Sue Birley

The role of networks in the entrepreneurial process

Abstract The extent to which the entrepreneur interacts with the networks in his local environment during the process of starting a new firm was studied. This study was based on the premise that, during this process, he is seeking not only the resources of equipment, space, and money, but also advice, information, and reassurance. Consequently the help and guidance received from both the formal networks (banks, accountants, lawyers, SBA) and the informal networks (family, friends, business contacts) will influence the nature of the firm substantially. The study was conducted in St. Joseph County, Indiana, a county that has experienced the same economic problems as many other towns in the midwest smoke-stack belt during the 1970s. In 1982, in response to this general decline in the business climate, a fund was raised to create and manage a new industrial strategy. Before this, there was no collective strategy for nurturing either the small firm or the new firm. Therefore, in order to determine the extent to which an interventionist strategy was appropriate, a research project was designed that posed three basic questions: what does the environment look like; does it need changing; and, if so, in what ways? This article reports part of that study—a survey of firms that had started in the county in the previous five years (1977–1982). It was concerned with two issues: the characteristics of the St.Joseph County entrepreneur and the usage of the formal and informal networks. The results of the survey show that the aggregate characteristics of the St. Joseph County entrepreneur are similar to those found in other studies. The new firms were founded by local people from small firms who started their small firms in similar industries that were local in nature. Moreover, the majority (90%) not only started small, but also grew very little subsequently—firms that have been classified elsewhere as life-style ventures. It is to be expected that such people would have a strong local network, both formal and informal, particularly in a county with a population of only 220,000. However, the results of the second part of the study showed that the main sources of help in assembling the resources of raw materials, supplies, equipment, space, employees, and orders were the informal contacts of family, friends, and colleagues. The only institution that was mentioned with any regularity was the bank, which was approached towards the end of the process when many of the resources were assembled and the elements of the business set in the entrepreneurs mind. This was not because the formal sources were unwilling to offer guidance, but rather that the entrepreneur and his social network appeared to be unaware of what was available. Moreover, in using only business contacts, family, and friends, the entrepreneur was likely to re-create the elements of previous employment, even when he was starting business in an entirely new market. Further, there was no significant difference between growth and no-growth firms. It would appear that in this county, the formal network was uniformally inefficient. This research shows that a major aim of the new strategy should be to increase the awareness of the community to the formal sources and types of help that are available. However, whilst most of the institutions are prepared to solve specific problems, they are not in the business of diagnosis or counseling. The network needs a hub or an enterprise office. The data on the start-up process and the role of networks in relation to new firms are very sparse and often anecdotal. This study was conducted in one environment, a small midwest county with a jaded entrepreneurial tradition. Further studies are necessary. Research questions include the extent to which networking is crucial in the start-up process, the length of time it took for the sophisticated networks of Bostons Route 128 and Californias Silicon Valley to develop, and the effect of different geographic, cultural, and economic conditions. Only in this way is it possible to determine the extent to which regional, regeneration strategies for new firm creation should be county specific rather than state or country wide.

A taxonomy of business start-up reasons and their impact on firm growth and size

Abstract Based on a survey of 405 principal owner-managers of new independent business in Great Britain this paper explores two research questions— are there any differences in the reasons that owner-managers articulate for starting their businesses, and, if there are, do they appear to affect the subsequent growth and size of the businesses? The results of the study indicate an affirmative answer to the first question. From the 23 diverse reasons leading to start-up that were identified in the literature, an underlying pattern emerged via the Principal Components Analysis. Moreover, these were similar to those found in earlier studies. Thus, five of the seven components identified by the model correspond to those identified by Scheinberg and MacMillan (1988) in their eleven-country study of motivations to start a business: “Need for Approval,” “Need for Independence,” “Need for Personal Development,” “Welfare Considerations,” and “Perceived Instrumentality of Wealth.” Two further components were identified by this current study. The first vindicates the decision to add a question not included in the previous study that related to “Tax Reduction and Indirect Benefits,” and the second, the desire to “Follow Role Models” was identified by Dubini (1988) in her study in Italy. In order to take account of possible multiple motivations in the start-up period, cluster analysis was used to provide a classification of founder “types.” The seven generalized “types” of owner-managers were named as follows—the insecure (104 founders), the followers (49 founders), the status avoiders (169 founders), the confused (15 founders), the tax avoiders (18 founders), the community (49 founders), and the unfocused (1 founder). Further, evidence from the final discriminant analysis model suggested that the seven-cluster classification of owner-managers was appropriate and optimal. However, despite these clear differences between clusters, this was not found to be an indicator of subsequent size or growth, as measured by sales and employment levels. The answer to the second research question would be in the negative. Therefore, we conclude that, whereas new businesses are founded by individuals with significantly different reasons leading to start-up, once the new ventures are established these reasons have a minimal influence on the growth of new ventures and upon the subsequent wealth creation and job generation potential. This result is important for investors and policy-makers. It suggests that strategies for “picking winners” solely based upon the characteristics of owner-managers and their stated reasons for wanting to go into business are not supported. Thus, for example, targeting scarce resources to those with high opportunistic and materialistic reasons for venture initiation would miss those with a wider sense of community or those with personal needs for independence who establish similarly sized businesses with comparable levels of wealth creation.

New venture growth and personal networks

Abstract This article presents the results of a survey of 159 owner-managed companies in England. The research question explores the effectiveness of personal networks in terms of firm performance and growth. Multiple regression confirmed the importance of networks for company performance and development.

Personal networks and firm competitive strategy--A strategic or coincidental match?

Abstract This article is based upon the premise that the personal network of the owner-manager is the most important resource upon which he or she can draw in the early days of the firms development. This is particularly the case as the concept of personal networks is sufficiently general to include dimensions that include, for example, attention to customers, understanding of the business, market orientation, or stress on quality. As such, it is intuitively obvious that the nature and use of these networks must impinge upon the resultant strategy adopted in the firm, albeit often implicit rather than explicit. However, as yet there is no empirical evidence to support this conclusion. Therefore, this article probes one question: how do the characteristics of the owner-managers network relate to the competitive strategy of new ventures? Clearly, within this, we expected to find relationships that were logically consistent. The research was conducted in two counties in England that possessed similar industrial structures and equal rates of new firm formation. A list of firms was obtained from local business directories, and all 629 firms that fit the criteria were contacted by telephone. Validation of the firms at this point resulted in a significant reduction in those that fit the sampling criteria.Four hundred twenty-three firms were mailed an 11-page questionnaire resulting in a 52% response rate. Preliminary analysis of the strategy variables identified six components that were consistent with previous literature. These were labeled as marketing differentiation, product innovation, market segmentation, distribution, growth through outside capital, and differentiation through quality. Correlation of these components with the networking characteristics of propensity to network, network activity, network density, network intensity, and content of network exchanges supports our proposition that entrepreneurs differ in their networking activities according to the competitive strategy pursued by the firm. Further classification of the owner-managers into strategic clusters demonstrates that most firms appear to follow multiple patterns of strategic behavior. Moreover, the comparison with the networking characteristics shows that owner-managers appear to differ in a logical manner in the use of their networks. Bailey, Montera, and Cardow (1992) argue that a firms resource base consists of financial, physical, and human resources, and that the manner in which those resources interact is determined by the firms strategy. Previous research on entrepreneurial networks has shown the amount of time and energy the owner-manager devotes to the development and maintenance of contacts. The underlying assumption of social-network theory is that through a personal network, the owner-manager of a new venture gathers access to critical resources, which for a variety of reasons the new firm does not possess internally. Consequently, this research has argued that this resource base cannot be ignored when attempting to understand the concept of “strategy” among new and small firms. In fact, this resource base may play a dominant role in formulating as well as implementing “strategy.”

Trade-offs in the investment decisons of European venture capitalists

Abstract Previous studies of venture capital investment criteria, which have tended to utilize traditional Likert-scaled survey methods, have produced some general findings which indicate that the “human factor” is of utmost importance. However, virtually all of these studies have been undertaken with U.S.-based venture capitalists. In addition, the studies have generally been exploratory and have assumed a single hierarchy of decision criteria in all cases and across all venture capitalists. We do not accept that this is valid; therefore, our study tested this assumption by investigating the trade-offs made by venture capitalists in Europe. Thirty-five investment criteria were identified from the literature and from experts in the field, and a questionnaire was developed that required the venture capitalist to make 53 pairwise trade-offs with multiple levels. Seventy-three venture capitalists from across Europe were interviewed and completed the questionnaire. Conjoint analysis was used to compute relative rankings, and overall rankings were computed to provide some general insight into the overall importance of the various criteria. After this, cluster analysis was used to identify different decision groupings. The trade-offs were randomized in the questionnaire but, for descriptive purposes, fall into the following groupings: financial, product-market, strategic-competitive, fund, management team, management competence, and deal. All five management team criteria (as opposed to management competence criteria) were ranked among the first seven, product-market criteria appeared to be only moderately important, and fund and deal criteria were at the bottom of the rankings. Overall, we conclude that the venture capitalists interviewed would, as a group, prefer to select an opportunity that offers a good management team and reasonable financial and product-market characteristics, even if the opportunity does not meet the overall fund and deal requirements. It appears, quite logically, that without the correct management team and a reasonable idea, good financials are generally meaningless because they will never be achieved. Cluster analysis identified three groupings of venture capitalists: those primarily concerned with investing nationally, those who focus solely upon the deal, and those mainstream investors who consistently and instinctively rank the five management team criteria at the top of their list. However, there was no evident country bias—a conclusion that is sustained if the countries are grouped by physical proximity (northern versus southern Europe) or by size of the local venture capital community, a surrogate for experience. Moreover, there was no relationship to the scale of the fund, the typical round of financing, or the apparent network. The article concludes by outlining the implications of the study for venture capitalists, entrepreneurs, and the research community.

Academic networks in a trichotomous categorisation of university spinouts

The paper adopts a network perspective in an attempt to understand the underlying mechanisms generating the different university spinout structures. In this respect, we propose a trichotomous categorisation of university spinouts into orthodox, hybrid and technology spinouts and argue that the academics embeddedness in a network of exoinstitutional and endoinstitutional ties influences the type of spinout initiated. We draw from some of the recent network research that has adopted a contingency approach in explaining the value of social networks.

Entrepreneurial Networks: Their Emergence in Ireland and Overseas

SUE BIRLEY IS PROFESSOR OF management at Imperial College, London, England, Stanley Cromie is professor and director of the Centre for Management Education at the Ulster Business School, Ulster University, Northern Ireland, and Andrew Myers is with the Cranifield School of Management, England. This paper discusses the need for information in organisations and the particular relevance of non-documented data which is gathered by managers from a network of personal contacts. It examines some of the issues involved in assessing the characteristics of personal networks and proposes that network activiety, density and diversity are the crucial features of business networks. The paper suggests that personal networking is a particularly appropriate mechanism for information gathering by owners/managers of small organisations, examines the personal networks of 274 business proprietors and compares the findings of this study with similar ones conducted in the United States of America, Sweden and Italy. Results indicate that entrepreneurial networks in Northern Ireland are smaller than elsewhere and that little zeal is displayed in increasing their size. However, considerable energy is devoted to maintaining existing networks and they are of relativly high density. Northern Irish networks are quite heterogenous with business associates, family, friends and professionals to the fore but the dearth of owner/managers and employees in the personal contact networks is quite surprising.

Networking by female business owners in Northern Ireland

Abstract Women form a very significant proportion of the labor force in the U.K., but both their salaries and their organizational status lag significantly behind those of men, even in female-dominated industries. Consequently, women are turning increasingly to business proprietorship as a means of overcoming labor market and organizational subordination. However, research to date has shown some evidence that female entrepreneurs face more problems and are in an even more precarious position than their male colleagues. A multitude of factors can have an influence on the viability of a new venture, but recently researchers have begun to focus on the significance of the owner-managers personal contact network as an aid to business development. Thus, for example, those entrepreneurs with large, diverse, and closely knit networks of associates are likely to draw their advice and assistance from an equally large pool. However, networks are the product of personal drive and historical experiences, and the social structure and domestic duties of many women together with their subordinate organizational roles may result in female entrepreneurs having less developed, more closely knit networks than men. Using a modified version of the personal contact network instrument developed by Aldrich et al. (1987), the authors collected data on the size, diversity, density, and effectiveness of the networks of 204 male entrepreneurs and 70 female entrepreneurs in Northern Ireland in an attempt to discover whether the personal contact networks of women are significantly different from those of men. The research posed four basic hypotheses: 1. 1. Women will be less active networkers than men. 2. 2. Women will have less dense networks than men. 3. 3. Women will incline towards discussions with other women. 4. 4. Family members will be the most important persons in the contact network of female owner-managers. Contrary to expectations, the results indicate that, with the exception of the gender of the individuals in the personal contact network, female networks are remarkably similar to those of men. Thus, for example, they are just as active in their networking as men, their personal contact networks are as diverse as those of men, and they are no more likely to consult family and friends than are men. However, analysis of the cross ties shows that they tend to rely heavily upon a male colleague as their prime contact but to revert to their own sex for the rest. In contrast, their male colleagues relied almost entirely on members of their own sex for advice.

The family and the business

Abstract The aim of this paper was to explore the attitudes of owner-managers to the conflicting pressures of family and business. Five hundred and thirty-four owner-managers responded to a questionnaire that asked about their attitudes to a range of issues including, for example, succession and equity, children′s involvement in the business, and the extent to which family should expect income from the business. There was common agreement on some issues such as the fact that children should be allowed to choose whether to join the business, and that family and business affairs should be kept separate. Beyond this, there were disagreements with three clear groups, or clusters, of attitudes emerging. We called these the Family-Business Jugglers, Family Rules, and Family Out groups.

Do women entrepreneurs require different training

This paper analyzes the characteristics of male and female participants attending pioneering entrepreneurship development programs, which form part of an economic strategy directed at increasing the quality and quantity of new firms. The participants did not need to have a business plan, finance available or formal education, but must have had a “reasonably feasible idea”. The results show significant differences between the characteristics of the male and female entrepreneurs, and the businesses which they form.