In An Effective Entrepreneurial Network Business Essay

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Any individual or organization neueds to connect with one another if they are to add value or transfer goods and services. The element of connecting brings out an important idea of networking. Network in its simplest form, can be described as an interconnected net consisting of nodes and connections (O'Donnell, Gilmore, Cummins, & Carson, 2001). This idea can be translated into a social context, hence to create a social network, the nodes become the individuals and the connections are translated into relationship ties (O'Donnell et al., 2001).

Hansen (1995) describes networks as social structures which encompass relationships between entrepreneurs and network members, and among the members themselves in a more entrepreneurial context. It is due to these relationships that there exists a network that they (networks) have become an important aspect of entrepreneurial literature and studies especially since they are considered as necessary mediums which help entrepreneurs to repeatedly engage in exchanges among their social networks acquire various types of resources that are needed to enhance their businesses. These social networks also provide the opportunity for the entrepreneur to connect to many other networks through the existing network members and hence help broaden the horizon through which benefits in the form of information and resources are acquired.

3.1.1 Social Networks

Social networks can be described as structures formed from relationships which provide important information and resources for an entrepreneur and it have become a relevant and important topic of interest for entrepreneurship research as entrepreneurs is shaped by the social networks to which they belong or get acquainted to. Social network research began with the study of how social contexts, in which an entrepreneur is embedded in, reflected on entrepreneurial decisions. Initial empirical findings showed that entrepreneurial decisions were highly connected to the social context in which the entrepreneur was in (Granovetter, 1985; Nielsen et. al, 2009). These results, made a switch in the view of the entrepreneur from a purely individualistic actor to a social actor.

A network becomes the means for exchanging ideas and resources and the people with whom the entrepreneur interacts with, within that network, will affect the way the entrepreneur performs. Also, studies on social relations and structures (networks) have helped to identify how networks can help or restrict the acquisition of resources that are required the entrepreneurial process and development. I.e. An entrepreneur by using his social networks can have access to gain important resources, such as important information, support, knowledge, and also resource channels itself. This effective use of resources, which allows the identification of entrepreneurial possibilities, is what gives social networks their importance; through them an entrepreneur may have various methodologies to help develop the business. This will be our main focus of this research where we take the idea of social network into one step ahead and explore the SNSs are used by entrepreneurs to develop their businesses.

As mentioned above, network theory focuses on how networks and the relationships within them help an entrepreneur to connect with others and acquire knowledge and resources that exist within and outside the entrepreneur network setting. It has also focused on determining how these relationships are managed throughout the entrepreneurial process such as discovery, creation, start-up, and running the business, especially, since the type of information and resources an entrepreneur can have access to, and the extent to which it will be effective depends on the entrepreneur's position within the network.

As the interchange of information and resources is facilitated through the social network structure, the entrepreneur's position in this structure will depend on his social background and the trustworthiness the entrepreneur possesses. Burt (1997) evidenced that an individual's success in a network will depend on the individual's ability to identify opportunities and coordinate the appropriate type of people to develop those opportunities; therefore, the entrepreneur must try to become a 'hub' in the information flows within the network (Burt, 2007).

Also, the professional characteristics and the position of the entrepreneur within the network are also important aspects of the structure which can influence the quality and quantity of available information for the entrepreneur. I.e. an entrepreneur's ability to structure and manage the network will decide whether the entrepreneur restrict or enhance the flow of relevant and useful information for his business development.

3.1.2 Rational vs. Embedded Perspectives

Network theorists agree that networks can be a valuable source of information for entrepreneurs, however they disagree on which type of relationships are more beneficial to an entrepreneur, and what should be the most effective network structure. Therefore, the literature on network management divides into a rational, or an embedded perspective (Anderson & Jack, 2002; Nielsen et al., 2009).

The rational perspective of the entrepreneur determines that an entrepreneur's network can be changed and optimized depending on the resources needed by the entrepreneur and members will likely be changed over time as the there may be varying needs of the entrepreneurs due to varying stages of the business. However the embedded perspective is different and in the embedded perspective, the network is a part of the entrepreneur's past and therefore is ruled by ungovernable conditions and hence cannot be changed at will. In simple terms, in the rational perspective the entrepreneur can choose his own network, while in the embedded perspective the network chooses the entrepreneur.

The existing literature suggests that both perspectives are used by entrepreneurs when structuring and managing their networks (Nielsen et. al, 2009) and there exists empirical evidence to support that claim, however, there is no ground to suggest that either one of them could be wrong. The reality is that social networks are not static structures and they are the result of social interaction, hence they are comprised of both perspectives. This means that the embedded relationships will always exist within the entrepreneur's network and these embedded relations may be used in a rational way depending on the entrepreneur's ability. In other words, the network may contain both types of relationships and they can still be shaped and activated according to the entrepreneurial needs. A mixture of both perspectives will be taken into account in order to achieve the purpose of this research.

3.1.3 Structural Diversity in Networks

Structural diversity is also brought in by another important difference in network theory and that is whether the entrepreneur belongs to a network that has heterogeneous or homogeneous characteristics (Nielsen et al., 2009). If the entrepreneur has heterogeneous contacts then that would mean that the network consists of people from diverse industries, areas and specialization and homogeneous contacts would mean that entrepreneur's network consists of contacts that have the same area of interest as the entrepreneur. This distinction is also important as the entrepreneur with a homogeneous network is more likely to have access to a reduced amount of information, since the contacts within it will most likely receive the same type of information. On the other hand, an entrepreneur with a heterogeneous network will be able to receive information from different sectors and areas which will allow him to perceive new endeavors and opportunities.

From the above it can identified that in order to have an effective network, an entrepreneur must belong to a diverse network, and therefore a mixture of both homogeneous and heterogeneous contacts must be present in order to attain a broader range of information and resources. Also structural diversity in the form of the strength between network ties, will lead to an effective network because it will allow the entrepreneur to access information from individuals who are not directly tied to his network. That is the entrepreneur will have the advantage of being connected to a separate network through his current network. Hence, it can be said that there is no single unique way of structuring a network and each structure will depend on according to the entrepreneur's motives and needs.

Klyver & Hindle (2007) in their study of network management concluded that, the entrepreneur's tendency towards structuring their network will depend on the stages of the entrepreneurial process. They presented that entrepreneurial networks change according to the issues and resources an individual is confronted with during the different entrepreneurial stages

As can be seen in Figure 3.1 During the discovery / opportunity search and in the young business stage, structural diversity in entrepreneurial networks is more important than the start up stage.

Figure 3.1: Changing the importance of structural diversity

Source: Klyver, K., & Hindle, K. (2007)

According to their results, entrepreneurs who look for opportunities at stage one will need access to different kinds of information which can help them evaluate whether the idea is worth converting into a business venture and therefore require structurally diverse networks. During the stage two (start-up stage), the entrepreneur is most likely to have a homogeneous network as he will be relying on close acquaintances such as family members and close friends. This is due to the fact that in this stage high levels of trust are expected from the entrepreneur and the contacts in the network by each other. In the stage three (young business stage) the entrepreneur will need access to information that he and his closest acquaintances do not possess, leading the individual to increase the size and variety of the network and hence a hetrogenous or highly structurally diverse network.

3.2 Social Capital and Networks

Social capital is a sociological concept, which refers to connections within and between social networks. Though there are a variety of related definitions, which have been described as "something of a cure-all" for the problems of modern society, they tend to share the core idea "that social networks have value. Just as a screwdriver (physical capital) or a college education (human capital) can increase productivity (both individual and collective), so do social contacts affect the productivity of individuals and groups"(

Social capital, hence, is the value generated for an individual within a social network, and can be defined as a set of productive resources that serves as a channel for beneficial social interaction. It can also be identified as a stepping stone which helps define how successful network interactions happen. Social capital includes many aspects of social behavior such as trust, social ties, and values.

3.2.1 The Dimensions of Social Capital

The literature on social capital refers three dimensions. These are


The structural refers to the sum of social interactions (relationships) within a social structure (network),


Relational refers to the direct relationships which are mainly characterized by developing high levels of trust and trustworthiness

(Anderson & Jack,2002).


The cognitive dimension refers to the shared values, paradigms and common understanding of norms within a network (Nahapiet & Ghoshal, 1998).

The above three dimensions of social capital can be directly linked to the social network theory.

The structural dimension relates to the rational network approach, since it encompasses different types of relationships within a network. Also structural refers to the location and position of an individual's contact in a society and depending on this position the network will provide various benefits to the individual.

The relational and cognitive dimensions relate to the embedded network approach, since the rules and moral are part of the environment in which an entrepreneur is embedded (Anderson & Jack, 2002).

The three dimensions have significant effects on resource and information exchange. Therefore creating social capital is important as it helps an individual or a business to create value in many aspects of the business, increase productivity and business innovations. Although three dimensions are important to create value, the relational dimension plays a key role in expanding an individual's network. The relational dimension would provide the individual with more connections that would help in bringing in more resources and information.

3.2.2 The Role of Strong and Weak ties in Entrepreneurial Networks

With regards to network ties, there exist two types of network ties. These are

Strong Ties and

Weak ties (Granovetter, 1973)

In a strong tie network an entrepreneur will have constant interactions with the individuals in the network and therefore would create close relationships which would be an outcome of high trustworthiness. In a weak tie network there will be distant relationships between the network individuals and the entrepreneur. The above ties are important as it will help to identify and understand as to which type of a tie will help and individual to create and effective network that would lead to resource acquisition.

Strong and weak ties can be linked to Rational or embedded perspectives. In an embedded perspective there will be strong ties and the contacts will know each other well and develop trustful relationships. Due to their higher levels of trust strong ties will provide information which is well focused on the entrepreneur's needs and is often not commercially available. Weak ties exist in a rational network perspective as contacts will not know each other. The individuals in the network will be contacted as and when a need for resources arises and there will not be continuous interaction.

Although the existing literature separates the ties depending on various factors, some authors suggest a possibility of a combined existence of strong and weak ties within a network. Anderson and Jack (2002), for example, stress the fact that creating linkages within strong and weak ties may provide access to privileged information that can lead to the creation of opportunities. While, Sabatini (2009) determined, through his empirical study, that depending on the needs, individuals or entrepreneurs will have different network structures to help them acquire the resources that can cover these needs.

As presented above the structure of the network and the management of contacts and relationships within them will decide the level and quality of the information and the benefits that an individual receives. In order to carry out our study on the SNSs and how entrepreneurs use it to gain advantage we will base our interviews along these lines of various structures and relationship ties that exist within a network.

3.2.3 Gathering Social Capital

According to Anderson & Jack (2002) social capital can also be defined as networking capital because the individual derives the benefit from interactions within the network. They studied about experienced entrepreneurs and how they build rapport through creating networks through relationships. In their words, they describe the development of social capital as an accumulation of knowledge which the entrepreneur uses to benefit his endeavors. Anderson and Jack (2002) define social capital formation as "a process of negotiating to embed the self into an appreciative relationship with another" (Anderson & Jack, 2002)

According to Burt (1992), an entrepreneur's social capital is those contacts who would lead an entrepreneur to successful results and this he considers a key component to the entrepreneur's network.

Figure 3.2: Building bonds - Progression in generating social capital

Source: Anderson, A. R., & Jack, S. L. (2002)

The above Figure 3.2 shows the most common ways as to how entrepreneurs engage in relationships that will generate social capital. Anderson and Jack's study was only on experienced entrepreneurs, hence they point out that the process followed by a new or a starting entrepreneur may have considerable differences. As per their study they concluded that social capital,

Creates and develops networks

Helps established relationships to be fruitful

Be productive for either party

Facilitating interactions and flows information within the network structure

3.3 Concept Map

Because linking the main concepts from the theories of networks and of social capital can be confusing. Figure 6 represents how I perceive the interrelation between the concepts of network theory with those of social capital theory. In other words, this figure only clarifies concept relation, and will be used as a tool for designing the conceptual framework that will be presented at the end of Chapter 4.

Figure 3.3: Concept Map

Source: Derived by authors

We have linked all of the concepts that, according to the literature, should be present in an effective entrepreneurial network. Therefore, concurring with the literature, that an effective network should possess elements of social embeddedness (embedded perspective) and strategic (rational perspective) action (Granovetter, 1973). Strong and weak ties provide an entrepreneur with different types of information (Burt, 1997) and therefore can also provide different types of social capital (Sabatini, 2009). These social capital differences provide the entrepreneur with a broader spectrum of his surroundings and allow him to access broader types of information which can help him improve the business. This framework will be further used at the end of Chapter 4; as a guideline to contrast how social capital is created within SNSs and what it represents for SNS users; as well as point out differences and similarities within on-line and Face-to-Face network creation and management, which will lead to the creation of a conceptual framework that can be used as the guideline of the study.