S OCIAL I NTERACTION VIA S OCIAL M EDIA IN THE
E FFECTUAL V ENTURE C REATION P ROCESS
Social Interaction via Social Media in the Effectual Venture Creation Process
by
Marten R.A. van Dijk
University of Groningen Faculty of Economics and Business
Master Business Administration, Small Business & Entrepreneurship
Email: martenvandijk@hotmail.com Student number: 1674838
August 2012
Supervisors:
Dr. P.S. Zwart
Dr. C.H.M. Lutz
A BSTRACT
Social media platforms have become more and more important for established businesses
during the last couple of years in particular for marketing purposes. Yet we do not know which
role social media can play for small businesses. The focus of this study is in particular on
whether entrepreneurs do benefit from social media platforms during the venture creation
process. As these platforms are found to be a convenient way to communicate, they were
expected to be valuable tools also for entrepreneurs to communicate with stakeholders during
the venture creation process. Since effectual entrepreneurs were expected to have a high level of
social interaction, the focus was on those entrepreneurs who met the conditions of the
effectuation theory. It then turned out to be that social media are deployed in order to interact
with a wide range of stakeholders, but in particular with fellow entrepreneurs and clients. With
respect to the former, knowledge sharing concerning the entrepreneur’s industry is perceived
highly important. The latter concerns feedback from clients to the entrepreneur’s product or
service. Social media knowledge and expertise and the frequency of interaction were factors
found to moderate the relation between the use of social media for social interaction and start-
up success. Although entrepreneurs do use social media platforms for interaction with
stakeholders, they do not significantly contribute to the start-up success of the effectual
entrepreneur within this research. Apart from exploring whether social media fulfils a role for
entrepreneurs during the venture creation, this study also provides insight in the role of social
interaction in general and the theory of effectuation.
T ABLE OF C ONTENTS
1. INTRODUCTION... 5
2. THEORETICAL FRAMEWORK ... 8
2.1 T HE CONVENTIONAL ENTREPRENEURIAL PROCESS ... 9
2.2 T HE EFFECTUATION THEORY ... 11
2.3 T HE C ONVENTIONAL P ROCESS VERSUS E FFECTUATION T HEORY ... 13
2.4 S OCIAL I NTERACTION VIA S OCIAL M EDIA ... 14
2.4.1 Social Interaction ... 14
2.4.2 Social Media... 19
2.5 S TART - UP S UCCESS ... 23
2.6 T HE C ONCEPTUAL M ODEL ... 24
3. METHODOLOGY... 27
3.1 P ARTICIPANTS ... 28
3.2 O PERATIONALISATION OF THE V ARIABLES ... 29
3.3 I NTERVIEW G UIDE ... 33
3.4 D ATA A NALYSIS ... 33
4. RESULTS... 35
5. DISCUSSION & CONCLUSIONS... 53
5.1 D ISCUSSION ... 53
5.2 C ONCLUSIONS ... 58
6. FUTURE RESEARCH & LIMITATIONS ... 60
6.1 F UTURE R ESEARCH ... 60
6.2 L IMITATIONS ... 61
References... 62
Appendix A – The Interview Guide... 73
1. I NTRODUCTION
The creation of new ventures is a process by which entrepreneurs come to imagine the opportunity for novel ventures, refine their ideas, and, after an initial investment, justify their ventures to relevant others to gain much-needed support and legitimacy (Cornelissen and Clarke, 2010). This conventional process of new venture creation is called by some authors the entrepreneurial process and can roughly be divided into three main parts, the discovery, the exploitation and the entrepreneurial phase (Brixy et al., 2012). While the focus is on start-up success, this research will be aimed mainly on the first two stages of the process. In the discovery phase it is the ability to discover opportunities (Kirzner, 1973) that can be considered as one of the most important skills individuals should posses. Discovering an opportunity however is only the very first step in the process of founding a new venture. If the individual has either discovered or created an opportunity and considers it viable, the venture actually has to be founded. This is the second phase of the process and is known as the exploitation process.
The opportunity discovery phase for most of the entrepreneurs basically never ends. Even after having founded the venture, there will be reason for the business idea to be adapted and expanded (Carter and Jones-Evans, 2006).
For most of the entrepreneurs, however, the process of founding a venture is not as straightforward as it seems to be. The paths in their venture creation process are often unclear.
When the entrepreneur then only has generalized aspiration of building a successful firm while having only limited access to resources, effectuation processes should be considered (Sarasvathy, 2001). The process of venture creation then can be seen as a journey with an unclear destination and without pre-existent goals (Sarasvathy, 2001). In this journey the entrepreneur wonders: ‘Who am I?’, ‘What do I know?’ and ‘Whom do I know?’. The latter question considers then interaction between the entrepreneur and (potential) stakeholders. By starting the venture creation process by identifying a set of possible means as given, the entrepreneur basically uses the logic of effectuation (Sarasvathy, 2008).
Especially during the first two steps in the entrepreneurial process, it is considered
important for the entrepreneur to make the right decisions in order to serve existing and
potential clients with the right products and services (Wickham, 2006). The impact of formal
market information processes has already been proved to have a positive relation with new
venture performance (Parry and Song 2010). Besides, other research has made clear that one of
the most important factors influencing success in new venture creation is the (social) network of
the entrepreneur (Semrau and Werner, 2012). This network is especially important in order to
provide access to needed (mainly financial and human) resources. Regarding to the ‘Whom do I
know’ question in the effectuation theory, the entrepreneur should also become more conscious of people with whom partnerships could be formed. This partnership forming is considered one of the four ‘effectuation principles’ (Read et al., 2009a; Sarasvathy, 2008).
With the appropriate input from potential as well as existing clients but also other stakeholders then, the entrepreneur is probably able to make most suited decisions concerning the question which products and services should be offered and how the firm should be build up most effectively. Furthermore, access to a great quantity of resources is considered as favourable in order to found a new venture (Adler and Kwon, 2002). Moreover Lumpkin et al. (2004) state that even after a venture has been launched, the opportunity is often refined or changed on the basis of the additional learning gained through actual trial and error. According to Bhave (1994) refinements may continue well, even after a business is in existence. A significant way of reaching the best state of the business venture is by having interaction between the entrepreneur’s community, including stakeholders, and the entrepreneur (Hindle, 2010). This can be called social interaction, one of the key elements in the effectuation process. Probably the easiest ways to acquire the opinion of the public using social interaction can be indicated as social media interaction (e.g. Twitter, Facebook, LinkedIn). Social media could be an easy way of both initially getting and also keeping in touch with stakeholders and even broader the entrepreneur’s community (Fischer and Reuber, 2011). Social media are becoming more and more important in society, only Facebook for instance has created an (taken direct and indirect effects together) economic impact of €32 billion in 2011 (Deloitte, 2012). Taking advantage of social media while using effectual strategies would basically provide the entrepreneur the possibility to both co-create his business with his community and to get feedback from this community. Social media are being used then for the benefit of the business venture. On the other hand it could be questioned whether interaction via social media is considered as valuable as face-to-face communication. Online ties for instance are found to be weaker than real-life ties (Gross et al., 2002).
Given the relative newness of the subject under investigation as well as for sampling reasons,
just Internet and ICT related entrepreneurs are taken into account. Considering the previous, it
will be investigated which role interaction via social media plays or could play for entrepreneurs
who use the logic of effectuation in the venture creation process. In order to acquire a thorough
inside in the way social media are used in effectuation based venture creation processes
qualitative research is considered most appropriate, as will be discussed in chapter three. Of
special interest in this research will be the characteristics of the social interaction, rather than
the connection itself. Furthermore it will be examined in which way this tool can be used most effectively in order to contribute to the start-up success of new business ventures. In this inquiry the venture can be indicated as both the entrepreneurial venture, and the small business, as distinguished by Wickham (2006).
Therefore the following research questions are addressed in this study:
(1) Which role does social interaction via social media play for Internet and ICT related entrepreneurs using effectuation theory in the venture creation process? (2) What characteristics do these social interactions have? and (3) Do these interactions via social media
contribute to the venture’s start-up success?
In the first section the existing literature on the conventional entrepreneurial process, the effectual logic view on the venture creation process, the role of social ties in this process and social interaction via social media is discussed. At the end of each paragraph proposition(s) are developed. Then the research methodology used in this study is explained. After which the results of the present research are discussed, followed by a discussion and the conclusion.
Finally, suggestions for further research and the limitations of the research are provided.
2. T HEORETICAL F RAMEWORK
The entrepreneur occupies the central position in the venture creation process. Consequently to start with, the concept ‘entrepreneur’ has to be defined. Despite a lot of research into this subject however, there is still disagreement concerning a definition of the entrepreneur (Stewart and Roth, 2007). Moreover, there are great differences among entrepreneurs (Gartner, 1985). As a result no single agreed-upon definition of the entrepreneur is available. In order to include several kinds of venture creation individuals, in this research the definition of ‘entrepreneur’ is a very general one; namely someone who identifies a need in the market and develops products and services by making decisions about bringing resources together to satisfy that need (Co et al., 2006). It should be noted though that market needs include needs that people are aware of (people are conscious of the need, e.g. a cure for cancer) and needs people do not know they actually exist (unconscious needs, e.g. the invention of Internet).
The focus of this study then is the role interaction via social media plays or could play for entrepreneurs starting a new venture. Especially the theory concerning the effectuation process will be of particular interest here. This effectuation process, introduced by Sarasvathy (2001), can be seen as a distinctive view on the entrepreneurial process. In contrast with the effectuation process Sarasvathy identifies the causation process, indicated as the conventional entrepreneurial process in this study. Main difference between these contrasting perspectives on venture creation processes is the existence of a clear goal. The entrepreneur using an effectuation process only pursues general goals (making money) or sometimes there initially is even no aspiration to start a business at all, whereas the conventional entrepreneur pursues one particular goal (e.g. setting up a snack bar).
As mentioned, the influence of social interaction via social media is central in the present research. Especially the role this form of social interaction could play in the effectuation process will be of considerable interest. Given the fact that entrepreneurs start the effectual venture creation process by wondering whom they know, one of the three main questions in effectual logic, the social network of the entrepreneur is considered key in the effectuation process (Fischer and Reuber, 2011). To date, much of the attention in literature on social networks however is paid only to the existence of social networks, and less on the content of social interactions taking place within these kinds of networks (Fischer and Reuber, 2011).
Particularly, the characteristics of social interactions in the effectual theory of venture creation therefore are of considerable interest.
Social media are then presumed to be the most convenient ways of interaction
nowadays. Therefore those modern ways of communication can be an effective way for the
entrepreneur in the venture creation process to interact with people in his network in order to shape and refine the new venture. Not only existing stakeholders are considered here, but rather any people who are potential stakeholders (including friends, former colleagues etc.) can be taken into consideration (Read et al., 2009b). It will then be examined whether these social interactions can contribute to the start-up success of the firm.
The section will start with the theory relating to the conventional entrepreneurial process. Subsequently the theory concerning the effectuation process will be discussed, followed by a discussion on which of the two distinguishing processes will be of central interest in the present study. Then the extant literature on the role the social network of the entrepreneur could play in the entrepreneurial process and the coherent social interaction via social media in particular is explored and discussed. The moderating variables concerning social interaction via social media are discussed in this part as well. Lastly, start-up success is covered.
2.1 T HE CONVENTIONAL ENTREPRENEURIAL PROCESS
For entrepreneurs, creating a new venture from scratch can take quite a long time, from a couple of months to several years to complete (Carter and Jones-Evans, 2006). During this period, the entrepreneur passes several stages. The whole of these stages can be indicated as the entrepreneurial process (Brixy et al., 2012) or the entrepreneurial journey (Cha and Bae, 2010).
As mentioned in the introduction, this process roughly consists of three stages: the discovery, the exploitation and the entrepreneurial phase. It has to be noted, that in literature no universal model of the entrepreneurial process exists (Haber and Reichel, 2007). Moreover, different stages can take place at the same time.
The first stage of the process consists of discovering or creating entrepreneurial opportunities. According to Shane and Venkataraman (2000) entrepreneurial opportunities exist when there are different believes between the buyer and the seller concerning the value of resources. Although in literature an ongoing discussion takes place whether opportunity formation can be seen as discovery, identification or recognition (Barreto, 2011), only the (considered most general) discovery perspective will be discussed here. In discovery theory opportunities are objective phenomena, awaiting to be recognized by alert individuals (Kirzner, 1973). These opportunities are assumed to arise from exogenous shocks (Alvarez and Barny, 2007). Technological, political and social and demographical changes are examples of these
‘shocks’ (Shane, 2003). To exploit these kinds of opportunities the nascent entrepreneur just has
to discover these existing opportunities and exploit them. Nascent entrepreneur in these sense
refers to the individual who continuously evaluates the merits of the opportunities he pursues
and so can abandon those that lack promise and persist with those that remain attractive (Dimov. 2010). The opportunity here basically consists of recombining resources for the purpose of bringing future goods and services into existence (Venkataraman, 1997). The variety of opportunities can in fact be infinite. In this Kirznerian view people have different access to already existing information, which influences the ‘alertness’ of human beings. People however differ in the way of forming beliefs about using resources in the most efficient way. It has been proved therefore, that some people are more likely to recognize an opportunity than others (Baron and Ansley, 2006). Consequently this former group of people is more likely to set up a new venture. These are then called entrepreneurs and can be distinguished from non- entrepreneurs.
After having discovered an opportunity, the entrepreneur has to decide whether or not he is going to exploit the opportunity. When the entrepreneur believes the opportunity at hand is viable and he consequently decides to exploit the opportunity, the process of venture creation proceeds to the exploitation process. Viability will depend here on the belief of the nascent entrepreneur that the opportunity is both feasible and that he has the right knowledge and skills to found the venture in a successful way (Dimov, 2010). Thus, in this second stage of the entrepreneurial process, the entrepreneur starts putting his idea into action. In this stage for instance resources need to be obtained, products and/or services need to be developed and employees could be hired. Furthermore structures and routines have to be created during this phase in order to recombine resources into products or services of the pursued opportunity.
Acquiring those needed resources in order to pursue the entrepreneurial opportunity by
founding the new venture is considered one of the most important pursuits in this stage. Due to
the fact that obtaining adequate financial capital is contemplated to be key to exploit the
opportunity of the entrepreneur in this stage, most of the time these resources are financial
(Shane, 2003; Roper and Scott, 2009). Though, for most nascent entrepreneurs resources must
be seen broader in this part of the venture creation process. For instance human resources like
specialized skills or knowledge possessed by only certain people (Zhang et al., 2011) and
purchases by early customers (Venkataraman, 1997) are critical resources during the venture
creation process. In literature it is suggested that network ties are key in securing resources
needed in start-ups (Starr and MacMillan, 1990). Subsequently, as mentioned, the entrepreneur
in this stage needs to organise the venture creation process by creating structures and routines in
order to organise the recombination of the acquired resources. This includes both recombining
resources into the product or service of the pursued opportunity and creating the entity that will
undertake the recombinatory activity (Venkataraman, 1997). Although planning has been
proved not contributing to the venture’s ultimate operability (Dimov, 2010), it is for several
reasons still a valuable part of the entire venture creation process for most entrepreneurs. These reasons include resource indication, information communication to others and clarifying goals (Shane, 2003).
The third stage of the entrepreneurial process can be seen as the completion of the venture creation process. The venture here has been created and is starting to operate. This stage basically is the essence of entrepreneurship (De Carolis and Saparito, 2006). This is because during this stage value can be captured from the ‘creative act’ of the entrepreneur (Kao, 1989).
Bhave (1994) considers the first sale as the last step in the physical creation of a venture and consequently as the beginning of the entrepreneurial phase. It has to be noted however, like also Bhave does, that venture creation has an iterative component. The business is therefore being modified and refined continuously.
Thus the conventional entrepreneurial process roughly consists of three sequential stages. In the first one the (nascent) entrepreneur scans the environment looking for an opportunity to pursue. Subsequently after having found an opportunity, if any, the individual decides whether he is going to exploit the opportunity or not. The entrepreneur then arrives in the exploitation stage, in which he actually creates the venture. Acquiring resources and creating structures and routines are considered key in this stage. The process then turns to the entrepreneurial stage. This final phase can be characterised as the essence of entrepreneurship, in which the venture becomes operational and the first sale will be closed.
2.2 T HE EFFECTUATION THEORY
A different approach on the process of new venture creation has been introduced by Sarasvathy (2001) and is called the effectuation theory. According to this view, the entrepreneurial process can be seen as one of chaos. Using this process is likely to be more appropriate when the nascent entrepreneur only has a generalized aspiration, for instance building a successful business or initially has no aspiration of starting a business. Opportunities in this view are co- created by the entrepreneur and a wide range of stakeholders, including first sale customers.
These first sale customers in effectuation theory ideally end up as partners, since extreme
effectuators begin with selecting partners in order to develop a segment definition (Sarasvathy,
2008). Markets are then created rather than found. While the conventional approach (called the
causation theory by Sarasvathy) is about planning, does consist of more or less succeeding
events and is usually static, the effectuation approach is considered a rather emergent strategy of
venture creation. The process consists of flexibility of the entrepreneur, experimentation and
establishing strategic alliances (Chandler et al., 2011). Furthermore, the effectuation approach is
about affordable loss rather than expected returns and controlling an unpredictable future unlike predicting an uncertain one (Sarasvathy, 2001). To continue and considered key, this approach contrasts the conventional view in the way that in the latter, one takes a specific goal as given.
In order to achieve this specific goal, selecting between different means is needed. In contrast, in the effectuation theory these means are assumed to be given, and the focus is on possible effects that can be created with this set of given means (Fischer and Reuber, 2011). So instead of starting with a predetermined effect or a predefined market, the entrepreneur begins by identifying a set of given means (Sarasvathy, 2008). Means at this point can be defined as the primary resources of the entrepreneur. These given set of means can be divided into three categories: The identity of the entrepreneur (e.g. tastes and traits), his knowledge (e.g. education and prior-knowledge) and his social networks (e.g. friends and acquaintances) (Sarasvathy, 2008). In other words, the nascent entrepreneur should respectively wonder: ‘Who am I?’,
‘What do I know?’ and ‘Whom do I know?’ (Sarasvathy, 2001). Next to these primary resources possessed by the entrepreneur, there are resources that are created by actions of the entrepreneur using those primary resources. These acquired resources consequently become assets of the firm (e.g. capital assets). Therefore they can be seen as functions of the primary resources (Sarasvathy and Dew, 2008).
The entrepreneur’s network, including any potential stakeholder, could offer both opportunities and resources to the firm (Read et al., 2009a). Moreover, these potential partnerships established by the entrepreneur, are presumed to bring new means and opportunities for the effectual entrepreneur. The entrepreneur can either apply partnerships in order to build the market of his business venture together with both customers and suppliers, but even with prospective competitors (Sarasvathy and Dew, 2005). Moreover co-creation with a wide variety of stakeholders may be profitable in effectuation processes (Read et al., 2009a).
Effectuation after all is considered mainly stakeholder dependent (Sarasvathy, 2008). Fischer and Reuber (2011) therefore posit that the social interaction element could play a central role in order to establish this range of effectual issues.
Although the process of effectuation entails several benefits, like venture performance (Read, 2009), it is also stressed that effectuation theory, compared to conventional entrepreneurial processes, is not a per se better way of creating ventures (Sarasvathy, 2001).
Mainly when both destinations and paths are unclear, the environment is uncertain and the
entrepreneur only has generalized aspirations, effectuation processes are considered more useful
than conventional processes. Furthermore it has to be noted that effectuation and conventional
processes can intertwine and even occur simultaneously (Sarasvathy, 2001; Read et al., 2009b).
In short the effectuation theory can be seen as an alternative view on the venture creation process. Unlike this conventional process, in effectuation theory no clear goal is drafted during the very first stages of venture creation, no market is defined initially and no rational planning takes place. Instead the entrepreneur takes a set of given means as a starting point of the venture creation process and deals with emergent strategies. Means in this sense relate to the identity, the knowledge base and the (social) network of the entrepreneur, which are then used to find out which effects and opportunities can be formed out of them. In order to form these effects and opportunities social interaction is considered key (Sarasvathy, 2008; Fischer and Reuber, 2011).
2.3 T HE C ONVENTIONAL P ROCESS VERSUS E FFECTUATION T HEORY
In the previous two sections, two distinctive approaches regarding the venture creation have been discussed. Although both approaches end up in a business venture, as became clear, the content of the processes displays some major distinctions. One of the main differences constitutes of the goal the entrepreneur pursues. In the conventional entrepreneurial process the entrepreneur starts with a specific goal and is looking for resources facilitating to reach that goal In the effectuation process however the process starts the other way around by identifying which means the entrepreneur possesses, finding out which resources can be made out of them and subsequently trying to find out what could be formed with these resources. Thus, in the latter one the entrepreneur initially does not display a specific goal. Means in effectuation theory especially refer to the entrepreneur’s own abilities, the knowledge she possesses and the social networks she is part of. While social ties and social interaction are already found to contribute to conventional venture creation processes (e.g. Zhang et al., 2011), in effectuation theory these aspects are considered key constructs (Read et al., 2009a). In particular the second of the four key principles regarding the theory of effectuation, ‘strategic alliances rather than competitive analyses’ (Saravathy, 2001), clearly leads to this conclusion. Social interaction in this sense is used to co-create the business of the entrepreneur, to acquire resources and to receive useful feedback from a wide range of stakeholders.
Considering the importance of social networks and the social interaction that is taking
place within these kinds of networks in effectuation processes, these processes are expected to
be most interesting to examine the role social media plays. Besides, to date only little research
has been done on effectuation theory. Therefore, by studying the utilisation of social media in
venture creation processes through an effectuation lens, a deeper insight in both aspects can be
provided. This leads to the conclusion that effectuation theory will be of central interest in the remainder of this study. The focus will be on social interaction via social media.
2.4 S OCIAL I NTERACTION VIA S OCIAL M EDIA
In this section the literature concerning social interaction via social media is explored. To be able to discuss both social interaction and social media in depth the concepts will be discussed separately. First the role of social interaction in the venture creation process will be covered.
Thereafter three moderating variables that are expected to influence the relationship between social interaction via social media and start-up success of the effectual entrepreneur are discussed. Then the focus is on the role social media can have for entrepreneurs, followed again by a single last moderating variable expected to influence the listed relationship.
2.4.1 S OCIAL I NTERACTION
Social networks can be defined as the structures of both direct and indirect relationships created by people and offer socioeconomic resources to the individual (Lin, 1999). Social interaction then refers to the dissemination of information (e.g. opinions and recommendations) through communication among people (Arndt, 1967), taking place within social networks. Next to using social interaction as a channel of dissemination of information, also resources can flow through these channels (Molina-Morales, 2010). Hsiao et al. (2011) already proved that social interaction on firm level positively relates to organizational performance. The importance of social networks to management in general has been extensively highlighted in literature (Aldrich and Zimmer 1986). In literature though attention has also been paid to social networks with respect to entrepreneurship in particular and will be discussed below.
Social networks and their resulting social capital are found to play an important role in
the entrepreneurial start-up process (Sequiera and Rasheed, 2006; Anderson et al., 2010; Zhang
et al., 2011). Given that at any point of time the knowledge set of the entrepreneur is inadequate
due to knowledge shortcomings and bounded rationality (Shane, 2003), network ties are
considered important to lessen these inadequacies (Sullivan and Marvel, 2011). Especially
recently founded ventures rely on the personal network of the entrepreneur (Semrau and
Sigmund, 2010). With respect to this, it has been proved that successful entrepreneurs,
compared to non-successful entrepreneurs, are engaged in more communication with others
(Duchseneau and Gartner, 1990). For instance, having many network connections facilitates
new venture creation (De Carolis, 2009; Gianetti and Simonov, 2009). Getting access to
external resources is found then to be one of the key functions these social relationships are used for (Lechner et al., 2006). With respect to this, (nascent) entrepreneurs possessing high social capital, based on social networks and social interaction, and social skills are more likely to receive funds from venture capitalists than entrepreneurs with only limited social interaction and social skills (Baron and Markman, 2000). Social capital in this sense refers to the actual and potential resources individuals obtain by being part of a social network and knowing others within this particular network (Nahapiet and Ghoshal, 1998). Moreover, entrepreneurs who efficiently (i.e. quickly, easily and with desired partners) form ties are most likely to be successful in resource acquisition for investment purposes (Hallen and Eisenhardt, 2012).
Elfring and Hulsink (2003) state that social ties can be important in order to mobilise resources at a lower price than market price. In this sense social ties can be used in order to overcome information asymmetries between investors and the entrepreneur which in general constrains the supply of financial resources towards newly established ventures (Berger and Udell, 1998).
In addition, compared to already established firms young and entrepreneurial firms are facing unique challenges in acquiring human resources. Hence, social networks can facilitate getting access to human capital during the start-up phase of the firm (Leung, 2003). It has to be noted that the relation between entrepreneurial performance and the size of the network is considered not linear. A too large network may therefore result in counterproductive outcomes (Watson, 2007).
To continue, network connections have been proved to play a role in the entrepreneur’s view on the opportunity landscape and the likelihood of new venture creation by having impact on the entrepreneur’s illusion of control and risk propensity (De Carolis et al., 2009). Both weak and strong ties can be of considerable importance in this process of opportunity identification (Singh et al., 1999). Social interaction and its social capital was also found to facilitate opportunity recognition processes because of making it possible to discuss business ideas with individuals in the network (Puhakka, 2006). With respect to entrepreneurial opportunity recognition, investing substantial time and energy to secure a connection with the tie enhances entrepreneurial opportunities (Burt, 1992).
Furthermore, social interaction is positively related to innovation capacity (Molina- Morales and Martínez-Fernández, 2010). A great number of social interactions with other firms gives rise to the opportunity to exchange and the opportunity combine resources in the network.
Eventually this will have a positive effect on innovation within the organization. With respect to
the innovation issue, the involvement of customers through social interaction in the value
adding process increases the likelihood of customer satisfaction (Sashi, 2012).
It can be concluded that social networks and its social interactions can be of considerable importance specifically during the venture creation process, but even after this stage. They can play a role in the entrepreneur’s view on opportunities, by for instance discussing certain ideas, lessen knowledge shortcomings and facilitate resource access.
Proposition I: The network of the entrepreneur and its social interactions are still perceived essential in the process of venture creation.
Before turning to the discussion of interaction via social media for business purposes, first three of the four moderating variables are discussed. As shortly mentioned above, three variables concerning social interaction are selected expecting to influence the relationship between the independent variable ‘social interaction via social media’ and the dependent variable ‘start-up success of the effectual entrepreneur’. The variables, ‘relevance of the network’, ‘frequency of interaction’ and ‘intensity of interaction’, are related to the network and its social interaction of the entrepreneur. These variables therefore are discussed in this paragraph concerning social interaction. Given the influence the three variables are expected to have on the relationship between social interaction via social media and the start-up success of the effectual entrepreneur, the variables can be indicated as moderating variables. When a relationships between two variables (‘social interaction via social media’ and ‘start-up success of the effectual entrepreneur’) is expected to depend on third variables (‘relevance of the network’,
‘frequency of interaction’ and ‘intensity of interaction’) these latter after all are called moderating variables.
By combining several extant research papers concerning social interaction, a selection of these moderating variables has been made. In particular the work of Coleman (1988, 1990), Granovetter (1973) and Burt (1992) are relevant in order to select variables having influence on the relation between social interaction and the start-up success of the effectual entrepreneur. The variables ‘relevance of the network’, ‘frequency of interaction’ and ‘intensity of interaction’
will be discussed below.
R
ELEVANCE OF THEN
ETWORKThe social network of the (nascent) entrepreneur and particularly the interaction that is taking
place within this network, resulting in the so called social capital, is considered only valuable
when the network constitutes of relevant players (Zhang, 2010). Making a contribution to the
process of venture creation after all is only possible when the entrepreneur is able to have
interaction with social ties possessing the right knowledge, skills and resources. Besides, ties and partners that complement one another and a mix of strong and weak ties are actually found to contribute to the relevance of the network (Oczan and Eisenhardt, 2009). For instance, research showed that innovation and overall firm performance is improved by having access to the right individual ties (Davis and Eisenhardt, 2011). Moreover, as suggested in literature (Henttonen et al., 2010), a variety in age and education contributes to the diversity of the network of the entrepreneur possibly affecting team performances.
In general, it is argued that many weak ties provide access to a great diversity of information, whereas strong ties are likely to communicate information of only limited value (Granovetter, 1973). A combination of both strong and weak then will contribute mostly to innovative solutions (Rost, 2010). In this sense networks of low strength and high diversity are found to exhibit high levels of creativity (Baer, 2010). Additionally, informal sources like family, friends, acquaintances and customers are found to play a central and even larger role than formal sources like banks and legal professionals in the resource acquirement and opportunity identification processes (Birley, 1985; Bruderl and Preisendorfer, 1998). An optimally structured network, constituting of players with information benefits, provides entrepreneurs with more rewarding opportunities resulting in higher rates of return to their investments (Burt, 1992). According to Burt (1992) information benefits occur in three forms:
access (referring to receiving a valuable piece of information), timing (referring to being informed earlier than other people) and referrals (referring to the situation that opportunities are presented to a person as a result of referrals).
Considering the previous, the network of the entrepreneur is considered relevant when actors possess appropriate knowledge, skills and resources. Furthermore the actors in the network should be diverse and complement one another. At last the network of the entrepreneur should ideally consist of players with information benefits. It is expected then that the relevancy of ties in the network of the entrepreneur will positively relate to the start-up success of the effectual entrepreneur.
Proposition II: The more relevant the social media network(s) of the entrepreneur, the stronger
the relationship ‘social interaction via social media’ – ‘start-up success of the
effectual entrepreneur’.
F
REQUENCY OFI
NTERACTIONNext to the relevance of the social network of the entrepreneur another aspect is considered relevant in order to contribute to relation between social interaction via social media and effectual start-up success. This aspect concerns the frequency of interaction with ties within the network of the entrepreneur. This refers to the number of interactions taking place between the entrepreneur and the network member. It has been found that closed social networks stimulate continuity, smoothen interactions and consequently members have, compared to sparse networks, lots of interaction (Coleman, 1990). Closed networks can be defined as networks in which everyone is connected such that no one can escape the notice of others, basically those networks can be indicated dense networks (Lin et al., 2001). Networks possessing these characteristics therefore facilitate the frequency of interaction taking place within the social network of the entrepreneur, which positively affects the access to information. Granovetter (1973) in this sense states that the amount of time invested in the social tie and the social interaction influences the nature of the social interaction. Several researchers already showed that relational strength between team members is strongly related to the frequency of interaction, subsequently enhancing the level of innovation within a firm (Reagans and Zuckerman, 2001; Smith et al., 2005).
It can be concluded that frequency of interaction refers to the number of interactions taking place between the entrepreneur and his social ties. Research shows that frequency of interaction is directly related to the closeness of the network, the relational strength and the amount of time invested in interaction with social ties. Given the fact that in effectuation processes social interactions are considered of particular importance, it is expected that the number of interaction between the entrepreneur and his network members is high in effectual venture creation processes.
Proposition III: The more frequently the entrepreneur interacts with members out of his social media network, the stronger the relationship ‘social interaction via social media’ – ‘start-up success of the effectual entrepreneur’.
I
NTENSITY OFI
NTERACTIONRelated to the frequency of interaction, variety exists in the intensity of the interaction taking
place between the entrepreneur and the network member. In order to define the intensity of
interaction a link with Granovetter’s (1973) ‘strength of ties’ theory is made. Intensity of
interaction is a combination of the emotional intensity, the intimacy and the reciprocal services that characterize the tie and the coherent interaction between the social tie and the entrepreneur.
Furthermore ‘relational embeddedness’ is considered relevant in order to determine the intensity of interaction between the entrepreneur and the social tie. ‘Relational embededdness’ refers to the kind of personal relationships people have developed with each other through history of interactions (Granovetter, 1992). According to this theory behaviour in relationships is influenced by the degree of friendship and respect people demonstrate in their relationship (Nahapiet and Ghoshal, 1998). These two aspects contribute to the degree of intensity of interaction people perceive to have in their relationships. In addition Coleman (1988, 1990) states that the closure of networks is important in order to create intensity in the social interaction. According to Coleman (1990) in his ‘closed networks’ theory, trustworthiness within the relationship also contributes to interaction intensity. According to the Coleman theory the intensity of interaction heightens when this particular norm is present.
In sum, several factors are found to measure the level of intensity in the interaction between social ties in general. Inter alia the amount of time, emotional intensity and the degree of respect contribute to the intensity of interaction. To continue, trustworthiness is found to influence the intensity of interaction as well. Regarding the central role social ties and the interaction with these ties play in effectual venture creation theory, having only superficial interaction with social ties in the network is expected to be insufficient in order to benefit the entrepreneur in the effectuation process. Therefore the intensity of interaction between the entrepreneur and members of his network is expected to be high in order to contribute to the start-up success of the effectual entrepreneur.
Proposition IV: The more intense the interaction between the entrepreneur and his social tie, the stronger the relationship ‘social interaction via social media’ – ‘start-up success of the effectual entrepreneur’.
2.4.2 S OCIAL M EDIA
The advent of Internet has radically changed the way people communicate and work (Soares et al., 2012). Especially social media have been contributed to this change in communication.
Companies never before have been able to get so close to their customers by using social media
(Woodcock et al., 2011). Social media is considered the collective term of several different
online platforms. Examples of social media are Facebook, Twitter and LinkedIn, but also
weblogs are considered as social media. Online social media sites have become among the most
popular sites on the Internet (Soares et al., 2012). These new media are found to have a significant economic impact on global economies already. Facebook for instance made a €32 billion contribution on EU economies only in the year 2011 (Deloitte, 2012). To date, the vast majority of literature concerning social media use in business practice has been on social media as a marketing tool. Using social media in the right way for instance has been proved to be effective in the advertising industry (Taylor et al., 2011), and can play an important role in the new-product diffusion process (Katona et al., 2011). Using social media for these kind of marketing and advertising purposes have been of growing interest over the last few years and is expected to grow in the upcoming years (Kozinets et al., 2010).
Apart from using social media as a marketing and more specific advertising tool, this new media tool and its inherent online ties entails some other practices. Among several other issues, social media can be relevant regarding information diffusion (Hong, 2012). More specific, online social ties have been found to be important in order to share knowledge (Suh and Shin, 2010). This study argues that social media and its online social ties, in addition to offline ties, can be of considerable contribution to knowledge sharing. Relating the principle of knowledge sharing to effectual venture creation processes, virtual co-creation emerges. This concept is of special interest in effectuation theory (Sarasvathy, 2008). Co-creation can be indicated as the process in which consumers fulfil an active role and co-create value together with the venture (Prahalad and Ramaswamy, 2004). Virtual worlds (including social media) are then found to be able to help leveraging a firm’s co-creation initiatives and involved consumers sense they actively contribute to the new product development of the firm (Kohler et al., 2011;
Füller et al., 2009). Customer input and sharing experiences via social media are considered most important in this sense (Tikkanen et al., 2009). Consulting the online community in order to assist in product development is found to shorten the development cycle (Ang, 2011).
With respect to this role of social media, it allows sellers to establish a continuing dialogue with its customers, learn from them and building relationships with them (Sawhney et al., 2005; Kwon and Sung, 2011). Many companies have already been using social media in order to receive direct feedback from consumers (Patterson, 2012). Online consumer reviews on both social media websites and its own website for instance has led Samsung to modify speaker’s position on its TVs (Klassen, 2009). Firms, moreover, can also benefit from social media platforms by using it for market research (Ang, 2011). Facebook for instance is expected to greatly benefit to acquiring a better understanding of customer’s attitudes, intentions and opinions (Casteleyn et al., 2009). Furthermore social media can have significant impact on the reputation of a firm, its sales and eventually survival (Kietzmann et al., 2011; Ramsay, 2010).
To continue, research has shown that Internet in general (including e-mail, Instant messaging
and social networks) can be considered as a convenient and efficient way of both maintaining existing social ties and creating new social ties (Pénard and Poussing, 2010). Furthermore as a result of the convenience in using it as a tool in order to build and maintain social relationships (Valkenburg and Peter, 2009; Pénard and Poussing, 2010), social media are expected to contribute to both the frequency and the intensity of interaction between the entrepreneur and the social tie in the network of the entrepreneur. Because of the ease of use and the possibility of reaching a great range of people, Twitter for instance has been found to offer entrepreneurs new insights about the resources that are available and the way these resources are used in the beneficial way (Fischer and Reuber, 2011).
It can be concluded therefore that given the still growing popularity and number of users of social networks (Taylor et al., 2011) and possibility to address a wide range of stakeholders and building relationships with them, social media could probably also be beneficial for entrepreneurs in the effectual process of venture creation. Social media are expected to facilitate market research for the entrepreneur in the venture creation process as well, while a better and easier to acquire understanding of customers is enabled. Furthermore the ease of receiving feedback and the impact social media already has on business life, particularly the contribution it could have on knowledge sharing and coherent co-creation, this means of interaction is expected to be suited in order to benefit to the entrepreneurial process of the effectual entrepreneur.
Proposition V: The more the entrepreneur deploys social media in order to interact with his stakeholders, the more start-up success the effectual entrepreneur perceives.
In addition to the three moderating variables discussed above, another variable has been selected expecting to influence the relation between the independent variable ‘social interaction via social media’ and the dependent variable ‘start-up success of the effectual entrepreneur’
namely ‘social media knowledge and expertise’. This moderating variable is related to the use
of social media for interaction with ties in the network of the entrepreneur and therefore will be
discussed below. Combining extant research papers concerning social media has again
contributed to the selection of the variable. Especially the work of Kietzmann (2011) is
considered to be important in this sense.
S
OCIALM
EDIAK
NOWLEDGE ANDE
XPERTISEAlthough social media has been found to hold potential as a tool for reaching and interacting with consumers and other stakeholders, it can only be valuable if utilised in the correct manner (Diffley et al., 2011). Given the fact that social media have been coming in vogue since only a few years and not everyone uses it on the same frequent basis, people (and firms) have different expertise in the field of social media (Kietzmann, 2011). This different expertise could result in different ways social media is used by the entrepreneur in the venture creation process and consequently resulting in disparities in the value created with social media. Using the tool in an effective way in strategic marketing for instance is found to affect the results that could be reached with it (Berthon et al., 2012). Lack of knowledge on etiquette concerning the use of social media for business purposes for instance could seriously hurt the business (Ramsay, 2010). Furthermore, by not using it in the correct way, the potential of social media as a tool for engaging consumers could be strongly diminished (Diffley et al., 2011). Over- commercialisation is considered one of the particular dangers for using social media for business purposes. Knowledge and expertise could be measured by several factors. Firstly, the period of time the entrepreneur has been using social media (especially for business purposes).
To continue the intensity he uses it and lastly the degree to which the entrepreneur considers him selves as an expert in the field of social media.
Considering the above, it can be concluded that the extent to which the entrepreneur has expertise and knowledge on how to use social media could seriously influence the outcomes of social media utilisation for business purposes. Especially following the social media etiquette and demonstrating a low degree of commercialization are found to be important indicators in order to contribute to the effectiveness of using social media for stakeholder dialogues. It is expected that the more knowledge and expertise the entrepreneur has on using social media, especially concerning the listed issues, the more he will be able to use it in fruitful way in order to contribute to the start-up success of the effectual entrepreneur.
Proposition VI: The more knowledge and expertise the entrepreneur possesses in the field of social media, the stronger the relationship ‘social interaction via social media’ –
‘start-up success of the effectual entrepreneur’.
2.5 S TART - UP S UCCESS
To test whether using social media during the effectuation process affects the start-up success, the success of the newly established business venture has to be determined. In order to succeed, it has to be clearly defined what is meant by start-up success en how the concept is measured.
There are however very different ways of defining the concept success (Witt, 2004).
Furthermore especially new venture performance research entails several challenges (Chandler and Hanks, 1993), for instance lack of comparability (Kunkel and Hofer, 1991). Due to the fact that in general entrepreneurs are not likely to disclose growth rates, turnover, profit and so on (Murphy et al., 1996), it is hard to measure start-up success both very precise and objectively.
Two of the most suited possibilities of measuring start-up success are discussed below. In order to come to a proper determination of start-up success a combination of both approaches will be made.
The first possibility of success measure concerns the completion of the idea and the idea phase. The entrepreneur and its venture are considered to be successful if the entrepreneur has moved his initial general idea into a real business venture. The ability of the entrepreneur to move from the first stage (opportunity) to the next (setting up a business) is considered to be the success. New venture success is measured related to the entrepreneurial stage the business is in.
A second possibility relates to a more subjective evaluation concerning start-up success by the entrepreneur (Chandler and Hanks, 1993). So in this sense the entrepreneur is asked about his opinion concerning the success of the business venture he created or is creating. A major drawback of this approach is the lack of objective criteria. Individual expectations of the entrepreneur affect the performance perception of the firm to a large extent. Given the restrictions imposed by objective measures, this particular way of measuring new venture success nonetheless is considered appropriate (e.g. Cooper, 1984).
To recap, start-up success is considered hard to measure. Two ways of determining
start-up success however are found to be suited in the present research. The first one is a more
or less objective approach, in which the entrepreneurial stage of the business is taken into
consideration. In the second approach a more subjective approach is taken, by relying on
judgements of the entrepreneur. As mentioned a combination of the two approaches will be
taken.
2.6 T HE C ONCEPTUAL M ODEL
Taken into consideration the literature discussed in the theoretical framework and the expected
relations, a conceptual model can be drawn now. In the model, depicted in figure 1, the
relationship between ‘social interaction via social media’ and the ‘start-up success of the
effectual entrepreneur’ is displayed. Additionally several issues (the moderating variables)
expected to influence the relationship between ‘social interaction via social media’ and the
effect it has on start-up success of the effectual entrepreneur are depicted. In this section an
explanation of the model and expectations regarding the different variables are given. Chapter
three then discusses the operationalisations of the variables, including the process of specifying
what particular factors will be used in order to measure the variables (Adler and Clark, 2011), is
discussed.
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Relevance of the Network(12 p.) - Presence of knowledge, skills and resources (1-4 p.) - Level of diversity (1-4 p.) - Players possessing information benefits (1-4 p.)Social Interaction (12 p.)- Number of people involved in the venture creation process (1-3:2 p., 4-6:4 p., >6:6 p.) - Importance of the contributions thesepeople made to the process (1-6 p.)
Frequency of Interaction(12 p.)
- Invested amount of time in hours per week (<2:2 p.; 2-4:4 p.; >4:6 p.) - Closeness of the network (1-6 p.) Social Media Knowledge and Expertise (12 p.)- Number of years using social media (<1:1 p., 1-3:2 p., 3-5:5 p., >5:4 p.) - Considering himself as an expert (1-4 p.) - Degree of education (1-4 p.) Start-up Success of the Effectual Entrepreneur (12 p.)
- Entrepreneurial stage of the business(Firm ceased: 0 p.; discovery phase: 2p.; start-up phase: 4 p.; growing-phase: 6 p.; mature phase: 8 p.) - Opinion of the entrepreneur (1-4 p.) Intensity of Interaction (12p.)
- Degree of friendship (1-4 p.) - Degree of mutual respect (1-4 p.) - Degree of trustworthiness (1-4 p.)
Social Media (12 p.) - Degree to which social media is used for customer feedback (1-4 p.)
- Degree to which social media is used for market research (1-4 p.)
- Number of platforms used (1-2:1 p., 3-4:2 p., 4-5:3 p., >5:4 p.)
