I’ve Got the Whole World in My Hands

Startups and the Small-World Network

By In Weekly Email 5 Minute Read Time

I’ve Got the Whole World in My Hands: Startups and the Small-World Network

AngelList produces a database that tracks start-ups and consistently reports that Silicon Valley can boast of at least 5000 start-ups in any given year. If you’ve ever wondered why Silicon Valley captures so many start-ups and why Dubuque, Iowa doesn’t, we can offer an answer.

The Small-World Network, huh? 

Before we Open the Kimono, though, and give you the answer, some context is needed and provided by three exceptional scholars in a recent issue of Strategic Organization (Click here if you don’t believe us). They stake a claim early that small-world networks make a big difference in how start-ups learn and survive and thrive. You’re probably wondering, what in the hell is a small-world network? In Silicon Valley, it’s rumored that the probability of the guy in the stall next to you being a start-up or founder is better than half. You can’t swing a dead-cat without hitting at least one founder (PETA, please no calls). Well, that’s kinda what a small-world network is. Small-world networks are highly clustered networks (everyone’s jam packed together) with short path lengths meaning it’s easy and quick to connect and for someone to take your call. Silicon Valley has it. Sorry Dubuque, you don’t. Even within Silicon Valley, some start-up firms are more connected than others and that difference isn’t trivial.

Learn How to Learn 

These super dense networks are much like optical fiber—they quickly and efficiently allow for information to transfer between organizations in the network. The denser the network, the faster and richer the information flow. Remember, start-ups are a lot like babies. They must adapt to survive. So, when a start-up is located within these small-world networks, they either learn to process or make meaning of all this network information or they don’t. And then they die.

The researchers took and tore apart a Venture Capital database from 1995 to 2003 to capture the activity of founding firms. What they found is that founding firms that were in dense, small-world networks tended to learn how to learn and explore better than those that weren’t in these small-world networks (sorry, again, Dubuque). What’s kinda neat is that these founding firms built these learning routines to survive in these dense networks, but they kept the routines even after they grew up out of the founding stage. Put plainly, they never grew out of this exploring and learning orientation. The authors called this imprinting. When these baby firms were learning to deal with all of this information flow, they developed these learning routines that just became part of their DNA. They also found that start-ups that were more centrally located in these dense networks learned and explored more than those on the fringes just because of their critical location within the network. In other words, the positioning within the network matters to learning and exploring. Again, access to information.

So What Does it All Mean?

So, what’s a Kimono reader to make out of all of this? Notably, get into a good network. Then learn how to process all the information from being in that network. Lastly, jockey for a position more central position within the network. If you do, you’ll learn to learn and it’ll last.

Kimono = makes you smarter.

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