Entrepreneurs and their networks

You are an entrepreneur – or you are thinking about becoming an entrepreneur… who do you go to for advice? Who do you trust for advice? Why?  Well, according to the research in the UAE and MENA (Middle East and North Africa) I have participated in (and as soon as the articles and reports are published I will write about the specifics of our findings) – entrepreneurs in the region turn to family and friends first and professionals (accountants, banks, professional services firms) last.

We tend to think about entrepreneurs as independent beings, succeeding and failing solely by their own efforts. Of course, this is not a totally accurate view. Entrepreneurs are part of a larger network made up of social and professional actors. These actors provide resources and support which entrepreneurs capitalize on to achieve their goals. Networks are the  relationships that each entrepreneur as an individual is involved in that provides resources – for the subject of this blogpost: knowledge/information/advice – one resource commonly needed across all phases of the entrepreneurial process.

A network is the “set” of contacts (individuals, organisations,  around an entrepreneur who provide a resource (advice) to an entrepreneur. Networks should be considered as social entities.  An entrepreneur’s social network supports her business network (in fact it could be the same network viewed from two different angles) as these networks promote trust and reduce transaction costs (for services, resources, etc.).  This is done through superior information gathering and a reduction in opportunistic behavior – because network actors could and would lose reputation through a misuse of information or erroneous information/advice. 

Networks are also a key means of accessing external knowledge, knowledge we don’t possess.  This knowledge involves both formal and informal exchanges and the exchange and creation of both tacit and explicit knowledge. Tacit knowledge is know-how, know-why and our instincts developed through experience. Explicit knowledge is what is written down, but which also often needs interpretation.

Trust of course is the key to these networks working – which is maybe why entrepreneurs turn to family and friends before the professionals – at least in developing economies where professional infrastructures are not as “trustworthy” or are simply unknown to entrepreneurs.

From research we know that the use of different kinds of networks leads to different results. For example, the more contact a person has internationally, the more innovative their products or services and of course the more likely they are to export their products or services internationally.

More innovative products and services are also more likely to come from entrepreneurs with closer and a greater number of links in their industry/market. When an entrepreneur knows what her competitors are offering, the more likely she will try to be a little different – offer something newer, better – more innovative! Also, links with suppliers (e.g. a fabric manufacturer for an abbaya designer) will although the entrepreneur to know more about what will be available in the future – raw material wise – which will help her creative more innovative designs which better incorporate the new materials.

My PhD thesis was about knowledge and technology transfer from universities to industry – well, you can imagine not many entrepreneurs in the MENA region use the results of university research … hopefully that will change, because a knowledge economy is built on – uhm, well knowledge – and the most cutting edge knowledge is produced by universities and working researchers… Yes, the Google guys are university “drop outs” – but they dropped out of a PhD program and Google is a direct result of their (and their professors) research there…

Finally, an entrepreneur or future entrepreneur can seek and gather advice for years – but it is making the leap which is the most difficult part – which is perhaps why the support we receive from our family and friends (and professors J) might be the best resource any network can produce.

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