Part II · Chapter 3 · Human Capital · lesson 7
Reputation and network as balance-sheet items
11 min
Builds on Combinations beat single skills
Part II · Chapter 3 · Human Capital · lesson 7
11 min
Builds on Combinations beat single skills
The phone rings on a Tuesday. Someone you worked with six years ago, at a company that no longer exists, has been asked to recommend a person and gave your name.
You did not do anything on Monday to cause that. You did something in the spring of a year you have largely forgotten, and it paid out this week.
Reputation and relationships are assets. They are accumulated by flows of work over years, they sit on a balance sheet nobody writes down, and they behave unlike almost everything else you own.
They pay nothing for long stretches and then pay a great deal at once. They cannot be sold, transferred or borrowed against. They depreciate slowly through neglect and can be destroyed quickly by a single event. And their value is entirely a function of what other people believe, which means you do not actually hold the asset — you hold other people's holdings of it.
Strip the sentiment out and a reputation is a prediction other people make about you, cheaply, without having to check.
That is its whole function. Somebody deciding whether to work with you faces a question that would take weeks to answer properly, and reputation is the shortcut that lets them answer it in ten seconds. The more expensive the verification they are skipping, the more the shortcut is worth.
Two consequences fall straight out of that definition.
The first is that reputations are specific rather than general. Being known as reliable, being known as fast, and being known as the person who understands one obscure system are three separate assets, and they pay in different situations. A general good impression is worth much less than a specific prediction, because a specific prediction is the one that lets someone skip a specific check.
The second is that the asset lives in other people's heads, which means it decays when they stop thinking about you and dies when they leave the field. A network is not a list of names. It is a set of live predictions held by people who are still in a position to act on them.
Predict
There is a long-standing finding in the study of how people find work: a disproportionate share of opportunities arrive through acquaintances rather than close friends.
The mechanism proposed for it is straightforward. Close contacts move in the same circles as you and largely know what you know, so the information they hold overlaps with yours. Acquaintances sit in different clusters, and the information they hold is information you do not have.
The awkward property of this asset is the payout shape.
Ordinary assets pay something regularly. Career capital pays nothing at all for years, and then in one month it produces an approach, an introduction and a piece of information that changes a decision. Over a career the total can be large. Sampled in any given quarter it is almost always zero.
That shape defeats normal feedback. You cannot tell whether the asset is growing, because the absence of a payout is consistent with both a growing asset and a worthless one. Which is why almost everyone underinvests, and why the people who do invest usually did it for reasons other than the return.
Case file
Composite, not a real person
Mid-career, salaried, in a technical discipline with perhaps a few hundred serious practitioners in the region.
In year twelve she left to work independently, and had enough committed work to cover the first eighteen months before she had told anyone she was leaving.
Career capital accumulates linearly and can be destroyed discontinuously.
Years of consistent work move a reputation up gradually, because each data point is a small update to what people already believe. A single serious failure — particularly a failure of integrity rather than of competence — moves it a long way down at once, because it is not an update to the estimate but a change in which model people are using about you.
This is not a moral observation, it is a property of how people update. A competence failure is absorbed into an existing picture. An integrity failure replaces the picture, and everything previously filed under evidence gets re-examined.
Check
The word networking describes a particular activity — attending events, collecting contacts, keeping in touch deliberately — and it has a poor reputation for a reason that is worth stating precisely.
The asset described in this lesson is other people's ability to predict what you are good at. That is built by them seeing your work, which mostly happens through working with them, and it is built rather weakly by a conversation at an event.
The confusion is between the contact and the prediction. A contact is a name that can be reached. A prediction is a belief that survives being tested. The first is cheap to accumulate and worth roughly what it cost; the second is expensive and is the actual asset.