It’s not what you know; it’s who you know.
This oft-quoted phrase has a negative connotation, implying that your talent is unimportant. This is, of course, far from the truth. Many years ago I modified the phrase to make it more accurate:
It isn’t who you know, but who knows you and knows what you know.
This phrase provides the clue to the underlying value of professional networking. A strong professional network extends your sphere of opportunity far beyond your direct contacts. Opportunities often arise as a result of one-off meetings, in which one of your direct contacts is meeting with someone you don’t even know. During the course of their meeting, if a set of skills is identified as a need and your contact thinks of you first (because he knows you and knows what you know), it is likely your name will enter the conversation.
Professional networking is also of great benefit to companies looking for talent. In fact, studies indicate that the cost of hiring through "traditional" methods (recruiters, want ads, and so on) range from $20,000–$40,000 per hire. In contrast, the cost of hiring through referrals and networks is $0. Studies have also found that those hired through referral and social networks—people known by others in the company—have less turnover and make more money than their counterparts hired through formal hiring methods.
Thus it is no wonder that many companies provide lucrative incentives to employees who refer a friend into the company. They know that it is likely to result in a qualitatively superior hire. Most people are hesitant to refer friends and acquaintances who will reflect poorly on them. Referrals and networking create a natural and effective screening process.