Entrepreneurship as Networking
Mechanisms, Dynamics, Practices, and Strategies
Tom Elfring, Kim Klyver, and Elco van Burg
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Library of Congress Cataloging-in-Publication Data
Names: Elfring, Tom, 1957– author. | Klyver, Kim, author. | Burg, Elco van, 1983– author. Title: Entrepreneurship as networking : mechanisms, dynamics, practices, and strategies / Tom Elfring, Kim Klyver, Elco van Burg.
Description: New York, NY : Oxford University Press, 2021. | Includes bibliographical references and index.
Identifiers: LCCN 2020043397 (print) | LCCN 2020043398 (ebook) | ISBN 9780190076887 (hardback) | ISBN 9780190076894 (paperback) | ISBN 9780190076917 (epub) Subjects: LCSH: Entrepreneurship. | Business networks. Classification: LCC HB615 .E57858 2021 (print) | LCC HB615 (ebook) | DDC 658/.046—dc23
LC record available at https://lccn.loc.gov/2020043397
LC ebook record available at https://lccn.loc.gov/2020043398
DOI: 10.1093/oso/9780190076887.001.0001
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Preface
In entrepreneurship research, one of the enduring questions is why some entrepreneurs perform well, while others do not. A dominant assumption is that entrepreneurs, in order to perform, rely on access to social capital available through their social networks—understood as the structure of relations among individuals. Previous literature predominantly followed a formalistic and rather deterministic sociology, attending mainly to the structure of networks and merely neglecting network agency and networking behavior. Challenging this emphasis on network structure over networking, a growing number of scholars are turning their attention toward networking and network agency in order to better understand how entrepreneurs interact with their environment. Network agency can be understood as the motivation and ability of entrepreneurs to shape their set of network ties to be beneficial for their entrepreneurial endeavors.
We set out to further an agentic perspective on social networks in entrepreneurship, which, over the course of working on this book, was termed as “entrepreneurship as networking.” All three authors share a common interest in entrepreneurs, social networks, and particularly entrepreneurial networking, and it is therefore relevant to narrate a bit of the ideas, prior work, and importantly, social networks that fueled this interest. Two of the authors of this book, Tom Elfring and Kim Klyver, have been working in the field of networking and entrepreneurship for over 15 years. We met at the EDAMBA summer school in 2003 in Abbaye-ecole de Soreze. Tom’s paper on Networks in entrepreneurship in Small Business Economics had just appeared and we had inspiring discussions on research opportunities in this field. Kim visited Tom at Vrije Universiteit Amsterdam in 2004 to present his literature review on networks and entrepreneurship. We stayed in touch, often visiting each other’s universities, and over the last four years our collaboration has intensified. Tom and Elco van Burg have been colleagues at the Management & Organization Department at Vrije Universiteit Amsterdam between 2011 and 2017 and worked on a number of joint projects around networking and entrepreneurship.
The year 2003 was an important moment to Tom as the development of a research program on networks and entrepreneurship (together with Wim Hulsink) got a boost from the funding by NWO (the Dutch Research Council),
and this enabled a PhD position for Wouter Stam. This research resulted in two important publications, one in Organization Studies in 2007 with Wim on networking by entrepreneurs and one in the Academy of Management Journal with Wouter on the role of network strategies in entrepreneurial orientation. Over the years, more than a dozen PhD students (Victor Scholten, Souren Arzlanian, Peter Mika, Suresh Bhagavatula, Jakomijn van Wijk, Marc Bahlmann, Lotte Glaser, Yuval Engel, Mariette Kaandorp, and Martin Haring at Vrije Universiteit Amsterdam, and Josephine Betabwishekwoyen and Gulnaz Aksenova at University of Liverpool Management School) contributed to this research program, and their work and joint papers (appearing in the Academy of Management Journal, Journal of Business Venturing, and Small Business Economics, among other publications) have been immensely important in advancing our insights in the role of networking in entrepreneurial endeavors.
In addition, interactions with other scholars who shared our fascination of the importance of social relations in entrepreneurship has developed our thinking. In 2008 Tom and Wouter initiated a Caucus at the Academy of Management Annual Meeting with Akbar Zaheer and William Hesterly, entitled “Building Entrepreneurial Networks,” in 2009 Tina Dacin and Indre Maurer joined Tom to convene a subtheme at the EGOS Colloquium on “Social Capital and Entrepreneurial Ventures,” and at the 2014 EGOS Colloquium, Tom, Cristina Boari, and F. Xavier Molina assembled a group of scholars around the subtheme of “Entrepreneurs, Networking and Clusters: A Multilevel Perspective.” Finally, in 2019 Tom and Julia Brennecke spearheaded an Academy of Management symposium with the help of Gautam Ahuja and Gokhan Ertug on “Network Churn: Drivers and Implications for Innovation and Entrepreneurship.” Furthermore, during Tom’s research visits in 2011 and 2012 at the University of Bologna, discussions with Gianni Lorenzoni, Simone Ferriani, and Cristina Boari planted the seeds for writing this book. In addition, Toby Stuart encouraged Tom to write this book during conversation in both Amsterdam and Berkeley.
Kim has researched the intersection of entrepreneurship and social networks for the past 15 years. He is fascinated by how entrepreneurs and small business owners interact, shape, and are shaped by their social surroundings in their struggle to perceive opportunities, acquire resources, and gain legitimacy, and how these activities together impact success. For years he has thought the dominating structural approach to social networks reflects an over-deterministic thinking of social environments that is incomparable with how networking is discussed among practitioners and often only allows minor possibilities of drawing practical implications. This motivated his
coauthorship of the book, engaging in an agentic social-interactive approach to social networks and entrepreneurship.
He was first introduced to social network by Thomas Schøtt in 2002. This interest was intensified during a research exchange with Per Davidsson at Jönköping International Business School in 2003, just as Per’s paper in Journal of Business Venturing with Benson Honig on entrepreneurs’ social capital came out. Kim’s thoughts further matured through discussions with Jesper Sørensen during employment at Stanford University in 2009 and later by collaboration with Patricia Thornton during a research exchange at Stanford’s Sociology Department in 2013. During the Stanford period, he was also granted funding from the Independent Research Fund Denmark to initiate his research program on entrepreneurship and social networks that, for instance, includes the Danish Panel Studies of Entrepreneurship Dynamics (DaPSED). This program is still his main focus. It involves collaboration with several coauthors, including Paul Steffens, Benson Honig, Patricia Thornton, Mette Søgaard Nielsen, Siri Terjesen, Pia Arenius, Mark Schenkel, Ying Chen, Marilyn Uy, Teressa Treffers, Sara Värlander, Yuval Engel, Noel Lindsay, and has resulted in many joint papers (in, for example, Journal of Business Venturing, Entrepreneurship Theory & Practice, International Small Business Journal, and Small Business Economics).
Elco’s first serious research efforts in 2005, at that time as a Master’s student at Eindhoven University of Technology, implied a deep dive into research on agency in interorganizational collaboration, in close collaboration with Hans Berends and Erik van Raaij. This study of the collaborative network around the development of the aircraft material Glare provided material for rich insights in cross-level network dynamics and the role of cognitive framing in these dynamics (published in Organization Science and Journal of Management Studies). This process study highlighted the role of ideas, perseverance, and actions of individuals, as well as cognitive framing of managers as key explanations for network dynamics. Over the course of the years, while broadening his research agenda, his interest in social networks and entrepreneurship deepened, through joint work with Joep Cornelissen, Tomas Karlsson, and Mariëtte Kaandorp, among others, and he again and again realized the need to further agentic and more processual accounts of social networks as (re)enacted social realities. Thus, coauthoring this book provided an excellent opportunity to elaborate this account and set out its implication for the study of both entrepreneurship and social networks. Building on these ideas and research efforts, through evolving networks of collaborations, we developed in this book a social-interactive and actionoriented networking perspective to help us explain how, through networking,
entrepreneurs develop opportunities, access and mobilize resources, and gain legitimacy.
The purpose of this book is to integrate our insights on entrepreneurial networks by analyzing the mechanisms, dynamics, and consequences of network agency and networking behavior for entrepreneurial output, in its close interplay with network structure. Drawing on work from multiple perspectives, such as social capital, the resource-based view, and legitimacy, we develop a networking-as-entrepreneurship perspective, synthesizing previous efforts and extending entrepreneurial network agency’s theoretical and methodological impact, including providing suggestions for future research.
The perspective presented in this book aims to build on and seeks to further inspire the growing number of scholars who are interested in networking by entrepreneurs. The debates about entrepreneurial networks are relevant to the scholarly community of entrepreneurship. Networking can be seen as an integral part of judgmental decisions of entrepreneurs to act on perceived opportunities, fueled by the belief that their emerging venture is able to integrate, build, and combine internal and external resources into new combinations that create competitive advantage. We hope to galvanize a community of entrepreneurship scholars to develop and empirically investigate the centrality of networking to entrepreneurial action.
1 Introduction
Entrepreneurship as networking
What kind of network helps entrepreneurs become successful? How do networking activities of entrepreneurs affect their networks and entrepreneurial endeavors? This book addresses these two guiding questions. They are fundamental to our understanding of entrepreneurs’ actions that lead to the successful creation and development of ventures. In the last three decades, a growing number of scholars have shown that social capital, defined as the actual and potential resources available to entrepreneurs through their network of relationships, is crucial to the successful growth of entrepreneurial ventures (Nahapiet and Ghoshal 1998; Gedajlovic et al. 2013). Relatedly, a social network here refers to a set of individuals who are connected by interpersonal relationships. Social capital can be seen as a central ingredient by those who view entrepreneurship as a process of taking action in the face of uncertainty (McMullen and Shepherd 2006).
Entrepreneurs’ network ties play a vital role in embedding the entrepreneur in the environment. Interacting with their environment offers entrepreneurs important content, such as knowledge and resources, and helps them determine opportunities and constraints. Serial entrepreneur Richard Branson believes that networking is a great asset to gain access to specialist knowledge and resources that start-ups do not have. For example, his connection to Boeing allowed him to lease a plane at favorable conditions while starting Virgin Atlantic (Branson 2000).
Despite the significant positive impact of social capital on entrepreneurial performance, as meta-analyses have shown (Stam, Arzlanian, and Elfring 2014; Rauch et al. 2016), it is difficult to provide an unambiguous answer to the question of what a viable network is. The conflicting findings with regard to the particular dimensions of social capital (Stam, Arzlanian, and Elfring 2014) and the large number of contextual contingencies (Ozdemir et al. 2016; Rauch et al. 2016) warrant careful reflection about the crucial characteristics of network ties that contribute to entrepreneurial success.
Entrepreneurship as Networking. Tom Elfring, Kim Klyver, and Elco van Burg, Oxford University Press (2021). © Oxford University Press. DOI: 10.1093/oso/9780190076887.003.0001
The answer to the second question on how and why entrepreneurs shape their networks through networking actions also remains challenging. Scholars have only recently started to examine the antecedents of network action. The literature provides several reasons why entrepreneurs are active networkers. Key arguments are their lack of resources and their changing resource needs (Jack 2005; Semrau and Werner 2014), their disadvantaged network position (Hallen and Eisenhardt 2012), and the high potential for rewards (Vissa 2011). Furthermore, next to these instrumental motivations to network, scholars have increasingly recognized that entrepreneurs, like other people, also network without specific goals (e.g., Engel, Kaandorp, and Elfring 2017).
Particularly under conditions of uncertainty, which is often the case for entrepreneurs (Milliken 1987; McMullen and Shepherd 2006; McKelvie, Haynie, and Gustavsson 2011), networking becomes much less goal oriented, largely because goals can be seen as moving targets (Huang and Pearce 2015). In this situation, networking often becomes effectual, which can be characterized as means driven. This type of networking starts from who entrepreneurs know as part of their means set (Sarasvathy 2001; Burns et al. 2016; Engel, Kaandorp, and Elfring 2017). Moreover, the dynamics of this set of network ties tend to be centered around interactions with their families, friends, and individual and shared passions. Alice Waters’s founding of her renowned restaurant Chez Panisse, at the time a novel and highly uncertain venture, illustrates the importance of effectual networking (Elfring and Hulsink 2019). The shared passion for organic food was a key networking driver in the initial stages of creating Chez Panisse. Around this inner circle, a growing number of stakeholders, such as organic farmers, bakeries, and food journalists, chose to become connected with Chez Panisse; in turn, this growing involvement co-created an emerging new restaurant category in which Chez Panisse spearheaded development. The literature hardly addresses the question of when entrepreneurs’ networking actions are goal driven or effectual, or in what ways this impacts their entrepreneurial ambitions and performance (Kerr and Coviello 2019). We believe the time is right to reflect on the achievements of the social capital perspective in explaining entrepreneurial success and to include the dynamics of networking actions as integral to the equation to create a fruitful research agenda for the period to come.
Entrepreneurship as networking: Social-interactive and action-oriented
The aim of this book is to advance the entrepreneurship field by centering on the role of networking in entrepreneurship. The entrepreneurship-as-networking
perspective has the potential to address the fundamental problems with the dominant “individual-opportunity” nexus perspective in the entrepreneurship field. For instance, Davidsson (2015, 674) discussed several “inherent and inescapable problems with the ‘opportunity’ construct,” while Dimov (2011) observed that an opportunity is more or less elusive because it is uncertain ex ante and can only be confirmed after it has been acted upon. Moreover, entrepreneurs who discover or create opportunities tend to be conceptualized as unitary actors operating separately from their social contexts (Garud, Gehman, and Giuliani 2014). Therefore, in the entrepreneurshipas-networking perspective as advocated in this book, we focus on the socialinteractive aspects and thereby move beyond the debate about the nature of opportunities and go toward processes related to opportunity perceptions and action (Wood and McKinley 2010). The argument for the action-oriented nature of entrepreneurship builds on the work of Foss and Klein (2012), who argue that the unit of analysis should not be opportunities, but action—in particular, the action to “the assembly resources in the present in anticipation of (uncertain) receipts in the future” (226)—and the work of Shepherd (2015). We present the entrepreneurship-as-networking perspective, which argues that social capital theory has the potential to become a foundational theory of entrepreneurship (Gedajlovic et al. 2013). By addressing the two guiding questions, we show why and how social capital theory has the potential to move the field into a more social-interactive and content-rich, action-oriented mode.
One key attribute of the entrepreneurship-as-networking perspective is its emphasis on networks and the associated social interactions. Whereas much research in entrepreneurship basically assumes that entrepreneurs and their social context can be separated, this perspective admits that most entrepreneurial action involves networking. Building on research on social capital, this perspective explicitly acknowledges that entrepreneurs do not operate in a vacuum (Jack 2010) and that the locus of their actions is the network (cf. Powell, Koput, and Smith-Doerr 1996). They “don’t go it alone,” as Baum, Calabrese, and Silverman (2000) concluded. Networking is at the core of entrepreneurial processes such as pursuing entrepreneurial opportunities, securing resources, and gaining legitimacy. Entrepreneurs’ perceptions about opportunities are shaped in interaction with multiple network contacts (De Koning 2003; De Carolis and Saparito 2006). Their network connections embody this interplay as information about the potential of opportunities travels back and forth between entrepreneur and environment through network ties (Autio, Dahlander, and Frederiksen 2013). Similarly, the interplay between entrepreneurs and their environment through their network connections affects their ability to access and acquire external resources (Ozdemir et al.
2016; Rooks, Klyver, and Sserwanga 2016; Birley 1985). External resources are resources that are not possessed by entrepreneurs, but that must be combined with internal resources to develop new combinations in order to seize opportunities. Finally, innovative ventures may overcome legitimacy barriers by being embedded in a community (Rindova, Petkova, and Kotha 2007; Khaire 2010; Fisher et al. 2017). Network ties to respected players in that community help convince stakeholders that the venture is appropriate and can be trusted as a supplier, customer, or partner.
Thus, the social-interactive characteristics of the entrepreneurship-asnetworking perspective can potentially address the challenge of providing a more integrated account in which the individual perspective is combined with a greater emphasis on the environment (McMullen and Shepherd 2006) or “a more integrative understanding that embeds individual entrepreneurs within their social contexts” (Cornelissen and Clarke 2010, 539). The entrepreneurship-as-networking perspective builds on the social capital literature, which aligns with the social-interactive nature of entrepreneurship and therefore increasingly is seen as offering more potential than most traditional studies, which have focused on the individual-opportunity nexus (Foss and Klein 2012; Garud, Gehman, and Giuliani 2014). For instance, a social-interactive perspective on opportunities allows us to move the research focus away from an empirically fruitless discussion on the nature of opportunities toward a more productive process perspective on perception and opportunity evaluation (Dimov 2011; McMullen and Dimov 2013; Wood and McKinley 2010).
A related challenge in the entrepreneurship field is to redirect the focus from individuals and opportunities toward entrepreneurial action (Foss and Klein 2012; Davidsson 2015). Entrepreneurship can be seen as “purposeful action that requires foresight, effort, and resources” (Autio, Dahlander, and Frederiksen 2013, 1350). Entrepreneurial action is usually conceptualized as the founding of new ventures or related activities, such as creating new products or services. Thus, the activities and processes involved in assembling and mobilizing the resources needed to create a new business occupy a central position within the entrepreneurship-as-networking perspective. Mobilizing resources represents a wide range of actions that include locating the resources in question, assessing their value, trying new combinations of resources, coordinating their application, and changing them in response to feedback (Foss and Klein 2012). This focus on action in the entrepreneurship field may benefit from a much stronger connection to social capital theory (Aldrich and Kim 2007). In fact, a cornerstone of social capital theory is action; Lin (2001, 40) conceived social capital “as resources
embedded in a social structure that accessed and/or mobilized in purposive actions.”
In what ways could the action orientation of the entrepreneurship-asnetworking perspective contribute to further development of entrepreneurship theory? Two types of action may be distinguished. First, the entrepreneur must mobilize, transfer, and use external resources through network ties to actually capitalize on their network (Baker 2014). In this case, social capital concerns the access and acquisition of resources available through the entrepreneurs’ “informal” networks, such as their bootstrapping actions (Jones and Jayawarna 2010; Grichnik et al. 2014), rather than the resources they can purchase on the regular market or via formal agreements. This type of action complements the entrepreneurial activities of assembling and combining resources to create a new business (Sirmon, Hitt, and Ireland 2007).
External resources are central in entrepreneurial efforts. The role of network ties in the search, transfer, and combination of external with internal resources is ambiguous concerning the way these resource combinations provide value to the entrepreneurial endeavor (Clarysse, Tartari, and Salter 2011; Klyver and Schenkel 2013; Rawhouser, Villanueva, and Newbert 2017). The entrepreneurship-as-networking perspective is relevant because it provides insight about the effects of the networking activity type, such as the use of strong or weak ties, on the actors’ ability to value, transfer, and combine these external resources with internal ones (Hansen 1999; Rindova et al. 2012; Semrau and Hopp 2016). Among other results, this activity leads to the development of opportunities and the establishment of legitimacy.
The second type of action we distinguish are the entrepreneurs’ networking actions to change their network, such as developing new ties, dropping existing ties, or changing the nature of existing ties (Ahuja, Soda, and Zaheer 2012; Elfring and Hulsink 2007; Vissa 2012). Such changes in the entrepreneurs’ personal networks have been characterized as network churn (Vissa and Bhagavatula 2012). In the context of uncertainty and continuous development of business plans, entrepreneurs have to adjust their network connections. Thus, their network structure is in a constant state of flux. Active networking, which can be driven either by goals or by individual or collective desire to meet and interact, fuels the churn and volatility in the network connections (Klyver, Evald, and Hindle 2011; Engel, Kaandorp, and Elfring 2017). Goal-driven networking is often strategic in response to changing resource requirements (Jack 2005) and for entrepreneurs trying to improve their disadvantaged position (Hallen and Eisenhardt 2012; Newbert, Tornikoski, and Quigley 2013). Recent data that tracked the founders of the 32 start-ups from the Elfring and Hulsink’s (2007) study for 10 years showed that, over
time, start-ups with high-volatility networks appeared more successful than start-ups with rather stable networks. The high-volatile network start-ups may have been able to move to new niches when the original ones appeared less lucrative than originally perceived. This reinforces Burt and Merluzzi’s (2016) observation that changes in network structure facilitate an “adaptive response” to market changes. These insights from the social capital perspective on the agency of entrepreneurs to network strategically may enrich the entrepreneurship field. Thus, emphasis on action in entrepreneurship studies may benefit from the consideration of different types of action in the social capital perspective.
Key roles of social capital in entrepreneurial processes
The social capital perspective’s growing popularity stems from a number of developments. First, the disappointing explanatory power of the personality trait perspectives led Aldrich and Zimmer (1986) to conclude, “It is not just what you know but who you know” (20). Second, the positive initial findings of studies focusing on the network or social capital perspective (Birley 1985; Starr and MacMillan 1990; Brüderl and Preisendörfer 1998; Davidsson and Honig 2003; Greve and Salaff 2003) support the argument that entrepreneurs, more than other actors, depend on their network of social relations as an important way to access resources. Finally, a strong driver of more network-based research has been the advancement in social network methods (Borgatti et al. 2009; Scott 2000), leading Levinthal (2007) to state that the social network perspective has made spectacular progress in understanding important social phenomena such as entrepreneurship.
The key focus of the social capital success hypothesis is that entrepreneurs can obtain information, support, and resources relatively easily and inexpensively through their network ties, and that some have better networks than others, which explains their superior performance. This key insight of social capital theory fits well with the actual needs of entrepreneurial ventures, which often lack resources due to the liability of newness (Stinchcombe 1965) and market failure (Ozdemir et al. 2016). These aspects, in turn, hamper the venture’s emergence, development, and competitive position. Entrepreneurs turn to their network ties to access and acquire the resources they need, resources that may complement their limited internal resource portfolio and help them design and implement a viable competitive strategy. Assembling these resources intimately relates to the network ties of the emerging venture
and the actions designed to assess and acquire those resources. The search for basic resources, such as raw materials, equipment, knowledge, facilities, finance, and employees, is a key activity of entrepreneurs. This activity benefits from network connections, as shown in one of the first social network and entrepreneurship studies by Birley (1985) and subsequently confirmed by many other studies (e.g., Hoang and Antoncic 2003). Thus, the resources embedded in network ties, often referred to as social capital, can be viewed as an effective way to overcome the entrepreneur’s lack of resources and associated liabilities.
Entrepreneurs turn to their personal networks and their ties in the business community (such as regional clusters) in which they operate (Boari and Lipparini 1999). Most studies on entrepreneurial networks focus on the way network ties provide access to resources and help in acquiring those resources. That said, the securing of resources from networks is a socialinteractive process that not only provides entrepreneurs with new valuable resources. Network relations not only provide access (Ozdemir et al. 2016), but also are central to the search for resources, assessment of their value, and ability to transfer and combine those resources into new combinations of internal and external resources (Burns et al. 2016; Grossman, Yli-Renko, and Janakiraman 2012; Semrau and Hopp 2016). Network ties are also sources of information. They feed into the entrepreneur’s ability to judge whether the new combinations are valuable or, more specifically, whether they can satisfy the needs of the market in a novel way and thereby introduce new “means–ends” relationships. Foss and Klein (Nikolai J. Foss and Klein 2012) argued that the process of evaluating the value of new resource combinations involves subjectivism and entrepreneurial judgment.
Thus, network ties represent a key to entrepreneurship because they affect underlying processes between entrepreneur and environment in key entrepreneurial activities. Beside their role in providing resource availability and searching for, acquiring, transferring, and combining resources, they also play a prominent role in entrepreneurial activities related to developing opportunities (Martinez and Aldrich 2011) and gaining legitimacy. In the entrepreneurship-as-networking perspective outlined in this book, we broaden the dominant focus of social capital theory on “hard,” physical resources. Such resources also include more cognitive and subjective aspects of entrepreneurial activities, in particular the activities of developing and pursuing opportunities and gaining legitimacy (Elfring and Hulsink 2003). Thus, instead of linking the network structure directly to performance, we distinguish three key entrepreneurial processes that involve networking by entrepreneurs. The basic conceptual model in Figure 1.1 shows how entrepreneurial tasks or challenges—such as developing and pursuing opportunities,
securing resources, and gaining legitimacy—may be seen as intervening processes that regulate performance outcomes because the entrepreneurs’ network ties influence them in beneficial or detrimental ways. In the following sections, we explain why developing opportunity and gaining legitimacy are entrepreneurs’ tasks closely tied to their networks and networking.
Some key definitions of entrepreneurship include the ability of entrepreneurs to discover, create, or develop opportunities. Scholars have discussed the origins and nature of opportunities and opportunity-related processes (see Davidsson 2015; Berglund and Korsgaard 2017; Ramoglou and Tsang 2017 for recent debates). We cultivate an entrepreneurship-asnetworking perspective on opportunity development that centers on the role of networking. Most studies view the network as a source of information that affects opportunity recognition (see also Autio, Dahlander, and Frederiksen 2013), as shown in Figure 1.1, by the causal link between the entrepreneurs’ network and their pursuit of opportunities. We add the feedback loop from opportunity pursuit to networking to include the perception, evaluation, and pursuit of opportunities as drivers of networking actions. Through networking, entrepreneurs shape and transform opportunities in business concepts by interacting with their network contacts, such as key stakeholders. Opportunity-related processes intertwine with the social environment; the networks not only provide the information and “external enablers” (Shepherd
Figure 1.1. Venturing through networks.
Source: Adjusted model from Elfring and Hulsink (2003).
and Patzelt 2017), but also function as part of the social interactions in perceiving, evaluating, and acting on opportunities.
Thus, we move beyond the traditional network perspective in which the network is seen as providing information as an enabler of entrepreneurial action such as starting a venture. In this traditional perspective, networking may lead to entrepreneurial action; in this book, however, we develop the social-interactive perspective in which networking is entrepreneurial action. In other words, the locus of entrepreneurial action is in the network, similar to the observation of Powell et al. (1996) that the locus of innovation is in the network.
Finally, new ventures depend on their position in their environment to be deemed legitimate, and network ties have been identified as among the key mechanisms to gain legitimacy. For example, legitimacy may be achieved through endorsements and alliances with respected players in the field (Stuart, Hoang, and Hybels 1999; Elfring and Hulsink 2007; Khaire 2010). Thus, the ties between an entrepreneur and prominent players in the field can signal to others that the entrepreneur is a legitimate and trustworthy business partner (Podolny 2001). The feedback loop in Figure 1.1 suggests not only that “legitimacy enhances the abilities of founders to create social ties” (Delmar and Shane 2004, 405) but, more importantly, that the legitimacy judgments are constituted in an interactive process involving the entrepreneur and the audiences involved in granting legitimacy (Bitektine 2011). Thus, the locus of legitimacy judgment is in the network, thereby contributing to our entrepreneurship-as-networking focus.
Ambition and definition of entrepreneurship
The overall ambition of this book is to examine how and why entrepreneurs’ social capital affects their ability to start and grow new ventures. The social capital perspective incorporates the importance of social relations and the associated social interactions in its attempt to understand and explain entrepreneurial outcomes. The potential of the social capital perspective is based on the argument that “social capital is uniquely situated to address the integrative theoretical needs of entrepreneurship scholars because it helps explain processes and outcomes of social interactions across a diverse set of situations and contexts” (Gedajlovic et al. 2013, 456). Furthering the social capital theory promises to provide insight into core puzzles of the entrepreneurship field. It can shed new light on the origins of opportunities (Suddaby, Bruton, and Si 2015) and improve our understanding of how entrepreneurs
access resources and subsequently mobilize and deploy them in new combinations (Garnsey 1998). It can explain how entrepreneurs build up legitimacy (Aldrich and Fiol 1994), facilitating them to act on perceived new combinations (Autio, Dahlander, and Frederiksen 2013) and thereby exploit the potential to develop a competitive advantage (Stuart and Sorenson 2007). In line with these core arguments underlying the social capital perspective, we can define entrepreneurship as involving judgmental decisions to act on perceived opportunities, fueled by the entrepreneurs’ belief that their emerging ventures are able to integrate, build, and combine internal and external resources into combinations, thus creating a competitive advantage.
Social capital perspective and entrepreneurship studies: Three common components
Social capital can be defined as the actual and potential resources embedded in social networks that entrepreneurs access and use in their actions (Lin 2001; Adler and Kwon 2002; Baker 2014). This definition consists of three components that are also central in entrepreneurship theory: resources, social networks, and action. We believe that the overlap of these key components of entrepreneurship and social capital theory facilitates our ambition to enrich the entrepreneurship field with insights from social capital.
Resource component
The first component involves resources. In entrepreneurship, mobilizing and assembling resources to develop new combinations may be seen as an entrepreneur’s key task. In social capital theory, resources form the primary content that flows through the network ties to the entrepreneur. Network ties are seen as pipes. In this case, resources are a broad construct that includes information about new market opportunities, support from family, and access to required venture capital, employees, and technologies.
To answer the question of what ways conceptualizing resources in the social capital perspective may contribute to entrepreneurship, it is important to realize that social capital studies in entrepreneurship come from two different traditions—namely, strategic management studies and sociology. Network ties and social interactions are central in many sociological studies because they play an important role in society and in the way people are connected through interactions (Simmel 1950). At the macro level, network ties may be
seen as connections that keep communities together (Putnam 2000). At the individual level, these ties influence the actors’ behaviors. Scholars in the social capital tradition have examined how relationships and positions in the network structure facilitate people to find jobs (Granovetter 1973) and advance their careers (Burt 1992a). The central idea is that embeddedness and position within a social structure influence the actors’ attitudes and behaviors and thus affect outcomes. In the entrepreneurial context this idea has been applied to examine the effect of the position within the network structure on the opportunities available to entrepreneurs (Stuart and Sorenson 2007) and on their performance (Stam, Arzlanian, and Elfring 2014). The focus in this approach is on the structure and characteristics of the entrepreneur’s network ties. Thus, an entrepreneur with a relatively large network benefits more than one with fewer network contacts. In this approach, the performanceenhancing effects are derived from the structure of the network rather than the content that flows through the ties.
Some studies have distinguished network arguments in the structuralist approach from those in the connectionist approach (Borgatti and Foster 2003). The arguments just discussed reflect the structuralist approach because they link performance effects to positions in the network structure and assume the network structure itself to be a causal force. Although acknowledging the important insights from the structural perspective, in the connectionist approach the content matters and is associated with resources. The resources flowing through the network ties represent the causal mechanism that explains the performance effects (Batjargal 2003). They are the information, knowledge, and other resources that the entrepreneur can access and mobilize to develop new resource combinations to pursue perceived opportunities. Most strategy research can be labeled as connectionist because it focuses on the resources that firms can use through their networks and alliances.
In strategy research, there is a long tradition of looking at formal longerterm relationships among organizations. This tradition focuses much more on the type of connections and the content or resources of partners that can be used. For example, studies on alliances and joint ventures deal with access to and use of “partner” resources and the governance of these relationships on performance (Jiang et al. 2016). Furthermore, network relations with suppliers, business partners, and customers are key ingredients in many strategy studies. The resources of these stakeholders are central in the strategy literature, especially studies based in the resource-based view. The underlying strategy logic has inspired scholars in the entrepreneurship field to examine ways that network ties to specific stakeholders affect the venture’s performance (Baum, Calabrese, and Silverman 2000). The focus of these studies has
been on networking—entrepreneurs looking for ties that could provide them with certain key resources. By configuring alliance networks (e.g., Lavie 2007; Ozcan and Eisenhardt 2009), start-ups can access social, technical, and commercial resources that are valuable because these resources compensate for the start-up’s lack of internally available resources, which would have taken years of operating experience to develop.
Furthermore, some studies, such as Lee et al. (2001), Semrau and Hopp, and Zaheer and Bell (2005), adopted a different line of reasoning. They argued that resources from the network ties may be combined fruitfully with internal resources. Connections to others affect the potential to obtain access to the required resources through network ties; as such, they influence outcome variables such as venture growth and profitability (Rindova et al. 2012). In these cases, the content of the connections matters and therefore this interpretation is labeled as the connectionist approach (see Borgatti and Foster 2003). This approach in network studies may enrich the entrepreneurship field by improving our understanding of the role of network ties in accessing and transferring external resources (Table 1.1).
Entrepreneurship Social Capital Added Value
Resource Resource combination create new “means–ends” relations.
Network Relations with family, friends, business partners. Network as “loose” metaphor for relations.
Action Founding ventures. Perceiving, evaluating, acting on opportunities. Assembly of resources.
Resources flow through network ties (connectionist perspective).
Structural perspective neglects content such as resources.
Specific network dimensions; relational and structural measures.
Network ties co-constitute opportunities but bring constraints.
Mobilizing resources from existing network ties.
Social-interactive view on opportunity perception, evaluation, and action.
Developing network (adding, dropping, or changing ties) to accommodate changing requirements.
Understanding access and mobilization of external resources.
Disciplined methodology. Operationalization of social interaction. Address the dark side of networks.
More realistic scope of relevant actions of entrepreneurs.
Table 1.1 Added Value of the Social Capital Perspective to the Entrepreneurship Field
Network component
The second component consists of the entrepreneur’s network ties. Here, the critical issue is how entrepreneurs can build a network through interactions that provide them with access to the resources they need. Some early networkoriented studies in entrepreneurship focused on business contacts and professional relations with industry and trade associations, as well as personal connections to people in organizations such as the Rotary and Lions Clubs (Davidsson and Honig 2003). One problem in these studies was that they rather broadly defined network ties. The studies lacked a systematic approach to network ties and often used networks as a metaphor or category (Stuart and Sorenson 2007). Such work definitely has benefited—and still can—from a more disciplined and better operationalized approach in social network analysis that distinguishes between network dimensions.
In social network analysis, a network is conceptualized as the sum of ties between nodes (or actors), in which the focal node is the entrepreneur or the venture. Each network dimension—namely relational, structural, and the cognitive—matters in terms of providing access.
Key relational dimensions include the strength of ties and the number of weak and strong ties, each of which has a differential impact on the entrepreneur’s access to information and resources and the creation, activation, or change of ties to use information and acquire resources.1 Family and friends are often considered to be strong ties, whereas the term weak ties refers to business associates, acquaintances, and strangers. A mix of weak and strong ties provides support in terms of the depth and scope of the relationships. Granovetter (1973) differentiated strong and weak ties based on four criteria: frequency of contacts, emotional intensity of the relationship, degree of intimacy, and reciprocal commitments among the actors involved. Whereas weak ties provide access to new information and new business contacts, strong ties are relationships that entrepreneurs can rely on in good and bad times. Strong ties tend to connect similar people in longer term and more intense relationships. Affective ties with close friends and family members may provide a shortcut to, or even preclude the search for, useful knowledge and access to critical resources. In other words, strong ties contribute to “economies of time” (Uzzi 1997, 49)—the ability to capitalize quickly on market opportunities. Strong ties also have shortcomings, for instance,
1 The relational dimension in network research loosely relates to the connectionist approach in strategy research. The main difference is that the connectionist approach is more about the type of connections and the content they provide, whereas the relational dimension focuses more on relational characteristics of connections such as tie strength.
the risk that over-embeddedness would stifle economic performance (Uzzi 1996). Close ties within and among business communities are vulnerable to exogenous shocks and may keep out information that exists beyond their network. There is also the danger of becoming blind to new developments or being “locked-in” (Johannisson 2000), trapping firms in their own web (see Gargiulo and Benassi 2000) and creating relational and cognitive lock-in (see Maurer and Ebers 2006, 276).
Weak ties, on the other hand, are temporary in nature and involve parties who do not invest time or effort to maintain these ties. Consequently, they have little emotional content. These ties often involve a diverse set of people working in different contexts with whom the entrepreneur has some business connection and infrequent or irregular contact. These loose and non-affective contacts may increase diversity, provide access to various sources of new information, and offer opportunities to meet new people.
The structural dimension (closely related to the structuralist approach) refers to the entrepreneur’s position within the network structure (Tsai and Ghoshal 1998; Lechner, Frankenberger, and Floyd 2010). Important structural characteristics are the number of ties (network size) and whether some of those ties can be viewed as bridging ties, in the sense that they provide access to otherwise unconnected people. The latter refers to a phenomenon called structural holes. Entrepreneurs’ networks have a structural hole when two people to whom they are connected are not themselves connected (Burt 1992a). Entrepreneurs with many structural holes are connected to a large number of separate social networks but with only limited connections among them. Entrepreneurs with many structural holes have tie connections to these other networks and may benefit from that broker position. Burt (1992a) showed that firms embedded in sparsely connected networks (i.e., firms that have many structural holes) will enjoy efficiency and brokerage advantages based on their ability to facilitate non-redundant information. Benefits of having a network rich in structural holes include access, timing, and referrals.
The opposite of an open and sparsely connected network is a closed network, in which most actors are connected to each other. Entrepreneurs embedded in such a dense network enjoy many potential benefits. First, information is transmitted quickly throughout the network, saving valuable time. Second, the group values in a dense network are usually relatively clear, which ensures reciprocity among members and creates trust. As a result, however, opportunistic behavior is limited because potential sanctions will be effective.
Another important structural characteristic is diversity, referring to differences in the social characteristics of the people with whom the entrepreneur is connected. A mixture of ties to family members, friends, business
associates, and others illustrates a diverse network and exposes the entrepreneur to a wider range of information. Studies and meta-analyses have shown that access to wider information appears to benefit entrepreneurial performance (Renzulli, Aldrich, and Moody 2000; Stam, Arzlanian, and Elfring 2014). A wider range of information is important to emerging ventures because it provides more potential opportunities to consider and evaluate. In addition, development of an opportunity—from sparking a business idea to implementing a business plan—requires flexibility, and more diverse information allows for changes and facilitates the changing resource needs during the venture’s life cycle (Martinez and Aldrich 2011).
Finally, the social capital literature has emphasized that connections have a cognitive dimension, which refers to shared meanings and interpretations (Nahapiet and Ghoshal 1998). People may share the same language or have some shared system of representations, beliefs, and attitudes that facilitates information exchange and joint understanding of phenomena, which also helps establish legitimacy (Zimmerman and Zeitz 2002). The cognitive dimension is under-researched and hardly addressed in social capital studies (with Presutti, Boari, and Fratocchi 2016 as an exception). This may be due to the static nature of most formal social network analyses or to the way in which resources, including information, are operationalized. However, cognition plays a key role in understanding entrepreneurship, as well as in attempts to understand network dynamics (Obstfeld, Ventresca, and Fisher 2020). It affects entrepreneurs’ network actions because the entrepreneurs must be aware of and agree on the location of potential resources and act to mobilize those resources to their benefit (Lee and Jones 2015).
Action component
The third component of the definition of social capital refers to actions to use and build new network ties. Baker (2014) called this “using pipes” and “making pipes.” In itself, access to network ties is insufficient to account for beneficial effects. The entrepreneur needs to activate or change the content of ties to acquire the embedded resources, which constitutes the action problem in network research (Obstfeld 2005): Resources need to be mobilized for the entrepreneur to benefit from their potential value. In addition to the problem of how to activate and change existing ties, there are the under-researched issues of making pipes or adding new ties, dropping ties, or changing the nature of ties (Elfring and Hulsink 2007). Adding, dropping, and changing network ties are important in changing the overall network. The pursuit of
