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Are networks important to entrepreneurs when starting new business

Paper Type: Free Essay Subject: Business
Wordcount: 2199 words Published: 1st Jan 2015

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In this essay, I have chosen to write a report about why networks are important to entrepreneurs when starting a business. In this essay, I will analyse and describe the use of social relations in the business establishment process, and the benefits behind networks in entrepreneurship. I will write this essay using my findings in books, articles, newspapers and the internet. I will try to not only produce a logical argument concerning why networks are important, but try and apply theories to back up my view and points. I will also use my personal understandings of why networks are important to entrepreneurs, but reflecting understandings and knowledge I gained by interviewing an entrepreneur.

Main Body

An entrepreneur is an individual who has a new idea, or enterprise who accepts the financial risks to capitalising on that idea and undertakes a new financial venture. The word entrepreneur derives from the French language, which applies to any individual who is starting a new project or business. (Hisrich, Peters, Shepherd, 2006). To some economists, an entrepreneur is someone who is willing to take the risks of starting a new business if there is an opportunity for them to make profit out of the idea. The concept of entrepreneurship was first created in the 1700’s, and the meaning has evolved ever since. There are hundreds of different theories and explanations for defining entrepreneurship. However, all economists and business academics agree entrepreneurs’ posses behaviours like: initiative taking, the structuring and restructuring of social and economic social mechanisms to turn resources and situations to practical account and lastly the acceptance of risk or failure (Hisrich, Peters, Shephard 2006). My definition of an entrepreneur is someone who has an idea, and the idea progresses from just being an idea, to becoming a passion, something that an entrepreneur would sacrifice a lot to see succession in.

So why are networks important to entrepreneurs?

People usually develop relationships with people like themselves. Athletes develop ties with other athletes, wealthy people develop ties with other wealthy people, and educated people develop ties with other educated people. It’s part of our nature, we tend to be attracted to those who are similar to us. So what is the reason for this? Perhaps we feel more comfortable when around those who are similar to us? I believe the answer is yes. Socially similar people, even when competing against each other, spend time in the same locations, which cause relationships to occur (Swedberg, 2000).

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Having a large network range matters. People with larger contact networks gain better paying positions than people with smaller networks . Network range, indicated by size, is the primary measure (Cosson, 2010). It’s simple, the more people you are in contact with, the quicker you will learn the tricks and shortcuts. Dragon’s Den is a television show, broadcasted on BBC, on which entrepreneurs pitch their ideas in pursuit of securing an investment from one of the dragons (the investors). However, most of the entrepreneurs aren’t exactly interested in the investment, but the network of contacts that the investor can offer the business. Whenever an entrepreneur secures an investment, they ask the dragons a series of questions concerning whether they have the right contacts which the entrepreneur could use in their business.

Having social networks is important, full stop. In any type of activity you take part in, there are advantages of having acquaintances who possess knowledge in that. Being a student, I know the advantages of building friendship with those who are on the same degree scheme as me. At times if I struggle, there are always people that I can turn to for guidance. It’s the same concept with an entrepreneur. No matter how clever you are, or how academically brilliant you are, you will always face problems, and at times, these problems could have major impacts on the whole business.

Networks help you Accomplish a positive relationship with people who are knowledgeable in a specific field, not only will it strengthen your option of networks, but it can help the entrepreneur enlarge their networks to get important information and resources from their contacts (Wiklunk, 2006). The next advantage is positioning, entrepreneurs position themselves within a social network to shorten the route the more experienced others took to get what they need. It’s about finding shortcuts, and possessing a selection of experienced contacts can help you find these shortcuts faster (Burt, 1992). Networking between entrepreneurs is a very effective tool, it various advantages (Cosson, 2010):

To improve commercial acumen

Encourage collaborations between similar businesses

Support one another, help to enlarge the specific market that you’re involved in

A personal network, consists of all those individuals whom the entrepreneur has direct relations to, this includes individuals like employees, suppliers, partners etc. Strong tie relations are those that the entrepreneur can count on and trust weak tie relations are only casual; people rarely have emotional investments in them. So what is the importance of sustaining weak ties?. Reflecting on Granovetter’s (1973) reasoning, which links weak and strong ties together, states that entrepreneurs are typical to be found in positions where centrality is high, this allows them to many diverse sources of information (Landstrom, 2009). To explain Social Networks in basic terms, the acquaintances of our friends, are also our friends (Aldrich and Kim, 2005). However, a personal network is a high density network, due to all the persons involved in that network being well known to each other. My interpretation of this is that it is important to sustain a balance of weak and strong ties. In basic words, it’s word of mouth, which plays a crucial role in starting or operating a new business. You might not know the contacts, but perhaps maybe your strong ties are in some form of relation to those weak ties, and that creates a flow of information which the entrepreneur could benefit from (Cosson, 2010).

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The social network concept is the relationship between an entrepreneur and the networks of contacts they have who provide them the resources that are important in starting a business and most importantly successfully running the business (Carsrud, Brannback, Brannback 2007). These acquaintances usually have some form of experience and knowledge concerning that specific field. Every entrepreneur, has, or believes to have some kind of knowledge to be capable of running the business, but they also need complementary resources to produce or improve their products (Casson, 2010). The contacts don’t necessarily have to be formal, they can be informal, such as friends, family or people who studied on the same degree scheme as you in university. These networks are absolutely crucial in obtaining a successful business (Ross and Brown, 1993). Those acquaintances who guide the entrepreneur to success are their social capital, and one of their key elements of their networks (Casson, 2010). Social Capital is a concept which means the connection and relationship between social networks, in this case, between the entrepreneur and their network. This can be seen as an investment for the entrepreneur. The word investment shouldn’t necessarily mean financially investing in a product or company, but, anything that you establish and become part of that is beneficial to you in the long term (Burt, 1992).

I personally believe formal networks are as crucial to an entrepreneur as informal networks are.

The entrepreneurial process has many lonely and difficult times. It’s part of becoming successful. There will be times when establishing a moral-support network is critical. The moral-support network is your friends and family, in simple words, people who make you happy (Hisrich, Peters, Shepherd, 2006). There will be times where even a single phone call from a friend or family will make you feel better, someone to encourage you to pick yourself up and carry on in pursuit of succession. Friends are a critical part of moral-support network, not only can they provide you with honest advice, the form of advice and opinions that others might not be so comfortable in delivering, but they can also provide you with assistance and you can confide with them without the fear of criticism (Cosson, 2010). Although not necessarily true, most entrepreneurs have parents who also own their own businesses or small firms (Cosson, 2010). Young entrepreneurs are able to take advantage of the experience and knowledge their parents possess and use it when developing a business of their own. However, a problem comes with this scenario. Off course family members are helpful at particular aspects when giving advice and feedback, however, too much dependence on family members may impact and restrict the entrepreneur’s network. Economists’ stress that dependence on family members may limit an entrepreneur’s networking circle. Entrepreneurial parents are a great source of information, there is no doubt about that, but knowing the limit of how much information to acquire from them is critical. You have to interact with the real world, the hard world, to be able to substance a successful business. Sooner or later your parents will be incapable of giving you information, and in that situation, you have no choice but to turn to networks outside your family zone (Birley, 1985). A study by Aldrich, Rosen and Woodward (1987) has suggested that those entrepreneurs with variable networks are more likely to experience better results. The applicants of the research, reported to have a higher than average number of contacts per week with core network members (Landstrom, 2010). A close friend of mine, Irfan Patel, after 4 years of planning and research, owns his own business, Citybeat53. Citybeat53 is a business that offers young talented musicians events and advertisement through its own channel of networks. it provides opportunity to those who need guidance and help. Irfan is a Music Engineering graduate from the University of Leeds. After graduating, he successfully secured an internship to work for SONY BMG. As he explained, whilst being an employee for Sony BMG, he learnt an ocean of information and skills. He believes it was due to the people he worked with, all of whom had side activities and businesses. Whilst working at the company, he formed a relationship with a colleague who specialised in organising concerts, book signings and formal events. And he began a string of networks for Irfan. Using those networks, Irfan managed to gather enough information and resources to create this incredibly unique business. As he explained, when the business established, the first year was the loneliest and most difficult time he has ever experienced. He explained that if it wasn’t for the relationships he formed whilst working for Sony BMG, he would have never made it this far. He values the network he established in London, more than achieving his degree. At times, he believe that maybe he should have done things differently, maybe taken different routes, but he believes everything that has happened to him counts as experience.

To conclude this essay, I have learnt that to be a successful entrepreneur, its critical to obtain a variety set of networks for yourself. To set up a successful new business, you must make relations with those who you believe can help you gain better results. By reading through this essay, I have learnt that not only the entrepreneurial experience is a hard and at times, long process, but it can affect an individual mentally. By carrying out a research about this field, I have learnt that those entrepreneurs who constantly try and expand their networks, and use their social network contacts to learn about new opportunities, often find a shorter route to success than those ‘solo entrepreneurs’ (Wiklunk, 2006). Trying to expand your network of contacts is like investing in a flow of information, at a cost of putting the effort of finding those contacts and maintaining a positive relationship with them. By looking at different types of theories and stories from entrepreneurs, I learnt that the majority of experienced entrepreneurs advice those younger entrepreneurs to expand their range of networks, and most importantly, maintain a diversified network. Weak ties are as important as strong ties. Entrepreneurship is about change, it’s about offering the market something unique, and throughout the entrepreneurial process, the entrepreneur will face environmental changes, changes which can be extremely challenging, hence the entrepreneur needs to be prepared to face these challenges. Having a network becomes like mechanism, a device created to help you to successfully respond to these changes.


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