Entrepreneurs devote endless time networking with rank-and-file partners – but only a minority have clear strategies that inform their approach to networking activities. The ability of actors to extract benefits from their social structures, networks and memberships in a business relationship has been termed social capital.
Entrepreneurship research propagates that small and medium-sized enterprises (SMEs) can exploit advantages from being part of a network.
For instance, membership to a business network can lead to benefits such as making a first sale or gaining access to external resources such as venture capital. SMEs need to realise the social nature of entrepreneurial growth and the importance of networking in growing their companies.
There is consensus among experts that entrepreneurship is not an individual act, operating in isolation from social processes; and that entrepreneurial activities are results of social interactions and mechanisms. Networking or social capital is the missing link and firms can no longer succeed by ‘bowling alone’.
SMEs therefore need to formulate suitable networking strategy at their various growth stages in order to harness the benefits of their alliance networks.
In order to help entrepreneurs with formulating their strategies for networking, this article demystifies the concept of social capital as a multi-dimensional asset inside the business relationships comprising of strong ties and weak ties.
The article also highlights the dynamic nature of social capital at various stages growth of SMEs.
Strong ties refer to the extent that the business relationship between a firm and its partners is marked by the presence of goodwill trust, expectations of mutual benefit, and identification.
The people in this type of entrepreneurial network may share a common identity such as being close friends, or relatives or having worked for the same company. Strong ties can be useful to SMEs in promoting joint problem solving such as the acquisition of human resources (recruitment) with common values and goals.
Entrepreneurs should be careful not to become overly dependent on strong ties because such ties can reduce the flow of new information. Ties to the same network partners may imply that there are few or no links to outside partners who can potentially contribute innovative ideas.
Ties to interrelated partners in the network may led to redundant information being transmitted, resulting in networking activities becoming a time consuming and costly effort.
A weak tie-based network relation means that the persons in question may not personally know each other but may know of each other.
If your company operates in a dynamic industry, there it stands to benefit from weak ties and see more opportunities because of the constant exposure to new ideas from different partners. Weak ties are useful for exchanging valuable information.
Entrepreneurs build and use networks that vary according to the phase of entrepreneurship. Start-up firms should progress from strong ties of social capital towards weak ties in order to meet the increased quantity and scope of resources needed during the innovation process.
The firm’s social network begins with a base of strong socially embedded ties, and evolves into less cohesive weak ties. As the firm moves into the growth stage in their life-cycle, the network changes from identity-based to an arm’s length ties that are more purposefully managed to explore growth.
Economic activities are embedded in social relationships. Strong and weak ties are not alternatives but complementary assets. For entrepreneurs, strong ties play a crucial role in transmitting sensitive information in social networks whereas weak ties can disperse extremely valuable information.
Strong and weak ties influence performance in different ways depending on the life-cycle of the company and its objectives. SMEs will gain a competitive advantage by effectively managing their network alliances and information flows through maintaining a healthy balance between strong and weak ties in their networks.