How can a new company signal its quality to customers, suppliers and other business partners? One strategy is to "borrow status" from the well known people in the industry. If the prospective partners cannot judge the quality of your new company, they will think that your company must be of high status if it associates with high status people. After all, the prospective partners will think that your new high status associates must have done their due diligence before joining, thus it is safe for the prospective partners to work with your firm even if it is relatively new.
Russian businessperson Mikhail Friedman understands that very well. He is the man whose company received around 14,000,000,000 (14 Bln) dollars for the sale of its stake in TNK-BP-- the joint venture between a Russian oil and gas company TNK and British Petroleum. With these proceeds, Mr. Friedman set up a company -- called L1 Energy. This firm will make investments in oil, gas, telecoms, banking and retail. To add credibility to his venture, he hired a former BP chief Lord Browne to its international advisory board. Ironically, in the late 1990s and early 2000s Mr. Friedman and Lord Browne have been fighting over the control of Siberian oil fields, but eventually decided to cooperate on the creation of TNK-BP joint venture.
Apparently, having billions of dollars in the L1 Energy's war chest is not enough for success. So, Mr. Friedman turned to making status signals. What does Lord Browne bring to the table? He clearly has a lot of experience and knows people in the oil and gas industry, but his hiring is also designed to signal L1's status to prospective partners. James T. Hackett, former chief of the American company Anadarko Petroleum, and Andrew Gould, the former head of Schlumberger are also well known industry insiders. Naturally, their hiring is also aimed to enhance the status of Mr. Friedman's operations. The question is whether these status signals will persuade potential partners that it is safe to deal with Russian businessmen, knowing their tough reputation in the industry.
The lesson for other firms is clear. Get the well known people to work for you, this will help you enhance your status. Even if you have a lot of money, sending status signals is really important for continued success.
