“Our top 3 startups for 2013”, “Five startups to watch this year”, “Startup of the month…” Those are catchy yet dicey topics for startup journalists. While a car savvy journalist works with a steady base of criteria for evaluating a product, the startup editor faces the compunction of selecting a happy few companies from a deep pool of emerging businesses, whose diversity only equals their randomness. Which of the matcha tea e-shop, the fitness app or the ethical crowd-funding website get a better shot and deserves a story? Our contributor Manon Pierre has tried to break it down.
Making a right and relevant selection of seemingly promising companies – with the risk of hearing that they blew off a few months later – is a tricky matter. And as if compromising his credibility and casting doubts about his expertise wasn’t enough already, there is actually more at stake than a writer’s reputation when covering the startup scene. Why does it matter on a large scale? Because of Matthew.
The Matthew effect , that is.
Referring to the socio-economic phenomenon of accumulated advantage, American sociologist Robert K. Merton coined this term in 1968, after a quote from the biblical Gospel of Matthew where the rich get richer and the poor get poorer. Merton observed that a similar snow-ball effect applies to fame and social status as well. Basically, his theory implies that famous people’s actions generate more buzz and rewards than similar actions done by anonymous individuals. This can also be found in the reporting of a subject: once a company has been in the media, it is likely to get increased coverage in the future whenever it achieves any milestones. Meanwhile, unknown yet similar companies will remain in the shadows.
That correlation seems quite tangible: once your name is out there, you are in the loop of positive feedback. Readers can relate to previous stories and information about companies that is already available. It makes it easier for journalists to corral facts and track updates and to write more articles about them, creating even more buzz. It is a virtuous circle for the business.
Entering the circle
But are a company’s value and media coverage invariably linked then? That is a questionable point. Given that media have a tendency to focus on startups that have already been featured in a medium, most emerging businesses, regardless of their qualities and potential, are vying to be published. For a new-born startup, getting a journalist’s attention is often as much a struggle as it is to get notified by a bartender in a crowded pub; it requires perseverance.
Usually by flooding journalists’ mailboxes with press releases, the PR officer (when the startup can afford one) ultimately aims for his company to garner media coverage by notable platformswith a large readership, including the holy trinity: Tech Crunch, ReadWrite and Mashable. The supreme consecration remains nonetheless a mention in a mainstream publication’s tech section –Forbes or the New York Times if possible.
Matthew, a friend with benefits
The phenomenon gets particularly interesting when looking at the many implications or accumulated advantages coming along with media coverage. The perceived value of a startup is the first to benefit from it. Not only the mention of the company or product raises the brand awareness and leads to a higher conversion rate, but the use of hyperlinks on online publications also directly increases traffic on its website. Overall, it raises the company’s visibility and helps in reputation management.
However, while visibility can be achieved by other means, such as effective communication, a judicious use of social media, guerrilla marketing or SEO, credibility is often imputable to a third party. A favourable article in a reputable publication represents a form of endorsement from an authority in the field. As such, it entails a boost in credibility for the company’s status, which is vital for businesses that are still at an early development stage.
These assets are indeed particularly useful for taking a freshly founded startup to the next level. By attracting more customers, a broader exposure is likely to be followed by an increase in e-commerce sales for e-commerce companies and in deals for service platforms. Meanwhile, credibility draws new partnerships, and helps to appeal to potential investors, securing the next round of funding.
Furthermore, when it comes to startups, the Matthew effect does not only occur in media coverage. It is a similar case with investments: once a startup has received one, it stands a much better chance of getting invested in again. In addition to proving the viability of the business and assessing its value, the existence of a precedent makes a persuasive argument and a valuable mark of trustworthiness for prospective backers.
This observation is particularly salient with venture capital firms (VCs) and large hedge funds. Their interest in a startup business is often a function of the interest other investors have in it. When it comes to backing up young entrepreneurs, big investors need more than a powerful product presentation. They tend to look at the other players in the pool. Getting funded by a successful VC confers a legitimacy that can turn a startup into a hot prospect for other sponsors. An investment from a big fish, such as Rocket Internet , Google and Amazon is simply a golden magnet for future funding.
An awkward symbiosis
Accumulated advantages put simultaneously weight on the journalist’s frail shoulders as well as some power in their hands. On the one hand, famous pens act as compasses and trendsetters in the startup sphere, possibly making the next big thing and consolidating reputations. On the other, writers from modest publications or platforms either beg for a quote and a statement from buzzing companies, or have too many press kits from newcomers to choose from. However, thanks to a tighter regional network, they offer better chances for local entrepreneurs to get exposure and to enter the loop. Thus, the variety of media sizes and shapes appears indispensable for balancing the Matthew effect for small players. This awkwardly functional symbiosis made of startups and journalists fuelling each other, seems to have maintained the startup ecosystem quite in order so far.
About the author:
Manon is a French citizen, yet based in Hamburg and working in English. As if all this wasn’t confusing enough, she’s a graduate of the University ofHong Kong, with a double degree in journalism and sociology. In 2012, after five hectic years in China, she decided to put down her chopsticks for a while, and headed to Germany for a refill of European hedonism. When not clattering about startups, she writes about architecture and design for various magazines, ponders the merits of German climate and attempts to sketch her surroundings.
Read more about the origins of the “From the sociologist’s notebook” series by our co-founder: Introducing: From the sociologist’s notebook
And here is the rest of the series:
PartI: The habitus of IT entrepreneurs and startup geeks by Manon Pierre.
Part II: Commitment turned commodity? by Alexander Hirschfeld
PartIII: Is God an Entrepreneur? by Alexander Hirschfeld