund-raising.
Trust also fuels growth. Founders rely on introductions to prospective customers, employees, investors, lawyers, ad agencies, 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.
In 2010, Mark Suster explained how he invests in “lines, not dots.” While Mark 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 with the product or service speaks 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 between people can be just the thing to build trust.
Traction doesn’t reveal trust. Even as new customers join, if older customers begin to leave, that may be because 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.
Start-ups need to understand how to build trust. But they also need to understand how trust impacts the organizations they depend on, like venture funds, corporations, regulators, and the media. The Edelman 2017 Trust Barometer describes how trust in all institutions around the world dropped in 2016. We’ve seen this reflected in the U.S. and U.K. elections and with the rise of populism around the globe. This has implications for start-ups too.
At the end of 2016, a few articles covered the lawsuits relating to once high-flying start-ups like Theranos, Zenefits, Hyperloop One, and Hampton Creek. Lawsuits mean that the trust is gone. So what does this do to the trust in the people and organizations associated with these start-ups? Perhaps it’s not a surprise that Edelman’s data shows board and CEO trust near 30% alongside government officials, who are frequently the reference for distrust.
At the same time, the trust in media and social media is declining, even as the trust in search engines (algorithms) and online only media is increasing. Interestingly, trust in owned media (content produced directly by organizations versus media organizations) 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 — 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.