Enterprise and Small Business Principles

Networking and the small business

Stephen Conway and Oswald Jones

16.1 Introduction

The study of entrepreneurship has often concentrated on either the personality traits of entrepreneurs or upon neoclassical views of rational economic activity. Critics have argued that both approaches are inadequate in explaining entrepreneurial behaviour that is embedded in networks of social relations (Aldrich and Zimmer, 1986). Indeed, research has highlighted the importance of social networks and networking as an entrepreneurial tool for contributing to the establishment, development and growth of small firms. Social networks, for example, have been found to assist small firms in their acquisition of information and advice (Birley, 1985; Carson et al., 1995; Shaw, 1997, 1998), in their supplementing of internal resources (Aldrich and Zimmer, 1986; Jarillo, 1989; Hite and Hesterly, 2001), in their ability to compete (Brown and Butler, 1995; Chell and Baines, 2000; Lechner and Dowling, 2003), and in their development of innovative products (Birley et al., 1991; Rothwell, 1991; Conway, 1997; Jones et al., 1997; Freel, 2000). Gibson (1991: 117-18) contends that ‘the more extensive, complex and diverse the web of relationships, the more the entrepreneur is likely to have access to opportunities, the greater the chance of solving problems expeditiously, and ultim­ately, the greater the chance of success for a new venture’. Thus, paradoxically, whilst entrepreneurs may be characterised by their autonomy and independence, they are also ‘very dependent on ties of trust and cooperation’ (Johannisson and Peterson, 1984: 1).

Johannisson (2000) argues that the concept of networking helps us focus on entre­preneurship as a collective, rather than an individualistic phenomenon. Similarly, Jones et al. (2001: 13) see networks as a way of understanding the ‘embeddedness’ of entre­preneurial activity; where ‘embeddedness refers to the fact that economic action and outcomes, like all social actions and outcomes, are affected by actors’ dyadic (pairwise) relations and by the structure of the overall network of relations’ (Granovetter, 1992: 33). Jones and Conway (2004: 91) view the network perspective as providing a ‘con­ceptualisation of the entrepreneurial process as a complex and pluralistic pattern of interactions, exchanges and relationships between actors’.

To demonstrate this perspective on entrepreneurship we draw upon the well-known UK case of James Dyson. At one level Dyson illustrates the traditional viewpoint that sees entrepreneurs as ‘heroic’ individuals who achieve success as a result of their motivation, persistence and hard work. However, a closer reading of Dyson’s autobiography, Against the Odds (Dyson, 1997), reveals that at crucial stages in all of his business ven­tures he made extensive use of his wide and diverse social network. The autobiography, for example, highlights the important contribution of Dyson’s personal network to his access to finance, legal advice, social and emotional support, marketing and public relations services, as well as to talented young design engineers. Drawing upon this example, as well as other empirical work, it is argued here that the personal or social network should be viewed as an important, and sometimes critical, resource of the entrepreneur. Indeed, for Leonard-Barton (1984: 113), ‘entrepreneurs who, for geographic, cultural or social reasons, lack access to free information through personal networks, operate with less capital than do their well-connected peers’. How­ever, as Birley et al. (1991: 58) warn, ‘networks do not emerge without considerable endeavour’.

16.2 Learning objectives

This chapter has three learning objectives:

1 To understand the alternative foci of network research in the area of entrepreneurship.

2 To appreciate the social network perspective through examining the Dyson story and focusing on the role and contribution of Dyson’s personal network to his entrepreneurial activities.

3 To be aware of the key findings from academic research on entrepreneurial networks.

Key concepts

■ entrepreneurship ■ social networks ■ small firm relationships

16.3 Alternative foci of network research in entrepreneurship

The study of ‘the entrepreneur’ and ‘entrepreneurship’ from a network perspective originates from the mid-1980s with the work of academics such as Howard Aldrich, Sue Birley, Dorothy Leonard-Barton and Bengt Johannisson. Over the last decade or so, there has been an increasing body of research concerning the role, nature and dynamics of the entrepreneur’s network. However, within the entrepreneurship and small firm literature, the term ‘network’ has been used to describe a variety of phenom­ena. In particular, the notion of entrepreneurial or small firm networks has been employed with reference to industrial districts (e. g. Piore and Sabel, 1984; Pyke, 1992; Saxenian, 1985; 1990); support structures (e. g. Chaston, 1995; Chaston and Mangles, 1997) and the personal contacts of entrepreneurs and small business owner-managers (e. g. Birley, 1985; Aldrich and Zimmer, 1986). For example, studies have explored the networks of small firms within industrial districts such as Emilia-Romagna in Northern Italy (Piore and Sabel, 1984; Pyke, 1992), and Silicon Valley in California (Saxenian, 1985; 1990). This research has sought to develop an understanding of the networking patterns and collaborative arrangements present within such networks to inform policy makers of their impact upon the competitiveness of small firms. Similar interests have motivated research concerning the networks of support organisations, such as ‘Business Links’ in England and ‘Local Enterprise Companies’ in Scotland, which exist to support the creation and growth of small firms. Encouraged by government enthusiasm for collaborative relationships between small firms, this branch of research has sought to inform policy of the nature and extent to which umbrella organisations such as local chambers of commerce and business clubs serve as a catalyst for small firm networking activities, and thus indirectly assist in the establishment and subsequent development and growth of small firms (Chaston, 1995; Chaston and Mangles, 1997).

Research centred on the personal or social networks of the entrepreneur and the small firm owner-manager has been motivated more by an interest in understanding the impact that these networks have upon the ability of such individuals to create, develop and grow their small firms (Birley, 1985; Aldrich and Zimmer, 1986; Aldrich et al., 1986; Aldrich, 1987; Carsrud et al., 1987; Birley et al., 1991; Dubini and Aldrich, 1991). A number of these studies have focused on the impact of gender (Aldrich, 1989; Aldrich et al., 1989; Katz and Williams, 1997; Greve and Salaff, 2003) or ethnicity (Zimmer and Aldrich, 1987) on the nature and role of the entrepreneur’s social network. Such research is interested in exploring the full breadth of relationships of entrepreneurs, rather than just the narrower set of ‘business’ relationships in which small firms are involved. Thus, in contrast to studies concerning industrial districts and support net­works, this area of research does not separate or ‘abstract’ the business relationships of entrepreneurs and small firm owner-managers from the ongoing social relationships within which small firm activities occur.

16.4 An overview of the social network perspective

The ‘network’ metaphor is a powerful way of viewing social groupings; it changes the imagery from a focus on pairs of relationships to one of ‘constellations, wheels, and systems of relationships’ (Auster, 1990: 65) and of ‘webs’ of group affiliations (Simmel, 1955). It is perhaps not surprising then that the social network perspective has been employed extensively since the 1960s to reveal the patterns of relationships and inter­action within a wide range of communities and organisations. Whilst the network perspective can and has been used to study the network of relationships between indi­viduals, groups and organisations, for example (i. e. various units of analysis), the social network perspective focuses on the relationships between individuals.

It is useful to distinguish between ‘networks’ and ‘networking’; the network is a social structure, comprised of a set of relationships between a set of individuals, which is viewed as being ‘greater than the sum of its parts’, while networking can be seen as the activity by which these network relationships are built, nurtured and mobilised, and the ‘flows’ through these relationships, such as information, money, power and friendship. However, there is also an interplay between a network and the networking that occurs within that social structure; on the one hand the network may constrain or liberate the patterns of interaction and exchanges between network members; on the other, networking behaviour may serve to either ossify the existing network member­ship and relationships or create a dynamic in the membership and relationships within the network. This interplay of network and networking, that is, structure and agency (i. e. action), is encapsulated by ‘structuration’ theory (Giddens, 1984).

Thus, when researching social networks and social networking activity, there are four key components that need to be investigated (Conway et al., 2001: 355):

■ actors - the individuals within the network;

■ links - the relationships between the individuals within the network;

■ flows - the exchanges between the individuals within the network; and

■ mechanisms - the modes of interaction employed by the network members.

We will now introduce the various dimensions of each of these network components.

16.4.1 Dimensions of actors

There is a wide range of dimensions along which individuals can be categorised, from the generic, such as age, gender, family membership, nationality, ethnicity and educa­tional level, to the more specific, such as functional background (e. g. finance, market­ing and engineering) or sectoral background. The selection from this wide range of dimensions should be informed by the nature and objective of the research.

16.4.2 Dimensions of links and relationships

The nature of a link or relationship between network members may also vary along a number of dimensions, perhaps the most relevant here being the following:

■ formality - distinguishes between informal or social linkages and formal linkages, embodied in a written contract, for example;

■ intensity - is indicated by the frequency of interaction and the amount of flow or transactions between two actors over a given time period (Tichy et al., 1979);

■ reciprocity - refers to the balance of flow over time between two actors through a given linkage. The link is considered to be ‘asymmetric’ or ‘unilateral’, where the flow is unbalanced (i. e. largely one-way), and ‘symmetric’ or ‘bilateral’, where the flow is balanced (i. e. two-way). Asymmetric linkages tend to imply some form of inequality in the power relations between two actors (Boissevain, 1974);

■ multiplexity - signifies the degree to which two actors are linked by multiple role relations (e. g. friend, brother and business partner); the greater the number of role relations linking two actors, the stronger the linkage (Tichy et al., 1979). Boissevain (1974: 30) also argues that ‘there is a tendency for single-stranded relations to become many-stranded if they persist over time, and for many-stranded relations to be stronger than single-stranded ones, in the sense that one strand role reinforces others’;

■ origin - this dimension refers to the identification of the events leading to the origin of a linkage. It is intended to incorporate factors such as the context in which the relationship originated and the initiator of the relationship; and

■ motive - the functional significance of networking does not qualify as a convincing explanation of its occurrence. In addressing this issue, Kreiner and Schultz (1993: 201) argue that ‘one must determine the motives and perspectives of the actors who reproduce such patterns’.

16.4.3 Types of 'flow' or 'transaction content'

Tichy et al. (1979) distinguish between four types of flow within a network, often termed ‘transaction content’ with the network literature:

■ affect - the exchange of friendship between actors;

■ power - the exchange of power and influence between actors;

■ information - the exchange of ideas, information and know-how between actors;

■ goods - the exchange of goods, money, technology or services between actors.

Individuals may ‘exchange’ any one of these types of transaction content for another, for example goods for money, or information for friendship, although in many cases, as with the latter, this may be implicit rather than explicit. It is also worth pointing out here that the perceived value of the flow or flows between two actors within a network may vary greatly between the ‘sender’/‘giver’ and the ‘recipient’, and, indeed, by oth­ers in the network.

16.4.4 Mechanisms of interaction and network maintenance

There are a number of ways in which individuals can interact with one another, includ­ing telephone conversations, e-mails, documents and face-to-face meeting. Kelley and Brooks (1991) dichotomise these mechanisms of interaction into ‘active’, referring to those modes involving personal interaction, whether face-to-face or over the phone, for example, and ‘passive’, essentially referring to documents and other textual material, where there is no direct interaction between the ‘sender’ and ‘receiver’ of the informa­tion. As we noted in the introduction, ‘networks do not emerge without considerable endeavour’ (Birley et al., 1991: 58), and thus we are not only interested in the mechan­isms for the exchange of information and goods through the network, but also the mechanisms and forums by which entrepreneurs build and nurture their networks.

16.4.5 Dimensions of networks

The overall network may also be seen to vary along a number of dimensions. The most relevant network dimensions for our concerns include the following:

■ Size - this dimension simply refers to the number of actors participating in the net­work (Tichy et al., 1979; Auster, 1990). However, the size of the network under investigation is frequently influenced by some arbitrary boundary set by the researcher (see discussion below).

■ Diversity - this network characteristic most frequently refers to the number of dif­ferent types of actor (Auster, 1990), which as we discussed above may be measured along a number of dimensions, such as age, gender and education, etc.

■ Density - the density of a network refers to the ‘extensiveness of the ties between elements [actors]’ (Aldrich and Whetten, 1981: 398). That is, the number of actual linkages in the network as a ratio of the total number of possible linkages. This dimension is also sometimes termed ‘connectedness’ (Tichy et al., 1979; Rogers and Kincaid, 1981). However, Boissevain (1974: 37) argues that: ‘It must be stressed.. . that network density is simply an index of the potential not of the actual flow of information’ (i. e. it is a measure of network structure and not networking activity). Boissevain (1974: 40) also argues that: ‘There is obviously a relationship between size and density, for where a network is large the members will have to contribute more relations to attain the same density as a smaller network.’ Furthermore, net­work density tells us nothing of the internal structure of the network itself and as Boissevain (1974: 40) points out ‘. . . networks with the same density can have very different configurations’.

■ Openness - in the entrepreneurship literature the distinction is often made between strong ties and weak ties. Strong ties are found in cliques and associated with dense networks (i. e. relationships with individuals who are also linked to each other), whereas weak ties connect to individuals outside a clique and thus create ‘openness’ in the network, that is, they are boundary-spanning relationships or links that span ‘structural holes’ (Burt, 1992).

■ Stability - Tichy et al. (1979: 508) define this dimension as ‘the degree to which a network pattern changes over time’. Auster (1990) expands on this, referring to both the frequency and magnitude of change of the actors and linkages in a given network.

16.4.6 Setting boundaries for network research and network mapping

One of the key problems in undertaking a network study is the determination of the boundary of the network, since this establishes the sample of actors and links under investigation. Mitchell (1969: 12) distinguishes between the ‘total’ network of a soci­ety, that is, ‘the general ever-ramifying, ever-reticulating set of linkages that stretches within and beyond the confines of any community or organisation’, and the ‘partial’ network the researcher must abstract from the total network. This process of ‘abstrac­tion’ (Scott, 1991) is problematic since social networks have little regard for formal or informal boundaries, whether defined by the network members themselves (e. g. teams, groups, and organisations) or by the network researcher. Thus, in setting a boundary, the network researcher must be aware of the potential limitations of their sample. Network researchers may focus either on a group of individuals, which is termed a ‘socio-centred’ network, since it centres on a group such as a team of scientists within an organisation, or the network of an individual, which is termed a ‘focal’ or ‘ego - centred’ network, since it centres on the network of a focal individual, such as an entrepreneur.

Network mapping, that is, the graphical representation of a network, is ‘a power­ful, though under-utilised, tool for the representation of relational data’ (Conway and Steward, 1998: 223). It is particularly useful in allowing for the comparison of a network over time, such as at different stages of the life of an entrepreneurial firm; an excellent example of this is provided by Blundel (2002) who studied the network evolution of two small regional cheese-making firms in the UK.

16.5 Re-telling the Dyson story from a social network perspective

We believe that the Dyson case is important to the study of entrepreneurship for a number of reasons. First, James Dyson is an accomplished designer, innovator and entrepreneur, and all of his entrepreneurial ventures (the ‘Sea Truck’, ‘Ballbarrow’ and ‘Dual-Cyclone’) illustrate that creative thinkers can identify exceptional opportunities in very mature sectors. Second, Dyson is in some regards a modern reincarnation of the traditional inventor-entrepreneur, as exemplified by Richard Arkwright, Robert Stephenson, James Watt and Isambard Kingdom Brunel, who are such a feature of the UK’s economic history (Mathias, 1969). Third, the case highlights the importance of self-belief, persistence and sheer hard work in the creation of new businesses. Fourth, and perhaps most importantly, the case illustrates the role played by informal or social networks in providing support, information and knowledge for even the most indi­vidualistic of entrepreneurs.

16.5.1 Case background and chronology of key events

After leaving school, where he studied humanities at ‘A’ level, James Dyson went on to art school in London, and later was accepted on to a Masters degree course in design at the Royal College of Art (RCA). He became particularly inspired by Buckminister Fuller, the American engineer dismissed by many as a ‘dreamer’, and the great Victorian engineer Isambard Kingdom Brunel, who was responsible for many of the railways, steamships and bridges that symbolised the UK’s industrial power. Dyson’s father had died when he was young and this he believes accounts for his own self-sufficiency and identification with ‘external figures’. Dyson’s subsequent business career can be roughly split into three major phases, which we shall address chronologically.

Phase I - Rotork and the Development of the Sea Truck

While still a student at the RCA, James Dyson began to work for an entrepreneur named Jeremy Fry who manufactured motorised valve actuators for pipelines. Fry encouraged him to adopt a ‘hands-on’ (practical) approach to design rather than one based on theory; this is an approach that has been the hallmark of Dyson’s subsequent entrepreneurial ventures. Dyson was soon working on one of his innovative ideas - the ‘Sea Truck’ - and over the following months went on to build a prototype. He patented his idea and Fry set up a subsidiary of his company - ‘Rotork’ - to manufacture the product. More that 250 Sea Trucks were sold at a turnover of many millions, but Dyson soon began to feel he had been away from the drawing board for too long.

Phase II - Kirk-Dyson and the development of the Ballbarrow

While working for Rotork, Dyson and his family had moved from London to a 300- year old farmhouse in the Cotswolds. Undertaking most of the re-building work him­self, he became familiar with the failings of the traditional wheelbarrow: unstable when fully laden, tyres prone to puncture, liable to sink into soft ground, and with a steel body that damaged door-frames and human limbs. He considered the problem for around a year, before hitting upon the idea of re-inventing the wheelbarrow by replacing the wheel with a ball. It was at this point that Dyson decided to set up his own manufacturing company - this was to become ‘Kirk-Dyson’. Dyson’s company launched the ‘Ballbarrow’ and it soon became a commercial success. However, owing to Kirk-Dyson’s claim that a US company had stolen its idea, and the subsequent legal case that Kirk-Dyson lost, tension between board members due to the failed legal case resulted in Dyson’s being voted out of the company.

Phase III - Dyson and the Development of the Dual-Cyclone Vacuum Cleaner

Undeterred, Dyson then decided to investigate why the performance of the household vacuum cleaner declined so rapidly after fitting a new dust bag. He found that it needed only a thin layer of dust inside the bag to clog the pores and reduce perform­ance to ‘an enfeebled suck’. Experience with industrial cyclone technology provided Dyson with the idea for a cyclone vacuum cleaner. Using an old vacuum cleaner, card­board and industrial tape, he spent one evening constructing a fully working model of the world’s first bagless cleaner - the prototype for the ‘Dual-Cyclone’. After two years of trying to convince British and European companies of the Dual-Cyclone’s potential, Dyson decided to try the US. Yet despite the optimism and the ‘can-do’ spirit of the US, which he found refreshing after the negativity he experienced in the UK, no com­pany was willing to manufacture the Dual-Cyclone. In November 1984, after five years of trying to gain interest in the Dual-Cyclone among European and US manufacturers, Dyson received an informal approach from a Japanese company, ‘Apex’, who agreed to produce the Dual-Cyclone for the Japanese market under the ‘G-Force’ brand name. He then once again turned to the US market and eventually set up a deal with ‘Iona’, a Canadian company, who agreed to produce the Dual-Cyclone for the US market under the ‘Drytech’ brand name. However, as the product was about to be launched onto the US market, Dyson discovered that ‘Amway’, a US company that had origin­ally rejected the Dual-Cyclone concept several years before, had unlawfully launched their own version. Reluctantly, Dyson once again found himself involved in a long - running and extremely expensive legal battle with a US company. Then in 1991, after almost five years of litigation, Amway agreed to a deal over its patent infringement and the haemorrhage of legal fees stopped. Finally, in July 1993, 15 years after his original idea, the first ‘DC01’ Dual-Cyclone vacuum cleaner rolled off Dyson’s own assembly line, and the innovation was successfully launched in the UK.

Dyson's social network and the development of the Sea Truck and the Ballbarrow business ventures (Phase I and II)

Dyson’s most significant and influential contact was Jeremy Fry who inspired and sup­ported his early ventures. While studying at the RCA Dyson had met Joan Littlewood, the theatre and film impresario, who invited him to design a new theatre that she was planning to build. Dyson, operating under the influence of Buckminster Fuller, created a ‘mushroom-shaped auditorium built of aluminium rods’. He sought financial support from British Aluminium and during his first meeting a manager suggested he contact Jeremy Fry; this was the start of a career-long relationship:

I had shown Fry my model of the proposed theatre, and I think he rather liked it, if not enough to cover me with gold. What he did offer me, however, was to prove far more useful in the long run: work [at Rotork], and the first of many collaborations’.

(Dyson 1997: 47)

Having developed the Sea Truck at Rotork, Dyson describes his mistakes in attempt­ing to market the Sea Truck by conveying a message that was too complicated for potential buyers. At the same time, he makes reference to the support of his wife in overcoming this problem:

For each function Deidre designed a brochure, and they began to sell. And it all seemed so obvious: you simply cannot mix your messages when selling something new.

(Dyson 1997: 62)

Dyson eventually left Rotork to set up his own company to manufacture and market the Ballbarrow, which he had been working on over the previous year. Although he had made money from the Sea Truck he needed financial support to establish a com­pany to manufacture the Ballbarrow. Perhaps not surprisingly, as with many entre­preneurs, he turned to his family:

I went to see a lawyer friend of my brother-in-law. . . Andrew Phillips not only helped with the formation of the company, but fell in love with the Ballbarrow and persuaded said brother-in-law (Stuart Kirkwood) to invest in it. Stuart was the son of one Lord Kirkwood, former chairman of the mining company RTZ. He and his brother. . . as a result, inherited some family money. Which is always nice.

(Dyson 1997: 79-80)

These contacts were fundamental to the setting up of Kirk-Dyson as they provided legal advice on forming the company, and funding to develop the Ballbarrow and invest in production equipment. Even with this support things did not progress smoothly and the new entrepreneurs had considerable difficulty in finding a market for their revolu­tionary barrow. Help was at hand:

I had a friend called Gill Taylor whom I had met at Badminton and just so happened to have been Miss Great Britain in 1964. She was blond, attractive, curvaceous and a typical ‘travel around the world and help people’ beauty queen. She was also at a loose end and quite pre­pared to tour the garden centres of the West Country touting Ballbarrows.

(Dyson 1997: 82)

Gradually, the partners managed to make the Ballbarrow a success and began con­sidering ways in which they could expand the business. They wanted to increase out­put by acquiring a ‘proper’ factory and invest in some injection-moulding equipment. George Jackson, a local property developer, was approached and subsequently sold a third share in the company. Dyson does not explain how this particular contact was made nor why he was judged to be an appropriate member of the board (other than having the required £100,000). In addition, his social network was important in pro­viding industrial expertise:

I brought in an old friend of my father’s, Robert Beldam, to have a bit of moral support on the board. He was chairman of the CBI small companies section, and though his presence created a little, never expressed, resentment on the board, having him there made me feel somewhat better.

(Dyson 1997: 87)

Eventually, tension between Board members meant that James Dyson was voted off the Board and out of the Kirk-Dyson company.

Dyson's social network and the development of the Dual-Cyclone business venture (Phase III)

Following his departure from Kirk-Dyson, Dyson decided to concentrate his efforts on developing the Dual-Cyclone vacuum cleaner. However, he needed finance to proceed, and thus sought a partner to invest in the setting up of the Air Power Vacuum Cleaner Company:

Fry. . . was always likely to be my best hope. And so it proved. With £25,000 from Jeremy, and £25,000 from me, £18,000 of which I raised by selling the vegetable garden at Sycamore House and the rest borrowed with my home as security... I was in the vacuum cleaner business.

(Dyson 1997: 120)

Dyson eventually built around 5,000 prototypes over a three-year period, and by 1982 he had a Dual-Cyclone that was 100% efficient, but debts of more than £80,000. He had also spent a considerable amount of time trying to persuade various European companies, including Hoover, Hotpoint, Electrolux, AEG and Zanussi, to manufac­ture his vacuum cleaner, but to no avail. The Fry connection once again proved invalu­able, as Rotork’s Chief Executive, Tom Essie, was persuaded by Fry to provide further funding:

Together we drew up a business plan for the production of an upright Dual-Cyclone vacuum cleaner, and the Rotork board of directors, swayed presumably by Jeremy’s dual involve­ment, approved it. We thrashed out an agreement that paid me £20,000 and gave me a 5% royalty, and I went off to develop the vacuum cleaner.

(Dyson 1997: 138)

Ultimately, Tom Essie was replaced by what Dyson describes as a ‘money man’ and Rotork did not proceed with manufacture of the Dual-Cyclone. The company did, however, provide Dyson with financial support at a crucial time in the development of the Dual-Cyclone. A new opportunity was soon at hand; it was not only his extensive social network that proved of value to Dyson, serendipity also seemed to play a part in the story. A key element in the ultimate success of the Dual-Cyclone was the deal he established with a Canadian company that took over responsibility for the North American market. The company was run by an Englishman:

Jeffery Pike, with whom I had become friendly quite by chance after we sat next to each other on an aeroplane in May 1986, and both turned out to be reading the same novel by Fay Weldon. Having flunked English A Level all those years before, my fortune looked as if it was about to be made by a novel.

(Dyson 1997: 175)

In 1991 Dyson decided that he would set up production in the UK himself, but once again he was hampered by the lack of capital. As usual in times of crisis he was able to make use of his extensive network as a way of resolving the problem:

When I started with the Ballbarrow I had approached a man called David Williams, whose plastics company, WCB, built all our tooling and then recouped the money in instalments as we began to sell. . . He was now running a company called Linpak which, quite handily for me, was Britain’s biggest plastic producer.

(Dyson 1997: 186)

As plans for the manufacture of the Dual-Cyclone in the UK progressed Dyson was keen that it embody the very latest technological developments. By this time he had a healthy stream of royalties from Japan and the US and could afford to hire designers from his Alma Mater:

The team consisted of four design engineers straight out of the RCA - Simeon Jupp, Peter Gammack, Gareth Jones and Mark Bickenstaffe - all in their twenties, a marvellous bunch, whose presence made me feel as if I was freshly sprogged from the Royal College myself. . . .

(Dyson 1997: 192)

Even when Dyson’s business venture was well-established he still retained links with the RCA, which illustrates the importance of utilising long-standing social networks:

Round about the time I was planning the DC-02, I was at the RCA degree show - for I had since become an internal examiner on their product design course - and I went around offer­ing one or two of the graduates jobs, as is my habitual wont.

(Dyson 1997: 239)

The RCA connection continued to be of value to Dyson after the company became highly successful; by 1995 demand meant that he had to move out of the Chippenham factory because it had a limited capacity of 30,000 units per week.

A fantastic new factory was designed for us by my old tutor Tony Hunt, and a whizzkid architect called Chris Wilkinson, but we expanded so fast that we had outgrown it before it was even built. . . Wilkinson and Hunt were back though in the Autumn of 1996, drawing up plans to treble the 90,000 square foot factory space by extending over more of our twenty - acre site.

(Dyson 1997: 246)

By 1996 Dyson was considering ways in which he could extend into the increasingly global market for consumer products. After considering the attractions of Germany and France as the first step in his expansion he eventually settled on Australia:

I got a call from a man called Ross Cameron. Cameron was an Australian who had seen a presentation of mine at Johnson-Wax in Racine, Wisconsin. ‘Why not start up in Australia?’ I asked. A couple of days later Ross rang back to say ‘OK’. He was that sort of man, not one to mess about.

(Dyson 1997: 252-3)

Yet again, Dyson’s social network (see Figure 16.1) proved to have a major impact on the direction and fortunes of his business venture.

16.5.2 Case summary

Through a ‘re-telling’ of Dyson’s autobiography Against the Odds from a social net­work perspective, we have sought to demonstrate that the creation of Dyson’s various business ventures was heavily dependent upon both family and friends (strong ties), as well as acquaintances and serendipitous meetings (weak ties). Dyson’s large and diverse social network incorporates relationships that originate from various stages and facets of his life and career; many of these relationships are long-term and multiplex in nature. We see from the case, for example, that Dyson’s family and friends provided him with

financial and knowledge-based resources that helped ensure that he was able to turn his various novel ideas into successful business ventures. Of course, not every potential entrepreneur will be fortunate enough to be able to call upon an ex-Miss Great Britain to sell their products or a senior member of the CBI to provide business expertise, but perhaps what distinguishes entrepreneurs is their ability to maintain and make use of their strong ties, as well as their effectiveness in initiating, nurturing and mobilising, weaker ties. As the case illustrates, contacts made on aeroplanes, and in business meet­ing and seminars, can eventually become an extremely important element in business success.

The point of these examples is not to suggest that Dyson over-emphasised the import­ance of his own contribution to the success of his various business ventures, rather what we are trying to illustrate is that it is all to easy to attribute the success of entrepre­neurial ventures to the sole efforts of the man or woman responsible for founding a new business. In Dyson’s case, persistence, hard-work and self-belief obviously made a massive contribution to his ultimate success. At the same time, it is important to recognise that at crucial points in the Dyson story his extensive and diverse social net­work provided him with considerable financial, legal, business and emotional support. Without these networks it is unlikely that Dyson would have overcome what were no doubt formidable odds.

16.6 What has research told us about entrepreneurial networks?

Following seminal studies in the mid - to late-1980s, there has been an increasing inter­est in the social networks of entrepreneurs from both academics and policy makers.

Academic research has sought to reveal the nature of the actors, relationships and flows within the entrepreneur’s network, as well as overall features such as network size, diversity, openness (incidence of weak ties) and stability. We will discuss some of the findings of this research in the subsequent sections of this chapter.

Whilst a number of studies have been cross-sector (Birley, 1985; Conway, 1997; Greve and Salaff, 2003), research has also focused on a wide variety of business sectors, such as computing and IT (Saxenian, 1985, 1990; Collinson, 2000; Lechner and Dowling, 2003), wine (Brown and Bulter, 1995), specialist cheese (Blundel, 2002); business ser­vices (Chell and Baines, 2000); and oil (MacKinnon et al., 2004). This research has highlighted the importance of entrepreneurial networks across a broad range of busi­ness sectors.

Over the last decade or so, research has also indicated the importance of social net­works to entrepreneurial activity across a wide range of countries, including the US (Saxenian, 1985), the UK (Conway, 1997), Japan (Aldrich and Sakano, 1995), Greece (Dodd and Patra, 2002), Norway, Sweden and Italy (Greve and Salaff, 2003), Germany (Brudrel and Preisendorfer, 1998), Russia (Rehn and Taalas, 2004), Belgium (Donckels and Lambrecht, 1997), Slovakia (Copp and Ivy, 2001) and Sri Lanka (Premaratne,

2001) . However, these studies also reveal some degree of variation in the social net­working patterns of entrepreneurs from different countries; these will be discussed in the following sections. Similarly, differences between the social networking patterns of female and male entrepreneurs will also be highlighted in the following discus­sion (Aldrich, 1989; Aldrich et al., 1989; Katz and Williams, 1997; Greve and Salaff, 2003).

16.6.1 Network size and network diversity

A number of studies have sought to reveal the size and membership of the networks of entrepreneurs and small firms. Some of these have focused on specific activities, such as innovation (e. g. Rothwell, 1991; Conway, 1997; Freel, 2000), though most are more general in nature and look at the overall composition of the entrepreneurial network (e. g. Birley et al., 1991; Donckels and Lambrecht, 1997). What is common among the findings of such studies is the importance of the diversity of actors within the net­work of the entrepreneur or small firm (Beesley and Rothwell, 1987; Dodgson, 1989; Conway, 1997; Shaw, 1997, 1998). This network diversity allows small firms to draw upon a range of external resources, such as technical knowledge, market information and finance, to supplement the internal resources of the organisation.

In the more general studies of entrepreneurial and small firm networks, the import­ance of family and friends has been highlighted, particularly during the early phase of entrepreneurial activity. However, as the enterprise evolves, the network grows and the entrepreneur increasingly develops and utilises more formal business relationships (Birley and Cromie, 1988; Jarillo, 1989; Birley et al., 1991; Larson and Starr, 1993; Donckels and Lambrecht, 1997; Hite and Hesterly, 2001; Greve and Salaff, 2003). This pattern is articulated clearly by Birley et al. (1991: 59), who note that: ‘entrepre­neurs, at an early stage of enterprise development, rely heavily on an informal network of friends, family members and social contacts from the local neighbourhood to gather relevant data. At a later stage, entrepreneurs rely increasingly on professional bankers, accountants, lawyers, suppliers, government agencies, etc. to gain access to requisite business information.’

The diversity of the entrepreneurial network is highlighted by Conway (1997) in a study of the relationships mobilised in the development of a sample of successful tech­nological innovations. The networks revealed were often found to be large, predomin­ately informal, localised and diverse, stretching ‘upstream’ along the supply chain to suppliers, ‘downstream’ to various users and distributors, and incorporating other individuals such as university academics. Of particular importance to the innovation process were linkages with users and suppliers. The research also revealed that the ‘ego - centred’ network of entrepreneurs frequently plugged into a series of important and extensive ‘secondary’ networks (i. e. the networks of those to whom they were linked). These weak ties allow them to tap into knowledge, information and resources from a wider set of relationships than those to whom they are directly connected. Five broad categories of ‘secondary’ network were identified:

■ Scientific and technical networks - these are organised around scientific or techno­logical domains, and include academic and corporate researchers.

■ Profession networks - these are comprised of individuals within a given profession, such as medicine or education, and bound by ‘professional ethics of cooperation’.

■ User networks - these evolve with the end-users of a firm’s products.

■ Friendship networks - this refers to the personal networks of individuals based pre­dominantly on friendship.

■ Recreation networks - this is a particular type of friendship network whose cohe­sion arises from the mutual sense of attachment to some recreational activity, such as sailing, mountaineering or rugby, where the feelings of challenge, achievement and comradeship through participation create and maintain personal bonds.

Research has also highlighted a number of factors that promote the geographical ‘reach’ of the network of an entrepreneur. For example, a study by Donckels and Lambrecht (1997) revealed that highly educated entrepreneurs were significantly more likely to have personal networks that spanned national boundaries into the international arena, and that the bias towards local contacts in the network was lower for small businesses of more than ten employees and for growth-orientated small firms.

However, work comparing the networks of entrepreneurs of different nationalities has suggested that variations exist in their size and membership. In their study of US, Norwegian, Swedish and Italian entrepreneurs, for example, Greve and Salaff (2003) found that US entrepreneurs had the largest networks, followed by the Swedes and Italians, with the Norwegians having the smallest networks. They also found that US entrepreneurs had a significantly smaller proportion of family within their networks compared with the other three nationalities in their study (6% compared with 22-25%). Studies of Northern Irish entrepreneurs (Birley et al., 1991) and Greek entrepreneurs (Dodd and Patra, 2002) indicate that their social networks are relatively small, being similar in size to those of Italian entrepreneurs, although Dodd and Patra (2002) also found that Greek entrepreneurs had extremely extensive ‘secondary’ networks, that is, they combined small yet strong circles of contacts with weak ties to the networks of others. Greek entrepreneurs also have a large percentage of family members in their networks, accounting for approximately a third of the network (Dodd and Patra,

2002).

The evidence regarding differences in the network size and membership of male and female entrepreneurs is more limited. Greve and Salaff (2003), for example, found some evidence that female entrepreneurs had slightly larger networks than their male counterparts, and that these often included a higher proportion of kin. This ties in with the contention of Renzulli et al. (2000) that female entrepreneurs often find it difficult to expand their networks into male-dominated business circles.

16.6.2 The nature of network linkages and relationships

Research has also focused on the nature of the linkages between actors within entrepre­neurial networks. A key distinction is made between informal or personal relationships and formal relationships, such as joint ventures, licensing agreements and supply-chain linkages with either suppliers or users. The importance of informal or personal rela­tionships, and the role of trust, is frequently cited (Birley, 1985; Dubini and Aldrich, 1991; Conway, 1997). Informality would appear to play an important role in allow­ing entrepreneurs to resolve the apparent paradox raised earlier in this chapter: that while on the one hand ‘the entrepreneur personifies individualism and independence’, on the other ‘he is. . . very dependent on ties of trust and cooperation’.

Johannisson and Peterson (1984: 3) argue that the individual linkages of an entre­preneur’s social network ‘are multi-stranded involving unique syntheses of instrumental, affective [friendship] and moral [bonds]’, in contrast to the bureaucratic desire ‘to separate the strands and in particular to focus in on instrumental [bonds] only’. For Freeman (1991: 503), ‘behind every formal network, giving it the breath of life, are usually various informal networks. . . Personal relationships of trust and confidence. . . are important both at the formal and informal level.’ Indeed, in reviewing exist­ing research concerning the evolution of the network relationships of entrepreneurs, Hite (2005: 116) notes that ‘work-related ties may evolve... as social exchanges are layered over the business relationship’. Conway (1997) in his study of successful small firm innovation also found evidence of multiplex relationships, although, while in some cases friendships emerged from formal relationships, in others, friendships spilled over into more formal joint projects. Although comparative research has indi­cated that informal relationships are important to entrepreneurs of different national­ities, some variations have been revealed. For example, Leonard-Barton (1984) found that US entrepreneurs were more likely to draw upon informal personal relationships, as opposed to more formal channels, than their Swedish counterparts. Similar variations are implied by research that we discuss next, concerning the mechanisms and venues for interaction.

16.6.3 The nature of flows through the network and mechanisms of interaction

We saw in the Dyson story that an extensive and diverse social network provided James Dyson with considerable financial, legal, business and emotional support. A number of studies have shown that such a diversity of flow and transactions through the entrepreneur’s network is important to successful entrepreneurial activity. Birley (1985), for example, found that the social networks of entrepreneurs, incorporating family, friends and contacts, were more important than formal relationships in sourcing raw materials, equipment, premises, employees and finance. In her study of the innova­tive behaviour of a sample of small service firms in the UK, Shaw (1998) highlights the variety of flow through their networks, such as information, advice, friendship, eco­nomic and bartering exchanges. She also found that each of these flows had an import­ant impact on the innovation processes of these small service firms. Similarly, in his study of successful technological innovation by small entrepreneurial firms, Conway (1997) revealed the importance of a variety of flows, including technical knowledge and solu­tions, market information and prototype feedback, for example, from contacts in uni­versities, suppliers, customers and even competitors.

We noted earlier in this chapter that considerable effort is required to create, nur­ture and maintain network relationships. Indeed, research indicates the importance of ‘active’ modes of interaction and, in particular, face-to-face interaction in the develop­ment, nurturing and utilising of entrepreneurial networks (Conway, 1997; Donckels and Lambrecht, 1997; Dodd and Patra, 2002). Research by Donckels and Lambrecht (1997) found that the educational level of the entrepreneur and the growth orientation of the firm can positively impact the use of certain forums of interaction, such as trade - fairs and business seminars. Conway (1997) noted that relationships with users, in par­ticular, tended to be informal, with the principal mechanisms for interaction being customer site visits, chance meetings at exhibitions and contact over the phone.

There are, however, some differences in the networking patterns of entrepreneurs of different nationalities. In their study of US, Norwegian, Swedish and Italian entre­preneurs, Greve and Salaff (2003) found that Italian entrepreneurs spent significantly more time both developing and maintaining their relationships, while Norwegian entrepreneurs were found to spend significantly less time maintaining their relation­ships. Research by Dodd and Patra (2002) found that Greek entrepreneurs spent sub­stantial time developing and maintaining relationships, some 44 hours per week; this is much higher than that spent by Italian entrepreneurs. They also found that roughly 40% of this networking activity by Greek entrepreneurs occurred in a social setting, with roughly 40% in a business office and 20% over the phone. In sharp contrast, Japanese entrepreneurs reported very low levels of networking activity compared with other nationalities (Aldrich and Sakano, 1995). Once again, research concerning the networking activity of male and female entrepreneurs is mixed; whereas Aldrich (1989) found lower networking levels for female entrepreneurs, Greve and Salaff

(2002) found no significant difference.

16.6.4 The function or role of the network

The personal or social networks of entrepreneurs can be seen to play a number of important roles: they generate social support for the actions of the entrepreneur; they help extend the strategic competence of the entrepreneur in response to opportunities and threats; and they supplement the often very limited resources of the entrepreneur, allowing the resolution of acute operating problems (Johannisson and Peterson, 1984). For Donckels and Lambrecht (1997: 13), ‘the fragility which accompanies small size can be offset by the supportive environment provided by resilient networks’. Thus, the function or role of the social network can range from the more general (e. g. support­ing firm development or competence building) to the more specific (e. g. supporting the development of particular instances of innovation).

Johannisson (2000) argues that all start-up firms need an ‘organising context’ that helps structure exchanges with the broader environment. This context helps the entre­preneur cope with ambiguity, provides a shelter against uncertainty and aids with reac­tions to unexpected changes in the market-place. In this regard, entrepreneurial networks can be particularly important during the start-up phase of a new venture (Birley, 1985; Aldrich and Zimmer, 1986; Larson and Starr, 1993; Johannisson, 2000). With refer­ence to university ‘spinouts’, a particular type of new venture, Nicolaou and Birley

(2003) argue that the nature of the networks of the key academics involved in the spinout can have profound impacts on the future relationship between the new ven­ture and the university, and hence may be associated with different growth traject­ories. There is substantial evidence to indicate that entrepreneurial networks are also important to the growth of a firm, since they open up new opportunities and resources (Aldrich and Zimmer, 1986; Jarillo, 1989; Brown and Butler, 1995; Shaw, 1997, 1998; Chell and Baines, 2000; Hite and Hesterly, 2001; Lechner and Dowling, 2003; Hite, 2005). However, in her study of small service firms, Shaw (1997, 1998) reveals that social networks may play both positive and negative roles in the development of the firm depending on network membership and on the nature of what flows through the network. Specifically, it was found that the more heterogeneous or diverse the social network in which the small firm was embedded, and the greater the variety of informa­tion and advice flowing through the network, the more positive the impact the social network was found to have on the firm’s development. In an interesting longitudinal study of two regional specialist cheese-makers in the UK, Blundel (2002) demonstrates how stable entrepreneurial networks may evolve to enable the firm to adapt to major changes in their environment, what he terms ‘episodes’.

Research has also highlighted the role that networks play in the building of techno­logical competence within small firms. In their study of the influence of networks on new biotechnology firms in the UK and France, Estades and Ramani (1997) develop a typology of three technological competence trajectories:

■ competence ‘widening’ - a diversification of the technological competence of the firm;

■ competence ‘deepening’ - an improvement of existing technological competencies of the firm;

■ competence ‘narrowing’ - an abandoning of a set of existing projects, processes or products, without the development of new technological competencies.

Estades and Ramani (1997) also found that the decisive networks associated with the deepening or widening of technological competence in these small firms were scientific (i. e. those linking them to scientific communities) and inter-firm networks (i. e. those linking them to large firms).

The importance of networks to the innovation process has already been noted. This holds true for both small and large firms, although small firms are more reliant on such boundary-spanning networks to overcome internal resource constraints (Conway, 1994). However, the importance of the small-firm network, and of particular actors within it, will vary depending on the task at hand (Conway, 1997; Freel, 2000). In his study of small-firm technological innovation, introduced earlier, Conway (1997) distinguished between the nature and importance of the contribution of the network towards different stages or activities in the innovation process, that is:

■ project stimuli;

■ concept definition;

■ idea generation regarding features and functionality of innovation;

■ technical problem solving; and

■ field testing prior to commercialisation.

Users were found to be a major source of inputs in the idea-generation phase, and this was particularly evident during ‘re-innovation’, that is, the modification of earlier models (Rothwell and Gardiner, 1985). In addition, users were also seen to represent a major source for the pre-commercialisation field testing of the innovations. This adds support to Habermeier’s (1990) hypothesis that product characteristics and user requirements can often only be discovered if the innovation is actually used, sometimes for long periods of time. Field tests were seen not only as an important test bed for the technical performance of the innovations, but also for the suitability of the embodied features and functionality. The study also highlighted the key role played by suppliers in providing inputs into the technical solutions embodied in the commercialised innova­tions, sometimes developing critical components in response to specific requests from the small-firm innovators. The cases in the study provide clear illustrations of both the ‘complementary’ and the ‘substitutive’ nature of external sources of knowledge and technology in relation to indigenous innovative activity in small entrepreneurial firms.

16.7 Chapter summary

The study of entrepreneurship from a social network perspective is an important con­tribution to our understanding of entrepreneurial behaviour, supplementing more long­standing psychological approaches that emphasise the sources of individual motivation (McLelland, 1961; Manimala, 2000), and economic theories that concentrate on the economic rationality of those starting their own businesses (Casson, 1982, 1990). Indeed, the contention of Aldrich and Zimmer (1986: 9) that ‘comprehensive explanations of entrepreneurship must include the social context of (such) behaviour, especially the social relationships through which people obtain information, resources and social support’, is now broadly accepted in the entrepreneurship literature. For some, perhaps, the concept of networking takes us a step further; it helps us move away from the tra­ditional view of entrepreneurs as resourceful individualists to an image of entrepreneur­ship as a collective phenomenon (Johannisson, 2000). We are, however, not suggesting that the motivation of individual entrepreneurs can be discounted in explaining the creation of new business ventures. Rather, we agree with Wickham (1998: 39) that the characteristics of successful entrepreneurs include: hard work, self-starting, goal-setting, resilience, confidence, assertiveness and comfort with power. It is certainly the case that James Dyson demonstrated all of these characteristics over a considerable length of time. At the same time, we have illustrated how Dyson’s entrepreneurial activities were heavily embedded in an extensive network of family, friends and casual acquaint­ances. Clearly this network would not have developed in the way that it did without Dyson’s ability (agency) to maintain and utilise existing strong ties while at the same time initiating, nurturing and mobilising a range of weaker ties.

Since the seminal work on entrepreneurial networks in the mid - to late-1980s by the likes of Howard Aldrich, Sue Birley, Dorothy Leonard-Barton and Bengt Johannisson, there has been an increasing interest and burgeoning body of empirical work in the area. This work has provided insights into the size, diversity, stability and morphology of entrepreneurial networks, and has highlighted the range of important roles and functions for which it is nurtured and mobilised. Research has also informed us of the variety of the flows through the network, the mechanisms and forums for interaction, and the often informal and multiplex nature of many of the network relationships. More recent empirical work has highlighted differences in the nature of the network and networking activity between entrepreneurs of different nationalities and, to a lesser extent, between male and female entrepreneurs.