This post originally appears on the Brady Capital Research blog, posted by Barbara Gray, CFA.
PREFACE: Here is the back story of how I arrived at the Social Capital Value Add thesis - by trying to make sense of my experiences as the CEO of social media network startup and then cobbling together an academic “bricolage”.
Barbara Gray, CFA - August 16, 2012 - Just over a month ago, I received the following tweet from an individual named Michael Cayley (@memeticbrand): “@barbcfa great post hope you visit socialcapitalvalueadd.com would like to talk to you”. As I don’t receive many direct tweets (I only started tweeting last Fall), I was intrigued and after checking out his website, I looked up Michael’s profile on LinkedIn and sent him the following message:
Hi Michael – thanks for reaching out to me on Twitter. Wow! It is amazing what a small world it is. I would love to talk with you about your Social Capital Value Add thesis – you were way ahead of the curve coming up with it back in 2007! I am an Equity Analyst and developed my social capital investment thesis back in 2010 after attending SXSW Interactive and #140 Conf in NY and realizing the impact social media would have on companies’ risk/growth profiles and thus valuation. I would be happy to share my Social Capital article (just published in Intellectual Asset Management magazine) with you. I look forward to discussing social capital with you. – Barbara
I think this really illustrates the thesis I presented in my recent research report on LinkedIn titled: “LinkedIn: Disrupting By the “Power of We””: how LinkedIn’s power to create both bonding and bridging capital for its members provides it with a distinct competitive advantage over leading social networking platforms such as Facebook and Twitter. As the nature of Facebook’s social network is based on bonding capital (i.e. formation of strong ties) with families and friends, it did not play any role in connecting Michael and I as we are not related and do not move in the same social circles. What is interesting is that Michael made the initial contact with me through Twitter, whose network is based on bridging capital (i.e. formation of weak ties) as it allows its members to “follow” anyone they want. However, Twitter’s platform does not facilitate trust, as it does not provide the means to access the competence or character of its members. For that, I turned to LinkedIn as it provided me with transparency into Michael’s credibility in terms of his:
1. Competence (a quick glance at his Professional Profile revealed that he is a fellow Canadian, worked for over a decade in various marketing and product development roles, achieved his MBA in Marketing/Finance In 2008, and is an entrepreneur as he founded Social Capital Value Add in 2007 and Cdling Capital Services in 2009).
2. Character (his 500 plus connections gives me comfort in the integrity of the information he disclosed in his Professional Profile and if I wanted to check his intent, I could call up one of my former investment banking colleagues from Toronto who is a mutual connection).
By contacting Michael via LinkedIn, as opposed to just email, I made it easy for him, in turn, to assess my credibility so he could decide if it was worth investing his time and effort to engage with me. He did – so we then exchanged email addresses, I sent him my Social Capital article, and we set up a time to talk via Skype. It’s interesting as at the end of the day, I think social media only gets you so far – to build a real relationship with someone you need to engage with them off-line – first email, then by phone, and then hopefully in person.
If you have any interest at all in social capital, I encourage you to read Michael’s absolutely brilliant ebook (and keep in mind, I have read over 75 business strategy business books the past two years so I don’t use that term loosely) titled “Follow the Yellow Brick Road: Introducing Social Capital Value Add”. What I find fascinating is how we developed very similar theses on social capital – yet at different points in time and in different ways. Michael researched and formulated his Social Capital Value Add thesis by taking an academic approach as he studied the research done by social capital pioneers as part of his MBA back in 2007 and 2008.
Ironically, I wasn’t even aware of the existence of the concept of social capital when I published my first paper “Social Media: An Exposing Disruptive Force – Look for Companies with “Heart” and “Soul” But Beware of “Empty Shells”” back in January 2011. It wasn’t until I read the fascinating book “Firms of Endearment” in the Spring of 2011 that I became aware of the concept of stakeholder equity. This made me realize how social media is leading to the creation of a new form of appreciating equity as Facebook, Twitter, and LinkedIn are global, dynamic, 24/7 social exchanges that I believe essentially convert a company’s stakeholder relationships into highly liquid assets and/or liabilities. At first, I thought of using the term “social equity” (equity = assets less liabilities) but that seemed too socialist. So I decided to use the term “social capital” instead and titled my November 2011 research report: “Social Capital: A New Strategic Play for Investors – Look for Companies with Heart and Soul”.
My basic investment thesis is that social media empowers individuals and is ushering in the Social Era, which will lead to a structural change in companies’ underlying risk and growth profiles and will accelerate their value creation/erosion process. This sentiment is echoed by Michael who states that “broadband internet connections have empowered individuals, making them the most disruptive and intense form of media (i.e. the Individual as Medium); there are implications throughout the corporate ecosystem”. I believe the companies that are best positioned in the Social Era are those with heart and soul as they will be able to use social media to capitalize on their strong and authentic stakeholder relationships to leverage the high level of enthusiasm and deep psychological attachment to the company’s brand and greater purpose. This is consistent with Michael’s thesis of how the symbolic brand is being replaced by the memetic brand (i.e. a company with “heart and soul” that stands for something) as companies can only “activate IAM (Individual as Medium) through social networks to achieve maximum reach and that activation is a function of social capital”. Like myself, he also predicts that the leading source of corporate value will shift from brand to social capital.
Michael’s book opened my eyes to a whole academic body of research that explores the concept of social networks and social capital… I just downloaded Ronald Burt’s book “Structural Holes: The Social Structure of Competition” – it was published in 1995 so it will be interesting to delve into it to see if it provides any further insights. And perhaps one day, the investment community will start to embrace our concept of social capital as the new driver of corporate value.
Disclosure: I have a LONG position in LinkedIn Corporation (LNKD-NYSE).