By: Drakopoulou-Dodd Sarah,Associate Professor of Entrepreneurship, Academic Director of AHEAD-ALBA Hub for Enterprise and Development
The network approach to studying entrepreneurship recognizes that economic interactions between people also, de facto, contain social elements. People live out their lives within a spider’s web of human relationships: with family, old school friends, former and current business colleagues, competitors, suppliers, customers, and neighbours. We also belong to a whole range of formal and informal social groupings, such as religious bodies, ethnic societies, sporting clubs, business associations, local charities, the pub, and professional bodies.Our interactions within these relational networks, within which we are “set” – embedded – shape a whole range of economic transactions: what we buy and sell, and who from. This is as true, if not more so, for the entrepreneur as for everyone else. These social ties shape what information entrepreneurs can discover, what new technological developments they find out about (and when), which resources they can access, who will buy and sell from them, and on what terms, how legitimate they are perceived to be within the “market”, and so on. Indeed, Greek entrepreneurs spend more time than any other country studied thus far on talking to people about their business – 44 hours a week, on average. So networking is especially important in our context.
The people we meet through social interactions, both in the workplace and outside, thus play a very important role in shaping entrepreneurship. Good’ social positioning is about more than class, gender, or race: although in many societies these remain important. How well positioned someone is, socially, will determine the extent to which they can spot opportunities, secure resources, gain information and advice, find customers and suppliers. As the table shows, spending time building and developing a network of strong relationships with people you trust, like and respect has much to offer the entrepreneur. Indeed, it is difficult to see how venture creation is possible without access to an effective set of network relationships.
Benefit / Drawback
|Transmission of private, specific, timely commercial information||Offers opportunities and acts as an “early-warning system” in the face of strategic threats|
|Support and advice provision||Helps to offset the managerial isolation of the entrepreneur|
|Provision of resources on speedy and amicable terms, including financing||Eases the path of the nascent or growing business, saves time, reduces “governance” costs|
|Sharing of knowledge and expertise||Develops the human capital and potentially the competitive advantage, of the firms involved|
|Bridging gaps by providing links to “friends of friends”||Widens network structure and provision, enhances diversity of available resources (including informational and knowledge resources)|
|“Personal and business reputations are maintained, extended and enforced”||Makes the entrepreneur more legitimate and trustworthy, which is a special problem for new firms|
|Helping to find suitable and trustworthy employees||Increased employee “fit” and performance|
|Provides unspoken, trust-based structure for doing business||Guides, facilitates and “manages” interactions in a rapid and efficient manner towards outcomes which are positive for everyone|
|Innovation systems||Co-creation of opportunities, building knowledge through interactions, especially within a “cluster” of similar firms, shared learning|
|BUT many strong ties in a very dense network may create sterililty||Too tight a network can limit resource accessand opportunity perception, create social tensions, and reduces efficiency|
It should come as no surprise that several researchers have found improvements in the performance of entrepreneurial firms to be linked to effective networking. This implies that entrepreneurs should pay attention to networking, and invest time and effort in building up their social capital, just as they do for other, more tangible, forms of capital. But which kind of social capital should the entrepreneur concentrate on? What kind of relationship can deliver most for the entrepreneur and their venture? As the second table shows, “strong” ties are our relationships with people we feel close to, and interact with at least twice a week. “Weak” ties are looser relationships, but they have their own benefits to bring to the entrepreneur. For example, weak ties may be especially helpful in bridging the gap between the entrepreneur and other networks he needs to access. Having too few, or too many, of each kind of tie in your network can be problematic. Entrepreneurs need to check every so often to make sure that there is a healthy balance between strong and weak ties. It also seems as though during venture growth, entrepreneurs start to become more and more close to their business acquaintances, turning “weak” ties into much, much stronger bonds. Research suggests that this is a good thing, an integral part of growing an enterprise is becoming better friends with people who have been more formal contacts until now. It is probably psychologically and socially healthy too, as well as professionally so. Working with people we like and trust is a rewarding experience in every sense of the word. But you also need to make sure, then, to keep on introducing weak ties to the network, to stop it becoming too sterile and inward-looking.
Contrasting Strong and Weak Ties
|Differentiator||Strong Ties||Weak Ties|
|The amount of time spent on the relationship.||Interacted with at least twice a week||Less than twice a week but more than once a year|
|The emotional intensity and intimacy of the relationship||Will probably be considered as friends, or close friends||Will probably be considered as acquaintances|
|The level of reciprocal services||Will do a lot for us, and we for them. The services may be social or professional (advice, information, services)||Will carry out fewer services for us, and we for them|
|The number of each type of relationship||Most people have a fairly small network of strong ties||Weak-tie networks will contain many more people, at least potentially|
|The benefits of each type of tie||Trust, loyalty, openness, reliability, altruism||Diversity of information and resources|
|The disadvantages of each type of tie||May be sterile, and too homogenous||May lack the necessary trust and loyalty to deliver resources when needed|
|The cost of the services||Usually a mutually fair price, often very good value, may even be free, in monetary terms||More costly, in money terms, than strong|
Density is another important topic: How many people in the entrepreneur’s network also know each other? If the network is dense, and most people are known to each other, information will pass quickly through the network. This is an advantage. However, dense networks may well be composed of similar kinds of people, and so be somewhat homogenous and sterile, and the less chance for entrepreneur to occupy a central, or hub, position.
Also of great significance when considering network structure is the issue of diversity. How diverse or heterogeneous is the network? Does it offer access to a wide range of different people, and hence to a variety of advice, information and other resources? The more heterogeneous a network, the greater the chance of the entrepreneur picking up on new opportunities. However, humans in general have a very strong tendency towards homophily: we group together with people who are like us, and are more likely to befriend similar people. It seems that the stronger the ties within a network, the more likely that homophily will be found, and with it, a reduction in network diversity. Homogenous, dense, entrepreneurial networks can quickly become introspective, sterile, local circles of ever-smaller conservative businesses serving ever-fewer customers. Keep on trying to meet new and different people, both professionally and personally. As well as being a wonderful personal experience, feeding your soul, this will also be a promising way to keep some heterogeneity in your network.
Size does indeed matter: how large is the actual number of contacts in the entrepreneur’s contacts, compared with those available potentially? This is, of course, very difficult to measure, because it involves making some kind of calculation as to which potential contacts might be available within the locality, the industry, the customer base, etc. In general, entrepreneurs are found to have comparatively small networks, which may be related to the scant time they have available. Indeed, in international studies Greek entrepreneurs have been found to have quite close, tight, dense networks, composed largely of family and friends. Entrepreneurs are thus well advised to carry out a review of their own network, considering the strong-weak tie balance, the network’s density and diversity, and the need to treasure and build this resource. Your friends have never been more important to you, nor you to them.
The first and most important message for entrepreneurs to emerge from this research perspective is that networks matter very much indeed. Strong ties, in particular, deliver a rich, timely, specific, and relevant stream of resources to the entrepreneur. Spending time on building friendships, on socializing with people, on earning their trust by going the extra mile for them, can be seen as a substantial investment in one’s venture. This is not to recommend a calculative, rational, rather cold-hearted approach to hunting down suitable contacts, and courting them. Instead, an open and even altruistic willingness to embed oneself in a network of mutually-supporting relationships, and to live up to one’s commitments to network partners, is a key element in the entrepreneurial process. Becoming embedded in a strong and innovative network potentially provides a wealth of benefits to the entrepreneur, including speedy and accurate information, high-quality resources on favourable terms, being recognized as trustworthy and legitmate. It also acts as a social mechanism which inhibits bad practice.