Entrepreneurial networks
Arnold C. Cooper and Xiaoli Yin
Entrepreneurial networks are concerned with how the social relations of entrepreneurs and entrepreneurial teams influence the processes of formation and development for new ventures. Johannisson (1990: 41) described the entrepren eurial network as ‘‘the strategically most signifi cant resource of the firm.’’
Granovetter (1985) suggested that economic actions are embedded in social relations. Social capital is defined by the relational and structural resources attained by individuals/firms through a network of social relationships (Coleman, 1988) (see social capital). Entrepreneurs vary in their levels of social capital, with some having strong ties with resource providers and others having little in the way of relationships which can be utilized. Different from human capital, social capital inheres in the structure of relations between and among individuals and organizations. While human capital emphasizes inequality generated by individual attributes and capabilities, social capital emphasizes differences in the structure and nature of relationships among individual actors (Coleman, 1988).
Social capital is often analyzed from two com peting perspectives: strong, cohesive relation ships vs. weak ties and structural holes. Strong, 98 entrepreneurial networks cohesive personal relationships are found to be important in generating competitive advantage. The strength of a tie is ‘‘a combination of the amount of time, the emotional intensity, the intimacy, and the reciprocal services which char acterize the tie’’ (Granovetter, 1973: 1361). Uzzi (1997) studied the impact of embedded ties (‘‘close or special relationships’’) and arm’s length ties (‘‘market relationships’’) on the com petitive advantage of 23 entrepreneurial firms. The study found that embedded ties, with higher levels of trust, fine grained information transfer, and joint problem solving skills, create competitive advantages for the entrepreneurial firms. An entrepreneur who shares a close, per sonal relationship with an exchange partner will be less likely to act opportunistically and will be more likely to share more detailed information, work through problems, and get direct feedback. Arm’s length ties, while greater in frequency, have less influence upon company success. Ruef, Aldrich, and Carter (2003) studied how network constraints affect the group compos ition of entrepreneurial founding teams. The study found that prior network ties among group members, particularly strong ties (family members), influence the founding team’s choice of members.
Weak ties and structural holes, on the other hand, generate opportunities for entrepreneurs by bridging contacts between different groups and circles. Burt (1992) defined a structural hole as a relationship of non redundancy between two contacts. An example would be an entrepreneur who has ties with two different people who do not know each other. The structural hole indi cates an opportunity to broker the flow of infor mation between disconnected people, such as ‘‘who knows about the opportunities, when they know, and who gets to participates in them’’ (Bart 1992: 30). The structural hole also generates control benefits as the tertius gaudens (‘‘the third who benefits’’) benefits from broker ing the connection between others. The struc tural hole argument is consistent with Granovetter’s (1973) weak ties concept – that the spread of novel information, resources, and opportunities must come through weak ties that integrate otherwise disconnected contacts (Burt, 1992: 25–30). Granovetter (1973) found that American blue collar workers found out about new jobs more through weak ties than close contacts. An example of a weak tie would be an entrepreneur who has a contact with whom he or she talks only occasionally. The weak ties that an entrepreneur has are more likely to be with people of different circles who have access to information different from that which an entre preneur normally receives.
In the setting of entrepreneurship, the im portance of strong cohesive ties and weak ties and structural holes in venture formation and success depends on the competitive and rela tional characteristics of the network and industry structure. Rowley, Behrens, and Krackhardt (2000) studied the conditions under which strong/weak ties are positively related to firm performance. They proposed and found that the effect of strong/weak ties is contingent upon the relational structures and industry context. Spe cifically, strong ties are more advantageous when the firm is situated in a sparse network of alli ances. Weak ties are more advantageous when the firm is situated in a dense network. An entrepreneur, for instance, will benefit less from forming and maintaining strong ties when its partners are highly interconnected. Rowley, Behrens, and Krackhardt (2000) found that the degree of uncertainty and required rate of innov ation of the environment influenced the effect of strong/weak ties. The number of weak ties a firm has is more advantageous in environments demanding relatively high levels of exploration (such as the semiconductor industry). Walker, Kogut, and Shan (1997) compared cohesive net works and structural holes in the formation of relational networks of biotechnology start ups. They found that social capital has positive effects in bringing about cooperation between biotechnology start ups and their partners (mostly established firms). Biotechnology start ups in cohesive networks are subjected to pres sure to perform according to their partners’ ex pectations, which leads to more relationships with new partners in the following time periods. For the biotechnology start ups, relationships in biotechnology networks tended to last a long time and were based on mutual dependence, which facilitated cohesion and subsequent new cooperation. The complementary resources shared by biotechnology start ups and their es tablished firm partners prevent one from gaining entrepreneurial networks 99 control over another. The implication is that structural hole theory may apply more to net works of market transactions than to networks of cooperative relationships. In a network where relationships are of shorter duration, such as market transactions, firms are not required to collaborate over time and thus firms may not experience the constraints to behave co operatively in their relationships. In such situations, careful partner selection to exploit the structural holes between dense regions of relationships, rather than cohesive networks, might determine effective cooperation between firms.
While there is a considerable body of research on the role of networks of relations in mature, established firms, research on the impact of social networks on entrepreneurial activities is relatively immature. Many issues remain unre solved. These include consideration of the pro cesses of network formation for new firms and the examination of the extent to which indi viduals can utilize their previous network ties and access resources in the context of new or ganizations. For example, it is important to in vestigate the processes by which entrepreneurs vary in their ability to develop strong ties or networks with structural holes. Future research should also identify the particular challenges in doing research on entrepreneurial firms. Entre preneurial firms often change rapidly, with addi tions and departures to their founding teams. They are often located in rapidly changing in dustries in which relationships may not be stable. All of this means that the individual ties which benefit the organization are often changing. Networks appear to play a central role in the establishment and development of entrepreneurial firms and there appear to be many opportunities to do research on these im portant relationships.
Bibliography
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