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Entering and developing a service networkSheena Leek and Louise Canning

Birmingham Business School, University of Birmingham, Edgbaston, UK

Abstract

Purpose This paper seeks to investigate the role of social capital in facilitating the entry of new business ventures into service networks.Design/methodology/approach The empirical work is undertaken via case study-based research, featuring three service businesses, each enteringand operating in a different marketplace.Findings Results show that new service businesses are not necessarily able to draw on existing social capital in order to enter a business networkand build relationships with potential customers and suppliers.Research limitations/implications Future empirical work should re-examine the distinctions between the role and nature of social capital for newservice businesses.Practical implications The paper suggests how the new service entrepreneur might invest personal resources in networking to initiate relationshipsand build a network of customers and suppliers.Originality/value The paper presents the little researched area of networking and relationship initiation as a means of developing social capital fornew service businesses.

Keywords Entrepreneurs, Social networks, Channel relationships, Business formation

Paper type Research paper

An executive summary for managers and executive

readers can be found at the end of this article.

1. Introduction

This paper examines the role of social capital in facilitating

the entry of new business ventures into service networks.

Entrepreneurs are the lifeblood of many economies but they

face major challenges, indeed over 40 per cent of start up

companies are reported to have difficulties (Huang and

Brown, 1999). Although these might include problems such

as accessing information, capital, skills and labour (Greve andSalaff, 2003) our interest lies in the ways in which the service

entrepreneur overcomes difficulties of establishing both a

customer and a supplier base. We acknowledge the

importance of social capital in aiding new business start-ups

and also argue that although it might be used to instigate

exchange relationships and establish a network position, for

some entrepreneurs this resource does not exist. Our paper

contributes to existing understanding of service businesses by

drawing from material on networking (Witt, 2004) and

relationship initiation (Edvardsson et al., 2008) to examine

how new business ventures enter service networks and form

relationships with customers and suppliers. We present

findings from case study-based research featuring business

start-ups in different service contexts and discuss thesimilarities and differences in the conditions for and

characteristics of successful network entry for the business

entrepreneur.

2. Literature review

2.1 From networks to social capital

Whatever the business, it is recognised that the realisation of

organizational goals is dependent in part on a businesss

relationships with other parties. Considerable understanding

of markets as networks of connected relationships and of firm

behaviour within these networks has been generated in a

business-to-business marketing context. More recently

network theory has been applied to services marketing, for

example in relation to new service development (Syson and

Perks, 2004), entry into emerging markets (Freeman andSandwell, 2008) and sustaining business performance

(Eisingerich and Bell, 2008). Such networks can be

examined at a macro level whereby organizations represent

network nodes and attention focuses on the way in which

actors, activities and resources are ordered, positions shift and

markets function (Hakansson and Snehota, 1995; Harland,

1996; Iacobucci et al., 1996). Whilst a principal role of a

network of connected business relationships may be to

manage the economic transactions between the various

parties, networks and the organizations that feature within

them are also social entities, where the dynamics and the

opportunities or constraints present are embedded in the

interpersonal relationships that exist between individuals

(Granovetter, 1973; Uzzi, 1997). It is therefore equally validto assume a micro-level approach to networks, examining the

patterns of connections, shared norms and personal emotions

between individuals. The significance of interpersonal

relationships in business exchanges has long been accepted

(Hakansson, 1982; Grayson, 1996; Granovetter, 1985;

Larson, 1 99 2; McA llister, 1 99 5) but the growing

recognition of social capitals contribution to developing

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0887-6045.htm

Journal of Services Marketing

25/1 (2011) 5867

q Emerald Group Publishing Limited [ISSN 0887-6045]

[DOI 10.1108/08876041111107069]

Received December 2008Revised June 2009Accepted June 2009

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understanding in a variety of disciplines (Adler and Kwon,

2002), has refocused attention in business on the importance

of the connections among individuals, social networks and

norms of reciprocity and trustworthiness that arise from

them (Putnam, 2000, p. 9). This is reflected in attempts to

understand how social capital can add to understanding of the

functioning of business networks (Batt, 2008), service

organizations (Eisingerich and Bell, 2008; Freeman andSandwell, 2008) and entrepreneurship (Anderson et al., 2007;

Bowey and Easton, 2007; de Carolis and Saparito, 2006;

Florin et al., 2003; Liao and Welsch, 2005).

There are various definitions of social capital (Adler and

Kwon, 2002) although the general consensus is that it refers

to the personal relationships that an individual has with

others. More specifically, it can be explained to mean the

sum of actual and potential resources embedded within,

available through and derived from the network of

relationships possessed by an individual or social unit

(Nahapiet and Ghoshal, 1998, p. 243). The variation in

definitions is also reflected in the components that different

authors attribute to the term, social capital. In spite of these

differences, many of them are in fact encapsulated by

Nahapiet and Ghoshals (1998) description of social capital as

consisting of three dimensions, which are:

1 Structural. The overall pattern of connections between

actors, encompassing the capacity to access information,

resources and support.

2 Relational. The nature of relationships between actors, e.g.

the degree of trustworthiness.

3 Cognitive. The shared norms amongst parties.

Recent developments in the understanding of social capital

and entrepreneurship essentially draw from earlier work on

social networks and the significance of strong and weak ties

within these (Granovetter, 1973, 1985). The strength of a tie

between individuals can be explained by a combination of

the amount of time, the emotional intensity, the intimacy(mutual confiding), and the reciprocal services which

characterise the tie (Granovetter, 1973, p. 36). Strong ties

are typically found amongst concentrated groups of actors

with behaviour being underpinned by trust and a sense of

obligation between individuals. With regards social capital,

such ties are given to mean bonding social capital or identity-

based networks (Davidsson and Honig, 2003; Hite and

Hesterly, 2001) these playing an important role in the

planning and initial start-up of a new business venture as the

entrepreneur might expect to rely on them repeatedly for

access to critical resources when other, less familiar parties are

unwilling to do so. A key point made by Hite and Hesterly

(2001) is that identity-based networks are characterised by a

sense of personal or social identification such that this

operates as a principal motivation for economic action

amongst individuals within the network. Literature on

entrepreneurship presumes that such social structures are

contained within the family unit and/or a network of close

f riends and the entrepreneur m ight draw on these

relationships for advice, human resource (at low or no cost)

or financial support when commercial organizations are

reluctant to provide this (Davidsson and Honig, 2003; Hite

and Hesterly, 2001). Weak ties involve more distant

relationships with an extended range of actors, these groups

of relationships representing bridging social capital or a

calculative network (Davidsson and Honig, 2003; Hite and

Hesterly, 2001). Actors in a calculative network are motivated

to engage with each other principally because of economic

benefits to be gained from exchanges (Hite and Hesterly,

2001). For the entrepreneur, such a network may be derived

from membership of trade associations, business networks or

indeed friendships with business people, providing the

entrepreneur with access to information on products,

markets or technologies and facilitating relationships withother individuals (Davidsson and Honig, 2003). These social

structures are believed to assume greater importance once a

business is established and starts to expand because of the

superior resources available and the capacity to offset

environmental uncertainty through these structures (Hite

and Hesterly, 2001).

Social capital clearly plays an important role, but a new

business venture may frequently start from the position of

being unknown within the marketplace, so one of the

challenges for the entrepreneur lies in trying to enter and

build a position in that marketplace i.e. build a portfolio of

supplier and customer relationships. Whilst this is clearly a

major obstacle to overcome, and network development has

been investigated by a number of researchers (e.g. Larson and

Starr, 1993) what does not appear to have been addressed is

the process by which an entrepreneur initiates relationships to

enable entry into a new network. Indeed the assumption

appears to be that the entrepreneur has relationships in place

(Araujo and Easton, 1996; Chetty and Agndal, 2007) from

which he/she can draw to do this. If this is not the case, then

he/she has to direct effort at networking and initiating

relationships with the expectation that some of these will lead

to exchange partners.

2.2 Networking and relationship initiation

The term networking features in a variety of business

contexts. Johnsen e t a l.(2000) examine the different

activities in which organizations within a supply network

engage to effectively align the economic functioning of thatnetwork. Ritter (1999) investigates the competencies required

of a company to make use of a single relationship and an

entire network. The work by these authors is, however, at a

macro/organizational level and does not address the behaviour

of the individual entrepreneur. Networking could be

described as the banding together of like-minded people

for the purposes of contact and support (Vinnicombe and

Colwell, 1996, p. 88). Here the notion of common interests

and support would possibly resonate with the entrepreneur

seeking to establish exchange relationships with suppliers and

customers but the definition does not explain how people are

brought together. Such an explanation could be drawn from

Witt (2004, p. 395) who defines networking as the activities

that an individual entrepreneur undertakes to build, sustain or

extend her personal network. Witt (2004) provides useful

networking m easures regarding the f requency of

communication with actual and potential partners and the

time spent doing this, but this does not readily make clear the

means by which contact with potential partners occurs in the

first place or how these develop into something more

substantive.

The way in which contact with potential partners comes

about can be explained in terms of the networking route and

process. As far as the route by which networking occurs, we

can draw from Holmen e t a l.s (2005) proposal that

relationship initiation is direct or indirect (network

Entering and developing a service network

Sheena Leek and Louis Canning


Volume 25 Number 1 2011 5867

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mediated). Indirect networking involves a third party bringing

individuals together whilst direct entails individuals making

contact with each other. Direct networking may be market

related e.g. cold calling, trade shows, industry events or it may

occur outside of a business setting e.g. at a sports club. The

extent to which these contacts come about by chance or are

planned can be explained by Read and Sarasvathys (2005)

conclusion that entrepreneurs conduct their business througha combination of causal and effectual processes. In a causal

process, actions are determined by the entrepreneurs goals

and the assessment of opportunities available, and in terms of

networking would be typified by the deliberate seeking out of

possible partners for particular purposes. An effectual process

entails letting actions emerge from means and imagination

and considering affordable loss. Such a process would see the

entrepreneur engaged in networking but without a specific

purpose in mind e.g. he/she may get to know someone by

simply being sat next to them at an industry dinner.

Understanding the way that contact with potential partners

occurs is important but it does not fully explain how this then

leads to the start of a relationship. Relationship development

has been of considerable interest for some time, but it is only

recently that the relationship initiation process has received

attention i.e. the activities, events and stages which result in

the start of some form of exchange between parties.

Edvardsson e t a l.(2008) identify four statuses in this

process, namely:

1 Unrecognised. Parties are unknown to each other

2 Recognised. Parties are aware of each other and of business

possibilities

3 Considered. Parties engage in discussions to determine

scope of exchange

4 Relationship. Business agreement reached.

The networking activities that we discussed previously would

obviously move an entrepreneur and other parties from being

unrecognised to recognised, but there is no guarantee thatthese contacts will progress to the status of formal

relationships. Edvardsson et al. (2008) conclude that the

change in status will be determined by a number of factors,

with those facilitating the process and identified as converters

consisting of service offering (underpinned by competencies

and capabilities), trust and time, whilst inhibitors are made up

of bonds, risk and image.

Figure 1 combines the aforementioned concepts into a

theoretical model showing the various activities and stages

that might be associated with networking and relationship

initiation. In incorporating Edvardsson et al.s (2008) work we

do not distinguish between inhibitors and convertors, instead

we identify factors which are likely to contribute to changes in

status, and in doing so add to some (bonds) and elsewhere

combine them (trust and image). With regards bonds in

Edvardsson et al.s model, this essentially centres on the

impact on existing partners of considering and initiating new

relationships. We believe that this could be broadened to

represent network position or company context. In the case of

trust and image, Edvardsson et al. identify these as a converter

and inhibitor respectively, whereas we believe that these

cannot be so easily separated. Trustworthiness consists of

affective and cognitive dimensions with the former being

determined by the interpersonal liking that results from the

similarity between individuals in terms of shared values,

attitudes, background, status (McAllister, 1995). Cognition-

based trust is rational and is determined by measures such as

benevolence, reputation and credibility (Herbig and Milewicz,

1996; Mahon and Wartick, 2003). Given the obvious

associations between reputation, credibility and image, we

do not present the latter as a factor on its own, but as part of

trustworthiness instead.

It is implicit in Edvardsson et al.s (2008) model and

Figure 1 that the process of relationship initiation occurs overdiffering periods of time and after a varying numbers of

encounters. Edvardsson et al. (2008) relate time to a growth

in trust. Prior to the formation of a formal business

relationship the degree of trustworthiness will be established

through interactions and the exchange of information in

meetings between individuals. In Figure 1 trustworthiness

and service offerings are assessed both at the recognition stage

and after subsequent meetings where further knowledge about

the party has been obtained. This assessment and the move

between status will also be informed by the market context

(e.g. network position, competitor actions, market dynamics).

3. Methodology

The role of networking and social capital in new business

start-ups has been examined in various engineering and high

technology sectors but there has been little investigation of

these in the services sector. Understanding of relationship

initiation has been developed using established service

businesses as the data source, but this has not been

replicated in new service ventures. The purpose of our

research is to build on this previous work and to explore the

process of networking and relationship initiation enacted by

the new service entrepreneur in order to develop social capital

and relationships with a network of suppliers and customers.

A case study approach w as used as it enabled the

phenomenon of interest to be examined within a real lifecontext, in which the boundaries between the phenomenon

and context are not clearly evident (Yin, 1994). Three cases

provided the context in which networking and relationship

initiation by service entrepreneurs were examined: a computer

modelling company, an online student discount directory and

an adventure sports company.

A key factor in guiding the empirical research is the desire

to understand the development of the businesses from the

owners viewpoints and their perceptions of important factors

in relation to this. In-depth qualitative interviews were

therefore used in order to account for the circumstances in

which business start-up and development occurred and to

search for a deeper understanding of the participants lived

experience (Marshall and Rossman, 1995). Face-to-faceinterviews were conducted using a discussion guide, which

also acted as a checklist for topic areas covered (Patton,

1990). Various topics from the discussion guide were

introduced as the interviews progressed, with the resulting

questions and the structure of interviews varying depending

on the respondents answers (Kvale, 1996). The interviews

were recorded and verbatim transcripts produced from the

recordings. Raw data from the transcripts were sorted

according to time period and phases of the business

development and within each phase grouped into different

themes using progressive focussing (Wolcott, 1994).





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4. Findings

A summary of the three case studies can be found in Table I.

Before going on to present our results we outline some key

distinguishing features of the respective business which thefindings suggest affect the networking and relationship

initiation processes enacted as well as the scope of social

capital used by the entrepreneurs.

Studentbeans.com is effectively an online intermediary,

presenting other companies promotional offers to students

via its web site. As an online facility, the service is not

geographically or time constrained and the business model is

such that the greater the number of companies featured on its

site, the more attractive studentbeans.com becomes to the

student user. This means that networking to maximise the

number of companies in the online directory is critical to the

business. By way of contrast both the Warren Smith Ski

Academy and Paragon Simulation are responsible for

delivering their services directly to customers. The two

companies have differing constraints. Warren Smith is

geographically, seasonally, time and capacity constrained.

Paragon Simulation is time and capacity constrained. These

constraints in turn limit the number of relationships that can

be developed with different stakeholder groups to ensure

service delivery.

Having presented these key distinctions, comparison can be

made of the networking and relationship initiation processes

enacted and social capital used by the entrepreneurs at

different stages of the development of their businesses, namely

prior to the business set-up, during initial company launch

and then their subsequent development.

Figure 1 The process of networking





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4.1 Networking and relationship initiation beforebusiness set-up

Prior to establishing their companies the entrepreneurs were

involved in networking with the resulting relationships

subsequently contributing to their businesses. These

relationships, however, were not sought with a view to setting

up a business andas canbe concludedfrom thedescriptions that

follow, they differ in the way in which they were initiated.

Vinod (Paragon Simulation)

On graduation from university Vinod worked in systems

design and his future business partner, Neil for a company

that produced modelling software. Vinod and Neil met each

other by chance as graduates, them sharing a house and

journeys to and from work together. This effectual networking

resulted in bonding social bonding between the two graduatesand the realisation that they shared a common ambition,

namely to become self-employed. As their ideas about a

possible business venture took shape the two were able to use

Neils industry contacts (bridging social capital) and engaged

in deliberate direct and market related networking to establish

a relationship with a key supplier, securing discounted

software licenses and favourable payment terms from this

supplier.

James (studentbeans.com)

As a student James was involved in organizing high profile

social events, engaging in considerable cold calling to generate

company sponsorship of these student events. Jamesnetworking was causal i.e. it was deliberate and done with a

purpose in mind and once James developed his business idea,

he drew on these relationships (bridging social capital) to

facilitate the company launch and subsequent development.

Warren (Warren Smith Ski Academy)

Whilst working as an instructor on dry ski slopes in the UK

Warren met the owner of an accommodation provider who

normally operated in Verbier, the repeated contact with this

person via tuition leading to the development of bonding

social capital. Warrens networking behaviour was effectual

and the relationship was not cultivated with the pursuit ofcommercial business opportunities in mind. However, as his

ideas to set up a business emerged the decision to locate his

business in Verbier was influenced in part by this relationship

and the broad service offering that this person could provide,

namely accommodation, expertise and knowledge of the

resort and introductions to key stakeholders there.

While generally it is expected that bonding social capital is

important during business planning and set up, and Vinod

and Warren did indeed draw on this resource, in the case of

James, bridging social capital was critical to the initiation of

the first relationships.

Table I New service businesses, case study summaries

Company Paragon Simulation Studentbeans.com Warren Smith Ski Academy

Founder(s) Vinod Bhatia; Neil Higton James Eder Warren Smith

Qualifications and

experience

University graduates

Several years experience in computer

modelling and software design

Business graduate

Student events organizer

Experience in gaining multiple

sponsorship for high profile events

Internationally qualified performance ski

coach

Competitive free skier

Initial business

proposition

In-house design and supply of bespoke

business process models and financial

modelling software to UK clients

Online distribution of promotional

schemes to University of Birmingham (UK)

students

Supplied by national and local firms

Coaching of recreational skiers in Verbier,

Switzerland

Current activities UK based

Continued focus on design and supply of

modelling software

Not tied to any software suppliers

Expanding customer base with repeat

business

UK based

Continued online distribution of

promotional schemes

National network operating in 22

university cities

Promotional offers supplied by national

and international companies

Ski packages

Switzerland

Coaching of recreational skiers in Verbier

and Saas Fe

Heli-skiing for recreational skiers in Verbier

Training of ski instructors in Verbier

New Zealand

Heli-skiing for recreational skiers

Japan

Coaching of recreational skiers (in

cooperation with tour operator)

Professional marketing training and

qualifications scheme for campus brand

managers in association with Proctor and

Gamble

Ski events

Switzerland

Free-skiing competition: Verbier Free-Ride

UK

Coaching days for recreational skier

Competitive free-ride events

Media products

Production and sale of instructional and

entertainment (free-skiing) ski films





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4.2 Networking and relationship initiation in the start-

up phase

Once the entrepreneurs decided to set-up their businesses, a

key challenge for them was accessing supply and customer

markets. We go on to discuss the networking and relationship

initiation process in this phase of the new service businesses,

comparing similarities and differences in the processes

enacted.


While working for other companies Vinod had undertaken

software design work for the UK business directory, Yellow

Pages, part of BT. When BT wanted further work carried out

for the Yellow Pages business, the contacts which Vinod had

maintained with this business (bridging social capital)

resulted in Paragon Simulation being approached to do this.

This one customer aside, Vinod and his business partner had

to embark on a process of causal, direct, market-related

networking to create new business contacts. Potential

customers were identified from industries where the

entrepreneurs thought their service offering was most suited

and the top 30 companies (in terms of turnover) selected.

This networking may have shifted Paragon Simulation from

being unrecognised to recognised, but to be considered as a

potential supplier, when Vinod and his business partner were

cold calling they had to overcome two main barriers. Firstly,

Paragon Simulation was a largely unproven business and

secondly, the two entrepreneurs were unknown to companies

contacted. These factors made it difficult for managers in

target companies to assess the trustworthiness of Vinod and

his partner and f orm a view of the service off ering

encapsulated by Paragon Simulation. As proxy indicators

the two entrepreneurs were able to highlight their previous

experience in related industries and use the contract with BT

as a reference case study. Not only did the case study illustrate

the problem solving capability of the Paragons service

offering, but the fact that the work was undertaken for sucha high profile organization as BT signalled the trustworthiness

of the two entrepreneurs.


As with Paragon Simulation, James followed a process of

causal, direct, market-related networking to create business

contacts, selecting a mixture of small owner-operated

businesses and national chains within the student catchment

areas in the city of Birmingham, UK. Although in some senses

James replicated the process enacted as a student to win

company sponsorship, for the online directory the networking

activity was particularly intense because of the need to

maximise the number of companies included in the directory.

In terms of moving from recognised to considered James

faced the same problem as Vinod, i.e. he was unknown and

his business was unproven. Unlike Paragon Simulation, James

did not have previous related industry experience, customer

case studies or even an operational website to which he could

refer to overcome objections during exchanges with

companies targeted. Instead he was only able to present

coherent financial proposals and highlight his strengthening

relationship (bridging social capital) with the confectionary

company, Jelly Belly who provided promotional products.

Neither of these arguably provided strong indicators of the

service offering or of James trustworthiness, with him

consequently having to offer very attractive promotional

incentives to persuade managers from targeted companies to

trial the directory.


While James and Vinods business set-ups consisted of

causal, direct, market-related networking, the process enacted

by Warren in launching his ski coaching business was more

varied. Warren did use causal, direct, market-related

networking to make contact, in his case, with potentialsuppliers who would be important to the business

operation. This included the Swiss ski authorities, the local

tourist board, in-resort accommodation providers and stores

as well as suitable instructors working for other organizations.

Warrens evaluation of these various stakeholders in terms of

the services from which he could draw to enable his business

to function was important. However, more fundamental to

the successful launch of his business were the activities and

resources that the ski academy could offer to these other

parties and the reputation and credibility of its founder.

Warrens reputation was clearly evident as he was a

professional free skier, had competed internationally, had

professional training qualifications and was working as a ski

coach in the UK and France all of which suggested that hehad knowledge and experience of the market in which he

wanted to establish himself. His reputation was also

important in recruiting instructors, as skiers looking for

work deliberately sought out Warren in preference to other

employers.

In addition to such causal networking, Warrens case

demonstrates a greater prevalence of effectual networking in

the early stages of the business as evidenced for example by

chance meetings with representatives of the Ski Club of Great

Br it ai n a t a n e qu ip me nt t es ti ng e ve nt , a nd wi th

representatives of a British national newspaper at a social

event. Both of the contacts expanded Warrens bridging social

capital and were useful for the subsequent endorsement and

promotion of the academy to British clients.

4.3 Networking and relationship initiation in the

expansion phase

From launching the business and obtaining the initial

customers the companies have expanded in slightly different

ways.


Vinod has continued to obtain customers (develop bridging

social capital) through causal, direct, market related

networking. The skill acquired in dealing with potential

clients m eans that he is m ore adept at identif ying

requirements as well as formulating and communicating a

service offering which will address this. The fact that both

Vinod and his partner have become known among users of

modelling software and they have built up a databank of highprofile customer reference cases has made the signalling of

trustworthiness to new contacts easier. Both the enhanced

skill of the entrepreneurs and their established reputation

means that new contacts made from networking have a

greater probability of shifting from a status of recognised to

considered and subsequently initiated ( custom er

relationships).


Studentbeans.com was initially launched in one location with

150 companies in the directory, and expanded to 22 cities

nationally in a two-year period. Cities were chosen where





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there were high student numbers and in which the student

body, AIESEC operated. James association (bridging social

capital) with this organization provided him with ready access

to a labour market from which he could recruit students to

promote studentbeans.com on campus.

New companies continued to be added to the directory via

direct, causal, market related networking (cold calling). As the

business expanded there was some natural decay andrationalisation, where either or both parties determined that

the service offering that could be accessed via the relationship

was of limited value. The new companies contacted and the

companies retained were national brands, these being

preferred by students and to attract such companies, having

nationwide coverage was a necessary condition. The natural

decay of relationships and increase in national brands meant

that resources previously spent cold calling could be directed

towards nurturing relationships. A key distinction in this

development phase was that studentbeans.com had become a

proven service provider with a clearly visible online presence.

James was able to prove his credibility using historical

financial data and his reputation by reference to both the

organizations using his service and the companies involved in

offering training and qualifications to campus representativese.g. Proctor and Gamble and the Chartered Institute of

Marketing.


Warren expanded his recreational courses to a second resort

in Switzerland and subsequently to New Zealand and Japan.

In addition to recreational courses he built his revenue base

by offering programmes in Verbier that led to professional

qualifications, established free-skiing events and moved into

the production of instructional entertainment (free-skiing)

films.

These developments involved a mixture of market and non-

market related networking which were either causal or

effectual. For example the development of the free-ride

competitions saw Warren engaged in a deliberate process ofm arket related networking, w ith the entrepreneur

approaching specific free-skiers (who he had not previously

met) and inviting them to participate in events. Having

previously competed successfully as an international free-

skier, meant that Warrens standing within this community

(bonding social capital/identity-based network) facilitated the

move of relationships with potential participating competitors

from recognised to considered and initiated. In contrast to

this causal process, social events provided valuable settings for

non-market related, effectual networking, in which Warren

could establish and reinforce both bridging and bonding

social capital with those who competed or worked as

professional skiers, and with other individuals involved in

free-skiing or other aspects of the ski industry. For example,once Warren decided to add the production and marketing of

multimedia products to his portfolio, he drew on relationship

sediments to develop this side of the business. Warren was

able to make use of relationships (bonding social capital/

identity-based network) with free-skiers, filmmakers and

photographers to form a production team to create

instructional and entertainment DVDs for commercial sale.

5. Discussion

Based on the findings presented on the three case companies,

our discussion centres on the process of relationship initiation

and the way in which social capital was used and developed by

the entrepreneurs.

Our research suggests that in setting up their businesses, the

networking enacted by the entrepreneurs and which would

lead to the initiation of relationships was much more

important than any existing social capital that they may

have had at their disposal. In expanding their businesses

networking continues to be an important means of moving tothe recognised status of the relationship initiation process

(Edvardsson et al ., 2008). The three entrepreneurs

businesses are clearly based on different service offerings

and the scope of their operational markets also vary. Our

findings show that these differences affect the networking

undertaken in terms of the:. extent to which it is deliberate or unplanned (Read and

Sarasvathy, 2005);. degree to which it was is direct or indirect, market related

or non-market based (Holmen et al., 2005); and. amount of time spent and frequency of communication

trying to initiate relationships (Witt, 2004).

So, for example, Vinod and James have to draw customers

from disparate market sectors. This means that they do notnecessarily have a detailed insight into or have ready access to

the networks in which target customers operate and so have to

rely on networking which is predominantly causal, direct and

market related e.g. cold calling. For James, this is a

particularly intense activity given the need to maximise the

number of companies and university locations featured in his

directory. As well as cold calling both James and Vinod have

tried newer forms of networking such as business networking

events and online networking sites. However, these new

approaches did not prove as successful as cold calling. This

may be because participants have a broad range of needs

which they may be seeking to satisfy via these newer

networking forms or it may be that a number of repeated

interactions are necessary before a new participant becomesan integral part of the community. In contrast to Vinod and

James, Warrens business is much more narrowly defined in

terms of market and geographic scope and much of his

networking is focused on engaging others who can contribute

to the operation of his business and so build his bridging

social capital. Whilst he does use causal, market-related

networking to do this, social events are an important way of

making contacts with people who may prove useful at some

later stage, as w ell as being useful f or m aintaining

relationships with others.

Previous research (Davidsson and Honig, 2003) has

concluded that social capital, particularly bonding social

capital (identity-based networks (Hite and Hesterly, 2001)) is

vital in the start-up phase of a business, allowing the

entrepreneur access to critical resources. Once a business has

become established, then the presumption is that bridging

social capital (calculative network (Hite and Hesterly, 2001))

assumes greater importance, allowing the pursuit of

opportunities which may not be possible via an identity-

based network. Warren did indeed draw on a close

interpersonal relationship (bonding social capital) in order

to offer clients an essential part of a tuition package (namely

accommodation) and through this relationship he was also

able to obtain necessary information on equipment providers,

the tourism board, lift operators, and the local council, all of

which helped in the early stages of setting up the business.





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However, Vinod and James were much more reliant on

bridging social capital to set up their supplier and customer

network and even this was very limited in nature.

Our debate in relation to the nature and role of social

capital continues as we examine the expansion of the

entrepreneurs businesses. For James and Vinod bridging

capital continues to be important as their businesses develop,

this reflecting the conclusions of previously publishedresearch. Warren, however, is totally embedded in his

industry skiing is a business enterprise, but is also a way

of life where he finds himself living within the skiing

community and engaging with people on a social as well as

professional basis. This means that while he does draw

increasingly on bridging social capital, the identity-based

network that he has developed over time continues to be an

important aspect of his business and his life. In this particular

case, it is problematic distinguishing between bonding and

bridging social capital.

One final point with regard to networking and relationship

initiation is our observation that these were enacted for

different purposes depending on the business model of the

entrepreneur. So for example, revenue generated by Paragon

Simulation is project based, this requiring Vinod to invest

considerable time networking in order to identify forthcoming

project opportunities with new or existing clients. For James

and Warren what is critical to their respective businesses is the

certainty of supply sources and their networking capacity in

relation to maintaining or developing new relationships. So

for example, in expanding his operation to 22 cities and

focusing on relationships with larger national brands, James

network of smaller, locally-based suppliers contracted. In

contrast to this, as Warren has expanded his ski operations

geographically so his supply infrastructure at the different

locations has to be established, with him engaging in

networking and initiating new relationships at each location.

6. Managerial implications

Our research shows that for new business start-ups social

capital cannot necessarily be used as a way of gaining access to

networks of potential customers and suppliers. Instead the

entrepreneur has to invest considerable personal resource in

networking and initiating relationships to build this. In order

to facilitate the progression of contacts to commercial

exchanges, the service entrepreneur must:. clearly present the value that potential partners would

derive for entering into a relationship;. instil confidence in partners with regards competencies,

capabilities and trustworthiness;. draw from relevant past experience and successes to signal

value and instil confidence; and. invest significant resource e.g. time (in terms of number of

meetings) and finance (in terms of arrangements to

encourage service trials).

7. Limitations and directions for future research

This investigation was based on three case studies and

featured entrepreneurs who set up quite distinct businesses,

this in turn affecting their respective networking and

relationship initiation processes. Our findings differed from

previously drawn conclusions with regards the availability and

form of social capital most important to entrepreneurs at

different stages of establishing a new service business. Whilst

our research makes a valuable contribution to existing

knowledge the inferences drawn from our research with

regards social capital and the applicability of our conceptual

framework linking networking and relationship initiation need

to be tested empirically using a broader range of new service

ventures.

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About the authors

Sheena Leek is Lecturer in Marketing at Birmingham

Business School from. Her research, which includes the

impact of information technology in business relationships

and the role of social capital in initiating relationships, has

been published in a number of leading marketing journals.Sheena Leek is the corresponding author and can be

contacted at: [email protected]

Louise Canning is Lecturer in Marketing at the University

of Birmingham. Her research interests include inter-firm

relationships on which she has published nationally and

internationally.

Executive summary for managers and executivereaders

This summary has been provided to allow managers and executives

a rapid appreciation of the content of the article. Those with a

particular interest in the topic covered may then read the article in

toto to take advantage of the more comprehensive description of the

research undertaken and its results to get the full benefit of the

material present.

Entrepreneurs are the lifeblood of many economies but they

face major challenges. Indeed over 40 per cent of start-up

companies are reported to have difficulties. Although these

might include problems such as accessing information,

capital, skills and labour, the interest of Sheena Leek and

Louise Canning in Entering and developing a service

network lies in the ways in which the service entrepreneur

overcomes difficulties of establishing both a customer and a

supplier base. Acknowledging the importance of social capital





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in aiding new business start-ups, they argue that although it

might be used to instigate exchange relationships and

establish a network position, for some entrepreneurs this

resource does not exist.

For new business start-ups social capital (generally defined

as referring to the personal relationships that an individual has

with others) cannot necessarily be used as a way of gaining

access to networks of potential customers and suppliers.Instead the entrepreneur has to invest considerable personal

resource in networking and initiating relationships to build

this. In order to facilitate the progression of contacts to

commercial exchanges, the service entrepreneur must:. Clearly present the value that potential partners would

derive for entering into a relationship.. Instil confidence in partners with regard to competencies,

capabilities and trustworthiness.. Draw from relevant past experience and successes to

signal value and instil confidence.. Invest significant resources e.g. time (in terms of number

of meetings) and finance (in terms of arrangements to

encourage service trials).

In examining the role of social capital in facilitating the entryof new business ventures into service networks, the study

focuses on three businesses. Paragon Simulation, founded by

its two entrepreneur directors who met by chance as

graduates, and which aims to bring the significant business

benefits of business modelling to organizations; Warren Smith

Ski Academy, whose business was born after he an

instructor on a UK dry-ski slope met the owner of an

accommodation provider based in the Swiss ski resort Verbier;

and studentbeans.com, an online student portal.

In setting up their businesses, the networking enacted by

the entrepreneurs and which would lead to the initiation of

relationships was much more important than any existing

social capital that they may have had at their disposal. In

expanding their businesses networking continues to be an

important means of moving to the recognised status of therelationship initiation process. The three businesses are

clearly based on different service offerings and the scope of

their operational markets also vary. Study findings show that

these differences affect the networking undertaken in terms of

the:. Extent to which it is deliberate or unplanned.. Degree to which it is direct or indirect, market related or

non-market based.

. Amount of time spent and frequency of communication

trying to initiate relationships.

So for example, the Paragon and studentbeans.com

entrepreneurs have to draw customers from disparate

market sectors. This means that they do not necessarily

have a detailed insight into or have ready access to the

networks in which target customers operate and so have to

rely on networking which is predominantly causal, direct and

market related e.g. cold calling. For studentbeans.com this

is a particularly intense activity given the need to maximise

the number of companies and university locations featured in

its directory. As well as cold calling both have tried newer

forms of networking such as business networking events and

online networking sites. However, these new approaches

did not prove as successful as cold calling.

In contrast Warren Smiths business is much more narrowly

defined in terms of market and geographic scope and much of

his networking is focused on engaging others who can

contribute to the operation of his business and so build his

bridging social capital. Whilst he does use causal, market-

related networking to do this, social events are an important

way of making contacts with people who may prove usefullater, as well as being useful for maintaining relationships with

others.

Previous research has concluded that social capital,

particularly bonding social capital (identity-based networks),

is vital in the start-up phase of a business, allowing the

entrepreneur access to critical resources. Once a business has

become established, then the presumption is that bridging

social capital (calculative network) assumes greater

importance, allowing the pursuit of opportunities that may

not be possible via an identity-based network. Warren Smith

did indeed draw on a close interpersonal relationship

(bonding social capital) in order to offer clients an essential

part of a tuition package (namely accommodation) and

through this relationship he was also able to obtain necessaryinformation on equipment providers, the tourism board, lift

operators, and the local council, all of which helped in the

early stages of setting up the business. However, the other two

enterprises were much more reliant on bridging social capital

to set up their supplier and customer network.

(A precis of the article Entering and developing a service

network. Supplied by Marketing Consultants for Emerald.)





67

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