Do you know how to spend your network capital wisely?

CEO and author Sid Fuchs explains when it is best to spend and not spend the non-financial capital any good businessman accumulates.

To be successful in the government contracting market, or in any industry, you need to know how to network and how to most efficiently spend capital. While most Washington Technology readers are very familiar with these concepts (and quite good at them), I would guess that the concepts of capital within social networks are less understood.

There are three types of non-financial “capital,” as described by economists, that are earnable and spendable within social network frameworks: relational capital, social capital, and political capital. All three are continuously in play. To be an effective networker, you need to understand which capital situation you are in at any time. Knowing this will help you understand people’s intentions and objective; the resources required to build the capital; and the amount of capital you (or they) are willing to use in order to reach an objective. Let’s briefly examine the three types.

Relational Capital
One of the most important types of capital is relational capital, which is basically the quality of your relationships. As we all know, the cost of attracting new business is much higher than the cost of growing retained business. According to economist Robert B. Reich, relational capital is “the cumulative investment of trust, experience, and knowledge that forms the core of relationships between businesses and their customers.”

Maintaining relationships requires vigilance. You can earn spendable relational credits by serving and supporting those in your network (this includes your customers). Think of your network as a checking account, you make withdrawals and deposits but in the end you always want to end up on the positive side. You always want to give more to your network than you take.

Social Capital
The difference between social capital and relational capital is that social capital is based on who you know (the relationships’ quantity) whereas relational capital is based on how well you know people (the relationships’ quality). A social network is a value-producing entity. C-suite recruiters are often, to be blunt about it, looking to hire someone with a great Rolodex (if anyone remembers what that is). The people you know matter. It may sound unrefined, coarse, and even a touch mercenary but it is true. Rather than moralize about it, harness the power of social capital and let it work on your behalf.

Political Capital
Political capital is probably the least refined and most abused of the three types of social network capital. Unlike relational capital, political capital is earned for the express purpose of spending it with abandon. Political capital can be best described by the phrase, “You scratch my back and I’ll scratch yours.” While it may sound unfavorable, political capital is essential to a full functioning network.

These three types of capital do not exist independently. They are always intertwining and mixing depending on the situation. Understanding which type of capital is in play at any given time, what types of withdrawals and deposits are being made, and, most importantly, what the limits and boundary conditions of those exchanges are, is critical.

Be thoughtful of how to spend your capital. I once was part of a management team overseeing a contract that was not going well. It was a complicated situation and I knew my company would end up being on the loosing end for various reasons.

I knew the government’s program officer for this contract but never contacted him during the fiasco. A year later I ran into him and he said, “You know, Sid you could have just made a call and used your relationship with me to get past the whole mess…but you didn’t and I really respect you for that.”

I did not contact him because I knew it would have put him in a difficult situation and there were so many moving parts that it would have probably still had the same result. He went on to say, “That’s why you’ll always have my business.”

Lesson learned is I did not rush to spend the relational capital and instead was able to maintain a strong business and personal relationship that benefited me and my company far beyond the problem contract.

Knowing that your network has inherent value helps put into perspective how you should interact with people in building and maintaining the network. The capital of your network can be leveraged in the same way money can be leveraged, so use it wisely and don’t let your supply lines reach the breaking point.

Likewise, be present in the hearts and minds of your network, delight others and outdo them in kindness and generosity.