Building Social and Financial Capital – ENT600 – WCU

“Social capital — the connections and shared values that exist between people and enable cooperation — is the key to entrepreneurial success.” (Cancialosi, 2014).  The “key” to entrepreneurial success?  Wouldn’t establishing and growing financial capital be “key”?  As I read Wasserman’s section regarding building social and financial capital, he leads us down a similar path pointing out that social capital just may be more important to a new start-up company than financial capital alone.  He states, “Social Capital is the durable network of social and professional relationships through which founders can identify and access resources,” and goes on to state that one type of capital can spark a virtuous cycle. “Social capital before founding are able to attract more human capital (co-founders) and financial capital with which to launch the start-up, and to do so more quickly.”

              So, if social capital is more important than financial capital early on in a start-up company, how do we turn that social capital in to financial capital and gain?  Where is the correlation and how do we capitalize on it?  Wasserman and Cancialosi both go on to expand their points to somewhat answer my questions still leaves me looking to correlate it all to my business.  As we are looking to develop our own social capital, we can be a little more strategic and thoughtful as to how we can utilize it in the future.  We will all need varying levels of expertise, talented employees, business mentors, and even investors.  I think we all may have utilized some DIY help from a friend that may save a costly service call.  The social capital in that relationship certainly equated directly to our financial situation.  Social capital though connections can help fill holes and fill gaps on teams and resources as well as give opportunity for financial capital.  Wasserman goes on to give examples and state that “these connections can decrease the amount of financial capital needed ultimately decreasing the time it would take for a start-up to become cash flow positive, decreasing urgency.”  

              Wasserman does state that “Here, as with human capital, youth is often at a disadvantage.”  I am not sure I agree to this point.  I do think that social capital in our youth and younger adults is certainly measured differently.  I quickly think of the popularity contest and the social value that we placed on clothing when I was younger.  However, I also believe that our younger adults have a greater opportunity to form life-long bonds with others that we may struggle with as adults.  Those bonds and friendships can easily be called upon as adults in reconnection for greatly needed social capital.  As adults our professional needs for each other are more upfront and a little more quid pro quo.  I think that sometimes as adults we go to networking events and do not even know that good “networking” is.  When I go to events, I see a lot of people that I feel are professional networkers and never capitalize on meeting each other. 

               So how do we turn social capital into financial capital?  We certainly know that access to financial capital is quite possibly the most important piece to starting our businesses and most certainly will define the health and cash flow of our company for a long period of time even when we do find some success.  Wasserman states that some potential founders “aren’t able to make the leap at all for lack of financial capital” and references a “study” that “found 51.3% of people who had seriously considered becoming entrepreneurs could not do so because they lacked the necessary financial capital.”  I am truly curious to the study that Wasserman is referencing but I do believe that we can accept the statement as directionally correct as to how the access to financial capital early in our start-ups will define the health of our companies for a long period of time. 

              Chris Cancialosi gives us some valuable insight to how we can capitalize on social capital in this Forbes article, “4 Reasons Social Capital Trumps All.” 

1.           It Establishes You as a Leader

              Giving to and supporting others builds trust and establishes your reputation as an upstanding person who is skilled in your field — two qualities that are critical for buyers looking to engage.

2.           It Fosters Reciprocity

After you’ve provided wisdom, support, and connections to others in your network, you can begin to count on those people when you need support.

3.           It Creates Stronger Teams

Social capital doesn’t simply exist external to your organization. You can also build strong, honest, and mutually beneficial relationships within the walls of your company. And by so doing, you make sure you can count on your people to have your back when the time comes.

4.           It’s Natural Networking

traditional networking can be uncomfortable at best and outright torturous at worst. Mark Schaefer is a great example of someone who has fun while building social capital. He used Twitter to completely bypass traditional networking while growing his network online.

              Cancialosi also reminds us that, “The secret (to building social capital) is that the assistance goes both ways in a very organic and healthy way.”  Its always growing and changing and is much more than just who you know.  It’s a give and take but more importantly simple and well intentioned.  To me it is just as important to be a valuable part of someone else’s social capital and to remember that it is a fundamental part of professionalism.  Not everyone can return the same value that I may be able to give them but I will also remember that some people will extend more value to me than I may be able to return also. So I will just keep it simple stupid.

References:

Wasserman, N. (2012). The Founders Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton Univ Pr.

Cancialosi, Chris. (2014). “4 Reasons Social Capital Trumps All.”  Forbes. http://www.forbes.com/sites/chriscancialosi/2014/09/22/4-reasons-social-capital-trumps-all/#7e9784fa6986

4 thoughts on “Building Social and Financial Capital – ENT600 – WCU

  1. Hi Jeramy!!!
    I love how you articulated your points, they certainly got my cogs turning and made me think about some of the issues posed by Wasserman. For example, I certainly think that youth are not at a disadvantage. In our society today, our youth have been exposed to new and innovative methods of communicating, disseminating information, and building their own brands. Many have founded startups themselves and with technological and educational advances, I am sure that these numbers will continue to increase! On the other hand, I must agree that social capital can be far more rewarding than financial capital alone. As the saying goes, “it’s not what you know, but who you know.” In many cases, investors happily shoulder financial burdens to assist founders in getting their startups off the ground, leaving them free to focus on other pressing business matters. Social capital is best since it can lead to far more than just filling necessary holes in a team…it can progress relationships, lead to investments, and future opportunities.

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  2. Jeramy, I thought this blog entry was particularly well written and highly analytical of the concepts and ideas surrounding social and financial capital. I appreciated how you phrased the position that; “Social capital though connections can help fill holes and fill gaps on teams and resources as well as give opportunity for financial capital.” I also thought the DIY reference was right on point. One thing that struck me differently was the idea about the advantage of age. While I see your argument what I think of is correlating age with experience especially in this case related to the social domain.

    I might argue that my networking abilities have always been strong, but as I get older, I believe I negotiate the terms of my social capital more skeptically. I see social capital as a true investment opportunity these days, and with those days being limited by age, I’m careful how much time, energy, or financial I’m willing to engage.

    Great use of secondary source and thanks again for sharing. I am happy to be following your blog.

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  3. I enjoyed reading your post. The tips from the article, “4 Reasons Social Capital Trumps All” that were included in your post are excellent examples of why social capital is important. It is important for entrepreneurs to establish themselves as leaders within their organizations and develop trust within business relationships. The article also speaks to the importance of social media, and how it can be utilized to bypass traditional networking. An online media presence is especially important this day in age, and it is a great way to reach a wider range of people that one may not otherwise meet.

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  4. Hi Jeramy,

    I like the tone you strike with this post. You present logical thoughts, question them and then explain the reasoning the average reader may not think about. I agree with you when you discuss building social capital at networking events and how some professionals don’t fully utilize networking events. When I attend large conferences, I try to find someone(s) sitting alone and just start talking with them. In my current job, it’s great to find someone working at another university as you and has already thought about and solved a problem you may be working on. I also try to collect their business card and write a quick note of what we connected about so when/if I add them on Linkedin I can explain how we knew each other. Like you go on to say, it is these kind of networking events where we can take our social capital and turn it back into human and financial capital. These relationships can help give you advice later when starting your business, join your team or even help provide startup funding. It is easy to see why people putting “Social capital before founding are able to attract more human capital (co-founders) and financial capital with which to launch the start-up, and to do so more quickly.”
    What kind of networking events or interactions do you utilize to build social capital?

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