To What Extent Do Networks and Social Capital Influence and Support Entrepreneur - Essay Example

?In what ways and to what extent do networks and social capital influence and support entrepreneurs? Most of the studies on the entrepreneurs’ networks involve the networks and social capital, as the independent variables which affect the actions of the entrepreneurs and the outcomes of their actions. This essay would be on the influence of social capital and networks on the entrepreneurs. The aim of the study is to discuss different theories based on the various social networks and social capital through which entrepreneurs can derive benefits and be successful in their venture. The discussion would begin with a brief overview on the entrepreneurship approaches with respect to the social network, which would further lead to the detailed discussion on social networks and theories. Further, several theories on social capital and network would be evaluated to understand their significance in entrepreneurship. The contribution of family for the creation of social capital would be also analyzed here in details. Finally the essay would be concluded stating the entrepreneurial traits and its role in the present global business scenario. An increasing trend of embedding the business decisions in the social structures, by the entrepreneurs, has been increasingly noticed these days. So a structural approach has been used to understand how the entrepreneurs utilize the social relations to acquire resources or suggestions for floating a venture or business. It goes without saying that for establishing a business, an entrepreneur requires to have various resources and contacts during different phases. Based on the structural approach, it has also been understood that irrespective of the cultural differences, entrepreneurs approach their social relations in the same way to acquire resources. So it is better to study the utilization of social relations in case of establishing new business, as it would assist in understanding the different approaches of networks and social capital for entrepreneurship. The structural analysis would assist in understanding the approach of the entrepreneurs for acquiring resources, in the early phase of their establishment, social network and the properties (Hansen, 1995, p. 7-9). An entrepreneur is one who starts launches or floats a venture by assuming the financial risks associated with the business or venture. This definition is also applicable for those who take over an existing venture, to start a business. The concept of social network focuses on the relationship between the entrepreneurs and those who provide resources to them for establishing the business. The entrepreneurs must have the set of skills and knowledge to test the networks and resources before utilizing them, but they also need to complement those resources by producing and delivering the goods and services for them. The entrepreneurs also get the access to the knowledge, support and distribution channel with the help of social networks. The availability of such resources helps the new firm to attain a sustainable growth. However, social networks are not permanent and they can be stimulated according to the different requirements. In order to fit the needs of the enterprise, the entrepreneur consider both the distant and close networks, with respect to the business decisions. Family members also play a critical role in case of entrepreneurship, as they also offer different kinds of help inform of assets or finances (Thornton, and Flynn, 2003, p. 401-402). Social networks are gaining importance among the business owners or entrepreneurs because they assist the start up firms with information, new business opportunities, advices, and various other forms of resources. The entrepreneurs to some extent are depended on these social networks which includes their personal relationship for problem solving and decision-making functions. The development of the social capital is also the outcome of establishing strong social networks. The social capital derived from the networks consist of the resources that is obtained from others, as a part of developing a social network or merely having good reputation due to which resources have been offered in exchange for something. According to (Anderson, Park, and Jack, 2007, p. 265) entrepreneurship in the actual phase is actually carried out through social interaction, social relation, and social networking. After a brief understanding of social network, let us now identify the concept of social capital in entrepreneurship. The term "Social Capital" was first coined in the field of sociology where it is referred to as the opportunities and advantages that get accrued to people with the help of memberships in some of the communities (Bourdieu, 1985, p. 248). According to Coleman (1990), social capital has been described as a resource available to individuals that emerge out of social ties. Hence, the source of this type of capital lies in the people with whom a particular person is related to. However, the question is why some people will be interested to provide others with resources without receiving any type of explicit compensation involved in it. Two primary motivations have been identified by the sociologists regarding this issue. First of all people might resort to such practices because of their feelings that it is one of their obligations to perform such activities. Secondly, there might be some instrumental reasons behind their willingness to make the resources available to others. In such cases, the individual's behaviour is affected through social capital (Portes, 1998, p. 7). Schneider defines social capital as the social relationships, reciprocal patterns and trusts that are enforceable which enable institutions and people to have an access to various resources like jobs, social services, and government contracts. Social capital is considered the structural aspect related to communities by Schneider which is supposed to be relying on networks of people that are network specific utilised for the purpose of achieving their goals and objectives (Schneider, 2004, p. 8). Many empirical studies have been conducted regarding the importance of social capital and have been mentioned in the existing literature by different authors. A wide range of socio-economic phenomenon related to the importance of social capital can be found in many of the existing literature presented by various authors (Durlauf, 2002, pp. 1-31; Krishna, 2001, pp 71-93). Research on social capital has resulted in various theoretical debates and different empirical investigations being conducted. This again has resulted in giving a stimulus towards reconsidering facts related to human relations, organisational forms for developmental performance and life quality, networks, etc. However, according to (Halpern, 2001, pp. 236-251), there are ambiguities or misspecifications related to the models or equations that have been utilized to measure the impacts of social capital. Thus, the social and economic outcomes that arise based on the empirical evidence related to the importance and significance of social capital need to be dealt with caution. Without having a rigorous method formulated for the purpose of measuring the importance of social culture, it is not clear as to how those benefits associated with social capital can be tested or ascertained (Halpern, 2001, pp. 236-251). However, it can be found as a surprising fact that the validity related to the said benefits associated with social capital is not opposed or argued by only a few authors in the literature available. It is so even in the midst of all the uncertainties associated with the measurement of social capital as mentioned above. This can be attributed towards two main factors. One is the appeal of the concept related to social capital that is found to be intrinsic in nature. The other factor is the misguided faith and belief in the measurement techniques of social capital. Social capital is important because of its ability to bring together many of the concepts related to sociological factors like social support, social cohesion, and integration. Rothstein (2003) supports this view point and suggests that the theory related to social capital is important because of its ability to combine the causal mechanisms at micro level with the historical sociological structures at the macro level and this phenomenon is rarely found in social sciences. Social capital is found to be important in the functioning of world economies in this modern era in a more efficient way. Social capital is also beneficial in cases of the establishing stable liberal democracy. It forms an important basis for the creation of cooperation across different sectors. Social capital is found to be important in giving way to regional development. It is social capital which gives rise to various other cultural dimensions like satisfaction, optimism, perceptions regarding various government institutions, involvement politically, etc. Social capital is observed to have its impact on the business and economic performance at the national levels. Social capital is important in the areas of problem solving as well (Sirianni, and Friedland, 1997). Social capital plays a significant role in entrepreneurship, especially when entrepreneurship is considered as a socio-economic procedure. It has been argued by (Anderson, and Miller, 2002, p. 18) that social aspect of entrepreneurship can be accessed through two distinctive ways; firstly, since entrepreneurs can be considered as the product of their social environment, so they are generally influenced by their social background. Secondly, every venture is a part of the social web of communication within which the different economic elements are carried out. So it can be assumed that the absence or presence of the social capital influences the nature of the venture or business. Similar arguments have been stated by (Young, 1998) to present how the economic actions are strengthened by the social relations. The essential proposition related to the social capital theory is that the relationship networks comprises of valuable resources for conducting all the business affairs. Though there are many entrepreneurial benefits of social capital, but the ability of the entrepreneur to understand and exploit those prospects is fairly limited. It has been remarked by (Davidsson, and Honig, 2003, p. 309), that social capital also assists in providing and distributing important information and necessary resources. It was also found that being in a business network actually helps a start-up company to position itself and the significance of social capital to the nascent entrepreneurs are evident from the sales assumptions and projected profitability. Social capital can be derived with the help of social networks. They can be also considered as the key to unlock and achieve access to the social capital, which facilitate in strengthening the network ties and increasing communication between people. The socio-economic background of the entrepreneur might affect the new business process in many respects. The social position of the entrepreneur strongly influences the situations and the opportunities they have for the development of social capital in various spheres in their lives. The social network and capital can be considered instrumental resources as each assist in growth and also in case of success. The entrepreneurs who originate from the higher socio-economic groups will have greater access to resources and opportunities. They are likely to develop high growth business in comparison to those entrepreneurs who have lower access to human or social capital. The basic requirements of entrepreneurs to start a business are labour, capital, information and skills. While few entrepreneurs have these resources, while other get access to these through their contacts. The contacts which assist the entrepreneurs to get access to the resources successfully are the social capital, and it is considered as the key component of the social network. Social capital is defined as the virtual or intangible resources that result in attainment of entrepreneurial goals and development of strong social structure. By this it is meant that getting things done by utilizing contacts. When the social contacts of the entrepreneurs assist them in attaining goals, they are considered to be social capital. These relationships might also extend to the establishment of strong professional networks. The networks have very useful properties for assisting entrepreneurs. The first property is the size. Entrepreneurs increase the periphery of their network to gather or derive useful information and other valuable resources from the knowledgeable sources. The second property is positioning. Entrepreneurs place themselves in the social network in such a manner, that their path towards the knowledgeable resources gets shortened and they are able to get what they require. The last property is the relationship structure. The social contacts are related to the entrepreneur in different ways, i.e., they different types of relationship. In case of single stranded relationships, the person performs a single activity with the entrepreneur and that person is related to the entrepreneur in only one way. While discussing about the social network, the size of the total network should be taken into consideration. This may include the first contacts of the first order, the number of people to which the entrepreneur refer to for establishing the venture and also running the business. For the establishment of a new venture entrepreneurs look for those relations or networks who share a common interest or certain common experiences of establishing and running similar ventures. The entrepreneurs discuss their business idea with many people, so that they get leads of initiating their venture, and information regarding the places to obtain the resources such as capital, credit, property, or information. In such cases the role of the network participants are very significant. There are three entrepreneurial phases that needs to be considered for establishing business enterprises. The three identified phases are: a) The Motivation phase, in which the entrepreneurs talk about the initial business idea and build up a business concept accordingly, b) The planning phase, in which the entrepreneurs plan to set up the venture or firm, and c) The establishment phase, in which the entrepreneurs launch the business and run it. The focus in this case is mainly on the narrow activities such as daily operational activities to run the business, or on the problem solving (Carter, Gartner, and Reynolds, 1996, p. 151-153). There are two types of establishments. The first type of establishment consists of those entrepreneurs who start their own venture, and in the second type of establishment signifies take over an existing firm. There are four major events that need to be undertaken while establishing a firm. They are: a) commitment or internationality, b) hiring, c) financing, and d) sales. These four events should be given equal importance without following any specific sequence. With regards to the concept of phases, the three phase model can be discussed here in detail. The first phase is the motivation phase. According to the processing theory for social information, people generally have a tendency to avoid commitments, so entrepreneurs first start their venture with their own close contacts. They carefully judge and select people with whom they want to discuss the business plan or ideas, as they might not want to publically discuss their ideas. At the initial level a close and trusted network is selected, and after establishment the network is expanded. The second phase was the planning phase. When the entrepreneur initiates the process of establishing new venture, he/she acquires information, resources, manpower, and business relations. The requirement of mobilizing a bigger social network becomes essential in such cases. While planning, the entrepreneur might not have an idea regarding the sources or people who might help them, so they contact huge number of acquaintances for need in the future. Most of the networks of this sort probable figure in the establishment phase. The final phase is the establishment phase, when the business is running and the entrepreneur wants to focus more towards those networks that would provide him with resources and other commitments. It has been also noticed that the entrepreneurs set more than one firm. Though the failure rate of new businesses are comparatively high, entrepreneurs still keep on trying to establish new firm even when they fail to establish their first venture successfully. These types of entrepreneurs are called serial entrepreneurs. There are other entrepreneurs who establish new firms simultaneously while handling other ventures. These are called parallel entrepreneurs. As detailed overview on the significance of social capital and networks in entrepreneurship has already been discussed, we would move on to discuss the entrepreneurial theories, which form the basis for setting new ventures. Several authors have presented their point of view for entrepreneurship, by formulating several theories and stating several approaches. A few of them would be discussed further in this essay. Those theories of entrepreneurship are considered good, which explains the supply of the business, which focuses on development of a new venture and also of a substitute solution in case of failure of the venture. It is a very puzzling fact that, how can so many new business or ventures start when the rate of failure is very high in this case. The Hubris theory states that the overconfident entrepreneurs are the ones who take the initiative to incorporate new venture in spite of failure. Greater confident provides these entrepreneurs, greater enthusiasm to undertake risk and persist the challenging task of investing in a new venture. Therefore, the new business enterprises present in the economy mainly depend on the supply of these overconfident entrepreneurs who willingly take chances to float a new company (Hayward, Shepherd, and Griffin, 2006, p. 160). There are several behavioural assessment theorists who have provided several evidences regarding the potential benefits that can be derived from overconfidence. They think that the overconfident entrepreneurs, who are regarded as overconfident actors in this theory might be successful in assembling assorted venture teams, who would assist in pointing out several perspective on opportunity and risk. Counterfactual interpretation offset the accessible information that results in overconfidence, thus justifying overconfidence. Though overconfidence is pervasive, but it is not bad for the entrepreneurs, their business and their economic performance. Overconfidence enhances the self-efficacy of the entrepreneurs by facilitating them to feel good about what they have achieved, which they otherwise would not have accomplished. The social networks provide them the confidence to utilize the opportunities and exploit them. The theory of serial entrepreneurship states that there are two types of entrepreneurs, firstly, the novice entrepreneurs as already discussed and the habitual entrepreneurs. Serial entrepreneurs accounts for a major segment of entrepreneurship activity, because it has been seen that the rate of success of the serial entrepreneurs are more than that of the novice entrepreneurs. The entrepreneurs draw the assistance of several social networks for various activities. They utilize week ties to gain information when they could not derive it from the close ties. Generally the entrepreneurs utilize the assistance from family members and other stronger ties for getting support and resources. In case of entrepreneurship, family plays a major role. It can also be considered within the social network which an entrepreneur considers to approach when he/she thinks of a business idea. So researchers have studied the role of family in start-up businesses with significant importance. It has been observed that the entrepreneurs are more likely to have a family business, so it can be said that entrepreneurship runs in the blood of the persons. Entrepreneurs utilize the pool of knowledge which they have gathered which handling their own family business, to start a venture on their own. Family can be helpful in providing an initial feedback regarding the business idea, and other complementary resources which includes capital requirements, planning, etc. The entrepreneur parents can offer unique entrepreneurial skills for the business of their children, and they can be considered as the most easily accessible resources. Similarly, the children too can benefit by receiving excellent information and knowledge without spending resources and time for it. However, still the research available on the contribution of family in entrepreneurship is not adequate. In this context we are going to discuss the bull’s eye model, so as to eliminate the constraints associated with the traditional definitions, and study further the new conceptual dimensions of inter-relationship between family and entrepreneurship. This model provides a conceptual link between the two different research fields, such as family venture scholarships and entrepreneurship (Astrachan, Klein, and Smyrnios, 2002, p. 47). While studying the role of the family in case of entrepreneurship, we have come across that ego-centred social network is the most adopted approach by the entrepreneur. The eco-centred approach is applicable for those entrepreneurs, who have diverse network and are not focuses on a single social framework. These networks usually consist of friends, kin ties and business. So it can be derived from this theory that the network structure of an entrepreneur is a multifaceted combination of professional and social ties, which contains both instrumental and affective elements, connected through trust (Greve and Salaff, 2003, p 9). So it has been understood that the family members provide range of important resources to the entrepreneurs, which is both affective and professional in nature. The bull’s eye model also presents a strong basis for understanding the inter-relationships between the family members and the entrepreneurs. The family connections or sources of an entrepreneur can be considered a small social network or a part of the large network of resources which he/she has. This network would assist in generating social capital. Not only tangible resources like capital, property or other assets, family can also be helpful in providing motivation, courage, and advice to an entrepreneur at times of need, and these are very important resources which a novice entrepreneur requires. In the concluding part of this essay we would be discussion about the most significant entrepreneurship traits which are also required along with the social capital and network for floating and running a business or venture successfully. According to Forbes, there are seven basic traits which successful entrepreneurs follow. First, is to achieve what is doable and then start pushing the limits. It has been noticed that entrepreneurs are achievement oriented. They identify their strengths and weakness, but do not sit back to analyze their weak areas only, but also work upon them. Second, is to have a global view, but concentrate on the small picture. In the initial stage the venture of the entrepreneur will not make any difference to the world, which is the mistake most entrepreneurs do. One should achieve success through the new venture and take it to the next level. Third, Entrepreneurs have complete knowledge of the fact that they would face odds at every corner, but they do not proficiently calculate all the probable odds. Entrepreneurs stick to a point and carry it forward to the next stage, thus committing similar mistakes at every stage. So projections and analysis is necessary. Fourth, directs to concentrate on few things clearly rather than focusing on too many things. Fifth, focusing on few fixed problems, but with changing situations problems change, so here they need to push beyond the set limits. Sixth, Making brilliant mistakes are not always wrong. Sometime they reap benefits too. So entrepreneur must develop a tough skin to handle every situation, but every mistake should be viewed and dealt differently. Seventh and the most important is that the entrepreneur must have the belief to make difference. Utilizing networks and the social capital would not work without the belief of the entrepreneur to success and make the difference (Prashar, 2012). Entrepreneurship traits or qualities must be there within an individual or group of individuals to float a new venture. Social capital and network assist or complement those entrepreneurs who show signs of possessing these above stated traits. In the first place, people within very close network do not easily encourage or support entrepreneurship by providing resources to novice entrepreneurs, because of the fear of incurring losses, if it is in terms of financial or other tangible assistance. Even if they do so, they check the credibility of the individual, so in this context it can be said that entrepreneurship traits play a significant role. After an exhaustive analysis of the role that social network and social capital plays in case of entrepreneurship, it can be concluded that social relations are important for establishing new venture or firms. The entrepreneur utilizes these social capitals to utilize the resources during the different phases of their business establishment process. In this study we have explored the different aspects of networking and categories that can be considered under social capital. The essay has discussed, assuming no gender biasness, so a balanced approach is followed to describe the role of family in case of entrepreneurship and also the help that excellent entrepreneurship traits can play for utilizing the available networks and social capital in a optimum way to achieve success. References Anderson, A. & Park, J., 2007. Entrepreneurial Social Capital – Conceptualizing Social Capital in New High-Tech Firms. 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