An analysis of informal social networks by industry

ABSTRACT Social networks are becoming increasingly important to entrepreneurs as they use them to obtain market access, information, technology, and other resources. Through networks, new firms can more quickly establish trust, reciprocity, and cooperation, and in certain industries, networks and contacts provide an indication of an entrepreneur's standing and reputation. This study builds upon previous work on social networks in entrepreneurship by examining the sources of advice used by successful business owners in three industry sectors (services, construction, and "other industry") in six European countries. Particularly, this study analyzes the proportion of entrepreneurs who seek out advice from family and friends and professional acquaintances when starting a new business. The results show that entrepreneurs in these three sectors rely on these sources to varying degrees. INTRODUCTION Networks are becoming increasingly important as they provide firms with access to markets, information, technology, and other resources which can improve a firm's chances of survival and growth (Aldrich, Reese, & Dubini, 1989; Birley, 1985; Farr-Wharton & Brunetto, 2007; Granovetter, 1973; Gulati, Nohria & Zaheer, 2000; Hoang & Antoncic, 2003; Madsen, 2007; Malecki, 1997; Teece, 1986). Entrepreneurs are, to some extent, dependent on their networks of personal relationships when making decisions and solving problems (Taylor & Thorpe, 2004). An entrepreneur who can identify and exploit synergistic opportunities with partners who control complementary resources and capabilities is likely to enjoy an advantage over those business owners who are unable or unwilling to do so. Business founders with dense and varied networks of contacts can gain information to help them surmount business development problems, thus shaping their own survival and growth (Bruderl & Preisendorfer, 1998; Low & MacMillan, 1988) In western societies, social structures have developed in such a way that men have traditionally enjoyed higher "quality" networks that provide a greater range of contacts resulting in more useful (for business) information (Aldrich, 1989). These differences in informal social networks could logically be a reason many women-owned businesses reap generally lower levels of sales and have lower growth compared to men-owned businesses Bruderl & Preisendorfer, 1 998). This study builds upon previous work on social networks (e.g. Birley, 1985; Hisrich & Brush, 1986; Nebus, 2006; Robinson & Stubberud, 2009; Watson, 2007; Zhao & Aram, 1995) by examining the informal social networks used by successful European business owners in three industry sectors. The next section provides a brief background on the importance of social networks to entrepreneurs followed by the methodology and results from this study. USING SOCIAL NETWORKS IN ENTREPRENEURSHIP The ability to network is one of the most important entrepreneurial skills (i.e. resources) for success (Barney, 1991; Birley, 1985; 1986; Aldrich & Zimmer, 1987; Johannisson, 1988; Voisey, Gotnall, Jones, & Thomas, 2006; Wernerfeit, 1 984). Business owners with strong networks not only can stay in touch with the latest developments, but also can gain access to resources that would be otherwise inaccessible, or at least more costly, thus creating a competitive advantage (Dubini & Aldrich, 1991; George, Wood & Khan, 2001; Hagedoorn, 1993; Jarillo, 1989; Teece, 1986; Vanhaverbeke, 2006). This, in turn, can lead to improved chances of survival, growth, and overall success (Johannisson, Alexanderson, Noeicki, & Senneseth, 1994; Madsen, 2007; Malecki, 1997). According to Butler and Hansen (1991), new firms are more likely to achieve better business performance when they are able to identify and attain resources through exchange relationships within their networks. In studying firms that were or were not members of a particular business organization, Miller and Besser (2005) found that business performance measures, including gross sales, were significantly higher for the businesses that were network (association) members. …