Entrepreneurial Networks

The literature on small entrepreneurial business networks has substantially increased in volume during the last years. The interest has been driven both from the entrepreneurial side, where businesses interlink rapidly and form network configurations, and from the policy side, where governments have implemented a variety of policies to encourage economic growth through self-employment and to support small businesses. The active positioning of entrepreneurial firms in the business arena coincides with building effective business relationships with customers and suppliers, government bodies and large corporations, or professional bodies and lead clients. This makes small firms embedded in an intricate set of business relationships, connecting local, national, and international partners, government agencies, financial institutions, or consumer and professional associations. Rik Donckels and Johan Lambrecht define entrepreneurial networks as organized systems of relationships with customers, suppliers, and other entrepreneurs, with relatives, external consultants and other agents, or potential partners.

Entrepreneurial and small-business networks usually represent dispersed and heterogeneous networks with fuzzy boundaries and resource-based or role-based division of labor. They are comprised of autonomous agents who are linked to each other via various formal and informal contracts and who design collective strategies and share information. The network is governed by allocation of specific roles to individual members, which are inscribed in contractual relationships. The division of labor in the network stems from the specialization and unique capabilities of individual firms and embodies resource-based input-output dependencies that emerge with the evolution of the network.

The founders of small firms usually learn their business while working at other firms, and many of their contacts evolved from this former employment. Empirical [Page 261]research demonstrates that for over half of all small firms, the most important customer is some large firm either in the region or nationally to which small firms subcontract their services. Such dyadic relationships are the main constituting relationships for entrepreneurial networks.

Bengt Johannisson and Mette Monsted argue that for entrepreneurial firms, running a small business and being self-employed is a way of life and a source of legitimacy that goes beyond rational economic choices and behavior. Small entrepreneurial firms use network relationships primarily to complement their own limited resources.