How many times have we used the axiom “It ain’t what you know, it’s who you know” as an explanation for the way that things work in the world? On one hand, this expression can be used to underscore the critical and powerful benefits that come from being connected to other people, and being able to draw upon those relationships to accomplish our aims: this is the positive and upbeat interpretation. And on the other hand, the same saying implies the dark side of being unconnected: doors are closed, opportunities are never discovered, while those with larger rolodexes are being invited in.

As the world of technology has brought us into an age characterized by connections, increasingly supported by Internet technologies, the value of being connected is becoming even more obvious. Rob Cross and Andrew Parker, in The Hidden Power of Social Networks, researched the factors that contribute to the effectiveness of the most successful executives, and discovered a consistent trait: successful executives not only had very large networks, which we might have supposed was a given, but more importantly, those networks were extremely diverse, involving people in many disciplines. And just as important, those executives worked actively to keep their relationships strong, through active involvement and frequent contact.

The complexities and costs involved in managing relationships are a challenge, at the individual and enterprise level. Getting at the hidden value in social networks that Cross and Parker describe may involve the use of new software technologies, tools that can search for underutilized relationships between the individuals within an enterprise and potential customers, partners, or suppliers in other enterprises, for example. These social networking technologies can be used to tap the relationships lying dormant in our social networks: in sum, to help manage relationships more effectively.

One of the most well-known and well-connected executives of our day, Ray Lane, the managing director of Kleiner Perkins and former COO of Oracle, supports the findings of Cross and Parker based on his personal experience and success. I was able to chat with him recently regarding the central importance of relationships in business and the rationale for managing relationships as a critical asset in business, as well as his thoughts on the future of relationship management technologies.

Interview

Lane

I can remember growing up in middle class America: my family wasn’t poor, my father worked for a living as an engineer, we were very middle class. But my mother, every time something happened to her that was adverse in some way, she’d say in a very negative way, “Son, it’s not what you know, it’s who you know.”

That’s stuck with me. I don’t think I ever, I don’t know if it ever influenced me, you know, in my life, it’s hard to tell whether what you heard as a kid you really used and it really stuck with you, but I do remember her saying that. Just, I wouldn’t even repeat it unless we were talking about this subject.

But it’s so true. And certainly, my career and success or lack of success in my career has always been related to relationships and how well – I mean even today I’d say I live off of relationships more than anything else. It is my greatest asset.

At 57 years of age and basically at the beginning of another career, I decided I like this venture business, I want to help younger people, younger entrepreneurs build great companies, and if I can make some money off of it too that’s great.

But basically my asset coming into that is my rolodex, my relationships, my reputation. That’s the asset I bring. That’s my stock and trade. Sure I know a lot about technology but I’m not sure I know much more than the next guy or even the younger guy half my age.

But one thing I have that is maybe not unique but more special than most anybody than maybe 25 to 50 people in my industry are the relationships. So I see that as a huge asset. So the first thing I’d say is the who you know is the long belief, this is not new, this is old. The whole idea of who you know in business is a more important concept or as important concept as what you know. Okay.

So even though I heard it from my mother -- who knows nothing about running a business -- I think it is true. And she would always again use it in a negative way. I think it should’ve been used in a positive way.

Boyd

She was implying some kind of exclusion that was going on. The door was closed. And you’re underscoring the opposite: when you have relationships, they exist to help you open doors.

Lane

Exactly. The door was closed to her. Because she didn’t know the right people. And that goes back to the ‘50s. And my grandmother probably said the same thing in the ‘20s. And we can learn a lesson from this bubble in the ‘90s where everybody thought there was magic going on. That these technologies were going to change the world, produce a new economy. Even well-known economists bought into the idea that our productivity was actually on a new curve, a different productivity curve than the rest of the world, because of the rate at which we were adopting technology.
The thing they forgot was that the technology was simply a means to an end. That when Jeff Bezos started Amazon to sell books, he was in the book business. He was not in the technology business. He was in the book business.
 

Boyd And ultimately, he still had to ship books to people.
 

Lane

And ultimately had to ship books – exactly. To make money. And so most new technology is really to just do better what we’ve done in the past. And that’s what this really is too. I’ve always used my rolodex. I’ve always used my relationships, but I do it very inefficiently.

I am asked by our portfolio companies to make contacts for them. Well, that means I’ve got to pick up a telephone. I’ve got to send an email. It usually takes weeks to get the interaction going and doing that one at a time is really, really difficult. Because of new technologies like search and social networking that allow you to map these relationships and do it efficiently and fast, we now can take what we’ve always wanted to do and were unable to do.

Any sales person would love to meet the right influencer that could make something good happen for the company. Well he can’t do that today without doing it very inefficiently. We can broadcast email, asking if anybody knows this guy, or looking for an introduction to meet the contact.

And first of all he has to produce his credentials to meet the possible intermediaries. It just doesn’t scale, so what people want to do is just not feasible.

Boyd

And the cost of communication involved in firing off however many of those emails you’d have to, to the other 67 sales guys in your organization every month -- it’s impossible. The combinatorial explosion would just drag it all down to its knees, which is more or less where we are with email, today, anyway.

Lane

You got it. You know I had the pleasure of being involved in the expansion of another misunderstood technology, one that was invented through a white paper written by a guy named Codd, at IBM research, who wrote a white paper in the 70s about relational databases.

So here is a more efficient way to store corporate information and IBM wrote the white paper, and then never did anything about it. Oracle picked up that white paper – or Larry Ellison did. He read that white paper, and said “Oh my God. This is a huge idea.” And went out, implemented it, and built the first relational database.

And then, that relational database was actually useless without somebody writing an application. So what can we do with a relational database? Well, we could store financial information. We could do supply chain analysis. We could do marketing. And so people starting writing applications using relational data stores.

What is happening now with relationship management is no different. Instead of a relational database technology underpinning the idea, it is a search technology. So I think for the next ten years we’re going to see all sorts of new applications build on search the same way we did on relational data.

Boyd

And in this particular case you’re saying a search across social networks, specifically, with technologies like Visible Path. And that’s why Kleiner Perkins recently invested in the company.

Lane

Right. It’s not static data that I capture in a single database. It is network data that’s total dynamic. And that’s why I call it search.

Boyd

So you’re making some obvious analogies. On one hand you’re saying the thrust of a product like Visible Path’s is that it will automate something that you’re already doing in a manual, inefficient fashion, but it’s going to allow you to do it in a much automated way, and as a result decrease the costs drastically. Making it possible to communicate with those other 67 sales guys inside your sales organization about the most effective way to approach a sales lead, for example.

Lane

Right. Today doing it manually is either cost prohibitive or too painful or requires that combinatorial explosion of communication that you talked about.

Boyd

Exactly. It just becomes too time-consuming and too intrusive in people’s lives. If you require people to do the heavy lifting, it will just fail, because people won’t have time for it. And the second analogy you’re making is this is like other technologies that we’ve seen in the past – like relational databases – that have come along and caused people to rethink the way they’ve doing something, like financial accounting or whatever, and that they now can do it in a different, better, more effective way.

So, if you were to say to executives today, “There’s this thing called relationship capital, and you must agree that it’s not what you know, it’s also who you know.” And they’d agree they could do a better job than they are, and would certainly they’d like to do better. Your thought is they need to move beyond the manual approach that people are using today.

Lane

Right. It’s an underpinning technology. Remember when the PC was introduced to the market? People largely in corporations were asking “Why would we ever use these things. You know, they’re not business tools. They’re I guess something you’d buy and put in your kitchen to keep menus on.”

The PC industry I think struggled in the late 70s to really get going and VisiCalc was really the killer application. So the simple idea of a spreadsheet enabled all new sorts of capabilities for the PC. And the same thing happened with the relational database, enabled all sorts of new capabilities.

Well, search technology and social networking technology represent a similar advance, and it wouldn’t have been possible 20 years ago because not everybody had a PC connected to a broadband network. So this is possible through new technologies that have come along and then you add the specific social networking analytical capability that has been developed from the decades of science that have been developed in the field.

Boyd

One of the interesting things that have come out of this scientific side really do reflect on some of the comments you made at the very outset, about your own background. It turns out that an analysis of successful CEOs has shown that one of the characteristics of that group of people is they have very diverse as well as large networks. CEOs don’t only talk to investment bankers, they can also talk to extremely technical people. They have contacts who are journalists, they have relationships with people in many walks of life outside of their industry, and they use these diverse viewpoints at different times.

So while executives are acutely aware of those benefits, they are still likely to ask the question: “How do we measure relationship capital, and how can we track how effective we are at harnessing it?”

We certainly we don’t want to go back to the new economy vagueness. Certainly today people want some very strong correlation to these social networking investments and increased revenue, decreased costs, and other quantifiable metrics?

Lane

I agree. But I wouldn’t pin it totally on that. I think you have to avoid all of the negative capital generated through the Internet and all that. If you look at what’s happening today which we’ve always known, those of us in the field, you read the papers and you think we created magic then we were total fools, believed in the magic, now we got bubble 2.0 going on.

And we laugh. Those of us that understand just laugh and say this is all predictable because nothing has changed about the technology. The Internet, relational databases, Unix operating systems, you know, all the stuff has gotten incrementally better: chips are getting denser, the Internet is reaching more and more people, and its all continuing to grow exponentially. It just continues to march on. Meanwhile, all of the market observers -- investment bankers, venture capitalists, and media -- they basically describe what’s going on as a peak in a valley, a peak in a valley, a peak in a valley. But what’s really happened is that through the recession of the last three years Internet usage has gone up. If you look at Amazon and eBay today, and all of these dot com concepts that were born in the 90s, these are incredibly strong businesses that will threaten their archaic rivals.

Boyd

So we’re still on the same power curve, with the dot bomb fall out as a hiccup. We are seeing a higher and higher uptake of these technologies at the consumer level, for example.

Lane

So I think you need to have the quantitative justification for social networking. Why would I do it and does my business become better, either creating more revenue or reducing expenses? And so, for that, you have to look at the specific applications.

If Oracle goes out and sells relational databases, they have a hard time making a justification. I don’t know how you justify it if all you’re going to do is buy a relational database. With an application using a relational database, the justification goes along with that.

So I’m using this relational database, building an application to manage my customer information. Now I can put a justification – I can put a quantitative view on that. And so the justification for a social networking engine is to deliver that value to a specific function – for example, to a sales force.

Then I have to measure whether I increase my sales or I reduce the time in my sales cycle. So instead of taking six months to sell something I take four months to sell something, because I have better influence on the deal. Or measure the increase of average deal size. Whatever. Based on increasing the influence to make the deal go your way.

Boyd

Or shorten the time to determine that you’re not going to get the deal.

Lane

Right. Better qualification, exactly. I’d say the number one reason I was asked to do a “postmortem” on sales when I was at Oracle was that the sales people would keep me out of things because they were embarrassed. “Now we bring Ray in, you’re kind of in the middle of the sales cycle, we’re not gonna look good.” They wanted always to make it easy for me. They wanted me to come in and sprinkle a little holy water on the thing, and get the deal, and they look good because they’ve done such a great job. If I were to come in the middle -- where I can be most helpful -- when we’re still competing, then I can do some good.

Boyd

When there’re still some hurdles to get over.

Lane

Yeah. Hurdles, no, they want to bring me at the end and just kind of shake hands and take photos and things like that.

Boyd

Cut the red ribbon.

Lane

Yeah, and so when we lose at the end you get a surprise. It’s on the forecast and we lose. I even do that today with some of the small companies I’m on the board of. Find out we lose at the end.

I could tell you a story that happened to me 100 times. It the end of the quarter, And so I call the decision maker. I would say, “I understand the deal is all approved, been through legal contracts, and I understand there’s a couple more things you want to do to get some additional approvals outside the group, but I’m just wondering if you can see your way to maybe making this happen by March 31. It’s important to us.”And one hundred times, I have had the guy at the other end of the call explain that not only aren’t we going to get the deal in the quarter, we haven’t got the deal at all. And I was always amazed that sales could be so far off.

So, reducing the time to find out you’re out of the deal is important. Because if they can’t get access to the real decision maker and learn what’s going on in that real decision maker’s head they’d never know he was stuck with a budget problem and no deal was going to get made. Period.

That lack of visibility leads to other problems. In one case the CEO pre-announced that the company had missed its number. He was ready to go to the market and explain that the reason we lost our number is because a couple deals that didn’t close, but within the next couple of weeks, they’re likely to happen.

And I said, you know, I talked to the customer. This won’t happen in the next couple of months, you know. If the CEO had been able to take advantage of that working relationship, he might have known about the sales hiccup weeks early, and he might not have made the projection, wouldn’t have put it in a press release, wouldn’t have talked about it with his board.

oyd

Yeah, the CEO is the one without the black eye.

Lane

Yeah.

Boyd

Even if he has a black eye, you know, behind closed doors with the board, that’s better than what you’re talking about, where the whole financial community sees you with your pants down.

Lane

Right exactly. Now, okay, so I think the social networking applications fit the same way in marketing. Marketing’s job is to create leads, create new opportunities to sell stuff. That’s all marketing does. And so how could they make that happen more effectively by using relationship capital and how would you measure that? I’d measure it in more leads that turn into more sales cycles that turn into more deals.

Boyd

So ultimately the metrics for the value of these novel technologies are very conventional.

Lane

Very conventional.

Boyd

The measure of capital boils down to the same metrics that basically people have been using for CRM or sales force automation applications.

Lane

Yeah, absolutely. Now, I started off saying that’s one aspect of it, the quantitative aspect. I do believe there’s a qualitative aspect. And the qualitative aspect is: do you feel you can make better decisions? Do you feel that you are more knowledgeable? And when I say you I mean collective you, the management team of your company. Do you feel that you can reach out to develop perspective about anything you’re doing in the future. Better understanding.

Boyd

Certain that competent decisions are made.

Lane

Exactly. And it’s real hard to put your finger on or to quantify, but there is a value in growing your knowledge base. It is having confidence in the fact that you can reach out to your network of contacts and you can find out what others’ perspectives are on an issue confronting you.

There has been a lot written about the Kleiner Perkins keiretsu – our network. But what makes Kleiner Perkins the number one venture capital firm? It’s this thing called the keiretsu. We didn’t coin that term. We never did. But certainly it does represent the way we operate. So we basically, you know, never kind of throw somebody out of our circle.

An entrepreneur – we got a couple of companies that are led by four-time entrepreneurs. In other words, they’ve done four companies for us, four founded four companies and they’ll go on to a fifth. And they – they’re in this circle where people talk about – I’d like to become part of a Kleiner Perkins company, one they funded, because it’s not so much the company, but I get in the Kleiner Perkins circle.

And if I don’t like what’s happening in that company and what’s going on in my career in that company, I can stay in the circle. And so this circle of influence, this relationship, seeing how largely built from rolodexes by Brook Buyers and John Doerr and Denode Coleslaw and Will Hurst, you know, that have tremendous rolodexes and influence and then added to greatly by my rolodex.

A big part of what people like that have is that we can reach out and assemble set of perspectives on something -- no matter what it is -- and do that through relationships.

So a company’s CEO will will say does anybody know Gary Reiner at GE? I would like to sell to him. John Doerr and I can make two calls in to him. What we’re doing that manually and we could do it a lot better if it was automated.

Boyd

And of course, this is not only effective for the market leader. This is the sort of thing for any company in whatever industry. You certainly are better off to be able to marshal the best relationships you have, even if it’s not a direct line to the CEO.

Lane

In many cases and maybe in most cases it’s better not to be a direct line to the CEO. Often times, they don’t really want to influence decisions. They want their teams to give them the answer. So influencing the teams is even more important. And that’s where I fall down. I don’t have relationships in the teams. So I’m not very helpful if I want to get, you know, somebody that’s second level VP in an organization somewhere that’s influencing the decision. I can help by coming down from the top and so, yeah, that’s absolutely right. Absolutely right.

Boyd

Well I can see that, you know, obviously your background in all of those sorts of roles you filled in various organizations including now in your new life as a VC, you’ve given a lot of thought about how organizations need to, if you will, align themselves in order to effectively apply relationship capital. Do you think that there will be a qualitative shift in how companies are going to organize themselves in order to apply relationship capital or is it simply an evolutionary step?

Lane

That is a great question. And I believe it is the latter, but that’s not what it should be. I believe that companies have recognized the former, meaning that they will organize around this, that they will manage themselves differently because they can utilize the relationship capital and assets and once they understand it the power that it offers, they can organize around it and break down some of the silos that they operate in today.

They’ll be advantaged. I believe they will try to use this without doing that. They’ll try to use it as a technology, simply it speeding up what they’ve always done. And in fact, what they do is getting in the way of using this new asset. So they’ll fight it.

And this has always been true. This is not unique to social networking. Any technology that gives you a capability to manage your business differently, most businesses try to adapt that technology the way they’ve always done things. They regress.

I anticipate that same kind of resistance, here. I mean, we’ve seen it in all these different kinds of communication products, all these kinds of technologies that have been rolled out in the past couple of decades have had advocates on one side, and on the other side, the Luddites, actively resisting it.

Boyd

It’s almost funny to think back about the people who were arguing against corporate email and instant messaing. I mean, it seems silly but not too long ago, I unearthed unearthed documents from the 40s and 50s where companies were arguing that they shouldn’t put a telephone on every desk. Saying that employees would misuse the telephone to make personal phone calls and so on.

What about the future? I mean it’s interesting to talk about, you know, the near term. Companies can turn this corner and it’s going to provide an immediate increase over the next few quarters after you roll it out. But what about a few years hence when this has rolled out and people have in fact started to rethink how they organize and manage. Is it going to have a profound change in the long term?

Lane

I think it can. We’ll go through the early implementation issues, with users asking “Is it really doing what I expected it to do?”

We’ve looked at some of the early small companies that are using Visible Path, today. And usage starts high and then drops off. And it drops off because they’re too small to use it effectively. Their relationship base is not big enough for the sales teams that are trying to exploit it. And so you got all sorts of short-term implementation problems that could get in the way. My belief is that we will see a regular pattern: they will in general surmount those initial obstacles, and then roll out applications for marketing, HR, supply chain, supplier relationships – and I think they’ll find that over time that their behavior starts changing.

And basically I’ve always said, for technology to work very effectively, people have to die. People have to die.

Boyd

It’s a generational model.

Lane

It’s a generational thing.

My wife wouldn’t think about walking into a bookstore now. Amazon is at our door every single day. She’s an avid reader and she orders, you know, a book a day from Amazon. She’ll go on the Internet, she’ll go on eBay. I’ve got Great Giant tickets because we’ve continued to upgrade our charter tickets because they become available on eBay, she snaps them up, she’s there watching and she gets them. So that’s changed her behavior is that she can do a lot of things that she couldn’t do before and because she has adopted. The value changed her behavior without even understanding she’s changing her behavior. And I think that’s eventually what happens.

Boyd

I predict you will have these young sales successes, and the older guys will wonder what are they doing to be so successful. Why are they doing to make their numbers all the time? They’re cheating. They’re doing something – yeah, they’re cheating.

A lot of technologies that are rapidly expanding right now are strongly generational. Email was and to a lesser extent it still is. But today, for example, instant messaging is still very, very strongly generational.

So as you go younger and younger, the number of people, the percentage of people that use it and use it not only long period of time and frequently, but use it preferentially changes. So I think you’re right: you have to wait.

I hate to say it, but you have to wait for people to die. So there certainly is going to be a correlation with the cadre of people today who as a matter of course think of online interaction with people through whatever communication medium, email, instant messaging, online communities, whatever, they’re much more likely to gravitate to social networking tools because it won’t seem foreign to them.

They’ve been weaned from the very beginning with the notion of SFA tools. They’re not that older sales dinosaur who carries around piles and piles of business cards in their coat pocket inside of a rubber band.

I’m not trying to hasten the future and try to get it to be here faster, but I believe that these technologies will require some social shifts, not just business policy statements. People have to think differently about how they go about doing their job in business development, or HR or engineering, wherever it may be, to try to bring relationship capital resources to bear on problems that confront the business.

So I think you’re right: we’re going to have to wait for people to die.

And you’ve seen it in other industries of course.

Lane

Absolutely. This is not the first time I’ve said people have to die. For example, with the ERP applications binge – SAP, Oracle, and PeopleSoft -- people spent so much money, but it was not the vendor’s fault. It was that they tried to take technology that was developed for what they thought was common applications. I mean what’s unique about your financials. And your HR. And people would customize it. They’d customize it to the way they do business. I mean our business processes make us unique and famous and competitive, and so we’re going to basically regress your technology back to the way we do things.

Boyd

Right. Paving the cowpaths.

Lane

That’s very expensive.

Boyd

As opposed to moving on to a new footing. So I guess you’re in a sense predicting that, you know, there will be a distribution of companies, some that will attempt to take this technology and, if you will, contort it to try to help them pave the cow paths, that is do more or less in a limited way some kind of automation of how they already do things, which won’t give companies the real bang. And then we’ll have to presume there’ll be some, you know, leading echelon of, you know, companies that sort of adopt the new thought process, the new way of doing business, and there’ll be those who will actually start to shift their operations on to this new footing will do better and will probably eclipse the others.

Lane

Right. If you have good leadership in the company and they will realize this has the opportunity to change the way we do things. And then good leadership will just allow it to happen and see where it goes.

And we become a more competitive company without management standing in the way. I think those companies, over the years, will become much more effective. Because we already know that relationships are key to driving business. We know it works and so on the most basic level all we’re doing is applying more efficiency to it. Even though the end result is a very different business.

The Bottom Line

Lane's insights align pretty well with our own intuitive sense of the value of relationships, but he goes further, and suggests that technologies designed to leverage relationship capital are not simply additive in their impact: these may be exponential. But like most revolutionary advances, there will be nay-sayers and Luddites, but those who quickly grasp the opportunity that relationship management offers may gain a significant business advantage over those reluctant or slow to adopt these new technologies and business practices.