The role of social media in the entrepreneurial process

By Erik Hekman on 20 June 2011

There is an broad array of initiatives and experimentation with social media by entrepreneurs and businesses. ‘We have to do something with social media’ seems to be the credo and emphasize lies on ‘a race to the market’. There is a great deal of trail-and-error and knowledge on how social media works is often highly tacit. One can also think of this as a ‘probe and learn process’ of entrepreneurs and businesses trying to use social media to their advantage (Groen et al, 2008). The degree of success however differs.

From its broad adoption in the mid 90s, the Internet has proven itself to be a cheap distribution medium for experimentation. The current adopted business model seems to be ‘publish or perish’ or ‘demo or die’. Entrepreneurs and businesses portray the Internet as a business opportunity but are not fully able to develop a valid business concept in order to bring it into exploitation (Zook, 2005).

And now, more than ever, companies are challenged to improve their performance and respond quickly and accurately to changes within the market (Middel et al, 2007). How can entrepreneurs—as individuals or as teams—create value during the entrepreneurial process to exploit market place opportunity using social media?

The entrepreneurial process: creating value

Derived from Parson’s social system theory (1964), Groen (2005) proposes a model (see Figure) for analyzing the entrepreneur’s development starting with opportunity recognition, leading to the development of a business concept and ultimately bringing it into a value creation process leading to some level of growth. 

This process consists of four types of capital that can be described as following (Kirwen et al, 2007):

1. Strategic capital; a venture needs a strategy and strives (according to a plan) to attain a certain (power) position and authority in the field.
2. Cultural capital; in a venture the entrepreneur or the entrepreneurial team provide the basis for the culture. Their knowledge and experience as well as that of the venture’s staff, the norms and values and the knowledge and technology together comprise this capital.
3. Economical capital; every venture needs a certain amount of financial capital or access to financial capital.
4. Social capital; a venture is part of its environment and needs to interact with its customers, suppliers, advisers and so on. The social or network capital relates to actors in the venture’s network and the position of the firm in the network. The content of the relationship between the firm and its actors is part of the other capitals, because the content can relate to the strategic, the economic and the cultural capital.

Entrepreneurs and businesses need a sufficient amount of each capital in order to create value and sustainable ventures. It is conceivable that entrepreneurs with more of the four capitals in time frame 1 (t1) perform generally better in time frame 2 (t2) then entrepreneurs with less capital (at t1). Entrepreneurs that have one or more of the four capitals below a certain threshold will generally not flourish or in some cases even survive. (Groen et al, 2008).

Social media and the four capitals

The Internet and social networking sites already have proven themselves to be beneficial towards the creation and maintenance of social capital (Nie & Erbring, 2000; Wellman et al, 2001; Katz & Rice, 2002; Quan-Haase & Wellman, 2002; Batjargal, 2007; Ellison et al, 2007; Gangadharbatla, 2008). But is the Internet and are social media services beneficial in the creation of social capital within the entrepreneurial process? My PhD research will explore in what way social media can contribute to the four capitals in order to create value. Almost one year has gone by and I sometimes get the feeling that I’m missing out on a lot of important literature. The first steps are made and I will (of course) keep you posted.

References

1. Aldrich, H. E., & Zimmer, C. (1986). Entrepreneurship Through Social Networks. In D. L. Sexton & R. W. Smilor (Eds.), The Art and Science of Entrepreneurship (pp. 3-23). New York: Ballinger Publishing.
2. Batjargal, B. (2007). Internet Entrepreneurship: Social Capital, human capital, and performance of Internet ventures in China. Research Policy, 36, 605-618.
3. DiMaggio, P., Hargittai, E., Neumn, W. R., & Robinson, J. P. (2001). Social Implications of the Internet. Annual Review of Sociology, 27, 307-336.
4. Ellison, N. B., Steinfield, C., & Lampe, C. (2007). The Benefits of Facebook ‘‘Friends:’’ Social Capital and College Students’ Use of Online Social Network Sites Journal of Computer-Mediated Communication, 12, 1143-1168.
5. Gangadharbatla, H. (2008). Facebook me: collective self-esteem, need to belong, and Internet self-efficacy as predictors of the igenerations’s.Journal of Interactive Advertising, 8(2), 5-15.
6. Groen, A. J. (2005). Knowledge Intensive Entrepreneurship in Networks: Towards a Multi-Level/Multi-Dimensional Approach. Journal of Enterprising Culture, 13(1), 69-88.
7. Groen, A. J., Wakkee, I. A. M., & Weerd-Nederhof, P. C. d. (2008). Managing Tensions in a High-tech Start-up: An Innovation Journey in Social System Perspective. International Small Business Journal, 26(1), 57-81.
8. Katz, J. E., & Rice, R. E. (2002). Project Syntopia: Social Consequences Of Internet Use. IT & Society, 1(1), 166-179.
9. Kirwan, P., Sijde, P. v. d., & Groen, A. J. (2007). Early-stage networking: how entrepreneurs use their social capital to establish and develop high-technology start-ups. In J. Ulijn, D. Drillon & F. Lasch (Eds.),Entrepreneurship, Cooperation and the Firm: The Emergence and Survival of High-Technology Ventures in Europe: Edward Elgar Publishing.
10. Middel, R., Fisscher, O., & Groen, A. (2007). Managing and organising collaborative improvement: a system integrator perspective.International Journal Technology Management, 37(3/4), 221-236.
11. Nie, N. H., & Erbring, L. (2000). Internet and Society: A Preliminary Report: Stanford Institute for the Quantitative Study of Society.
12. Parsons, T. (1964). The Social System. New York: The Free Press.
13. Quan-Haase, A., & Wellman, B. (2002). How does the Internet Affect Social Capital. In M. Huysman & V. Wulf (Eds.), IT and Social Capital.
14. Shao, G. (2008). Understanding the appeal of user-generated media: a uses and gratification perspective. Internet Research, 19(1), 7-25.
15. Wellman, B., Haase, A. Q., Witte, J., & Hampton, K. (2001). Does the Internet Increase, Decrease, or Supplement Social Capital?: Social Networks, Participation, and Community Commitment. American Behavioral Scientist, 45, 436-455.
16. Zook, M. (2005). The Geography of the Internet Industry: venture capital, dot-coms, and local knowledge. Blackwell Publishing Ltd

tagged with: phd, entrepreneurship, social media

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