Entrepreneurial Networks

Related Terms: Business Incubators; Chambers of Commerce; Mentoring; Networking; Service Corps of Retired Executives

The definition of a "network" being a system of interconnected components, an "entrepreneurial network" is an association of entrepreneurs organized, formally or informally, with the object of increasing the effectiveness of the members' business activities. Such networks extend from very informal mutual support arrangements on up to national and international membership organizations based on formal rules, substantial membership fees, and often employing professional staffs. The phrase includes business owners meeting for breakfast once a week to trade experiences, problems, opportunities, woes, and news all the way to international industry associations that link such major activities as petroleum, steel, communications, and many other major branches of finance and of industry. Typical examples are chambers of commerce, associations of racially or ethnically similar business owners, Rotary Clubs, alumni associations focused on business development, community based business clubs, industry associations, investment clubs with thematic aims, some venture capital organizations, and SCORE (Service Corps of Retired Executives) sponsored by the Small Business Administration. In one sense OPEC (Organization of Oil Exporting Countries) may be considered an entrepreneurial network as well. What these organizational types have in common is that their members are either in business, wish to be in business, have been in business, and/or are interested in fostering a healthy business/industrial environment.

A study published by the National Commission on Entrepreneurship (NCOE), an organization populated by entrepreneurs and funded by the Kauffman Center for Entrepreneurial Leadership, posed the following question in designing the parameters of its study: "What makes a community entrepreneurial?" Why, for example, do some locales seem to generate a vibrant and exciting business environment while other places, with very similar demographic profiles, struggle to generate new businesses and to keep those that get started? What the NCOE discovered confirmed conventional wisdom on the subject: the presence of universities, access to venture capital, and good physical infrastructures are all keys to a vibrant economy. But the NCOE found one other and important ingredient that differentiated "entrepreneurial" from other areas. NCOE's study, entitled Building Entrepreneurial Networks summarized its findings this way: "Successful regions are not just relying on hard assets like schools, buildings, and capital. Soft, people-based assets matter, and they matter a lot. In particular, we found that entrepreneurs thrive in regions where they can effectively network with other entrepreneurs'¦. Regardless of their stated purpose, networks provide entrepreneurs with critical opportunities for peer learning. These learning opportunities matter as communities with more extensive peer networks in place tend to enjoy higher levels of both entrepreneurial activity and economic growth."

Business, trade, and craft associations, broadly speaking, have been around as long as business has existed. They were not only common but government-monitored institutions during the Roman empire and, in the form of guilds, represented one of the more important organizational forms of mediaeval business activity, serving later as launching pads for the development of major sectors in the industrial age. The phrase "entrepreneurial network," however, is of recent origin and represents yet another form of association reflecting the popularity of "networking," a subject discussed in detail elsewhere in this work under that name. The emphasis in what now follows, particularly the examples cited, will be on the newly emerging form.

BENEFITS OF NETWORKING FOR THE ENTREPRENEUR

Commercial exchange is, by definition, a social activity. It involves exchange between at least two people. "No man is an island, entire of itself," as John Donne said. Nor is a business self-sufficient. A business is a social creature, "a part of the main." A company's reach, power, and effectiveness grows in proportion to is connectedness. Start-up firms often begin with a limited network. For the entrepreneur starting a business, entrepreneurial networks offer genuine benefits. Foremost among these are opportunities to build relationships. Such relations need not necessarily be with people narrowly linked to business. Any and all relationships help—but those with peers are more valuable. By cultivating membership in a peer network, a new entrepreneur can learn a great deal from others daily facing the same problems. Networking of this sort can also provide a new business owner with the chance to get a first hand look at potential service providers and/or help to combat the sense of isolation that often comes with starting a company.

As a business develops, the challenges it faces also tend to grow. The founder of a growing business is likely to be looking for different benefits from networking than he or she did during the start-up phase. The social and peer-to-peer advisory aspects of an entrepreneurial network often become secondary to more strategic networking objectives. The new objectives may be to build business alliances, to find new investors and/or partners, to get first hand reviews of potential service providers, or to search for somebody with a particular area of expertise who can be hired.

INFORMAL NETWORKS

Entrepreneurial networks start with the entrepreneur's established web of relationships—with family and with friends. Religious, avocational, and social linkages belong to this category from the outset. People in such groups can provide an unexpected source of information or contacts that may be helpful in some aspect of a business's development. The informal aspects of such networks often mean they are taken for granted; their value as a network is not appreciated; in most cases, consequently, they're not exploited to the full. Although nobody much likes a person who has a one-track mind and who attempts to "do business" in inappropriate venues, it is useful to make informal networks work for a business purpose by simply being informative about one's business needs and open to the suggestions and the expertise of others.

FORMAL NETWORKS

Formal entrepreneurial networks are associations of businesses—or functions within them, like presidents' or purchasing managers' groups. Associations organized around industry groupings or types of businesses are one form of formal networking. A new business owner can gain legitimacy by joining such groups even before his or her venture has gained enough traction to become a factor on the competitive landscape. There are, of course, limits to how freely one can interact with those with whom one must compete. Nonetheless, associations of this type are a useful source of information about regulatory matter that impact a business, technical developments within the field, effective methods of communication or administration, and frequently associations also pool competitive information and share the results; thus associations hire staffs that collect but keep confidential sales data but publish overall market size information. Formal networks are often an effective means of reaching out to the public and of influencing government policy.

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