Social capital theory and entrepreneurship
Too often, entrepreneurship is viewed as a solo job. This myth is perpetuated because of the heroic status that many entrepreneurs are conferred. Stories of Richard Branson, Steve Jobs, and Elon Musk reinforce the idea that entrepreneurs are individuals carving out a new world on their own.
In reality, entrepreneurs work in social networks to get their ventures up and running. From a Social Network Theory perspective, entrepreneurship is embedded in networks of enduring social relations (Walker et al., 1997).
What is Social Capital?
Social capital is loosely defined as the value of a venture founder’s network resources.
Networks may act as substitutes for investment capital. Private information flows over networks that can only be accessed through social interactions. An entrepreneur’s ability to recognize opportunities is largely related to their ability to access private information within these webs.
Granovetter: The Strength of Weak Ties
One of the classic studies was conducted by Mark Granovetter (1973), who concluded that weak ties are often more important than strong ties for accessing opportunity-related information.
- Strong Ties (Close Friends/Family): Usually contain high levels of redundant information. When a clique interacts, they tend to rehash the same news and experiences.
- Weak Ties (Acquaintances): A single individual can establish weak ties with hundreds of people in disparate networks. This gives them access to non-redundant information that would not ordinarily flow through their close circle.
Social ties that bridge unconnected social networks are called bridging ties, and these are particularly useful for sniffing out valuable opportunities.
Burt: Structural Holes
Ronald Burt (1992) expanded on this by noting that advantages come to those who bridge "structural holes."
[Image of structural holes network diagram]A structural hole is formed by a lack of social connections between large social networks. Burt emphasizes that it is not the number of ties that matters, but how non-redundant they are.
- If an individual connects two social groups that are otherwise unconnected, that position yields a better opportunity (brokerage).
- If there are several links needed to connect two networks together, then being the sole direct link yields significant power and advantage.
Empirical Evidence
Empirical studies examine whether individuals with more structurally diverse networks are more likely to encounter opportunities that can be seized through new venture creation (Greve and Salaff, 2003).
Entrepreneurs with structurally diverse networks may benefit from:
- Better access to financial capital.
- Access to tacit knowledge and talented human resources.
- Increased influence and legitimacy with stakeholders.
Video Overview: Social Capital and Structural Holes
Sources
- Burt, R. S. (2002). The social capital of structural holes. The New Economic Sociology: Developments in an Emerging Field, 148-190.
- Granovetter, M. S. (1973). The strength of weak ties. American Journal of Sociology, 78(6), 1360-1380.
- Greve, A. and Salaff, J. W. (2003). Social networks and entrepreneurship. Entrepreneurship Theory and Practice, 28(1), 1-22.
- Walker, G., Kogut, B. and Shan, W. (1997). Social capital, structural holes and the formation of an industry network. Organization Science, 8(2), 109-125.
