Technovation 25 (2005) 939946 www.elsevier.

com/locate/technovation

The social dimensions of entrepreneurship

J.P. Ulhi*
Aarhus School of Business, Haslegaardsvej 10, DK-8210 Aarhus V, Denmark

Abstract This paper proposes an integrative framework to conceptualize important social dimensions of entrepreneurship. The paper reviews and evaluates the current status of research dealing with entrepreneurship, social capital and trust. The proposed framework rests on the recognition that entrepreneurial activities are results of social interactions and mechanisms. In consequence, entrepreneurship cannot merely be understood in terms of personality characteristics or in sterile economic terms. The paper addresses by concluding implications for practitioners and for research. q 2004 Elsevier Ltd. All rights reserved.
Keywords: Entrepreneurship; Social capital; Trust

1. Introduction Past research addressing issues such as management, organization development and innovation has for a long time focused on mature, predominantly large enterprises. Small and medium-sized rms (SMEs) have typically been ignored. More recently, however, the research on entrepreneurship and small businesses has started attracting the interest of scholars and policy makers and the importance of small and medium-sized enterprises is increasingly acknowledged in Academia as well as in the public debate. Recently, the study of the process through which new rms are created has gained increased momentum. This process is generally referred to as entrepreneurship. Until recently, most of the research investigating the nding of new businesses has concentrated on personal characteristics of entrepreneurs (Brockhaus, 1982). As pointed out by McClelland (1961), scholars have tried to identify and characterize a variety of personal attributes that relate to successful entrepreneurs (Timmons, 1985). This approach to entrepreneurship has been widely criticized as it, among other things, underestimates the extent to which such crucial skills can be acquired by learning (Deakins, 1996). Further, it diverts the attention from the importance of the environment and of the structural and positional characteristics of the entrepreneurs themselves (for example, gender and race, but also the social network surrounding the entrepreneur). Finally, it
* Fax: 45-8948-6688. E-mail address: jpu@asb.dk (J.P. Ulhi). 0166-4972/$ - see front matter q 2004 Elsevier Ltd. All rights reserved. doi:10.1016/j.technovation.2004.02.003

fails to recognize the role and importance of social capital and trust-related aspects during entrepreneurial activities. Entrepreneurship necessitates the presence of opportunities as well as enterprising individuals who wish to take advantage of them (Venkataraman, 1997). Shane and Venkataraman (2000) suggest that entrepreneurship involves the study of (a) the sources of opportunities, (b) the processes of discovery, (c) evaluation and taking advantage of the opportunities as well as (d) the group of individuals who discover, evaluate and exploit these opportunities. In this paper the focus and interest are on technology- or knowledge-intensive SMEs, which are also often highgrowth SMEs (OECD, 1999), although it may to varying degrees be of relevance to other newly formed entrepreneurial SMEs. The important thing here is that our ongoing surveys and case studies point to the suggestion that new and/or young knowledge-intensive rms no longer seem to be exclusively formed by a single entrepreneur, but also often by entrepreneurial teams. In the remaining part of this paper, however, the term knowledge-intensive SMEs will be used. Firms within this category are created in various sectors of the economy, such as biotechnology, computer applications, electronics, information technology, materials technology and telecommunication (Allen, 1992). Differently put, it will not specically address small rms as such, being primarily interested in the entrepreneurial phenomenon. While all start-ups are bound to be small, some of them are likely to develop fast and to become medium-sized and large companies within a short time after their establishment.

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This framework takes off from an ongoing 4-year program in innovation and entrepreneurship, sponsored by the national social science research council and it includes different empirical studies (a web-based survey and some 25 case studies). This paper, however, is a purely theoretical paper. The paper is organized as follows. First, the phenomenon of entrepreneurship is outlined in Section 2. Section 3 sketches out the role and importance of social capital and trust during entrepreneurial activities. Section 4 discusses the extent to which the proposed way of perceiving entrepreneurship is emerging in contemporary theory. In conclusion future research directions are suggested and management implications addressed.

2. Theory on entrepreneurship Strategy literature has provided evidence that strategic factors inuence the performance and possible survival of new ventures (Liebermann and Montgomery, 1988). An entrepreneur and/or the management team will have to decide where to position the new ventures in order to achieve competitive advantages on the market (Besanko et al., 1996). Economic literature, in turn, has argued that not all competitive advantages and entrepreneurial opportunities are immediately apparent to everyone, which leads to an asymmetry of beliefs about opportunities (Hayek, 1945). To be successful, an entrepreneur needs to develop special insights or to posses special information allowing him to discover and explore entrepreneurial opportunities where others are not able to distinguish any or where others might primarily see the risk for failure. A variety of denitions of entrepreneurship can be found in contemporary entrepreneurship literature (see, for example, Brockhaus and Horwitz, 1986; Gartner, 1988). These have emphasized several activities such as the creation of new organizations (Gartner, 1988), the new combination of existing factors (Schumpeter, 1934), the exploration and exploitation of opportunities (Kirzner, 1973), the bearing of uncertainty (Knight, 1921), the bringing together of factors of production, and so forth. In this paper entrepreneurship is dened as an ability to recognize and a risk-willingness to exploit entrepreneurial opportunities. It is primarily translated into the act of establishing a new knowledge-intensive venture. This denition includes the separation from established rms (spin-offs), as long as the effort is recognizable as individual behavior and not as a corporate or intrapreneurial attempt. Accordingly, the initiating entrepreneur is the person who has the potentially marketable idea for the venture and/or who carries out the nding of the new business. The denition does not exclude partnerships or other collective action, nor does it exclude the existence and importance of supporting entrepreneurs. Distinguishing between entrepreneurial activity and small business ownership is not an easy task as all newly

established businesses per denition are small. However, while entrepreneurial activity is associated with the creation of a rapidly growing venture, which will eventually become a large enterprise, small business ownership is concerned with people managing a rm of limited dimensions, with no specic intention of expanding this rm (Cartland et al., 1984). Obviously, entrepreneurial ventures might remain small, just as small businesses might grow. Nonetheless, the analytical distinction remains relevant. Small businesses and entrepreneurial rms have many characteristics in common, but also differ in many important respects (Jackson and Rodkey, 1994). When the entrepreneurial effort emerges in the frame of an organization and as the result of an organizations explicit strategy and not (only) as an individual, autonomous effort, the term intrapreneurship is sometimes applied. The distinction between entrepreneurship and intrapreneurship, however, is not important as such, as all attempts at exploiting opportunities by taking risks are entrepreneurial behavior and, therefore, entrepreneurship. However, in the research on entrepreneurship, it becomes important because the exercise of entrepreneurial behavior within organizational settings mainly for organizational goals leads to signicant differences regarding, among other things, personal motivation, risk perception and access to nancial, human and social capital. Intrapreneurship can be used by larger rms as a survival strategy to maintain a high level of innovation, to keep at pace with a rapidly changing environment and to create a stimulating and active working environment (Schollhammer, 1982; Sexton and Bowman, 1985). On the other hand, spin-offs can be the result of both intrapreneurship and entrepreneurship. Much of the existing literature tends to be heavily US-biased, i.e. based on an entrepreneurial culture which is recognized for its unique social, historical and institutional settings. In consequence, most of the empirical ndings cannot be transferred to other socio-cultural settings that, for example, do not have the same history of pro-entrepreneurship environment as the US. Recently, there have been some interesting attempts at international comparisons and the monitoring of entrepreneurial activity (Reynolds et al., 1999; Reynolds et al., 2000). These studies, however, also clearly point to the importance of country-specic characteristics in explaining the amount and type of entrepreneurial activity. Similarly, country-specic characteristics may also affect the entrepreneurial process (Lee and Peterson, 2000; Steensma et al., 2000). As recently argued by McDougall and Oviatt (2000), entrepreneurship theory remains an elusive and overlapping eld of enquiry, overlapping with other theoretical perspectives such as innovation theory, change management and strategic management. A sketchy revisit to the literature shows that the heterogeneity of the eld as well as the interdisciplinary and/or transdisciplinary nature of entrepreneurship have found different support, ranging

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from the personal-traits approach (Brockhaus, 1982) towards attempts at integrating sociology and (Austrian) economics (Kirzner, 1997) and ecological approaches, which focus on how social, economic and/or political conditions may inuence variations, retention and diffusion as well as promote or hinder organizational genesis (Mitchell, 1989; Wiewel and Hunter, 1985). Some research emphasizes the importance of external, structural inuences on the creation, selection and survival of new ventures. This perspective is generally referred to as the ecological approach, derived from ecological organization theory (Hannan and Freeman, 1977). Authors referring to this stream work on the basis of aggregated events at the population level of analysis. Because entrepreneurial innovation is largely a function of existent infrastructure at the industrial level, the ecological approach has been exposed to some criticism (Ven and Garud, 1989). This, however, is not the same as saying that the two perspectives have nothing to offer each other. To the knowledge of this author, this is yet to be tried. Shane and Venkataraman (2000) posit that the choice of exploitation mode depends on the nature of the industrial organization (nancing, rst-mover advantages, low barriers to entry), the opportunity (uncertainty prevails) and the appropriability regime (property and patent laws). More importantly, however, it can be criticized for primarily focusing on quantitative attributes of the environment and the populations of rms as a basis for predicting founding rates, leaving out the socio-cultural attributes and contexts of which the entrepreneurs are part. The entrepreneur (or entrepreneurial team) is a key factor for understanding how and why new organizations are established. Making entrepreneurship a function of this factor alone, however, creates a picture which is not able to adequately account for the phenomenon of entrepreneurship (Thornton, 1999). Past research investigating how personality traits distinguish successful entrepreneurs from others has, in fact, had limited success (Brockhaus, 1982; Timmons, 1985). Apart from existing infrastructure exerting inuence on the entrepreneurial development, an extensive set of social networks have also been suggested as important prerequisites for starting a successful new venture (Reynolds, 1991). Likewise, the existence of venture capital, business angels and/or incubator regions and structures are elements that have all been put forward as essential ingredients for entrepreneurial start-ups (Thornton, 1999).

3. The role of social capital and trust during entrepreneurship activities This paper rests on the premises that apart from purely economic-driven contractual relationships, there are important socially-driven dimensions that need to be taken into account. Blaus theory (1964) on social exchange

addresses some of the dynamics of the latter. During a social exchange, one individual typically, and usually voluntarily, provides a benet (for example, information, advice, resource access or other services). By doing so, (s)he invokes an obligation to the receiving party to reciprocate by providing some benet in return. Due to the inherent voluntarity during such exchanges, the provider, however, cannot rest assured that such benets will necessarily be reciprocated. A key moderating factor during these processes is trust. Along with Scott (1991), this paper proposes that social networks consist of weak and strong tie-based social relationships and interactions. Moreover, persons that are part of any node in the network may also know each other from other networks, which in turn means that networks are interconnected and or clustered. Depending on the persons relative social cultural and/or political economic position, such a person can be part of few or may networks. Further, we propose that both personal and business networks as well as the institutional and social environment in which the entrepreneurial process takes place need to be taken into account when trying to come to grip with the entrepreneurship phenomenon. This research builds on the implicit assumption that all economic activity is embedded in social relations and that such relations inuence the establishment of businesses and the art of running a business (Granovetter, 1985; Uzzi, 1997; Dacin et al., 1999). Embeddedness implies that between most economic actors, there are two or more types of ties, some exclusively economic, political or social, some combinations thereof. Depending on which type of the former, they can be weak (Granovetter, 1973) or strong tie-based relationships, meaning that there might be other types of social exchanges or bonds between economic actors. This suggests, in other words, that entrepreneurial decisions are made in a sociocultural and emotional context rather than exclusively via pure economic contracting relations (Borch, 1994; Starr and McMillan, 1990). Differently put, the quality of entrepreneurial search efforts and the social network may seriously affect the relative success in acquiring information and resources necessary to launching a new venture (Cooper et al., 1995). Several ties between two or more actors mean that these relationships are dynamic and multiplex (Gattiker and Ulhi, 2001). Thus the exchange of advice and/or information, access to resources and the like can be expected to be under inuence of social norms and rules as well as social structure and individual power. Such activities, in other words, are inuenced by the access to and relative position within social networks. The Granovetterian weak ties are typically used for quick and short exchanges of information and they are characterized by having a relative low frequency of interaction. Such ties are known from so-called casual acquaintances not to be mistaken for friendship-based relations.

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Over time, however, and typically in cases of increasing frequency of interactions, such personal ties may develop into a stronger-tie relationship (Nohria, 1992). Burt (1992) further proposes a structural holes (which is argued to exist between two alters who are not connected to each other) approach, directing the attention away from the type of ties towards the pattern of relationships and the bridging property of ties. A weak tie-based network relation means that the persons in question may not personally know each other (but may know of each other) and is thus a basis for non-redundant information. Getting quick access to new information is one thing, but getting reliable advice and/or serious commitment from nodes in ones social network is quite another, as the latter will normally require mutual trust. Following Ring and Van de Ven (1994), trust can be dened as mutual condence in one anothers moral integrity or goodwill. In the literature, weak ties have often been associated with the generation of ideas, whereas strong ties tend to be related to problem solving (Leonard-Barton and Sinha, 1993; Henderson and Cockburn, 1994; Eisenhardt and Tabrizi, 1995; Hansen, 1999). Unfortunately, it is still unclear precisely how weak social ties come into play in entrepreneurial and knowledge-intensive organizations. However, innovation literature emphasizes the fact that close and frequent social interaction between relevant internal groups and functions during the internal development process improves the effectiveness of the innovation process (Ebadi and Utterback, 1984; Leonard-Barton and Sinha, 1993; Henderson and Cockburn, 1994; Eisenhardt and Tabrizi, 1995). To launch an entrepreneurial, knowledge-intensive venture, the entrepreneur needs capital, skills, axillaries and labor. To realize own and complementary assets, (s)he will need access to information and resource persons willing to share such resources (on certain terms), i.e. the social capital of the entrepreneur. Research suggests that it is the relative position as well as the characteristics and features of the actors social networks that may determine the entrepreneurs success (Burt, 1992). Thus social capital can be translated into the actual number and relative quality of direct and indirect social ties and the degree of centrality of the actor in question (Gattiker and Ulhi, 2001). In addition to weak social ties, strong ties based on personal relationships may also play an important role for an entrepreneur. Hu and Kronelliussen (1997), for example, report that personal ties result in improved company performance. Support, knowledge, and complementary resources can be acquired through such ties, which lead to social co-operation between key players (Johanson and Mattsson, 1987). Powell (1990) attributes success in interorganizational relations to sentiments of friendship and a sense of diffusing personal obligations (social contracts) which arise between individuals involved in exchange relationships.

Beyers et al. (1998) suggested that researchers should focus on other people with whom the entrepreneur spends time and how they respond. In turn, this will permit the study of how social networks help the individual to obtain vital input in the competition for scarce resources. Institutions and societal norms constitute what is here referred to as collective social capital. They can either hinder or support the entrepreneurs efforts to mobilize additional resources for the venture. Being supported by a business incubator environment (BIE) or related/located at a BIE represents social capital that, in turn, should help reduce the perceived risk of a project from an investors perspective (Bugliarello, 1998). Moreover, the access to BIEs may result in the BIE providing the rms with access to seed money and other support. Accordingly, a new ventures success could be inuenced by a BIE in several ways. Direct inuence could be exercised through the funding of the new venture or the distribution of nancial capital (Bugliarello, 1998). Active participation of the BIE in the projects development (e.g. writing business plan and assessing market potential) or being involved in the management of the rm after its establishment would instead represent forms of indirect contribution through the delivery of additional human capital, e.g. nding a manager (Mian, 1997). In other words, BIEs can offer the entrepreneur an indirect contribution in terms of business and advice ties (social capital). These ties can be established with consultants, with other entrepreneurs or with investors (Hu and Kronelliussen, 1997).

4. Discussion, conclusions and implications Seeing entrepreneurship and thus young and often still SMEs through the lenses of socially embedded structures and activities paves the way to a substantially broader perspective on entrepreneurship, as it draws the attention towards some of the dark spots left out of sight by the population ecologists, i.e. socially-driven aspects of a socioeconomic phenomenon such as entrepreneurship. Recently, social capital-inspired theory building has increasingly begun taking roots in other subdisciplines of management studies. Thus it has attracted attention in HRM-related research. In a recent US-based career study among undergraduate and MBA-students, results of structural equation modeling demonstrated that network structure was related to social resources (Seibert et al., 2001). Moreover, it documented that the effects of social resources on career were fully mediated by classical network benets such as access to information, access to resources and (career)sponsorship. Nahapiet and Ghoshal (1998) recently imported social capital theory into a conceptualization of intellectual capital and hypothesized relationships between various dimensions of social capital and the main mechanisms and processes necessary

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for the creation of intellectual capital. Recently, the importance of structural embeddedness has also found its way into theory of competitive behavior (Gnyawali and Madhavan, 2001), arguing that a superior network position may translate into resource advantages and thus increased likelihood of competitive action. Empirically, research on entrepreneurship and social networks has attracted some, although moderate, attention in entrepreneurship research. In a Norwegian study from the early 1990s, Greve (1995) using the 1983-Aldrich et al. survey instrument compared network structures in terms of minimizing redundancy as a key to successful entrepreneurship. This led to the conclusion that entrepreneurs should have large networks of weak ties as well as strong tie-based relationships. Moreover, it not only demonstrated that networking plays an important role during entrepreneurial activities, it also identied signicant differences in networking activities and density depending on where the entrepreneur was in the entrepreneurial process, i.e. from idea stage, over preparation and running a newly formed business. Or differently put, the later the stage, the larger and more frequently used was the network. In a cross-cultural study from the late 1980s, comparing entrepreneurs in Italy and the US, Aldrich et al (1989) found more similarities than differences in personal networks regarding network activity and density. Reported differences were found to be related to the composition of networks, as female entrepreneurs seemingly tended to include relatively more female contact in their networks than did their male counterparts. A Swedish study from the same period (Johannisson, 1988) looked into two different regions and found that high entrepreneurial activities were favorable for business ventures. 4.1. Implications for research The inherently context-specicity of entrepreneurial networks requires some serious considerations when choosing an adequate methodological design and measurement approach to ensure a sufcient degree of sensitivity within the overall research design. Our empirical experiences from previous and from ongoing entrepreneurship studies demonstrate that a uni-disciplinary and structured approach to network interpretation does not allow for adequately understanding the social dynamics at work when various social interactions and exchanges are taking place in an entrepreneurs social networks. The classical textbook approach to entrepreneurship portraits the entrepreneur as a hard-nosed and long-hour working individual born with a special creativity as well as an ability to spot and exploit opportunities in the environment. This rather myopic and incomplete picture, however, tends to overlook other complementary assets and skills of importance when trying to understand the phenomenon of entrepreneurship. Important complementary assets addressed in this paper include the variety and

quality of personal tie-based clusters of relationships (networks), the relative position of the entrepreneur in such networks and the skill or ability to nurture and further develop such assets during various phases of the entrepreneurial process. Researchers need to pay more attention to these factors, including both direct and indirect personal ties of the entrepreneur when trying to account for the relative success and/or failure of entrepreneurial activities. Moreover, a deeper understanding of the rules at work during social-exchange activities in different type of social relationships (based on weak ties vs. based on strong ties) as well as the importance of mix of such relationships could shed more light on the social embeddedness of entrepreneurship activities. Although there is a growing acceptance of social capital theory, it remains to be resolved how this term can be dened more precisely. Baker (1990), for example, seems to settle exclusively with limiting the scope of the term to the structure of the relationship networks. Putnam (1995), however, includes actual as well as potential resources that can be accessed through networks. Regarding the latter, this is also where Burts (1992) theory of structural holes can contribute to the conceptualization of the nature and role of social networks. A richer understanding of the role of trust has the potential to shed more light on the social mechanisms governing the functioning of social networks and personal ties. As pointed out by Lewicki et al. (1998), varying degrees of trust and distrust are expected to exist in multiplex social networks. An interesting opportunity, therefore, may be to dig deeper into the phenomenon of trust and associated risk, in order to further illuminate the mechanisms of social networks along the lines of Sheppard and Sherman (1998) who suggest that trust needs to be conceptualized in the light of type of dependency in the relationship (from shallow dependency and shallow interdependency towards deep dependency and deep interdependency). A deeper focus on these dimensions may improve present knowledge by providing a richer understanding of the form and depth of social relationships and the associated dynamics of trust and distrust. The suggestion of McKnight et al. (1998) to distinguish between trust levels and trust durability (fragility/robustness) offers an interesting avenue to pursue. As they argued, a high initial level of trusting intention could in fact be quite fragile, whereas a low level in turn may not be very fragile which leads to considerations of which kinds of trust are present under what circumstances. The framework developed above, however, implicitly questions whether it is viable to blindly assume (and accept) that the individual is primarily motivated (and best served) by maximizing self-interests and minimizing individual costs. In organizations (and particular in team-based organizations) as well as in networks, managers and/or individuals are often confronted by difcult situations,

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where the interdependence of individuals goals results in a conict between self-interests and the collective good (for the team) and/or the continued social recognition (or maintaining or extending the number of nodes) in the network and, hence, a kind of social dilemma is created. 4.2. Implications for practitioners Entrepreneurs need to become more aware of the role and importance of their social relationships, including how they can maintain and further develop such important assets. Social networks are to be recognized as vital assets by the entrepreneur. In consequence, the individual entrepreneur needs to pay much more attention to where (s)he is positioned, i.e. preferable in close connectivity and proximity to other important relations and clusters of relations (network). This suggests that it is indeed justiable for a busy entrepreneur to invest time and resources in networknurturing activities, also when the pay-back time is sometimes strategic in nature, i.e. with a long time horizon. Networks contacts and future partners may provide the entrepreneur with non-redundant information and/or allow him/her to maintain the legitimacy of existing skills and resources necessary to run a knowledge-intensive entrepreneurial rm. Failing to recognize the importance of such assets may signicantly affect the future success of the newly started rm. Moreover, overlooking the inherent multiplexity and dynamics of social networks and how such interactions are subject to social perception, norms, structures, trust and position in the social network may dramatically hinder the outcome of participating in such social networks. Networks are dynamic webs of different social relations and challenge the individuals ability to manage in an environment of simultaneous trust and distrust. Managers and/or networkers need to adopt a more multi-faceted understanding which allows for coupling own short-term and narrow, self-utility-driven interests with longterm collective-driven interest, with the aim of developing a collective trust similar to other important intangible collective assets such as knowledge and learning. To further such a development, it may also be worthwhile to reconsider how existing organization systems (such as structures, rewards, training, etc.) can support such a shift in behavior. However, managing networks is furthermore complicated by potential resource asymmetry. This kind of asymmetry may occur as a result of differences in the ow and/or exchange of resources, access to such resources among network members as well as due to differences in ability to control such ow and exchanges.

and theory development. Even having accepted the proposed framework, there is still much to be explored, empirically investigated and theoretically synthesized. However, recognizing the fundamental social nature of entrepreneurship, there is a strong need to address the new challenges that arise from the import of social capital-inspired theory into entrepreneurship theory. To guide future research and policy development for facilitating new knowledge-intensive start-ups, more focus will have to be assigned to understanding the social embeddedness of entrepreneurial activities. A deeper understanding of why, what and how social exchanges take place during different steps of the entrepreneurial process as well as during different types of businesses (knowledge-intensive vs. knowledge less-intensive start-ups) requires additional investigations. This paper, however, has developed a tentative framework for how important aspects of the social embeddedness of entrepreneurship can be conceptualized. In the years to come, this framework will be further developed and confronted by empirical investigations.

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John P. Ulhi has a Masters Degree in Physical and Economical Planning (1986) and a PhD in Business Administration (1991). Dr Ulhi holds a chair in Organization and Management Theory. His areas of research include technological innovation studies; organization development; entrepreneurship, intrapreneurship; business incubators; human and social capital theory. His numerous publications appear in 21 international journals, including journals such as Journal of Business Venturing, European Journal of Operational Research; Scandinavian Journal of Management. He has served as TIM-Division Board Member of the Academy of Management and as Member of Editorial Board of various journals, including European Journal of Operational Research; Technology Management; Business Strategy and the Environment. Over the years, Prof. Ulhi has received various awards for his research, including the Anbars Citation of Excellence Award of 1996. Dr Ulhi frequently serves as international research evaluator for different national science councils (Belgium, Norway and Denmark) and he is a member of The International Board of Experts under Directorate-General.