Beyond social capital: How social skills can enhance entrepreneurs' success. Academy of Management...

8/17/2019 Beyond social capital: How social skills can enhance entrepreneurs' success. Academy of Management Executive

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Academy of Manageraen Executive, 2000. Vol. 14, No,

Beyond social capital: Howsocial skil ls can enhance

entrepreneurs success

Robeit A. Baion and Gideon D. Marfcman

Executive OverviewWhy are some entrepreneurs so much more successful than others in starting new

ventures? P revious efforts to answer this question have generally focused either on thepersonality traits or suscep tibility to variou s cognitive errors of individual entrepreneurs,

or on such external factors as the number of competing businesses. We suggest thatentrepreneurs social skills—specific com petencies that help them interact effectivelywith others—may also play a role in their success. A high level of social capital, built ona favorable reputation, relevant previous experience, and direct personal contacts, o ftenassists entrepreneurs in gaining access to venture capitalists, potential customers, andothers. Once such access is gained the nature of the entrepreneurs face-to-faceinteractions can strongly influe nce their success . Specific so cial skills, such as the abilityto read others accurately, make favorable first impressions, adapt to a wide range ofsocial situations, and be persuasive, can influence the quality of these interactions.Moreover, by helping en t repreneurs expand their personal networks, social skills mayalso contribute to their social capital. Beca use social skills can readily be enhancedthrough appropriate training, en t repreneurs who fa te advantage of such opportunitiesmay reap important benefits.

In 1993 an d 1994 the first a uth or of thi s a rtic leobtained two patents for a new product—a desk-top unit that combined air filtration with such ad-ditional features as noise control. Since he hadonly l imited manufacturing experience, he de-cided that the best way to bring this invention tomarket was to l icense these patents to an estab-l ished business. The author contacted a number ofcompan ies tha t appea red to be potentia l par tners ,and wa s invited to visi t several . The third com panyhe visi ted ult imately l icensed both patents.

The events of the fateful visit to that companyare stamped indelibly on the author 's memory.They began when he entered a room where the toppeople in the company were already seated: thepresident and CEO, the COO, and the vice presi-dents for engineering and marketing. After briefintroductions, the CEO turned to the author andsaid: "Okay, Professor, show us what you've got."The author then made a brief presentation, duringwhich he described the benefits of his invention

and demonstrated i ts major features. When he wasdone, the president rose and announced: "We'l l beback in a few minutes." At that point, he and theother exe cutiv es filed out of the room. Less tha n tenminutes later they returned, and when the president held out his hand and smiled, the author knewthat things had gone well. "Okay, Professor," thepresident remarked, "we definitely want your product. I'll leav e you to work out the de tail s with Nevill

and Stan" (the V.P. for engineering and the COO).In the months that followed, the author got to

know the president of the compa ny quite well , an don one occasion asked him how he was able tomake a decision about the author 's product soquickly. His answer was enlightening: "Your pro-totype w as good and I could see that you ha dsomething new. But i t was the way you handledyourself durin g the mee ting that ma ttered most. could tell right away that you get things done—that y ou're not just talk. And I could s ee th at youwe re som eone I could work with. I'd neve r m ake a

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deal with anyone if they didn't measure up onthose dimensions.

But there was more: He went on to explain thatthe author would never have gotten in the door ifhe hadn't been a professor at a well-known univer-sity. In addition, the president revealed that hiscompany had done a background check on the

author prior to his visit. Aiter all, as the presidentput it, We didn't know you from a hole in the wall,and wanted to make sure that you were not somekind of flake.

This personal anecdote illustrates two of the ma-jor points of this article. First, social capital—theactual and potential resources individuals obtainfrom their relationships with others (through a fa-vorable reputation, high status, and personal re-ferrals)— often helps entrepreneurs get through thedoor, to gain access to venture capitalists, poten-tial customers, and others. Second, once inside,

their ability to interact effectively with others—their social skills—plays a key role in their subse-quent success.

What is Social Capital and What Benefits Does ItOffer?

Social capital refers to the actual and potentialresources individuals obtain from knowing others,being part of a social network with them, or merelyfrom being known to them and having a good rep-utation.' In a sense, social capital provides indi-

viduals with an important type of credential—afavorable social identity that can be converted intosignificant, tangible benefits. What kind of bene-fits does a high level of social capital yield? Theseinclude enhanced access to information^—themore people one knows, the more information, andoften, the more accurate information, one re-ceiveŝ — ând increased cooperation and trust fromothers.̂ After all, a friend—or even merely an ac-quaintance of a friend—is easier to trust than atotal stranger. In addition, social capital has beenfound to translate directly into financial outcomes;it is positively related to the compensation re-ceived by both managers and CEOs.̂ That socialcapital is also beneficial to entrepreneurs is sug-gested by recent findings that entrepreneurs pos-sessing high social capital based on networks, sta-tus personal ties, and referrals are more likely toreceive funds from venture capitalists than entre-preneurs who are lower on this dimension.̂

The mportance of Social Skills

As important as social capital is, we believe it isonly part of the total story where entrepreneurs'

success is concerned. We propose that socialskills, too, play an important role. Perhaps thebest means of illustrating this point is throughthe following simple exercise. Consider thisquestion: How do organizations select new em-ployees—especially those who will play a keyrole? Is this function carried out solely on thebasis of the candidates' social capital, such astheir reputation and referrals? Probably not. Inmost cases, we believe, this is a beginningrather than an end to the selection process. Onlycandidates possessing high levels of social cap-ital are initially considered—persons with favor-able reputations, an established record in thefield, a degree from one of the right schools, workexperience with good employers, and so on.Once a short list of persons possessing high so-cial capital is assembled, however, it is the im-pression the candidates make on the individuals

involved in the final selection that largely deter-mines whether they are actually hired. Somecandidates for employment appear to walk onwater prior to a visit, but once present in theflesh, quickly sink beneath the surface. Such in-dividuals possess high levels of social capital,but are lacking in skills that permit them to in-teract effectively with others, and this becomesreadily apparent during face-to-face encounterswith them.

A number of specific skills play a role in deter-mining the capacity of individuals to interact ef-

fectively with others. These include the ability toread other persons accurately, to make a good firstimpression on them, and to persuade or influencethem.̂ Several of these skills will be examinedbelow.''

A second reason for our focus on entrepre-neurs' social skills is that, in our view, socialcapital is often the result of such skills. How, forinstance, does a good reputation originate?What determines the breadth and depth of anindividual's social network? The ability to inter-act effectively with others often provides an im-portant foundation for these aspects of socialcapital. Understanding the role of social skills inentrepreneurs' success may contribute to our un-derstanding of the origins and impact of socialcapital. The relationship between social capitaland social skills is analogous, in some respects,to the relationship between resource stock andresource flows in organizations.^ Social capitalcan be viewed as an accumulated asset, whileskills in interacting with others are one factorthat influences the level of this asset.

Third, the effects produced by social skills maybe broader or longer-lasting than those of social


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actions in others—from efforts to enhance one'sown appea rance and image , th rough ag ree ingwith others, f lat tering them , an d giving them sma llgifts during an initial meeting. Skill with respect toImpress ion management has been found to makejob applicants more likely to get the job,'^ and toboost the ra t ings received by employees in ann ual

performance reviews. ' ' ' Skil l at impression man-agement may also be extremely helpful to entre-preneurs in their efforts to obtain needed capital .In describing how they go about making the deci-sion to support or not support a particular project, '^venture capi ta l i s t s repor t how that ent repreneurspresent themselves during face-to-face meetingsand presentations is often a factor to which theygive considerable weight.^^ For example, the firstauthor has worked with a consult ing firm in theBoston metropoli tan area that specializes in f ind-ing financial backing for entrepreneurs. The first

step in the process is an init ial meeting betweenentrepreneurs and staff of the consult ing company,dur ing which the ent repreneurs are asked to de-scribe their ideas and the reasons they are seekingfinancial support. After this meeting, the consult-ing company's staff meet to decide whether or notto work with the entrepreneur. The quali ty andfeasibil i ty of the entrepreneur 's idea receive care-ful at tention; but the overall impression the entre-preneur has made on staff of the consult ing com-pany usual ly carr ies the most weight .

The impressions of entrepreneurs formed by ven-

ture capital ists , prospective customers, and othersare not entirely the result of conscious efforts atimpress ion management by the ent repreneurs . Onthe contrary, the past experience, at t i tudes, andpersonal characterist ics of the people with whomentrepreneurs interact play an important role.Moreover, recent f indings indicate that many fac-tors influencing first impressions are not directlyund er the voluntary control of the person s involvedand are not readily managed by them. These in-c lude cer ta in aspe cts of the i r physica l ap pea ran ceand subtle features of their speech.^^ In manycases, however, overt efforts at impression man-agement are effective, so being adept at this skil lcan indeed yield important benefi ts for entrepre-

neurs .

Persuasion nd Influence

Persuasion and influence are skil ls for changingthe at t i tud es or behavior of others in desired direc-t ions. Because o ther people don ' t a lw ays share ourviews, and often behave differently from the waywe would prefer, most oi us try to influence theatt i tudes, beliefs, or behavior of others every day.

Indiv iduals va ry greatly in their abil i ty to use suctactics.22 Re sear ch find ings in dic ate tha t such diferences are related to success in a wide range ooccupations, including sales, law, and medicine.^Consider Paul Brown, an inventor who recentldevised a means for sending data over electripow er lines.2^ A ven ture c ap ital firm offered funding for his start-up company, but only if he couldfirst conduct a suc cessful field test. To me et th irequirement. Brown turned his powers of persuasion on his neighb ors, and convinced 25 of them tconvert their homes to his system so that al l theiphone calls and Internet connections would be carried over power l ines. The field test was successful , and Brown, whose effectiveness at persuasiowas an important plus, received the funding hsought .

The television documentary about the origins othe pers ona l com puter industry, Triumph of th

Nerds, offers ano ther exam ple of the potentiabenefits for entrepreneurs of skil l at persuasiveness . Descr ib ing why his company decided to advance mill ions of dollars to a start-up venturknown as Apple Computer, a senior venture capital ist says he was impressed with the energy, inte l l igence , and especia l ly the persu as iv ene ss of i tyoun g founder, Steve Jobs. Jobs ' social ca pital w alow, or nonexistent , and he dressed l ike a hippybut he expressed his ideas so forcefully and persuasively that he got the funding he sought.

Social daptability

Social ada ptab il i ty involves the abil i ty to adjust ta wide range of social si tuations and to feel comfortable with individuals from diverse backgrounds . People h igh in socia l adaptabi l i ty areable to talk to virtually anyone about almost anything, can introduce themselves to strangers withrelat ive ea se, and readily adjust to a wid e rang e onew social si tuations. In short , they can be descr ibed as socia l chameleons , capable of adapt ingtheir behavior in order to blend comfortably intoalmo st any social context. A large body of rese archfindings suggests that persons high in such abil it ies a t ta in greater success and more rapid promotions in many different contexts than those low insuch abilities.25 Indeed, it has even been foundthat professors high in social adaptabil i ty receivehigher rat ings from their classes than those low insocia l adaptabi l i ty.

Socia l adaptab i l i ty ap pe ars to be re levant toactivit ies performed by entrepreneurs that are crucial to the success of their new ventures. For ins tance , especia l ly ear ly on, ent rep reneu rs musmake m any cold ca l ls on s t rangers . These perso n


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high level of social skills on the part of the entre-preneurs.

A second way in which excellent social skillsmay prove beneficial to entrepreneurs involvesface-to-face interactions between the entrepre-neurs and many persons outside their companies.Effective interactions may assist entrepreneurs inperforming tasks that are crucial to their success,̂ ^such as raising needed capital, attracting and se-lecting competent employees, and persuading cus-tomers and suppliers to do business with theircompany under favorable terms.̂ ̂The more effec-tively they perform such tasks, the greater theiroverall success.

A third important context in which social skillscan contribute to entrepreneurs' success involvesthe formation of business alliances.̂ '* Such alli-ances are a growing source of competitive advan-tage ior emerging firms.̂ ̂As entrepreneurs strive

to identify market inefficiencies, create new prod-ucts or services, gain access to financial resources,acquire legitimacy, and capture market share, theyfrequently recognize that alliances—particularlyones with strong, existing companies—can en-hance their odds of survival.̂ ̂ Indeed, businessalliances have been found to be positively associ-ated with the rate of new product development andthe creation of shareholder wealth for new ven-tures.3' Such alliances, in turn, often involve con-siderable information sharing and technologytransfer between the participating companies—

conditions that require high levels of trust andcooperation. The success of such relationships of-ten rests on the development of positive personalrelationships between the partners. Recent find-ings suggest that a positive relationship betweenthe partners in business alliances is often a moreeffective deterrent to opportunism and exploitationthan traditional legal contracts.̂ ̂ High levels ofsocial skills on the part of key personnel in partic-ipating companies may contribute to such positivepersonal relationships between them, and henceto the success of the alliances they have formed.

The potential role of entrepreneurs' social skillsin their ability to form business alliances is illus-trated by Gwendolyn and Eric Johnson, African-American entrepreneurs who founded Geric HomeHealth Care, a company specializing in providingcare for bedridden people in inner-city neighbor-hoods.̂ ̂Because most of the company's employeesare welfare mothers who live in the neighborhoodsthey serve, the company appears to face a daunt-ing set of problems. Despite this unusual employeebase, Geric has grown rapidly and is highly prof-itable. Its success is due, in part, to the Johnsons'ability to form business alliances with nursing

homes, hospitals, and public agencies. They ap-proach these organizations and explain their basicstrategy: by hiring employees who live near pa-tients, they can provide the kind of reliable servicethe nursing homes, hospitals, and public agencies

Recent findings suggest that a positiverelationship between the partners inbusiness alliances is often a moreeffective deterrent to opportunism andexploitation than traditional legal contracts

want, but cannot readily obtain. The Johnsons fur-ther explain that their employees, most of whomhave grown up in the neighborhoods they serve,are willing to visit patients in locations where

even police officers sometimes fear to go. Theyalso offer to take the cases nobody else typicallywants—quadriplegics, multiple sclerosis patients,and people on ventilators who have been severelydamaged by a combination of alcohol and drugs.The result is impressive: The Johnsons have suc-ceeded in establishing mutually profitable busi-ness relationships with many other organizations.The Johnsons are so successful in part because oftheir ability to form close, personal ties with rep-resentatives of these companies and with prospec-tive employees. They are deeply religious, and im-

press people with their sincerity and desire to helpthe patients they treat and to provide good jobs fortheir employees. As Eric Johnson puts it: The spir-itual part is a very integral part of this business.Without caring, loving folks, we'd be headed fordisaster.

We suggest that social skills play an importantrole in entrepreneurs' success because such skillsfacilitate effective relations between foundingpartners, as well as with many people outside andinside their companies, and assist entrepreneursin establishing business alliances that are veryvaluable to their new ventures.

The Benefits of Social Skills

Numerous findings and proposals in the literatureon entrepreneurship indicate that entrepreneurs'social skills can influence their success. For exam-ple it has been found that entrepreneurs whosecompanies are successful engage in more commu-nication with others, and are more effective in thisactivity, than entrepreneurs whose companiesfail.'̂ ° Similarly, such cooperation may increase

when the entrepreneur and venture capitalist


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share a positive social or business relationship.*̂Along the same lines, personal contacts and rela-tionships are often included on lists of the keyingredients in new venture formation.*2 Finally,recent research designed to examine the impact ofsocial skills on entrepreneurs' success providesclear support for the relationship we suggest. For

example, one study conducted with two differentgroups of entrepreneurs found that two socialskills—social adaptability and social perception—were significant predictors of the financial successof founders of high-tech companies and foundersof cosmetics distribution organizations.''̂

The impact of social skills on entrepreneurs'success may be mediated by current feelings ormoods, as suggested by basic research on affir-mative states. Positive moods, in turn, can leadto enhanced judgments and decisions about theentrepreneur. (See Figure 1, which summarizes

these points and also illustrates the possibleimpact of social skills on social capital men-tioned earlier in this article.) A substantial bodyof evidence indicates that people who are high insuch social skills as impression managementand enhancing their own personal appearanceinduce higher levels of positive moods or feel-ings in others than people who are lower in suchskills.* ̂ Other research indicates that positiveaffective states can strongly influence judg-ments and decisions, making these more favor-able. This appears to be true even if the judg-ments and decisions in question are totallyunrelated to the causes of the positive moods orfeelings/̂ Combining these findings, sociallyskilled entrepreneurs may well evoke higher lev-els of positive affect among those with whomthey interact. This, in turn, can lead others toevaluate the entrepreneurs' business plans,products, or companies more favorably. In short,because they evoke higher levels of positive af-fect in others,''̂ entrepreneurs who are high insocial skills gain important advantages in ob-taining funding, attracting and hiring desirableemployees, establishing and maintaining effec-

tive relationships with co-founders, and conclud-ing favorable business arrangements with cus-tomers and suppliers.'*'

Implications and Applications

Our assertion that social skills can play an impor-tant role in entrepreneurs' success has importantimplications for entrepreneurs and for others wish-ing to assist them in their efforts to start new ven-tures. The most important of these implications areas follows;

• Training in social skills can help many entrepreneurs succeed. Such training would be espe-cially valuable in cases where entrepreneurs'ideas are sound, and where their experience,technical competence, and motivation are allhigh, yet they fail in their efforts to start newventures. Such negative outcomes may stem

from a lack of social skills on the part of theentrepreneurs. They are lacking, to some degree,in the skills necessary to negotiate effectivelywith others, to persuade them, or to induce themto share the entrepreneurs' beliefs about whattheir new venture can and will become.'is As aresult, entrepreneurs lacking in social skillsmake poor first impressions, fail to generate en-thusiasm for their ideas or business, and mayeven annoy or irritate persons who hold the fateof their new ventures in their hands. Equippingsuch entrepreneurs with enhanced social skills

can assist them to avoid these pitfalls, and cancontribute to their ultimate success. Given theimportant contribution to society made by entre-preneurs, such efforts appear to be well-justi-fied . ^

• Training in social skills is readily available—and it works. Psychologists have offered socialskills training for decades to assist individualsexperiencing problems that interfere with theircareers, marital relationships, or personal ad-justment. Such training is highly effective, andcan be carried out within a short time frame. It

often involves very straightforward procedures,such as showing clients videotapes of their in-teractions with others. When they view suchtapes, many people gasp audibly, and utter suchcomments as, "I had no idea I came across likethat " or "I didn't realize I was doing that " Whensuch experiences are coupled with guided prac-tice in improved techniques for interacting withothers, rapid progress toward enhanced socialskills is often readily achieved.̂ °

• Training in social skills is already included inthe curricula of many business schools and is

used by many organizations. At our university,and many others, all undergraduate businessmajors must take a one-credit course on leader-ship. This course focuses, in part, on practicalskills, such as performing well in job interviews,and considers social skills, as well. Similarly,many organizations train employees in salesand customer relations in techniques for inter-acting effectively with others. The success ofsuch efforts strongly suggests that entrepre-neurs, too, may benefit from training designed toenhance their social skills.


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• Enhanced social skills can contribute to entre-preneurs social capital. Individuals who inter-act effectively with others leave a residue ofpositive feelings and good will behind them.This residue can help such persons expand theirpersonal networks and acquire excellent repu-tations—important ingredients in social capital.

Increased social capital can facilitate entrepre-neurs' access to financial capital, information,and markets. A clear illustration of the link be-tween social skills and social capital is providedby a recent experience of the senior author, whoteam-teaches a course on the role of creativity inentrepreneurship with a Nobel laureate, physi-cist Ivar Giaever. Dr. Giaever recently served asa judge for presentations by graduating MBAs ata nearby college. After this experience, he of-fered two observations to the senior author'sclass. The MBA students who received the high-est ratings were generally the ones who, be-cause of excellent social skills, presented them-selves most effectively while delivering theirtalks. These students were also the ones whobenefited most from the networking session withmembers of the local business community inthat followed the presentations.

• Training in social skills—or at least discussion this topic—should be part of all programs inentrepreneurship. The benefits of social skillstraining might be especially helpful for womenand minorities—groups that face important ob-

stacles as entrepreneurs. Women and minoritiesare currently underrepresented among entrepre-neurs, and face daunting barriers to obtainingfinancing for new ventures. Statistics indicatethat in recent years, less than two percent ofavailable venture capital funds has beenawarded to women.̂ ' Enhanced social skillsmight help them to overcome some of these ob-stacles.

• Entrepreneurs can be persuaded to seek suchtraining. That students can be exposed to dis-cussion of and practice in social skills as part oftheir studies is apparent. And the popularity ofcourses in leadership suggests that they are, infact, motivated to obtain such experiences. Butwe are also optimistic about the chances of at-tracting practicing entrepreneurs to such train-ing. Many successful entrepreneurs appear to beaware of the important role of effective socialskills in their own achievements. For instance,the most recent winner of our university's Entre-preneur of the Year award was asked, after herformal presentation, to pinpoint the majorcauses of her success. The first factor she men-tioned—and the one she emphasized most

strongly—was: My ability to get along with awide range of people—that was absolutely cru-cial. Several members of the audience—bothcurrent and would-be entrepreneurs—ap-proached the senior author with requests for in-formation on how they might improve their ownsocial skills. The key, then, may simply lie in

getting the message out: Once entrepreneursrecognize the importance of their face-to-faceinteractions with others, they may quickly andvigorously seek to act on this conclusion.

My ability to get along with a widerange of people— that was absolutelycrucial.

We are certainly not alone in recognizing the

important role of social skills in personal success.When asked to describe the conditions necessaryfor a happy life, Albert Einstein^ ̂ replied with thefollowing equation: If A is success in life, then A =X -I- y + z, where x = work, y = play, and z =keeping your mouth shut. By keeping your mouthshut, Einstein referred to specific social skills—forexample, the ability to read others accurately andso avoid making statements that would annoythem or produce a less-than-favorable first impres-sion. This article echoes Einstein's sentiment: So-cial skills—what he termed the z factor —may

well be one ingredient in the complex array ofvariables that, acting together, determine entre-preneurs' success.

Endnotes

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^Boissevain, J. 1974. Friend s oi iriends. Oxford: Basil Black-well.

^ Fukuyama, F. 1995. Trust social virtues and (he creation o fprosperity. London: Ham ish Hamilton.

^Bell iveau, M. A., O Reilly, III, C. A., E Wade , J. B. 1996.Social capital at the top: Effects of social similarity andstatus on CEO compensation. Academy oi Managem ent Jour-nal. 39:1568-1593.

^ Shane, S., Cab le, D. 1999. Social capi tal an d th e financingoi new ventures. Manuscript submitted for publication, MIT,Cambridge, MA.

^Duck, S. 1994. Me aningful relationships. Thousand Oaks,CA: Sage.

Kenney, D. A. 1994. /nferpersonaJ perception. New York:Guilford.

^ Cheng, J. L. C, Kesn er, I. F. 1997. Organizational slack andrespon ses to environmental shifts: The impact oi resource allo-cation patterns, journal oi Management, 23:1-18.

^Butler, S. 1951. Samuel Butler's notebooks. London; Hogarth.


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O u o te d in Observer, London. Janu ary 15, 1990.


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116 Academy oi Managem ent Executive February

Robert A Baron is professor oimanagement at RensselaerPolytechnic Institute. His cur-rent research focuses on cogni-tive and social iactors in entre-preneurship. He has been avisiting iellow at Oxford Uni-versity and a program directorat the National Science Foun-dation. He holds three U.S. pat-ents and is the author oi numer-ous books including Behaviorin Organizations 7th ed. andSociaJ Psychology 9th ed. Con-tact: [email protected].

Gideon D Markman is an assis-tant professor oi entrepreneur-ship at the Laily School ofManagement and TechnologyRensselaer Polytechnic Institute.He received his Ph.D. in entrepre -neurship from the University ofColorado at Boulder. His re-

search interests include innova-tion management and techno-logical entrepreneurship. parti-cularly the adversity quotientcognitive mechanisms and so-cial skills oi entrepreneurs. Con-tact: [email protected].


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