Introduction
What the Topic is about
The topic of this paper is about the role of business networks in promoting entrepreneurial success in the creation and sustenance of new business ventures.
Basically, networking refers to the connections an entrepreneur establishes with other individuals and business organizations. Thus, networks are crucial aspects in any business ventures because they enable an entrepreneur to access precious resources including knowledge and financial capital.
Outline of the Content
This paper consists of two sections. The first section entails a review three studies (Semrau & Werner 2012; De Klerk & Saayman 2012; Doh & Zolnik 2011) to evaluate the role of social networks in the creation and development of business ventures.
The second section will discuss the results obtained from the three participants interviewed. This section will also discuss the findings from the interviews in relations to the three studies discussed in the first section.
Literature Review
There seems to be a general concurrence among these three studies (Semrau & Werner 2012; De Klerk & Saayman 2012; Doh & Zolnik 2011) that social networking is an essential managerial skill that an entrepreneur must inculcate in order to create and sustain any business venture. De Klerk and Saayman (2012) assert that all business ventures entail some form of social interactions.
In addition, they claim that the nature of relationships amongst entrepreneurs can influence profitability and competitiveness of their business ventures (p. 383).
In other words, the researchers argue that business ventures are initiated and maintained via support of various interactions between diverse business partners. For example, entrepreneurs must create and sustain relationships with business chambers, competitors, bank managers, clients, customers, buyers and suppliers (De Klerk & Saayman 2012, p. 383).
Social Capital and Entrepreneurship
In another related study, Doh and Zolnik (2011) explored the relationship between social capital and entrepreneurship. The researchers argue that social capital is a crucial element in a knowledge-based economy since it enables an entrepreneur to access information and knowledge required to set up a successful new venture. In addition, the researchers state that social capital encourages the production and exchange of knowledge among various entrepreneurs (Doh & Zolnik 2011, p. 4962).
According to De Klerk and Saayman (2012), knowledge exchange is only possible through diverse interactions between different partners (p. 583). Hence, social capital is widely acknowledged as a key determinant of entrepreneurial success.
Although social capital has been explored in previous studies, there seem to be lack of consensus on how to describe and quantify the concept. Therefore, Doh & Zolnik (2011) evaluated a number of social capital definitions and classified them into three broad categories. The first category (known as the bridging view) lends credence on the relationships between entrepreneurs.
The second category (bonding view) lends credence on the composition of relations between entrepreneurs. The third category is an amalgamation of the first two categories. In other words, the bridging view perspective asserts that individual/group activities can be made possible via direct/indirect networking with other actors within social networks.
On the other hand, the bonding view perspective posits that social capital enables the achievement of joint goals within the business network. Finally, the third perspective postulates that bridging and bonding views are mutually inclusive and that their definitions may be different according to the level of analysis (Doh & Zolnik 2011, p. 4963).
According to the findings by Doh and Zolnik (2011), a positive correlation exists between social capital of an individual and his/her propensity for entrepreneurship. In other words, the researchers suggest that an individual with superior social capital skills is bound to be a better entrepreneur than an individual with inferior social capital skills (Doh and Zolnik 2011, p. 4972).
The study also reveals that education level, group membership and nature of employment can influence an individual’s level of entrepreneurship. For instance, their empirical results show a positive correlation between active membership and entrepreneurship. In addition, their findings indicate that self-employed individuals boast of a superior social capital level compared to employed individuals (Doh and Zolnik 2011, p. 4972).
Their results also demonstrate that gender and level of education are essential aspects when taking into account the relationship between social capital and entrepreneurship. For instance, the researchers found a positive correlation between social capital and entrepreneurship for females without university education (Doh and Zolnik 2011, p. 4972).
The results suggest that less educated women are unable to launch and sustain new ventures because they cannot access relevant resources. These findings suggest that government policies should focus on improving entrepreneurship among less-educated individuals. According to De Klerk and Saayman (2012), this can be accomplished by promoting women’s social networks in order to enhance their social and institutional environments.
In general, the findings of this empirical research demonstrate that government policies that aim to create and consolidate social capital should also strive to augment cultural diversity and openness within the society.
Such an endeavour will create more opportunities for people (especially less-educated women) to take part in a variety of social networks as well as to access precious information for their business ventures through intercultural communication. The implication here is that sound management practises and adequate resources are required in public institution to eradicate corruption and boost trust level.
Such an endeavour will eventually promote social capital among entrepreneurs. In nutshell, the researchers assert that social networking is a crucial element in promoting entrepreneurship (Doh and Zolnik 2011, p. 4973).
In spite of the fact that Semrau and Werner (2012) generally acknowledge that social networks enable an entrepreneur to access crucial resources and information required to start and maintain a new venture, they also bring about opportunity costs of time.
As a matter of fact, their study demonstrates that there are various costs associated with establishing and preserving a wide range of network relationships (Semrau & Werner 2012, p. 159).
In spite of the fact that existing literatures support the notion that entrepreneurs should develop and sustain network contacts in order to initiate and preserve a successful venture (Doh and Zolnik 2011, p. 4973), this assertion is not always true.
What’s more, although De Klerk and Saayman (2012) and Doh and Zolnik (2011) have demonstrated the existence of a positive correlation between large networks and entrepreneurship, Semrau and Werner (2012) indicate that such a correlation does not always exist.
For example, Semrau and Werner (2012) suggest that a non-linear relationship can be used to explain the significance of networking among entrepreneurs and their performance (p. 173).
Opportunity Costs and Benefits of Networking
It is against this backdrop that Semrau and Werner (2012) deemed it prudent to explore the benefits of network relationships for entrepreneurs by lending credence on the relationship between network benefits and costs.
Based on the concept that it requires substantial investments to create and preserve business networks, the researchers developed hypotheses to explore how the two variables that mainly establish the opportunity costs in time (associated with creating and sustaining a network) influence the performance of a new venture (Semrau & Werner 2012, p. 173).
Their study employed a population sample (n=137) of nascent entrepreneurs in Germany to test their hypotheses. The results of the study confirmed that the correlation between network investments and establishing a productive new venture is best explained by an inverted U-shaped relationship.
These findings also corroborate the researchers’ theory that when more time is invested in creating and sustaining network relationships, it results in positive but diminishing opportunity cost of time and resource returns.
Nonetheless, the researchers did not observe the projected inverted U-shaped correlation as equally evident for the network investment variables explored. In spite of the fact that the U-shaped relationship is fairly observable for investments in relationship time, the negative consequence associated with expanding the network size beyond some point is equally indistinct (Semrau & Werner 2012, p. 173).
Although the set of values for descriptive variables (in the sample) can explain this disparity, a theoretical explanation for the difference may also exist. The researchers postulate that an entrepreneur raises his/her opportunity cost when he/she expands his/her business networks to access resources of other partners.
Therefore, when the relevant partner is willing to share his/her resources with the nascent entrepreneur, any additional time used to augment the quality of that relationship will bring about extra costs (Semrau & Werner 2012, p. 173). This is a critical finding that is not addressed by De Klerk and Saayman (2012) and Doh and Zolnik (2011) since they only explore the relevance of social networks in enhancing entrepreneurship.
Semrau and Werner (2012) also demonstrate that when an entrepreneur expands his/her substantial network further, he/she might not only bring about additional costs but also extra benefits (especially when extra partners are selected systematically).
In other words, establishing extensive relationships (i.e. links that are not associated with the current social networks of the entrepreneur) may be beneficial to the existing network by granting access to resources that considerably differ from the existing ones (Semrau & Werner 2012, p. 173).
Therefore, entrepreneurs with a substantial network size are bound to benefit by enlarging their extensive contacts. In addition, the researchers assert that it might be useful to incorporate contact resources offered by members of other networks because they reduce the risks of an entrepreneur becoming reliant on the goodwill of some partners (Semrau & Werner 2012, p. 173).
However, the main limitation of this study is that the researchers lacked adequate data regarding their participants’ (nascent entrepreneurs) network development strategies. Consequently, the researchers were not able to investigate whether these strategies bear considerable sway on the correlation between network investment and entrepreneurial performance.
Nonetheless, taking into account the findings of this study, the researchers have demonstrated that investing energy and time to create and preserve additional network contacts is likely to bring about extra costs. In addition, the researchers have shed light on the nature of the U-shaped relationship between network investments and starting a new venture.
This has been accomplished on the basis of two corresponding effects: (1) opportunity costs of time, which occurs when more time is used to create and sustain additional contacts; and (2) positive but diminishing returns (Semrau & Werner 2012, p. 173).
With regard to network size, the findings of this study propose that entrepreneurs should alter their network size carefully to prevent network overload and instead lend credence on an indispensable network with contacts that offer adequate business resources.
In addition, entrepreneurs must cautiously modify their investment levels with respect to the quality of their relationships. For instance, they must make adequate investment to inspire their network partners to allow them access to their valuable resources. At the same time, entrepreneurs must avoid unnecessary over-investments that may hinder setting up a new venture (Semrau & Werner 2012, p. 174).
Summary
The results of this study also have related implications for policy makers who usually promote interventions to encourage network investments to assist entrepreneurs establish and maintain their new ventures.
Although such interventions may be appropriate for encouraging entrepreneurial achievements under certain environments, they must be adopted carefully because entrepreneurs are likely (to some level) to gain from investing additional time to set up and maintain their contact network without experiencing the adverse effects of costs associated with such an endeavour (Semrau & Werner 2012, p. 174).
Finally, Semrau & Werner (2012) recommend that future studies should explore the effects of investing in relationship quality. Although it is generally acknowledged that an entrepreneur must invest time to establish network contacts, there is little evidence to demonstrate what entrepreneurs do sustain such contacts.
In addition, since some entrepreneurs invest considerable time to nurture their network relationships; future studies should explore what inspires them to undertake such investment.
One feasible explanation that merits investigation is that entrepreneurs might feel compelled to undertake such investment to a higher level compared to others. Another worthy observation that deserves further exploration is that entrepreneurs merely take pleasure in investing time in their network relationship and consequently lose focus of their new venture.
Methodology
Interviews
The main objective of the current study is to explore the relationship between entrepreneurial factors and entrepreneurial success. The researcher used a simple random sampling method to select 3 entrepreneurs with at least three years of business experience as respondents. A structured questionnaire was used to collect data for this study and the data collection process was closely supervised by the researcher.
A trained field worker distributed the questionnaires to the respondents. In addition, the respondents were given ample time to complete the questionnaires. At the end of the day, the completed questionnaires were collected and submitted for data analysis.
Although the data collection instrument was developed via a comprehensive literature review, a number of items were primarily developed by the researcher in order to achieve the objective the study. Part A of the questionnaire entails questions that capture the demographic aspects of the respondents.
The questions covered in this section include respondents’ age, gender, and level of education, nature of business, age of business, annual sales and net revenues. Section B comprises of questions that aim to understand the reasons for networking and the level to which the entrepreneurs network
Data Analysis
The researcher used Microsoft Excel for data entry and analysis. In addition, the SAS statistical programme was used to compute X2, tendencies, effect size indicators and frequency analysis statistics.
The researcher also used frequency tables to record and present responses of the participants. In addition, two dissimilar questions in the questionnaires were compared using contingency tables. Finally, the researcher carried out factor analysis to establish the existence of a relationship between the networking factors.
Results
The results of the current study are presented in two parts. The first part discusses the demographic characteristics of the participants. The second part presents networking and motivational factors for entrepreneurship. As Table 1 indicates, most of the respondents are aged above 50 years and 66.7% are male. In addition, 66.7% have a university education and have been engaged in business activities for over five years.
Table 1: Demographic characteristics of respondents
The next part entails a discussion of the relationship networking criteria that motivate entrepreneurs to take part in business relationships. The participants were also required to indicate whether they agree or disagree with a number of issues pertaining business relationships.
To this end, the study employed a four-point Likert scale which offered four answers that ranged from totally agree, agree, disagree to totally disagree. The four factors identified using pattern matrixes are: perception, career choice, networks and trust. It is worth mentioning that the factor with the lowest mean value was perception (1.85) followed by relationships (2.97), trust (3.21) and career choice (3.37).
It is important to mention that the internal consistency of each factor was assessed using Cronbach’s analysis. The factors showed good correlations between their factors (see Table 2). A comprehensive discussion of the four factors is presented in the following subsections.
Table 2: Component correlation
Trust
When the respondents were asked: which factor plays an important role in promoting productive network relationships? All of them stated that trust was an integral factor.
For example, one of the respondents stated that trust is an important aspect in my business relationships because it helps me to establish mutually beneficial relationships with my customers, business, partners and suppliers. De Klerk and Saayman (2012) also mention that trust is a crucial element that can stimulate entrepreneurial activity through the development of network relationships.
Career choice
When the researcher asked the respondents whether entrepreneurship was their first career choice, all of them gave a positive answer. This finding supports results of previous studies which reveal that some individuals select entrepreneurship as a career.
However, there are a variety of definitions and lines of argument pertaining to entrepreneurship. For instance, according to De Klerk and Saayman (2012), entrepreneurship comprises of passionate mind-set, personality, behaviour, as well as the procedures used to create a new venture (p. 391). In addition, entrepreneurs exploit their prior knowledge and experience to start up a new business venture.
Networks
The results of this study suggest that business networking is also an integral aspect in building successful entrepreneurial networks. For instance one of the respondents stated that networks are essential to build personal credibility as well as succeed in any business venture.
Another respondent stated that relationships enable one to find reciprocal support, cooperate with other business partners as well as gain access to resources through R&D and supplier-buyer relationships. De Klerk and Saayman (2012) also echo a similar opinion because they assert that entrepreneurs need to maintain business networks to ensure business success (p. 391).
Perceptions
The respondents were asked to state their general perception regarding entrepreneurial success. It has been claimed that some individuals opt to become entrepreneurs because they cannot secure an alternative job.
De Klerk and Saayman (2012) highlight six main characteristics of entrepreneurial success as being flexible and creative, willingness to face uncertainty, openness to opportunities, leadership, commitment, and the impetus to excel (p. 391). It appears that some individuals have opted to become entrepreneurs in light of the characteristics mentioned above.
The researcher also asked the respondents to articulate their perceptions regarding entrepreneurial networking. The respondents rated their perceptions using the four-point Likert scale with totally agree, agree, disagree and totally disagree options.
The results are presented in Table 3. The main criteria that the respondents used to evaluate their entrepreneurial success included establishing business and social contacts with other partners, access to novel products and enlarging their market segment.
Findings
According to the findings of the current study, the four factors (i.e. career choice, networks, trust and perceptions of entrepreneurship) appear to be essential to entrepreneurs who carry out business activities.
These findings are generally in concurrence with previous studies (Semrau & Werner 2012; De Klerk & Saayman 2012; Doh & Zolnik 2011) which underline the importance of networking (social capital) in starting and maintaining new ventures successfully.
As a matter of fact, De Klerk & Saayman (2012) report that networking is an integral aspect in various business sectors and industries such as production, supplier-consumer trade relationships, research and development activities, as well as innovations.
All the respondents agreed that networking is an important business activity since it allows them to establish beneficial relations with other partners. An entrepreneur can exploit social networks to access new markets as well as novel ideas for business. The importance of networking is further highlighted by De Klerk & Saayman (2012) who assert that it enables an entrepreneur to communicate with his/her partners frequently (p. 394).
De Klerk and Saayman (2012) assert that all business ventures entail some form of social interactions. In addition, they claim that the nature of relationships amongst entrepreneurs can influence profitability and competitiveness of their business ventures (p. 383).
In other words, the researchers argue that business ventures are initiated and maintained via support of various interactions between diverse business partners. For example, entrepreneurs must create and sustain relationships with business chambers, competitors, bank managers, clients, customers, buyers and suppliers (De Klerk & Saayman 2012, p. 383).
In addition, networking enables entrepreneurs to collaborate with suppliers and vendors in order to augment their business operations as well as to adjust to alterations in the business environment. The results of the current study show that 65 percent of the respondents generally agreed that networking enable them to create business connections with other partners.
In addition, 75 percent of the respondents generally agreed that business networks enable them to develop novel products while 86 percent stated that networking enables an entrepreneur to access new markets.
According to the findings by Doh and Zolnik (2011) a positive correlation exists between the social capital (i.e. business knowledge and network resources) of an individual and his/her propensity for entrepreneurship.
In other words, the researchers suggest that an individual with superior social capital skills is bound to be a better entrepreneur than an individual with inferior social capital skills (Doh and Zolnik 2011, p. 4972). This means that business organization must recognize the significance of networking as an impetus for success.
In addition, Doh and Zolnik (2011) argue that social capital is a crucial element in a knowledge-based economy since it enables an entrepreneur to essential information and knowledge required to set up a successful new venture. In addition, the researchers state that social capital encourages the production and exchange of knowledge among various entrepreneurs (Doh & Zolnik 2011, p. 4962).
According to De Klerk and Saayman (2012) knowledge exchange is only possible through diverse interactions between different partners (p. 583). Hence, social capital is widely acknowledged as a key determinant of entrepreneurship. Therefore, governments should facilitate networking between entrepreneurs and other established organizations to promote networking and managerial skills of entrepreneurs.
Another important finding from the current study relates to the fact that trust is an integral element needed to establish and maintain business networks among entrepreneurs. It is worth mentioning that a number of entrepreneurs lack solid business background. What’s more some entrepreneurs do not know the importance of their business networks and the benefits that comes with having such connections.
With regard to perceptions on networking, the respondents stated that networking initiatives could be used as platforms to share new ideas and promote business activities.
This finding also support results of another study by Semrau and Werner (2012) who generally acknowledge that business networks enable an entrepreneur to access crucial resources and information required to start and maintain a new venture. Therefore, governments should initiate training programs as well as trade fairs to promote networking among entrepreneurs.
Although 81 percent of the respondents revealed that business networks enable an entrepreneur to establish beneficial business contacts with other partners, this finding contradict the result reported by Semrau and Werner (2012). The results of their study showed that the correlation between network investments and establishing a productive new venture is best explained by an inverted U-shaped relationship.
These findings also corroborate their theory that when more time is invested to set up and sustain network relationships, it results in positive but diminishing opportunity cost of time and resource returns.
Nonetheless, the researchers did not observe the projected inverted U-shaped correlation as equally evident for the network investment variables explored. In spite of the fact that the U-shaped relationship is fairly observable for investments in relationship time, the negative consequence associated with expanding the network size beyond some point is equally unclear (Semrau & Werner 2012, p. 173).
Conclusion
The main objective of the current study was to explore the relationship between entrepreneurial factors and entrepreneurial success. The four entrepreneurial factors investigated were perception, career choice, networks and trust. The respondents identified trust and networks as key elements required for any successful business venture.
In addition, the respondents felt that trust and networks are key aspects when dealing with suppliers, vendors and customers. Although entrepreneurship is perceived as an essential tool for business growth and development, there appears to be a widely-held opinion that some people become entrepreneurs because they lack alternative jobs or have stop working.
The finding of the current study appears to disregard this perception given that the respondents indicated that entrepreneurship was their career choice.
This finding is also supported by De Klerk & Saayman (2012) who assert that the pessimistic opinion regarding entrepreneurship must be discarded (p. 394). As a result, entrepreneurship plays an important role in any business venture and its relevance should be acknowledged by all stakeholders within the business sector.
The findings of the current study have also showed that entrepreneurs employ business networks to position themselves strategically. These finding mark a considerable departure from the general opinion that entrepreneurs employ their network resources to enhance their business ventures. This study has also unravelled that other networking elements were not used efficiently.
The explanation for this phenomenon could be that these entrepreneurs lend more credence on positioning their business strategically than developing business networks. Another plausible explanation is that these entrepreneurs lack solid business background. Therefore, future studies should explore this phenomenon thoroughly.
References
De Klerk, S & Saayman, M 2012, ‘Networking as key factor in Artpreneurial success’, European Business Review, vol. 24 no. 5, pp. 382-399.
Doh, S & Zolnik, E 2011, ‘Social capital and entrepreneurship: An exploratory analysis’, African Journal of Business Management, vol. 5 no. 5, pp. 4961-4975.
Semrau, T & Werner, A 2012, ‘The Two Sides of the Story: Network Investments and New Venture Creation’, Journal of Small Business Management, vol. 50 no. 1, pp. 159-180.