Social capital
Robert A. Baron
The field of entrepreneurship investigates a wide range of intriguing questions, but among these, two have long been recognized as especially important: (1) Why do some persons but not others choose to become entrepreneurs? (2) Why are some individuals much more successful in this role than others? Many factors play a role with respect to each of these issues, but one that appears to be relevant to both is the concept of social capital. In extant literature on entrepreneurship, this term is generally defined as referring either to (1) the ability of individuals to extract benefits from their social structures, networks, and memberships, or (2) these bene fits themselves – the advantages individuals gain from their relationships with others (Nahapiet and Ghoshal, 1998; Portes, 1998).
Both definitions agree that social capital refers to positive outcomes accruing to individuals from their social ties with others – from being known to them, having a good reputation, and from being in established, continuing relation ships with them. These ties provide them with access to a wide range of both tangible and in tangible resources. Included among the tangible benefits individuals can derive from social ties are financial resources and enhanced access to potentially valuable information. Included among less tangible benefits are support, advice, and encouragement from others, as well as in creased cooperation and trust from them. While the benefits provided by these latter resources are less readily measured in economic terms, they are still often highly valuable to the persons who obtain them. Thus, social capital is definitely worth possessing: it is an asset that often yields highly beneficial outcomes to the persons who possess it.
The social ties on which social capital rests are often divided into two major categories: close or strong ties – the strong, intimate bonds that exist between members of a nuclear family or very close friends – and loose or weak ties – social linkages of the type that occur outside families or intimate friendships; for example, links be tween persons who happen to work together or who do business on a fairly regular basis (e.g., Adler and Kwon, 2002; Putnam, 2000). Social ties can occur at either the individual level, be tween specific persons, or at a group or organizational level. In both cases, they often serve as the basis for trust – confidence by one or more per sons in the motives and predictability of one or more others.
Close (strong) ties are often viewed as leading to, or at least being associated with, bonding social capital – they generate relationships between individuals that are based on mutual trust. Examples would be found in extremely high levels of mutual trust and concern between founding partners of a new venture or between founders and their children, if the latter are employed in the venture and are being groomed for succession. Loose or weak ties, in contrast, lead to (or are associated with) bridging social capital – they are useful in providing individuals with information that would otherwise be difficult or costly for them to obtain. (The term ‘‘bridging’’ refers to the fact that in such in stances social capital serves as a bridge or connection between external networks, thus facilitating the flow of information between them.) An example would be the information individuals or organizations acquire from membership in business networks or trade associations. Over time, loose ties can sometimes develop into strong ones, in which case they would lead to relationships based on mutual trust.
Social capital should be distinguished from human capital, which refers primarily to the knowledge individuals possess – especially knowledge that can contribute to more productive and efficient entrepreneurial activity. This includes formal education, past experience in a given field, and specific training that is not part of formal degree programs. In short, human capital is focused more on what individuals know – the skills and knowledge they have ac quired and bring to any work settings – while human capital refers more directly to who they know, and the depth, intensity, and positive nature of these relationships.
Social capital should also be differentiated from social competence – an array of skills that assist individuals in interacting effectively with others (e.g., Baron and Markman, 2003). Social competence includes such skills as the ability to perceive others accurately, to express one’s own emotions and reactions clearly, to be persuasive, and to make a good first impression on others. It has been suggested that for entrepreneurs, social capital is a necessary condition: it helps them to ‘‘get through the door’’ so that they can meet, and interact with, potential investors, customers, and employees. However, once access to others has been gained through social networks, reputation, and related aspects of social capital, it is the entrepreneurs’ social competence which then determines the nature of their developing relationships with these persons – and, ultimately, their success (e.g., Baron and Markman, 2000).
Whatever its precise source and regardless of the specific form it takes, social capital has been found to play an important role in the entrepreneurial process. For instance, recent findings (e.g., Davidsson and Honig, 2003) indicate that factors contributing to the development of bonding social capital (e.g., having parents or close friends or neighbors in business; receiving encouragement from friends and family) are strongly associated with discovering or recognizing opportunities for new ventures and also with taking initial steps to start such ventures. Similarly, factors that contribute to the development of bridging social capital (e.g., membership in trade organizations) are related to performing the activities essential to converting recognized opportunities into viable new ventures, and to measures of important outcomes such as first sales or profit.
In sum, the concept of social capital calls attention to the fact that entrepreneurs definitely do not operate in a social vacuum. On the contrary, they depend on the support, advice, in formation, and financial resources provided by others. The broader and richer the social net works to which they belong – the higher their social capital – the greater their chances of obtaining such benefits and hence, the greater the chances that they will succeed in converting their ideas and dreams into profitable new businesses. Where entrepreneurship is concerned, then, there appears to be a substantial grain of truth in the biblical statement: ‘‘A good name is better than precious ointment’’ (Ecclesiastes 7:1).
Bibliography
Adler, P. and Kwon, S. (2002). Social capital: Prospects for a new concept. Academy of Management Review, 27: 17 40.
Baron, R. A. and Markman, G. D. (2000). Beyond social capital: The role of social skills in entrepreneurs’ success. Academy of Management Executive, 14: 1 15.
Baron, R. A. and Markman, G. D. (2003). Beyond social capital: The role of entrepreneurs’ social competence in their financial success. Journal of Business Venturing, 18: 41 60.
Davidsson, P. and Honig, B. (2003). The role of social and human capital among nascent entrepreneurs. Journal of Business Venturing, 18: 301 31.
Nahapiet, J. and Ghoshal, S. (1998). Social capital, intellectual capital, and the organizational advantage. Academy of Management Review, 23: 242 66.
Portes, A. (1998). Social capital. Annual Review of Sociology, 23: 1 24.
Putnam, F. (2000). Bowling Alone: The Collapse and Revival of American Community. New York: Simon and Schuster.