Almost a year into my digital health startup in Silicon Valley, I had a striking conversation at our first conference. A hospital software veteran told me, "You're part of the third generation of startups with the same business model, and they all failed." The poor prognosis of our model was somehow "known," but we didn't know because we had neglected to network with peers in our space. My startup ran out of money and shut down a few months later.

For startup founders, there's never enough time to do everything that needs to be done. It can feel unfocused to spend your valuable time networking with other founders who can't directly help your company. Is it worth it to attend this meetup or that early-morning coffee, even though it will take time away from creating product, marketing, and fundraising?

At Startup Genome, we've surveyed thousands of companies across the globe, and the answer is a universal yes. Harvard professor Michael Porter has written that both informal and formal relationships create the glue that increases the performance of a business cluster--this is completely consistent with our findings. The more connected a founder is with other local founders, experts, and investors, the faster his or her company grows. Likewise, the more connected members of a startup community are to one another, the more likely the whole ecosystem is to thrive.

At Startup Genome, this is called Local Connectedness, or LC. Entrepreneurs who get out and connect--that is, entrepreneurs with higher LC--have more access to valuable knowledge, including insights about market needs, new business models, potential employees, customers, and investors. LC is defined by three factors: the number and quality of the relationships that founders have with other founders, investors, and experts in their area; the frequency with which these people interact with one another; and "Sense of Community," or the willingness companies and experts exhibit to help each other. When other founders, investors, and experts help you without formal compensation--and you help others--the entire community's performance increases.  

Our analysis separated the performance of several thousand startups across the globe for three months and grouped all of them into high, middle, and low levels of connectedness. Companies with high LC outperformed their less connected peers in customer and employee growth, and their revenues grow more than twice as fast. In fact, more connected startups are much more successful than less connected ones, and that is across all performance measures. (Out of 45 international cities, Silicon Valley has the second highest LC index after Helsinki.)

If I had invested in connecting with my community during the launch of my digital health startup, I might have pivoted and succeeded. Of the five businesses I've started, it's the only "total" failure, and I specifically attribute that to low LC.

Here are three ways to build your own community connections:

1. Create "collisions," don't wait for them

Just because you work near other startups in a bustling co-working space or tech-laden city, it doesn't automatically mean your company has high LC. While community size and physical proximity do help, they are far from enough. Our data shows that several large ecosystems counting thousands of startups underperform when it comes to LC.

I recently worked in one of the largest co-working spaces in the Bay Area. After eight months, I only met a few of the founders working around me. No one came to introduce themselves, so I made the effort.

Spending time at short coffee meetings with other founders, visiting incubators and accelerators, and attending other local networking events are all ways you can improve LC in your community.

2. Cultivate quality local relationships

Startup Genome defines a quality relationship as a relationship with someone you've met or collaborated with who would accept a call or meeting with you this week if you asked. In our research, founders in the top tier of LC had quality relationships with more than 25 founders, eight investors, and 10 experts.

Consider the example of Albuquerque. A supportive city government has invested in its entrepreneurial ecosystem with the launch of several programs, such as granting money to organizations that assist startups. Today, Albuquerque enjoys a highly-connected community. Despite its relatively small size, founders count an average 23 quality relationships as compared to the global average of 20. 

3. Activate those connections

In startup circles, one critical piece of advice to follow is "Give before you get." Well-respected venture capitalist and entrepreneur Brad Feld says this often to his audiences. In Helsinki, founders help each other more than two hours a week on average. This helps explain why Helsinki--a relatively small ecosystem on the northern fringe of Europe--outperforms larger places in terms of exits and overall ecosystem value.   

In the Surge Cities package Startup Genome compiled with Inc. for the Winter 2018-2019 issue, Austin had a strong showing. As Mayor Steve Adler notes, founders who relocate to Austin are consistently surprised by the assistance and goodwill they receive from their peers. Those who have been there a while credit this esprit de corps for part of their success and for the thriving growth of the city's private sector. This is an example of LC.

In short, take time every week to help each other. As a fellow founder, this means offering to listen to another founder's pitch and also pitching to them. It means sharing marketing tricks, and more. As an investor, if you decide not to invest, help the entrepreneur anyway. The same goes for experts--help founders informally even if you don't have stock in their company.

Building relationships can take valuable time away from working on your startup, but the time you spend networking will pay off. And frankly, the cost of not doing it is higher.

Published on: Dec 14, 2018