The Role of Networks in Facilitating the Formation and Growth of Business Enterprises

1 The Role of Networks in Facilitating the Formation and Growth of Business Enterprises Network and business is a subject that has attracted many scholars in the recent past. This interest is resulting from the changing business dynamics where potential investors are banking on ideas or even customers from networks to meet business’ laid down objectives. In the emerging business world, quite a number of businesses are established courtesy of networks, in this case the right ones. Moreover, most enterprises that are rapidly growing and outdoing their competitors can trace their success to a sound network. To help understand the subject further, this paper seeks to access the magnitude of network influence in the formation and growth of businesses.

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Networking can be defined as a form of activity, mostly socioeconomic where individuals or groups of a common interest come together to brainstorm ideas, identify the viable ones and put the best of the best into good use. Therefore, in the same breath, an association of persons with interests in entrepreneurship and business are known as a business network.

Business networks often bring like-minded individuals who are seeking to source information on a given business venture. These networks can be between two or more persons, with some even big as organizations. In the modern business world, quite a number of individuals appreciate the idea of business networks. This is simply because the association is often cost effective in the generation of new ideas or in the creation of new business. In addition, the association reduces firms costs related to advertisement. The aforementioned advantage is associated with the firm’s ability to source information by engaging the stakeholders, i.e. customers and potential, shareholders directly. Moreover, networking brings with it other benefits that include public relations. Considering a good number of firm managers and business leaders are part of different networks, they are better positioned to influence the company image by showcasing it in a good light during network bonding (Dick & Merrett 2007).

The influence of a network on business cannot be underestimated by both potential investors and those already in business. For potential entrepreneurs, a business network provides an avenue where sound and up to date business ideas are shared at lesser costs. Landström and Lohrke (2010) assert that, socio economic groupings are much aware of current trends in the business world as they themselves are the participants and players. Therefore, according to them, a potential entrepreneur has an exposure to vital information that may assist in the

3 establishment of a bright venture. The benefits accrued by a member in a network are immense.

The effect of their sharing affects the formation of a firm and its growth to a large extent.

Companies that have been incubated by business networks have a wide potential of growth. First, a business network provides a platform where executives and those responsible in the running of businesses on a daily basis exchange notes freely. In this avenue, a keen entrepreneur is able to note the key issues being dissected by the group. Secondly, a network is a robust referral place. For example, a rational network that is keen to see its members develop may find it fit to organize special sessions, that can be weekly or monthly to help members share notes, new leads and even discuss and agree on referrals. To facilitate bonding and subsequent personal development of its members, a network allows unplanned meetings by its members (Landström & Lohrke 2010). The idea to allow individual bonding enables new entrepreneurs borrows a leaf from those already with field experience. The aforementioned option diffuses the fear of venturing into a given business. This is because new businesses are guided from the incubation of an idea until its implementation.

Competition between businesses has rapidly increased in the 21st century. This has led to the stagnation of once thriving businesses. However, with business networks, businesses are able to dust stagnation by harnessing fresh ideas from industry players. Networking often comes in different forms. First, there is one often referred as a primary method. This form of networking is often conducted in small scale as it involves direct relationships and interactions with networking groups. Secondly, there is the use of modern machinery i.e. the internet. According to modern scholars, the internet has largely transformed the networking world. In addition, scholars further assert that this modern form of networking brings together a large audience (Cason 2010). Given the credence of their research, it is apparent that future growth of businesses is largely dependent

4 on the relationships created online. The online community is a robust avenue that can be harnessed by new entrepreneurs to boost their infant enterprises. By engaging potential consumers online in form of new networks, new firms are well placed to increase the selling of their goods and services, and rapidly increase their profitability in both the short and run.

According to Dick and Merrett (2010), the influence of internet networking cannot be underestimated as far as numbers are concerned. The online communities often associate themselves with an online company, one that they belief serves their interests best. These internet companies often benefit already running businesses and those yet to be established. The companies own large data related to their online uses. These data can be used to ascertain the tastes and preferences of potential clients. An enterprise that fully utilizes the obtained data in designing its plans often stays ahead of its competitors. Moreover, new businesses are able to produce the kind of products that meet the needs of the online community (Dick & Merrett 2010).

Penetrating into already flooded market is never an easy task especially to infant enterprises. More often than not, these establishments do not live to see the light of day. Their collapse is often linked to insufficient information and technicality aspects. However, with business networking, a new enterprise is able to attract both technical and operational support.

Schmitz (1999) argues that a sound business network is of utmost necessity in assisting members understand matters to value chains. This refers to progressive guidance and coordination of plans while simply implementing already tested and proved work flows. Business newbies are often disadvantaged in matters of workflow and this is where a group comes handy.

Businesses are profit driven bodies that often seek to stay ahead of their competitors. To be successful in this endeavor, a business has to constantly seek new market ideas that will help

5 it grow. The 21st century businesses are largely embracing networks as a primary avenue of enhancing their circles and boosting their image rapidly. In a nutshell, business networks allow business managers to engage with individuals who they can trust. Although businesses are better placed to accrue a lot from networks, vital information can as well be used against a company by its competitors. This is what often negates the strides of business networks. Therefore, to a large extent, business networks do not necessarily guarantee massive growth (Casson 2010).

Stokes & Wilson (2010) define an entrepreneur as a person who bears the risks of an enterprise. That is, an individual responsible for the formulation and management of a business venture. Entrepreneurs often look for associates in networks who help engage in constructive matters related to the formation and running enterprises. To foster gradual growth of a business, entrepreneurs often engage different networks systematically and in accordance to its development phases. Moreover, an entrepreneur ought to be able to balance the engagement in these groups with the time spent to implement acquired information in businesses processes.

Different phases of enterprise development call for different amount of time investment in a network. More often, earlier stages i.e. those related to planning require more engagements with a network than the proceeding stages. New entrepreneurs often engage immediate family members in a larger magnitude during the planning and inception stages (Stokes & Wilson 2010).

Social Network Social networks is a term used to refer to the associations of groups an entrepreneur associates him/herself with to be able to perform his/her tasks effectively. This association also provides avenues where entrepreneurs can source business funds. Entrepreneurs are blessed with ideas and have basic knowledge in the daily running of businesses, but to convert these ideas into

6 reality needs resources. A dynamic entrepreneur is able to venture into the production of goods or provide quality services when he/she is able to source not only ideas and support but also attract funding and grow sound product distribution channels. The aforementioned are only available in a social network. A social network allows a new entrepreneur to boost his resource base while linking with persons and firms that will help boost new enterprises. An entrepreneur is able to source funds for business sustainment by interacting with a good number of people, who subsequently increase contact levels (Dick & Merrett 2007). Socio economic networks are very flexible. This implies that they can be ignited any time a need arises. To be successful in his quest to grow an enterprise, an entrepreneur needs to accommodate both old and new associates to aid in molding business decisions. Immediate contacts play a very noble role in planning and providing support to new firms.

Network Capital To successfully start a business, an entrepreneur needs to arm himself with not only enough information and skills but also with enough capital. While in most cases, entrepreneurs have conducted individual research and can be able to raise a good amount of resources, good networking helps in complimenting what is already at hand. Landström and Lohrke (2010) define a network capital as group of contacts that are responsible for the success of new business establishment. Network capital contacts often cut across business and professional setup.

Networks aimed at helping an individual set up an enterprises brings about not only immediate friends but also past colleagues.

A network contains a number of aspects that boost the development of an entrepreneur.

First, it increases contact list. Networks help entrepreneurs widen contacts that are responsible for important market information and capital base. Secondly, a network helps in strategic

7 positioning. Entrepreneurs are people required to consume a lot of business facts and crunch data on a daily basis. Therefore, being a member of a business network fastens access to vital business knowledge and information. That is, a network fast tracks access to information. Lastly, a network builds a relationship structure. Socio economic networks bring together a number of persons who contribute differently to a single course. With a sound network, entrepreneurs are well placed to accumulate investment funds. This capital plays a cardinal role in the formation of new business (Landström & Lohrke 2010).

Family role in a network A business network is not limited to professional or corporate groupings. Stokes and Wilson (2010) observe that a Family to a large extent shapes the decisions of most entrepreneurs.

More often, entrepreneurs fall back to their families when it comes to raising investment capital and support. In addition, family networks cannot be brushed away because entrepreneurship is a family outcome, meaning it is largely tied to family.

Entrepreneurs often attract different persons to themselves at different points of enterprise growth. The contributions of these individuals often vary. For example, close family members are more involved during early stages of firm formation; this is the point where their contributions outnumber that of a non kin. When an enterprise is still new, entrepreneurs tend to be biased towards their immediate families. This is so because the entrepreneur is able to attract immediate feedback and constant inputs related to a business idea. In the same breath, overdependence on family members may limit or restrict the sourcing of much needed resources from a larger network. A non kin type of network often enables a firm attract resources that are essential in the planning, formation or even in the acquisition of an enterprise. A good number of scholars in support of business networking advocate for weak family ties. In their opinion,

8 overdependence on immediate family cuts down dependence on a larger circle. Not most families are privileged to have professionals from all sectors of the economy. This, therefore, underpins the need for an entrepreneur to have a wide network of contacts, one that brings with it a divergence of ideas and business insights (Best 1990).

The interest of most entrepreneurs in business came from their entrepreneurial parents.

Often, their own parents provide mentorship services to them. Having a rich and experienced knowledge base makes it easier for children to acquire much needed information, thereby reducing the time that could have well been wasted through searching. Forming an enterprise calls for a relationship mix. Families and non kin are bound to be a robust source of resources.

The strength of these networks also determines the level of engagements i.e. a strong contact enables free and open sharing of information (Stokes & Wilson 2010).

The expansiveness of a business depends more on the linkages between stakeholders, business associates and healthy competition with its close competitors as this close web sets new avenues for narrowing down the risk gap that is already at stake. This enables the decision makers to enact strategies that would place the business enterprise to operate at its minimal cost, while on the other hand reaping optimal economies of scale. Networking bridges the widening performance gap between businesses. This creates cut throat competition, forcing decision makers to critically analyze their current level of performance; hence calling for better strategies (Casson 2010). Such strategies are made after in-depth comparison of the resource base and the capacity of the business to enable it to run lucratively. The strategies should be able to create a comparative advantage for the business and to sustain it for the projected period.

Networking in business operation enables growth of its sources of funds, creating a capital base that is not only enough to propel its operations but also sustainable in the long run.

9 Business stakeholders will be in a better position of closely monitoring the number of staff that will enable the business to optimize profits, the type of skills appropriate, their availability and the staff turnout. This minimizes the chances of employing unqualified individuals whose performance negatively affects the growth of the business (Schmitz 1999).

According to Schmitz (1999), improved performance of a business in financial year is directly proportional to the level of training of its staff, their adaptability to change and the expansiveness of the business premise. Networking, therefore, enables consolidate the outlined factors. Employers are induced to train their employees periodically to enable them adapt to the dynamic turbulences faced by businesses every single day. Training not only enables employees to get conversant with the changing operation of the business systems but it also assists them to synchronize both systems, hence creating a linkage which offers a better platform for business growth.

Business networking proves as the best way of gathering information for better emerging markets. Producing alone is fatal for the existence of the business. Line and non- line competitors share vital information which enables them fill the gap that has been widening due to a perceived notion of a competitor taking advantage of the other. Businesses will have to strengthen their marketing strategies together with the quality of their services and products to suit the expectation of the consumers and the stakeholders. A healthy business environment not only improve the growth of existing businesses, but it also attracts related investors from other key sectors of the economy who are wooed to venture into entrepreneurship, thereby bringing in new ideas and technology in business operations. This positively inspires businesses to follow suit to keep up with the rising changes in business operation (Stokes & Wilson 2010).

10 Periodic review of business performance is emulated by decision makers to keep it in pace with other competing businesses, enhancing its entire growth. This comes with the signing of performance contracts by employees, which keeps them on toes. These two factors propel efficiency in business operations. More advanced managerial skills are acquired during business networking, making entrepreneurs to employ new knowledge which positively expand its lucrativeness, market share and growth (Stokes & Wilson 2010).

Business networking plays a very integral role in the formation and growth of already established firms. Entrepreneurs in most cases utilize their capital networks to source resources that are of much necessity in the initial stages of business establishment. Best (1990) observes that new entrepreneurs seeking to start businesses are very protective when it comes to discussing matters business. This therefore makes them prefer enclosed networks where they hold discussions with only trusted parties. This characteristic is common among entrepreneurs in the initial stages of idea sourcing. However, with increase of activities after idea sourcing, new entrepreneurs tend to engage a larger network. This crucial stage is related to planning and developing a large network is crucial.

In conclusion, networks play a large role in facilitating the establishment of an enterprise.

In addition, the growth of business enterprises is largely dependent on a wide network. From the discussion above, it is apparent that networks have played a crucial role in all stages of business formation i.e. from the idea sourcing to formation of a firm. First, new entrepreneurs who are members of a network are often challenged by the ideas often exchanged by industry players.

The robust ideas ignite their urge to venture into investment. Secondly, networks provide an avenue where business newbies source investment funds. Engaging both kin and non kin

11 networks during all phases of business formations is cost effective. In addition, an entrepreneur is able to limit the time wasted in sourcing for business ideas.

In the contemporary business world, business growth is envisaged in the primary objectives of a company. Business networks, therefore, play an important role in ensuring that an enterprise stays in the course of its objectives. From the above discussion, networks provide an avenue that enables a firm boost its profitability levels. With an ever competitive industry, exchanging notes with other industry players enables a firm to align its decisions with those in the market. Moreover, networks enable a firm to engage its consumers directly i.e. the online business networks. Customer feedback enables a firm improve the quality of its products. In addition, an entrepreneur is able to meet the tastes and preferences of its consumers by aligning its production with their concerns. Despite providing an avenue where consumers are involved in production, network contacts also do business referrals. Referrals do not only increase the sales of an enterprise, but they also help boost the company image. Furthermore, an enterprise is better placed to use referrals to its advantage and stay ahead of its competitors.

12 List of References Best, M 1990, The new competition: Institutions of industrial restructuring, Harvard University Press, Cambridge.

Casson, M 2010, Entrepreneurship: Theory, networks, history, Edward Elgar, Cheltenham.

Dick, H & Merrett, D 2007, The internationalisation strategies of small-country firms: The australian experience of globalisation, Edward Elgar Publishing, Northampton.

Landström, H & Lohrke, F 2010, Historical foundations of entrepreneurial research, Edward Elgar Publishing, Cheltenham Schmitz, H 1999, ‘Collective efficiency and increasing returns’, Cambridge Journal of Economics, vol. 23, no. 4, pp. 465-483.

Stokes, D & Wilson, N 2010, Small business management and entrepreneurship, Cengage Learning EMEA, California