Network Support And The Success Of Newly Founded Business

By Josef Bruderl And Peter Preisendorfer

Group 3

Mitra C
Anup Shetty Manoj Rick

Pruthvinath
Nitesh

INTRODUCTION
Network resources, network activities & network support are heavily used to establish firms. Entrepreneurs who have a big, broad and diverse network are more successful.

COMPENSATION AND SUCCESS VIA SOCIAL SUPPORT

Network approach to entrepreneurship -Personal network -Organizational network Entrepreneurship is inherently a networking activity

 Social relations and social contacts are important channels for gaining access to information Network contacts give access to customers and suppliers Network contacts may open the possibility to broaden the financial basis of a new firm

THE SOCIAL CAPITAL CONCEPT

Two Important Strategies

First strategy : The general characteristics of personal networks entrepreneurs explore the effects of these characteristic on business performance.
Second strategy: Looks at the activities carried out by entrepreneurs in the formation stage of their business and the amount of support received out of their network.

FACTORS FOR SECOND STRATEGY

Factor A Factor B

Acc to Light & Karageorgis , Highly developed social networks can compensate shortfalls of the human capital.

SUMMARIZING NETWORK APPROACH TO ENTREPRENEURSHIP

1) Based on the compensation hypothesis, More use of social support is made during the start up period of their businesses. 2) Based on compensation hypothesis, entrepreneurs with smaller amounts of financial start-up capital ,more social support. 3) Based on compensation & success hypothesis simple Bi variate cross tabulations of social support measures and success indicators should show no or even negative effects of network support. 4) Based on success hypothesis , after controlling for human capital of founders and start up capital of new business positive influences of network support should show up.

DATA
The Munich Founder study
Based on Interviews- 1990 Sample Size of 1849 Complex part- The firm were still in existance or not? Interview- Broad,Avg time First part- characteristics & devlopement

Second part- Individual & networking

NETWORK COMPENSATION HYPOTHESIS

Ho: The business founders with less favorable human

capital profile and with restricted financial resources try

harder to activate their social ties and receive more support out of other networks.

To test this hypothesis we need to investigate effects of : Human capital of the founder. Start-up capital of the firm.

OLS-REGRESSION MODEL
Support from strong ties Support from weak ties Active help from spouse Emotional support from spouse

Covariates

Means of covariates 0.32 0.06

Support from Strong ties 0.089 -0.007

Support from weak ties -0.024 -0.158

Active help from spouse 0.341* 0.044

Emotional help from spouse 0.316* 0.103

Female founder Non-German founder

Years of schooling Years of work experience

13.11 14.53

-0.019* -0.009*

0.012* -0.010*

-0.085* 0.014*

-0.027* 0.002

Industry specific experience Self employment experience

0.56

0.061

0.122*

-0.263*

-0.056

0.29

-0.134*

-0.129*

-0.103

-0.110

Management Experience

0.52

-0.055

0.053

0.104

-0.014

Start-up capital

7.08

0.024

0.008

0.071*

0.026

 Female founder receive more support from strong ties, more active and emotional support from spouse/life partner and less support from weak ties For Nationality the expected positive effects do not show up. Only positive effect is Non-German founders receive less support from weak ties. Strong ties is only supporting the hypothesis that negative effects of our human capital makes to mobilize more social support. Founders with more years of schooling receive less support from strong ties and all except having strong support from weak ties.

 Self-employment is consistently connected with all negative effects. Remaining 3 variables the pattern is mixed. Out of 11 significant human coefficients 8 have the expected negative signs, so there might be some truth in Ho. Financial resource coefficient contradicts the hypothesis since it is +ve for all variables. So, Ho is true only for human resources but not for financial resources.

NETWORK SUCCESS HYPOTHESIS

BIVARIATE RESULTS
Success or failure of a new firm can be extracted with:-

1. Individual characteristics of the founding person

2. Characteristics of the new firm itself

3. Characteristics of the environment of the firm.

BASELINE MODEL FOR THE SUCCESS OF NEW BUSINESS

Covariates Female Founder Non German Founder Means of covariates 0.32 0.06 Survival 0.025 (0.98) -0.044(0.85) Employment Growth -0.152(3.70) -0.050(0.58) Sales Growth -0.129(3.08) 0.055(0.63)

Years of schooling
Years of work experience Industry specific experience Self employment experience Management experience Follower Business Start up capital(natural log)

13.11
14.53 0.56 0.29 0.52 0.24 7.08

0.017(3.97)
0.004(3.42) 0.104(4.36) -0.033(1.24) 0.011(0.46) 0.053(1.82) 0.007(2.51)

0.001(0.12)
-0.006(3.34) 0.092(1.92) -0.007(0.19) -0.053(1.55) -0.109(2.8) 0.011(2.53)

-0.015(2.31)
-0.007(3.61) 0.125(2.49) -0.027(0.69) -0.005(0.13) -0.173(4.16) 0.016(3.07)

No. of employees in 0.24 first year(natural log)

0.046(3.08)

0.031(1.63)

0.018(0.83)

Covariates
Sales volume in first year(natural log) Registered in commercial register Industry: manufacturing Industry: construction

Means of covariates
11.17

Survival
-

Employment Growth
-

Sales Growth
-0.047(6.47)

0.20

0.185(5.38)

0.108(2.07)

0.053(0.99)

0.04

0.234(5.69)

0.068(1.19)

-0.010(0.17)

0.01

0.210(3.29)

-0.061(0.72)

0.004(0.04)

Industry: wholesale trade

0.11

0.008(0.20)

0.009(0.17)

0.058(0.96)

Covariates

Means of covariates 0.05 0.09 0.07 0.08 0.03

Survival

Employment Growth 0.064(0.76) -0.047(0.58) -0.137(1.35) -0.116(1.15) -0.102(1.00)

Sales Growth

Industry: sales intermediaries Industry: transportation Industry: insurance Industry: restaurant Industry: education/pub lishing Industry: consultation Industry: other services

-0.013(0.23) -0.076(1.61) -0.018(0.36) -0.061(1.28) 0.089(1.27)

0.023(0.25) -0.066(0.85) -0.140(1.07) -0.162(1.56) 0.026(0.25)

0.18
0.09

0.035(0.91)
0.020(0.41)

0.093(1.64)
-0.078(1.08)

0.065(1.01)
-0.117(1.59)

MULTIVARIATE ANALYSIS
It is based on the statistical principle, which involves observation

and analysis of more than one statistical variable at a time

Indicates that high network support increases the probability of

survival and growth

Support from strong ties shows more convincing effects than from weak ties measure. Support from family network increases success than compared to outside network

Network support varibles Support from strong ties (Medium) (High) Support from weak ties (Medium) (High) Active help from spouse (Medium) (High) Emotional support form spouse (Medium) (High)

survival

Employement growth 0.037(0.88)

Sales growth

0.056*(1.97)

0.033(0.71)

0.093*(3.04) 0.005(0.19)

0.068(1.46) 0.019(0.53)

0.178*(3.21) 0.075(1.92)

0.058(1.69) 0.105*(3.57) 0.093*(3.43) 0.017(0.58)

0.046(1.00) 0.068(1.57) 0.018(0.45) 0.074(1.78)

0.138*(3.63) 0.091(1.88) 0.095*(2.23) 0.045(0.99)

0.075*(2.77)

0.065(1.51)

0.078(1.65)

Conclusion
Network approach to entrepreneurship Support from personal network improves survival and growth of newly founded business Support from strong ties is important

No confirmation that entrepreneurs compensate shortfalls of human and capital by resorting to network but partial confirmation with respect to human capital