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Entering and developing a service networkSheena Leek and Louise Canning
Birmingham Business School, University of Birmingham, Edgbaston, UK
Abstract
Purpose This paper seeks to investigate the role of social capital in facilitating the entry of new business ventures into service networks.Design/methodology/approach The empirical work is undertaken via case study-based research, featuring three service businesses, each enteringand operating in a different marketplace.Findings Results show that new service businesses are not necessarily able to draw on existing social capital in order to enter a business networkand build relationships with potential customers and suppliers.Research limitations/implications Future empirical work should re-examine the distinctions between the role and nature of social capital for newservice businesses.Practical implications The paper suggests how the new service entrepreneur might invest personal resources in networking to initiate relationshipsand build a network of customers and suppliers.Originality/value The paper presents the little researched area of networking and relationship initiation as a means of developing social capital fornew service businesses.
Keywords Entrepreneurs, Social networks, Channel relationships, Business formation
Paper type Research paper
An executive summary for managers and executive
readers can be found at the end of this article.
1. Introduction
This paper examines the role of social capital in facilitating
the entry of new business ventures into service networks.
Entrepreneurs are the lifeblood of many economies but they
face major challenges, indeed over 40 per cent of start up
companies are reported to have difficulties (Huang and
Brown, 1999). Although these might include problems such
as accessing information, capital, skills and labour (Greve andSalaff, 2003) our interest lies in the ways in which the service
entrepreneur overcomes difficulties of establishing both a
customer and a supplier base. We acknowledge the
importance of social capital in aiding new business start-ups
and also argue that although it might be used to instigate
exchange relationships and establish a network position, for
some entrepreneurs this resource does not exist. Our paper
contributes to existing understanding of service businesses by
drawing from material on networking (Witt, 2004) and
relationship initiation (Edvardsson et al., 2008) to examine
how new business ventures enter service networks and form
relationships with customers and suppliers. We present
findings from case study-based research featuring business
start-ups in different service contexts and discuss thesimilarities and differences in the conditions for and
characteristics of successful network entry for the business
entrepreneur.
2. Literature review
2.1 From networks to social capital
Whatever the business, it is recognised that the realisation of
organizational goals is dependent in part on a businesss
relationships with other parties. Considerable understanding
of markets as networks of connected relationships and of firm
behaviour within these networks has been generated in a
business-to-business marketing context. More recently
network theory has been applied to services marketing, for
example in relation to new service development (Syson and
Perks, 2004), entry into emerging markets (Freeman andSandwell, 2008) and sustaining business performance
(Eisingerich and Bell, 2008). Such networks can be
examined at a macro level whereby organizations represent
network nodes and attention focuses on the way in which
actors, activities and resources are ordered, positions shift and
markets function (Hakansson and Snehota, 1995; Harland,
1996; Iacobucci et al., 1996). Whilst a principal role of a
network of connected business relationships may be to
manage the economic transactions between the various
parties, networks and the organizations that feature within
them are also social entities, where the dynamics and the
opportunities or constraints present are embedded in the
interpersonal relationships that exist between individuals
(Granovetter, 1973; Uzzi, 1997). It is therefore equally validto assume a micro-level approach to networks, examining the
patterns of connections, shared norms and personal emotions
between individuals. The significance of interpersonal
relationships in business exchanges has long been accepted
(Hakansson, 1982; Grayson, 1996; Granovetter, 1985;
Larson, 1 99 2; McA llister, 1 99 5) but the growing
recognition of social capitals contribution to developing
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0887-6045.htm
Journal of Services Marketing
25/1 (2011) 5867
q Emerald Group Publishing Limited [ISSN 0887-6045]
[DOI 10.1108/08876041111107069]
Received December 2008Revised June 2009Accepted June 2009
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understanding in a variety of disciplines (Adler and Kwon,
2002), has refocused attention in business on the importance
of the connections among individuals, social networks and
norms of reciprocity and trustworthiness that arise from
them (Putnam, 2000, p. 9). This is reflected in attempts to
understand how social capital can add to understanding of the
functioning of business networks (Batt, 2008), service
organizations (Eisingerich and Bell, 2008; Freeman andSandwell, 2008) and entrepreneurship (Anderson et al., 2007;
Bowey and Easton, 2007; de Carolis and Saparito, 2006;
Florin et al., 2003; Liao and Welsch, 2005).
There are various definitions of social capital (Adler and
Kwon, 2002) although the general consensus is that it refers
to the personal relationships that an individual has with
others. More specifically, it can be explained to mean the
sum of actual and potential resources embedded within,
available through and derived from the network of
relationships possessed by an individual or social unit
(Nahapiet and Ghoshal, 1998, p. 243). The variation in
definitions is also reflected in the components that different
authors attribute to the term, social capital. In spite of these
differences, many of them are in fact encapsulated by
Nahapiet and Ghoshals (1998) description of social capital as
consisting of three dimensions, which are:
1 Structural. The overall pattern of connections between
actors, encompassing the capacity to access information,
resources and support.
2 Relational. The nature of relationships between actors, e.g.
the degree of trustworthiness.
3 Cognitive. The shared norms amongst parties.
Recent developments in the understanding of social capital
and entrepreneurship essentially draw from earlier work on
social networks and the significance of strong and weak ties
within these (Granovetter, 1973, 1985). The strength of a tie
between individuals can be explained by a combination of
the amount of time, the emotional intensity, the intimacy(mutual confiding), and the reciprocal services which
characterise the tie (Granovetter, 1973, p. 36). Strong ties
are typically found amongst concentrated groups of actors
with behaviour being underpinned by trust and a sense of
obligation between individuals. With regards social capital,
such ties are given to mean bonding social capital or identity-
based networks (Davidsson and Honig, 2003; Hite and
Hesterly, 2001) these playing an important role in the
planning and initial start-up of a new business venture as the
entrepreneur might expect to rely on them repeatedly for
access to critical resources when other, less familiar parties are
unwilling to do so. A key point made by Hite and Hesterly
(2001) is that identity-based networks are characterised by a
sense of personal or social identification such that this
operates as a principal motivation for economic action
amongst individuals within the network. Literature on
entrepreneurship presumes that such social structures are
contained within the family unit and/or a network of close
f riends and the entrepreneur m ight draw on these
relationships for advice, human resource (at low or no cost)
or financial support when commercial organizations are
reluctant to provide this (Davidsson and Honig, 2003; Hite
and Hesterly, 2001). Weak ties involve more distant
relationships with an extended range of actors, these groups
of relationships representing bridging social capital or a
calculative network (Davidsson and Honig, 2003; Hite and
Hesterly, 2001). Actors in a calculative network are motivated
to engage with each other principally because of economic
benefits to be gained from exchanges (Hite and Hesterly,
2001). For the entrepreneur, such a network may be derived
from membership of trade associations, business networks or
indeed friendships with business people, providing the
entrepreneur with access to information on products,
markets or technologies and facilitating relationships withother individuals (Davidsson and Honig, 2003). These social
structures are believed to assume greater importance once a
business is established and starts to expand because of the
superior resources available and the capacity to offset
environmental uncertainty through these structures (Hite
and Hesterly, 2001).
Social capital clearly plays an important role, but a new
business venture may frequently start from the position of
being unknown within the marketplace, so one of the
challenges for the entrepreneur lies in trying to enter and
build a position in that marketplace i.e. build a portfolio of
supplier and customer relationships. Whilst this is clearly a
major obstacle to overcome, and network development has
been investigated by a number of researchers (e.g. Larson and
Starr, 1993) what does not appear to have been addressed is
the process by which an entrepreneur initiates relationships to
enable entry into a new network. Indeed the assumption
appears to be that the entrepreneur has relationships in place
(Araujo and Easton, 1996; Chetty and Agndal, 2007) from
which he/she can draw to do this. If this is not the case, then
he/she has to direct effort at networking and initiating
relationships with the expectation that some of these will lead
to exchange partners.
2.2 Networking and relationship initiation
The term networking features in a variety of business
contexts. Johnsen e t a l.(2000) examine the different
activities in which organizations within a supply network
engage to effectively align the economic functioning of thatnetwork. Ritter (1999) investigates the competencies required
of a company to make use of a single relationship and an
entire network. The work by these authors is, however, at a
macro/organizational level and does not address the behaviour
of the individual entrepreneur. Networking could be
described as the banding together of like-minded people
for the purposes of contact and support (Vinnicombe and
Colwell, 1996, p. 88). Here the notion of common interests
and support would possibly resonate with the entrepreneur
seeking to establish exchange relationships with suppliers and
customers but the definition does not explain how people are
brought together. Such an explanation could be drawn from
Witt (2004, p. 395) who defines networking as the activities
that an individual entrepreneur undertakes to build, sustain or
extend her personal network. Witt (2004) provides useful
networking m easures regarding the f requency of
communication with actual and potential partners and the
time spent doing this, but this does not readily make clear the
means by which contact with potential partners occurs in the
first place or how these develop into something more
substantive.
The way in which contact with potential partners comes
about can be explained in terms of the networking route and
process. As far as the route by which networking occurs, we
can draw from Holmen e t a l.s (2005) proposal that
relationship initiation is direct or indirect (network
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mediated). Indirect networking involves a third party bringing
individuals together whilst direct entails individuals making
contact with each other. Direct networking may be market
related e.g. cold calling, trade shows, industry events or it may
occur outside of a business setting e.g. at a sports club. The
extent to which these contacts come about by chance or are
planned can be explained by Read and Sarasvathys (2005)
conclusion that entrepreneurs conduct their business througha combination of causal and effectual processes. In a causal
process, actions are determined by the entrepreneurs goals
and the assessment of opportunities available, and in terms of
networking would be typified by the deliberate seeking out of
possible partners for particular purposes. An effectual process
entails letting actions emerge from means and imagination
and considering affordable loss. Such a process would see the
entrepreneur engaged in networking but without a specific
purpose in mind e.g. he/she may get to know someone by
simply being sat next to them at an industry dinner.
Understanding the way that contact with potential partners
occurs is important but it does not fully explain how this then
leads to the start of a relationship. Relationship development
has been of considerable interest for some time, but it is only
recently that the relationship initiation process has received
attention i.e. the activities, events and stages which result in
the start of some form of exchange between parties.
Edvardsson e t a l.(2008) identify four statuses in this
process, namely:
1 Unrecognised. Parties are unknown to each other
2 Recognised. Parties are aware of each other and of business
possibilities
3 Considered. Parties engage in discussions to determine
scope of exchange
4 Relationship. Business agreement reached.
The networking activities that we discussed previously would
obviously move an entrepreneur and other parties from being
unrecognised to recognised, but there is no guarantee thatthese contacts will progress to the status of formal
relationships. Edvardsson et al. (2008) conclude that the
change in status will be determined by a number of factors,
with those facilitating the process and identified as converters
consisting of service offering (underpinned by competencies
and capabilities), trust and time, whilst inhibitors are made up
of bonds, risk and image.
Figure 1 combines the aforementioned concepts into a
theoretical model showing the various activities and stages
that might be associated with networking and relationship
initiation. In incorporating Edvardsson et al.s (2008) work we
do not distinguish between inhibitors and convertors, instead
we identify factors which are likely to contribute to changes in
status, and in doing so add to some (bonds) and elsewhere
combine them (trust and image). With regards bonds in
Edvardsson et al.s model, this essentially centres on the
impact on existing partners of considering and initiating new
relationships. We believe that this could be broadened to
represent network position or company context. In the case of
trust and image, Edvardsson et al. identify these as a converter
and inhibitor respectively, whereas we believe that these
cannot be so easily separated. Trustworthiness consists of
affective and cognitive dimensions with the former being
determined by the interpersonal liking that results from the
similarity between individuals in terms of shared values,
attitudes, background, status (McAllister, 1995). Cognition-
based trust is rational and is determined by measures such as
benevolence, reputation and credibility (Herbig and Milewicz,
1996; Mahon and Wartick, 2003). Given the obvious
associations between reputation, credibility and image, we
do not present the latter as a factor on its own, but as part of
trustworthiness instead.
It is implicit in Edvardsson et al.s (2008) model and
Figure 1 that the process of relationship initiation occurs overdiffering periods of time and after a varying numbers of
encounters. Edvardsson et al. (2008) relate time to a growth
in trust. Prior to the formation of a formal business
relationship the degree of trustworthiness will be established
through interactions and the exchange of information in
meetings between individuals. In Figure 1 trustworthiness
and service offerings are assessed both at the recognition stage
and after subsequent meetings where further knowledge about
the party has been obtained. This assessment and the move
between status will also be informed by the market context
(e.g. network position, competitor actions, market dynamics).
3. Methodology
The role of networking and social capital in new business
start-ups has been examined in various engineering and high
technology sectors but there has been little investigation of
these in the services sector. Understanding of relationship
initiation has been developed using established service
businesses as the data source, but this has not been
replicated in new service ventures. The purpose of our
research is to build on this previous work and to explore the
process of networking and relationship initiation enacted by
the new service entrepreneur in order to develop social capital
and relationships with a network of suppliers and customers.
A case study approach w as used as it enabled the
phenomenon of interest to be examined within a real lifecontext, in which the boundaries between the phenomenon
and context are not clearly evident (Yin, 1994). Three cases
provided the context in which networking and relationship
initiation by service entrepreneurs were examined: a computer
modelling company, an online student discount directory and
an adventure sports company.
A key factor in guiding the empirical research is the desire
to understand the development of the businesses from the
owners viewpoints and their perceptions of important factors
in relation to this. In-depth qualitative interviews were
therefore used in order to account for the circumstances in
which business start-up and development occurred and to
search for a deeper understanding of the participants lived
experience (Marshall and Rossman, 1995). Face-to-faceinterviews were conducted using a discussion guide, which
also acted as a checklist for topic areas covered (Patton,
1990). Various topics from the discussion guide were
introduced as the interviews progressed, with the resulting
questions and the structure of interviews varying depending
on the respondents answers (Kvale, 1996). The interviews
were recorded and verbatim transcripts produced from the
recordings. Raw data from the transcripts were sorted
according to time period and phases of the business
development and within each phase grouped into different
themes using progressive focussing (Wolcott, 1994).
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4. Findings
A summary of the three case studies can be found in Table I.
Before going on to present our results we outline some key
distinguishing features of the respective business which thefindings suggest affect the networking and relationship
initiation processes enacted as well as the scope of social
capital used by the entrepreneurs.
Studentbeans.com is effectively an online intermediary,
presenting other companies promotional offers to students
via its web site. As an online facility, the service is not
geographically or time constrained and the business model is
such that the greater the number of companies featured on its
site, the more attractive studentbeans.com becomes to the
student user. This means that networking to maximise the
number of companies in the online directory is critical to the
business. By way of contrast both the Warren Smith Ski
Academy and Paragon Simulation are responsible for
delivering their services directly to customers. The two
companies have differing constraints. Warren Smith is
geographically, seasonally, time and capacity constrained.
Paragon Simulation is time and capacity constrained. These
constraints in turn limit the number of relationships that can
be developed with different stakeholder groups to ensure
service delivery.
Having presented these key distinctions, comparison can be
made of the networking and relationship initiation processes
enacted and social capital used by the entrepreneurs at
different stages of the development of their businesses, namely
prior to the business set-up, during initial company launch
and then their subsequent development.
Figure 1 The process of networking
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4.1 Networking and relationship initiation beforebusiness set-up
Prior to establishing their companies the entrepreneurs were
involved in networking with the resulting relationships
subsequently contributing to their businesses. These
relationships, however, were not sought with a view to setting
up a business andas canbe concludedfrom thedescriptions that
follow, they differ in the way in which they were initiated.
Vinod (Paragon Simulation)
On graduation from university Vinod worked in systems
design and his future business partner, Neil for a company
that produced modelling software. Vinod and Neil met each
other by chance as graduates, them sharing a house and
journeys to and from work together. This effectual networking
resulted in bonding social bonding between the two graduatesand the realisation that they shared a common ambition,
namely to become self-employed. As their ideas about a
possible business venture took shape the two were able to use
Neils industry contacts (bridging social capital) and engaged
in deliberate direct and market related networking to establish
a relationship with a key supplier, securing discounted
software licenses and favourable payment terms from this
supplier.
James (studentbeans.com)
As a student James was involved in organizing high profile
social events, engaging in considerable cold calling to generate
company sponsorship of these student events. Jamesnetworking was causal i.e. it was deliberate and done with a
purpose in mind and once James developed his business idea,
he drew on these relationships (bridging social capital) to
facilitate the company launch and subsequent development.
Warren (Warren Smith Ski Academy)
Whilst working as an instructor on dry ski slopes in the UK
Warren met the owner of an accommodation provider who
normally operated in Verbier, the repeated contact with this
person via tuition leading to the development of bonding
social capital. Warrens networking behaviour was effectual
and the relationship was not cultivated with the pursuit ofcommercial business opportunities in mind. However, as his
ideas to set up a business emerged the decision to locate his
business in Verbier was influenced in part by this relationship
and the broad service offering that this person could provide,
namely accommodation, expertise and knowledge of the
resort and introductions to key stakeholders there.
While generally it is expected that bonding social capital is
important during business planning and set up, and Vinod
and Warren did indeed draw on this resource, in the case of
James, bridging social capital was critical to the initiation of
the first relationships.
Table I New service businesses, case study summaries
Company Paragon Simulation Studentbeans.com Warren Smith Ski Academy
Founder(s) Vinod Bhatia; Neil Higton James Eder Warren Smith
Qualifications and
experience
University graduates
Several years experience in computer
modelling and software design
Business graduate
Student events organizer
Experience in gaining multiple
sponsorship for high profile events
Internationally qualified performance ski
coach
Competitive free skier
Initial business
proposition
In-house design and supply of bespoke
business process models and financial
modelling software to UK clients
Online distribution of promotional
schemes to University of Birmingham (UK)
students
Supplied by national and local firms
Coaching of recreational skiers in Verbier,
Switzerland
Current activities UK based
Continued focus on design and supply of
modelling software
Not tied to any software suppliers
Expanding customer base with repeat
business
UK based
Continued online distribution of
promotional schemes
National network operating in 22
university cities
Promotional offers supplied by national
and international companies
Ski packages
Switzerland
Coaching of recreational skiers in Verbier
and Saas Fe
Heli-skiing for recreational skiers in Verbier
Training of ski instructors in Verbier
New Zealand
Heli-skiing for recreational skiers
Japan
Coaching of recreational skiers (in
cooperation with tour operator)
Professional marketing training and
qualifications scheme for campus brand
managers in association with Proctor and
Gamble
Ski events
Switzerland
Free-skiing competition: Verbier Free-Ride
UK
Coaching days for recreational skier
Competitive free-ride events
Media products
Production and sale of instructional and
entertainment (free-skiing) ski films
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4.2 Networking and relationship initiation in the start-
up phase
Once the entrepreneurs decided to set-up their businesses, a
key challenge for them was accessing supply and customer
markets. We go on to discuss the networking and relationship
initiation process in this phase of the new service businesses,
comparing similarities and differences in the processes
enacted.
Vinod (Paragon Simulation)
While working for other companies Vinod had undertaken
software design work for the UK business directory, Yellow
Pages, part of BT. When BT wanted further work carried out
for the Yellow Pages business, the contacts which Vinod had
maintained with this business (bridging social capital)
resulted in Paragon Simulation being approached to do this.
This one customer aside, Vinod and his business partner had
to embark on a process of causal, direct, market-related
networking to create new business contacts. Potential
customers were identified from industries where the
entrepreneurs thought their service offering was most suited
and the top 30 companies (in terms of turnover) selected.
This networking may have shifted Paragon Simulation from
being unrecognised to recognised, but to be considered as a
potential supplier, when Vinod and his business partner were
cold calling they had to overcome two main barriers. Firstly,
Paragon Simulation was a largely unproven business and
secondly, the two entrepreneurs were unknown to companies
contacted. These factors made it difficult for managers in
target companies to assess the trustworthiness of Vinod and
his partner and f orm a view of the service off ering
encapsulated by Paragon Simulation. As proxy indicators
the two entrepreneurs were able to highlight their previous
experience in related industries and use the contract with BT
as a reference case study. Not only did the case study illustrate
the problem solving capability of the Paragons service
offering, but the fact that the work was undertaken for sucha high profile organization as BT signalled the trustworthiness
of the two entrepreneurs.
James (studentbeans.com)
As with Paragon Simulation, James followed a process of
causal, direct, market-related networking to create business
contacts, selecting a mixture of small owner-operated
businesses and national chains within the student catchment
areas in the city of Birmingham, UK. Although in some senses
James replicated the process enacted as a student to win
company sponsorship, for the online directory the networking
activity was particularly intense because of the need to
maximise the number of companies included in the directory.
In terms of moving from recognised to considered James
faced the same problem as Vinod, i.e. he was unknown and
his business was unproven. Unlike Paragon Simulation, James
did not have previous related industry experience, customer
case studies or even an operational website to which he could
refer to overcome objections during exchanges with
companies targeted. Instead he was only able to present
coherent financial proposals and highlight his strengthening
relationship (bridging social capital) with the confectionary
company, Jelly Belly who provided promotional products.
Neither of these arguably provided strong indicators of the
service offering or of James trustworthiness, with him
consequently having to offer very attractive promotional
incentives to persuade managers from targeted companies to
trial the directory.
Warren (Warren Smith Ski Academy)
While James and Vinods business set-ups consisted of
causal, direct, market-related networking, the process enacted
by Warren in launching his ski coaching business was more
varied. Warren did use causal, direct, market-related
networking to make contact, in his case, with potentialsuppliers who would be important to the business
operation. This included the Swiss ski authorities, the local
tourist board, in-resort accommodation providers and stores
as well as suitable instructors working for other organizations.
Warrens evaluation of these various stakeholders in terms of
the services from which he could draw to enable his business
to function was important. However, more fundamental to
the successful launch of his business were the activities and
resources that the ski academy could offer to these other
parties and the reputation and credibility of its founder.
Warrens reputation was clearly evident as he was a
professional free skier, had competed internationally, had
professional training qualifications and was working as a ski
coach in the UK and France all of which suggested that hehad knowledge and experience of the market in which he
wanted to establish himself. His reputation was also
important in recruiting instructors, as skiers looking for
work deliberately sought out Warren in preference to other
employers.
In addition to such causal networking, Warrens case
demonstrates a greater prevalence of effectual networking in
the early stages of the business as evidenced for example by
chance meetings with representatives of the Ski Club of Great
Br it ai n a t a n e qu ip me nt t es ti ng e ve nt , a nd wi th
representatives of a British national newspaper at a social
event. Both of the contacts expanded Warrens bridging social
capital and were useful for the subsequent endorsement and
promotion of the academy to British clients.
4.3 Networking and relationship initiation in the
expansion phase
From launching the business and obtaining the initial
customers the companies have expanded in slightly different
ways.
Vinod (Paragon Simulation)
Vinod has continued to obtain customers (develop bridging
social capital) through causal, direct, market related
networking. The skill acquired in dealing with potential
clients m eans that he is m ore adept at identif ying
requirements as well as formulating and communicating a
service offering which will address this. The fact that both
Vinod and his partner have become known among users of
modelling software and they have built up a databank of highprofile customer reference cases has made the signalling of
trustworthiness to new contacts easier. Both the enhanced
skill of the entrepreneurs and their established reputation
means that new contacts made from networking have a
greater probability of shifting from a status of recognised to
considered and subsequently initiated ( custom er
relationships).
James (studentbeans.com)
Studentbeans.com was initially launched in one location with
150 companies in the directory, and expanded to 22 cities
nationally in a two-year period. Cities were chosen where
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there were high student numbers and in which the student
body, AIESEC operated. James association (bridging social
capital) with this organization provided him with ready access
to a labour market from which he could recruit students to
promote studentbeans.com on campus.
New companies continued to be added to the directory via
direct, causal, market related networking (cold calling). As the
business expanded there was some natural decay andrationalisation, where either or both parties determined that
the service offering that could be accessed via the relationship
was of limited value. The new companies contacted and the
companies retained were national brands, these being
preferred by students and to attract such companies, having
nationwide coverage was a necessary condition. The natural
decay of relationships and increase in national brands meant
that resources previously spent cold calling could be directed
towards nurturing relationships. A key distinction in this
development phase was that studentbeans.com had become a
proven service provider with a clearly visible online presence.
James was able to prove his credibility using historical
financial data and his reputation by reference to both the
organizations using his service and the companies involved in
offering training and qualifications to campus representativese.g. Proctor and Gamble and the Chartered Institute of
Marketing.
Warren (Warren Smith Ski Academy)
Warren expanded his recreational courses to a second resort
in Switzerland and subsequently to New Zealand and Japan.
In addition to recreational courses he built his revenue base
by offering programmes in Verbier that led to professional
qualifications, established free-skiing events and moved into
the production of instructional entertainment (free-skiing)
films.
These developments involved a mixture of market and non-
market related networking which were either causal or
effectual. For example the development of the free-ride
competitions saw Warren engaged in a deliberate process ofm arket related networking, w ith the entrepreneur
approaching specific free-skiers (who he had not previously
met) and inviting them to participate in events. Having
previously competed successfully as an international free-
skier, meant that Warrens standing within this community
(bonding social capital/identity-based network) facilitated the
move of relationships with potential participating competitors
from recognised to considered and initiated. In contrast to
this causal process, social events provided valuable settings for
non-market related, effectual networking, in which Warren
could establish and reinforce both bridging and bonding
social capital with those who competed or worked as
professional skiers, and with other individuals involved in
free-skiing or other aspects of the ski industry. For example,once Warren decided to add the production and marketing of
multimedia products to his portfolio, he drew on relationship
sediments to develop this side of the business. Warren was
able to make use of relationships (bonding social capital/
identity-based network) with free-skiers, filmmakers and
photographers to form a production team to create
instructional and entertainment DVDs for commercial sale.
5. Discussion
Based on the findings presented on the three case companies,
our discussion centres on the process of relationship initiation
and the way in which social capital was used and developed by
the entrepreneurs.
Our research suggests that in setting up their businesses, the
networking enacted by the entrepreneurs and which would
lead to the initiation of relationships was much more
important than any existing social capital that they may
have had at their disposal. In expanding their businesses
networking continues to be an important means of moving tothe recognised status of the relationship initiation process
(Edvardsson et al ., 2008). The three entrepreneurs
businesses are clearly based on different service offerings
and the scope of their operational markets also vary. Our
findings show that these differences affect the networking
undertaken in terms of the:. extent to which it is deliberate or unplanned (Read and
Sarasvathy, 2005);. degree to which it was is direct or indirect, market related
or non-market based (Holmen et al., 2005); and. amount of time spent and frequency of communication
trying to initiate relationships (Witt, 2004).
So, for example, Vinod and James have to draw customers
from disparate market sectors. This means that they do notnecessarily have a detailed insight into or have ready access to
the networks in which target customers operate and so have to
rely on networking which is predominantly causal, direct and
market related e.g. cold calling. For James, this is a
particularly intense activity given the need to maximise the
number of companies and university locations featured in his
directory. As well as cold calling both James and Vinod have
tried newer forms of networking such as business networking
events and online networking sites. However, these new
approaches did not prove as successful as cold calling. This
may be because participants have a broad range of needs
which they may be seeking to satisfy via these newer
networking forms or it may be that a number of repeated
interactions are necessary before a new participant becomesan integral part of the community. In contrast to Vinod and
James, Warrens business is much more narrowly defined in
terms of market and geographic scope and much of his
networking is focused on engaging others who can contribute
to the operation of his business and so build his bridging
social capital. Whilst he does use causal, market-related
networking to do this, social events are an important way of
making contacts with people who may prove useful at some
later stage, as w ell as being useful f or m aintaining
relationships with others.
Previous research (Davidsson and Honig, 2003) has
concluded that social capital, particularly bonding social
capital (identity-based networks (Hite and Hesterly, 2001)) is
vital in the start-up phase of a business, allowing the
entrepreneur access to critical resources. Once a business has
become established, then the presumption is that bridging
social capital (calculative network (Hite and Hesterly, 2001))
assumes greater importance, allowing the pursuit of
opportunities which may not be possible via an identity-
based network. Warren did indeed draw on a close
interpersonal relationship (bonding social capital) in order
to offer clients an essential part of a tuition package (namely
accommodation) and through this relationship he was also
able to obtain necessary information on equipment providers,
the tourism board, lift operators, and the local council, all of
which helped in the early stages of setting up the business.
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However, Vinod and James were much more reliant on
bridging social capital to set up their supplier and customer
network and even this was very limited in nature.
Our debate in relation to the nature and role of social
capital continues as we examine the expansion of the
entrepreneurs businesses. For James and Vinod bridging
capital continues to be important as their businesses develop,
this reflecting the conclusions of previously publishedresearch. Warren, however, is totally embedded in his
industry skiing is a business enterprise, but is also a way
of life where he finds himself living within the skiing
community and engaging with people on a social as well as
professional basis. This means that while he does draw
increasingly on bridging social capital, the identity-based
network that he has developed over time continues to be an
important aspect of his business and his life. In this particular
case, it is problematic distinguishing between bonding and
bridging social capital.
One final point with regard to networking and relationship
initiation is our observation that these were enacted for
different purposes depending on the business model of the
entrepreneur. So for example, revenue generated by Paragon
Simulation is project based, this requiring Vinod to invest
considerable time networking in order to identify forthcoming
project opportunities with new or existing clients. For James
and Warren what is critical to their respective businesses is the
certainty of supply sources and their networking capacity in
relation to maintaining or developing new relationships. So
for example, in expanding his operation to 22 cities and
focusing on relationships with larger national brands, James
network of smaller, locally-based suppliers contracted. In
contrast to this, as Warren has expanded his ski operations
geographically so his supply infrastructure at the different
locations has to be established, with him engaging in
networking and initiating new relationships at each location.
6. Managerial implications
Our research shows that for new business start-ups social
capital cannot necessarily be used as a way of gaining access to
networks of potential customers and suppliers. Instead the
entrepreneur has to invest considerable personal resource in
networking and initiating relationships to build this. In order
to facilitate the progression of contacts to commercial
exchanges, the service entrepreneur must:. clearly present the value that potential partners would
derive for entering into a relationship;. instil confidence in partners with regards competencies,
capabilities and trustworthiness;. draw from relevant past experience and successes to signal
value and instil confidence; and. invest significant resource e.g. time (in terms of number of
meetings) and finance (in terms of arrangements to
encourage service trials).
7. Limitations and directions for future research
This investigation was based on three case studies and
featured entrepreneurs who set up quite distinct businesses,
this in turn affecting their respective networking and
relationship initiation processes. Our findings differed from
previously drawn conclusions with regards the availability and
form of social capital most important to entrepreneurs at
different stages of establishing a new service business. Whilst
our research makes a valuable contribution to existing
knowledge the inferences drawn from our research with
regards social capital and the applicability of our conceptual
framework linking networking and relationship initiation need
to be tested empirically using a broader range of new service
ventures.
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About the authors
Sheena Leek is Lecturer in Marketing at Birmingham
Business School from. Her research, which includes the
impact of information technology in business relationships
and the role of social capital in initiating relationships, has
been published in a number of leading marketing journals.Sheena Leek is the corresponding author and can be
contacted at: [email protected]
Louise Canning is Lecturer in Marketing at the University
of Birmingham. Her research interests include inter-firm
relationships on which she has published nationally and
internationally.
Executive summary for managers and executivereaders
This summary has been provided to allow managers and executives
a rapid appreciation of the content of the article. Those with a
particular interest in the topic covered may then read the article in
toto to take advantage of the more comprehensive description of the
research undertaken and its results to get the full benefit of the
material present.
Entrepreneurs are the lifeblood of many economies but they
face major challenges. Indeed over 40 per cent of start-up
companies are reported to have difficulties. Although these
might include problems such as accessing information,
capital, skills and labour, the interest of Sheena Leek and
Louise Canning in Entering and developing a service
network lies in the ways in which the service entrepreneur
overcomes difficulties of establishing both a customer and a
supplier base. Acknowledging the importance of social capital
Entering and developing a service network
Sheena Leek and Louis Canning
Journal of Services Marketing
Volume 25 Number 1 2011 5867
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in aiding new business start-ups, they argue that although it
might be used to instigate exchange relationships and
establish a network position, for some entrepreneurs this
resource does not exist.
For new business start-ups social capital (generally defined
as referring to the personal relationships that an individual has
with others) cannot necessarily be used as a way of gaining
access to networks of potential customers and suppliers.Instead the entrepreneur has to invest considerable personal
resource in networking and initiating relationships to build
this. In order to facilitate the progression of contacts to
commercial exchanges, the service entrepreneur must:. Clearly present the value that potential partners would
derive for entering into a relationship.. Instil confidence in partners with regard to competencies,
capabilities and trustworthiness.. Draw from relevant past experience and successes to
signal value and instil confidence.. Invest significant resources e.g. time (in terms of number
of meetings) and finance (in terms of arrangements to
encourage service trials).
In examining the role of social capital in facilitating the entryof new business ventures into service networks, the study
focuses on three businesses. Paragon Simulation, founded by
its two entrepreneur directors who met by chance as
graduates, and which aims to bring the significant business
benefits of business modelling to organizations; Warren Smith
Ski Academy, whose business was born after he an
instructor on a UK dry-ski slope met the owner of an
accommodation provider based in the Swiss ski resort Verbier;
and studentbeans.com, an online student portal.
In setting up their businesses, the networking enacted by
the entrepreneurs and which would lead to the initiation of
relationships was much more important than any existing
social capital that they may have had at their disposal. In
expanding their businesses networking continues to be an
important means of moving to the recognised status of therelationship initiation process. The three businesses are
clearly based on different service offerings and the scope of
their operational markets also vary. Study findings show that
these differences affect the networking undertaken in terms of
the:. Extent to which it is deliberate or unplanned.. Degree to which it is direct or indirect, market related or
non-market based.
. Amount of time spent and frequency of communication
trying to initiate relationships.
So for example, the Paragon and studentbeans.com
entrepreneurs have to draw customers from disparate
market sectors. This means that they do not necessarily
have a detailed insight into or have ready access to the
networks in which target customers operate and so have to
rely on networking which is predominantly causal, direct and
market related e.g. cold calling. For studentbeans.com this
is a particularly intense activity given the need to maximise
the number of companies and university locations featured in
its directory. As well as cold calling both have tried newer
forms of networking such as business networking events and
online networking sites. However, these new approaches
did not prove as successful as cold calling.
In contrast Warren Smiths business is much more narrowly
defined in terms of market and geographic scope and much of
his networking is focused on engaging others who can
contribute to the operation of his business and so build his
bridging social capital. Whilst he does use causal, market-
related networking to do this, social events are an important
way of making contacts with people who may prove usefullater, as well as being useful for maintaining relationships with
others.
Previous research has concluded that social capital,
particularly bonding social capital (identity-based networks),
is vital in the start-up phase of a business, allowing the
entrepreneur access to critical resources. Once a business has
become established, then the presumption is that bridging
social capital (calculative network) assumes greater
importance, allowing the pursuit of opportunities that may
not be possible via an identity-based network. Warren Smith
did indeed draw on a close interpersonal relationship
(bonding social capital) in order to offer clients an essential
part of a tuition package (namely accommodation) and
through this relationship he was also able to obtain necessaryinformation on equipment providers, the tourism board, lift
operators, and the local council, all of which helped in the
early stages of setting up the business. However, the other two
enterprises were much more reliant on bridging social capital
to set up their supplier and customer network.
(A precis of the article Entering and developing a service
network. Supplied by Marketing Consultants for Emerald.)
Entering and developing a service network
Sheena Leek and Louis Canning
Journal of Services Marketing
Volume 25 Number 1 2011 5867
67
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