There’s an old proverb:

“In business, it’s not what you know. It’s who you know.”

What does this actually mean?

Setup

A nice broad interpretation might be: “There are some things that you need that you can only get through personal relationships.”

A corollary is that if you need something from someone, you might first need to form a personal relationship with them.

Why is this true? In theory, business is about mutually beneficial transactions. If we’ve never met, and I send you an email offering $10 for something you value at $5, shouldn’t you just accept it, whether or not you know me?

The model

In fact, it is time-consuming and costly to design, negotiate and evaluate most potential deals. Deals can fall through at many stages, and in the end may turn out to be unprofitable anyway. At every stage you must decide whether further effort is worthwhile given the expected payoff. So you have a prior probability on expected value of the end deal.

For the average person who emails you, the expected value is negative. The best cold emails can provide enough signal that a follow-up conversation is worthwhile, but most do not.

Even if you know someone to be untrustworthy this can give you a good estimate of how much care to exercise in dealing with them, and for a high-value deal you may decide this is worth it. It’s still safer than dealing with a complete unknown.

So how do you get to know someone? This is exactly one of those things that you can only get through an existing relationship. In other words, you need an introduction.

Three Theories of Introductions

Let’s say Alice knows Bob, who knows Charlotte, but Alice doesn’t know Charlotte. 1. So Alice asks Bob for an introduction.

Under our model, why does Charlotte bother talking to Alice? I see three main reasons. In most situations you are probably dealing with a mix of all three. However, note that they suggest different strategies along some dimensions, so it’s important to figure out which is dominant in the given context.

Information Content

Bob is saying: “Charlotte, we know each other. I know about your business and preferences, and you know that I know. We have common knowledge. Based on this knowledge, I believe the expected value of you meeting Alice is positive. You know enough about my judgment that this is meaningful to you.”

An information regime is most likely where it is difficult to assess quality. In this situation, Bob needs to convey that he:

  1. Is familiar with both Alice’s work and Charlotte’s, and
  2. Has done some thinking about the value Alice can bring Charlotte.

A great introduction here might look like this:

Charlotte, Alice was a student of mine who has done some really interesting work on topic X and its implications for your field (link to papers or posts). I think you’d get a lot out of talking with her.

Backscratching

Alice is a pawn in the relationship between Bob and Charlotte. Charlotte is doing Bob a favor by considering Alice’s proposal, or maybe she’s paying back a previous favor. But from Charlotte’s perspective, it doesn’t really matter what happens with Alice. The expected value of the meeting is positive for Charlotte regardless of what happens with Alice’s proposal. She’s only taking the meeting to strengthen her relationship with Bob. Of course, Charlotte might actually listen to Alice’s proposal and gain more information too. But it’s not the main point.

In a backscratching regime, the most important thing to convey is the closeness between Alice and Bob, and how important it is to Bob that Alice gets a fair hearing. A typical introduction might look like this:

Charlotte, Alice is a close friend who is looking to change industries. She’s particularly excited about opportunities at [your company] and would be excited to talk with you about your experiences. Would you mind an introduction?

Reputation

Mutual connection allows reputation to serve as an informal enforcement mechanism. There are many ways that people can be bad actors in a business dealing, only some of which are illegal. Having a mutual connection with a counterparty gives you additional recourse if they turn out to hurt you. If you know people in common you can hurt their reputation. Under our model, a situation where Charlotte can hurt Alice’s reputation incentivizes Alice to behave better, which bumps up the expected value compared to a cold outreach situation. In a sense, Alice is staking her reputation as collateral in her dealings with Charlotte.

This is especially important under legal regimes where contract enforcement is more difficult, costly or unreliable.

I’m least familiar with reputation regimes, but plausibly the most important thing to emphasize is the degree to which Alice is already embedded in the community, and will continue to rely on goodwill:

Charlotte, I met Alice through our mutual connections X Y and Z. She’s looking to build some partnerships in your industry and you came to mind.

There’s one important way in which a reputation regime is different from the other two. Under information and backscratching, it’s best for Alice to be close to Bob. If Bob is a “weak-tie-superconnector” 2, the introduction neither conveys much information nor is a big favor to him. But under reputation, it’s actually okay or even preferable. If Bob knows lots of people and spends a lot of time connecting them, his opinion of Alice matters more to her. So she’ll be relatively more concerned about Charlotte’s bad reviews getting back to him.

Discussion

Two other reasons cold emails can be ineffective:

  1. For a circular reason: if cold emails are not common practice, then sending one is a signal that you don’t know “how things are done” and that you may not be a good business partner in other ways.
  2. Sending a cold email can be an active signal that you don’t know anyone. Why would you send a cold email if you had a better option? This might actually lead someone to update downwards from their “random person” prior.

But you shouldn’t let any of this discourage you from sending cold emails or DMs. In fact, for most people “send more cold emails” is good advice. This is especially true for certain industries or subcultures that are particularly receptive to this – some corners of academia and tech come to mind.

But you should be aware of the dynamics at play. Understanding which regime you’re in, and why an introduction would be helpful, can help you write better cold emails.

Thanks to Aaron for explaining the role of reputation/informal enforcement in Indonesia, which was the original inspiration for this post.

  1. If you want some mathy notation for this, A <> B <> C but A <!> C. ↩

  2. Using this in a colloquial sense, not depending on any Gladwellian nonsense. ↩