Entrepreneurs’ networks and the success of start-ups

Abstract

The network success hypothesis assumes a positive relation between the networking activities of founders and their start-up's success. The rationale behind this hypothesis is the theory of socially embedded ties that allow entrepreneurs to get resources cheaper than they could be obtained on markets and to secure resources that would not be available on markets at all, e.g. reputation, customer contacts, etc.This paper clarifies how entrepreneurial network activities can be measured and which indicators exist to quantify start-up success. It then reviews empirical studies on the network success hypothesis. The studies have rarely come up with significant results. This surprising evidence can be explained by large differences in the way that the dependent and the independent variables were defined and by effects of unobserved variables such as the networking expertise of the founders and the entrepreneurs' level of existing know-how in the areas of co-operation and networking ('absorptive capacity'). The major shortcomings of existing network studies are found to be the neglect of different starting conditions, the focus on individual founders' networks instead of multiple networks in start-ups with an entrepreneurial team, and the assumption of a linear causal relation between networking and start-up success. Accordingly, the paper develops a new, extended model for the relation between entrepreneurial networks and start-up success. Finally, we make some suggestions for the further development of entrepreneurial network theory.

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