Compounding Relationships

Compounding Relationships

Relationships are another thing that compound, becoming stronger over time if we keep investing in win-win dynamics. Imagine a growing network in which new connections are random but weighted: the likelihood of a node receiving an additional connection is proportional to the number it already has. This feedback can concentrate connections among a small number of nodes—a phenomenon called “preferential attachment.”

Preferential attachment is a type of compounding that occurs when a certain thing (such as money or friends) is more likely to accrue to individuals or entities that already have more of it. For instance, people who have many friends tend to keep making more and more. They have more opportunities to meet new people through the ones they already know.

For someone to gain a serious cumulative advantage, it’s not even necessary for them to have dramatically different starting conditions than their peers. Michael J. Mauboussin writes in The Success Equation that small differences in the economic climate when someone graduates from college can compound. He reports an earnings penalty of 6 percent to 7 percent associated with each additional percentage point of unemployment at graduation.[16] That association concerns groups of graduates, not a fixed penalty for every individual, but it illustrates how starting conditions can matter alongside ability and effort.

Starting conditions can have lasting effects. Opportunities can also build on one another when someone gains access to a new role, skill, or relationship. One way of doing this is through networking. Each person you know has the potential to lead you to additional people. The stronger your network, the more influential or interesting the people you could get introduced to. Professional and social networks build upon themselves. Some people have an uncanny ability to take a connection with one person and use it to accelerate their careers.

Sidney James Weinberg was not your typical Wall Street banker—not by today’s standards, nor even by the standards of the early twentieth century, when he rose to the pinnacle of the banking world. For a start, there was his background. Weinberg didn’t come from an illustrious family. He didn’t have a top-tier education or a long list of credentials. He didn’t get a leg up from well-positioned Wall Street contacts either. Instead, he was the son of a Polish liquor dealer and one of eleven children. His education didn’t stretch beyond his thirteenth year, when a teacher deemed him ready to enter the workforce. By that point, he’d already been working for several years selling newspapers and doing other menial jobs.[17]

Nor did he particularly look or sound the part of a Wall Street success story. Weinberg was just five feet, four inches tall and was usually dwarfed by the other bankers around him. His back was marked with knife scars from childhood street fights.[18] He never made any effort to disguise his distinctive Brooklyn accent or lie about his background, even going so far as to proudly keep the spittoon he’d polished when he first got his start doing low-level work at Goldman Sachs.[19] He was famously outspoken and always willing to make jokes at his own expense.[20]

Yet despite his unorthodox background, Sidney Weinberg became one of the most powerful people on Wall Street, holding the position of Goldman Sachs CEO for thirty-nine years. His career illustrates cumulative advantage through relationships. His greatest assets were the relationships he carefully built and then continued to build upon to form more relationships. He understood that the more people he knew, the more people he could meet. By focusing on strengthening and then leveraging his relationships, Weinberg achieved remarkable success.

He started off on Wall Street at about age fifteen. Before modern office-access controls, he picked a skyscraper and went from office to office, looking for any available work. Eventually he earned a menial job as a janitor’s assistant at Goldman Sachs for a few dollars a week.[21]

One day Weinberg was tasked with taking a delivery to Paul Sachs, the founder’s son. Sachs was charmed by him and had him promoted to the mailroom. Having a sudden opportunity to prove himself, Weinberg made an impression by reorganizing the mailroom to be more efficient, convincing Sachs he had potential in a banking role within the company. Sachs paid for Weinberg to take his first banking course and mentored him through university. When Weinberg returned to Wall Street after serving in World War I, his hard work paid off: he was now a salesperson. Eight years later, he was a securities trader. Another three years after that, Weinberg was the CEO. While we don’t know exactly what happened during those years, everything began with that lucky meeting with Paul Sachs, which gave Weinberg a chance to prove himself. From there, he was able to get a better role in the company, which gave him access to even more people and more opportunities for promotion.

We can understand Weinberg’s phenomenal rise if we consider the ways in which he worked to build beneficial relationships that offered him accruing influence and opportunities throughout his entire career. We can see clues as to how he managed this further on in his career. One way that Weinberg built relationships was by serving on the boards of corporations—at one point over thirty, for which he attended more than 250 meetings per year. He befriended every CEO he could by being as helpful as possible. Board meetings weren’t a distraction from his main job, they were a way to further it.

When Franklin D. Roosevelt ran for president, he was an unpopular candidate on Wall Street. Weinberg saw a chance to stand out by supporting him and raising campaign funds, bridging business and politics. He already had influence on Wall Street, which he was able to convert into political influence. After Roosevelt won the election, Weinberg organized an advisory board of corporate executives, all carefully chosen to align with his own business interests.[22] Giving the executives such a high-status position also created opportunities for future business. Many indeed became clients of Goldman Sachs.

Goldman Sachs was a smaller institution during this period, making Weinberg’s political influence especially notable.[23] He always declined offers of political roles; Wall Street was his world, and politics served simply as means of building relationships. Throughout his career, he advised a total of five US presidents, using the entry point of Roosevelt’s campaign.

Building lasting relationships with Goldman Sachs clients was also an important part of Weinberg’s work. But he didn’t just help people who were of direct use to him. One story tells of him sending a hundred dollars a week to a business rival who fell on hard times. As he told others, friendship should always come before business.[24]

Weinberg saw both the number of his relationships and their durability compound over time. His conscientious approach to his interactions with people suggests he invested in his relationships. When we aim to make our relationships reciprocal, seeking to give as much as possible before we take, we can reap the benefits of compounding. The more we strengthen and deepen relationships, the more they build on themselves. The Wall Street of Weinberg’s heyday was built on relationships. The story also raises a question about access: people cannot build on opportunities they never receive. When starting conditions restrict that access, fewer people can benefit from cumulative advantage. That initial foot in the door upon which relationships build can be the hardest part.