The Role of Social Capital In the Business Start-up And Entrepreneurial Development - Essay Example

?Introduction Many people often think of becoming successful entrepreneurs but this unfortunately remains a dream for most of them (Hawkins & Wing, 2009). There are different issues that contribute to the success or failure of business. Though there are limited studies about the importance of social capital when starting a business, it can be argued that this concept has a bearing on the success or failure of entrepreneurial business. As such, this paper seeks to critically evaluate the significance of social capital when starting a new business enterprise. The paper starts by explaining the meaning of entrepreneurship and social capital. The main part of the paper will evaluate the relationship between the two concepts as well as try to outline how they can lead to success of business. The last part of the report will sum up the main points discussed. Entrepreneurship Basically, entrepreneurship is about is about creating wealth by doing something new and/or innovative in order to add value to the society (Strydon, 2007). The underlying themes here include the following: creating wealth, innovation and opportunity. There are different business opportunities that exist in the business environment that are often overlooked by large corporations. Entrepreneurs can identify these opportunities and try to create value to the targeted people (Lamb, 2008). Not all businesses are successful and it can be seen that there are various reasons for this. For instance, Burke (2007) posits to the effect that various measures should be taken by the entrepreneurs such as being skilful in analysing and scanning the environment in a bid to identify the opportunities that may exist in the market. After identifying the gaps that may exist in the market, a business strategy ought to be decided and this can be implemented when business is launched. However, the success of the new business venture will strongly depend on the nature of social capital that exists in the new organization. Social capital and entrepreneurship Woolcock & Narayan (2000) define social capital as “as the norms and networks that enable people to act collectively.” If people act in a collective way, they are likely to achieve the desired goals since their efforts will be directed towards the attainment of the desired goals and objectives. When people work as a group, there are high chances that they will share common understanding towards the goal to be achieved. On the other hand, in can also be seen that “social capital theory refers to the ability of actors to extract benefits from their social structures, networks, and memberships (Lin, Ensel and Vaughn, 1981; Portes, 1998, as cited in Davidsson and Honig, 2003, p.8). In theory and practice, people use their social structures to determine the things they need in their lives. After deciding what they want, the information is communicated to all members and they are given the opportunity to air their views about the measures that can be implemented in order to transform those ideas into action. All this can happen as a result of social networking where the people exchange their views and ideas such that they can utilise the resources available to transform their lives. There are different types of social networks that exist in different communities. It can be seen that social networks “provided by extended family, community-based, or organizational relationships are theorized to supplement the effects of education, experience, and financial capital,” (Bourdieu, 1983; Coleman, 1988; 1990; Loury, 1987). It can also be seen that social capital can exist at individual or organizational levels (Nahapiet and Ghoshal, 1998). Individuals in an organization can create links with others so that they can determine the direction to follow when they execute different tasks that are meant to generate wealth. Networks involving family members in business are essential since they promote cohesion among the members involved. Family members as well as relatives have a strong bond among themselves because they can identify with each other. In case of business, these people are likely to closely work together for the betterment of their business since they are assured that they would benefit if they generate revenue from their operations. Group cohesion is likely to be promoted if the people involved share a strong bond. It also becomes easy to create social networks among the members of the group if they are closely linked. Psychologically, the behaviour of people is shaped by their cognitive attitude towards different aspects of life. The humans use their knowledge in order to increase their cognitive abilities which in turn lead to more potential and productive and efficient potential activity (Schultz, 1959; Becker, 1964; Mincer, 1974 as cited in Davidsson and Honig, 2003, 8). The behaviour of people is shaped by their attitude towards something. Just like in business, if the members in the organization have a positive idea towards their work, they are likely to meaningfully contribute to its operations. It is also easy to influence the behaviour of the members of the group if they can identify with their organisation. As entrepreneurs, it is important to make sure that there are open channels of communication that can be used to pass information among different people. The other viable strategy that can be used to promote networking among members of the organization is the use of new information and communication technology. Communication tools such as the internet as well as mobile phones can significantly help to create networks that can be used by people to exchange information. New information and communication technology (ICT) is very important to entrepreneurs since it can help them to gather information or to disseminate it at a faster pace. This communication technology has many advantages to the entrepreneurs. They can easily network with both customers and the employees working in the organization. One important aspect is that the internet has revolutionised the way people conduct their business today. The entrepreneurs can market their products on the internet and they can also use this medium of communication to facilitate transactions with the customers. It is also easy to carry out market research using new ICT since this method of communication makes it possible for information to flow in either direction. It is also easy to provide feedback to the people involved which can help the organization to achieve its goals. Communication networks using ICT are easy to manage since all the information can be easily stored in the database of the organization and it can also be retrieved easily should the need arise. Significance of social capital Social capital is very important to people who are engaged in entrepreneurial business. According to the study by Davidsson and Honig (2003, p.3) “the only one aspect of social capital, viz. being a member of a business network, had a statistically significant positive effect on the success of entrepreneurs.” Basically, social capital has its roots in identification of networks and network relationships, various formal interactions and other social activities that enable people to network. Davidsson and Honig (2003, p.9) state that: “from an entrepreneurial perspective, social capital provides networks that facilitate the discovery of opportunities as well as the identification, collection, and allocation of scarce resources.” When people have networks of communication, they are likely to share their ideas about various opportunities that exist in the market. People who often communicate openly with each other can easily identify the opportunities that may be available to them. After identifying these opportunities, they can also exchange their views about the best strategies that can be implemented in order to allocate resources so that they can be transformed to create wealth. Networking in entrepreneurship is not only limited to internal structures in the organization. It extends to external networks where the members of a small business can interact with people who may have ideas and knowledge about the opportunities that may exist in the environment. There are many advantages of social networking since it helps to stimulate people to use their minds to figure out the methods that can be implemented to utilise the available resources to create wealth. This wealth in turn can improve the welfare of the people involved. Therefore, outsiders can contribute their ideas to entrepreneurs in their respective communities if they are aware of the fact that they will also benefit from the business venture. In some cases, the local people have knowledge about the environment in their respective communities and they can give quality advice to different entrepreneurs. The ideas obtained from local community members can positively contribute to the operations of the organization. In order to engage the members of the local communities in the operations of business, it is imperative to make sure that social networks between the organization and these people exist. This helps both parties to exchange information that can help to improve the operations of the organization. Networking through social capital promotes innovation. Innovation deals with finding a unique way of offering a particular service or product to the market (Nieuwenhuizen 2004). The resources ought to be utilised wisely so as to counter the threats that may exist in the market. Each individual might have a different world view of the environment they live. If the views of different people are combined, they can be transformed into good business ideas. Some people may not be able to start their own business ventures but they can significantly contribute to the success of a business venture. Some people are not leaders themselves but they can positively influence the leaders in their companies to take a certain course of action that can turn around the fortunes of the company. This can only be possible if there is networking among the members involved. The leaders can influence their subordinates to come up with suggestions that can be adopted in order to improve their operations in the organization. Entrepreneurs who fail to utilise their social capital are likely to fail in their business ventures. The reason for this failure in business among different people is that they often think that entrepreneurs are born (Diedrichs, 2008). It does not require one to be highly educated in order to successfully start and run a small business entity. People can synergise their ideas through networking and this can significantly help in generating new ideas. Indeed, it is important for the entrepreneurs to have other skills such as communication as well as the ability to scan the environment so that they can utilise the opportunity in the environment to the fullest. Learning is very important especially among people working in the same organization. In case of a small enterprise, the members can exchange their ideas so that they can pull their efforts towards the same direction. People who have the same vision towards a certain goal are likely to be productive since they can put more effort in their operations in order to achieve the desired goals. However, people can interact meaningfully if they have clear networks of communication. Conclusion Over and above, it can be seen that entrepreneurship is mainly concerned with identifying a business opportunity, creating wealth through innovation. As discussed above, it can be observed that this is not an easy feat as many people may think since there are quite a lot of factors that ought to be taken into account. It has also been noted that the aspect of social capital is very important in as far as entrepreneurship is concerned. Social capital is about how people network in order to create value from the resources available. People usually exchange views and opinions through networking and this can help them to generate knowledge which can be transformed into new business ideas. People are likely to be innovative if they share ideas. Thus, it can be seen that social capital is very important to entrepreneurs who want to start new business ventures. References Burke, R 2006, Entrepreneurs toolkit, Burke Publishing, Everbest. Davidsson, Per and Honig, Benson (2003,) The role of social and human capital among nascent entrepreneurs. Journal of Business Venturing 18(3):pp. 301-331. Viewed 19 November, 2013, from: . Diederichs, A 2008, Business Jungle: Lessons from nature for the entrepreneur. Naledi: CT. Goyal M 13 December 2007, Entrepreneurship: Trust your gut feeling. Viewed 19 , 2013,. Hawkins, B & Wing, L 2007, How to start a business when you are young: Get the right idea for success. A &C Black: London. Lamb, CW 2008, Marketing, Oxford University Press, London. 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