The Importance of Social & Financial Capital
Social Capital Defined
Noam Wasserman’s, The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup, is a great resource for entrepreneurs. Wasserman (2012) defines social capital as “…the durable network of social and professional relationships through which founders can identify and access resources” (Wasserman, 2012, p. 47). Perhaps being able to access resources is one of the most important components of beginning a new business. After all, resources are needed to create. Whether or not we realize it, we spend our lives building social and professional relationships. We are not living on an island alone. And even if we were, we would still need resources to survive. We would begin searching the island for them! A list would be made and we would begin searching until we marked off the items on the list. We know we cannot live without certain resources and we would either find those resources or die trying. Our lives would depend on it.
Businesses also rely on resources. Social capital is one of them. Focusing on social capital has many important outcomes including the ability to be competitive, to improve business performance, to improve growth, to improve satisfaction with suppliers and employees, and to have a larger reach with consumers (https://balancedachievement.com/areas-of-life/social-capital/). Point blank, paying attention to and building social capital is important especially for new entrepreneurs.
Financial Capital Defined
Social capital is not the only item that should be on our lists. We all know that financial capital is also needed. Financial capital is defined as “…economic resources used by businesses and entrepreneurs to start.” (Building Your Social Capital, 2017, p. 1) The importance of financial capital is easily understood. After all, everyone understands that in order to have a business, one must have the financial capital to start one. Again, the search for resources becomes important.
A Link Between Social and Financial Capital
There is a link between social capital and financial capital. Wasserman (2012) expresses studies have shown that entrepreneurs that have more social capital in the beginning often are able to gain the financial capital they need at a faster pace than those that do not. New entrepreneurs should not neglect the building of social capital, but should realize the importance. Some ways to build social capital include networking and making a point to meet diverse people (https://balancedachievement.com/areas-of-life/social-capital/). Building relationships should be an important priority.
Considering watching the following videos:
The first video highlights the importance of social capital in the lives of everyone. According to the video, those with disabilities were shown to have only 25 social contacts in their lives compared to the average person who has at least 150 connections. From personal experience, I know that the disabled struggle to live full lives; they rely on others to help them and if they do not have others…what is their life like? There are those that are left behind because they do not have the social capital they need. With social capital, life is so much fuller. Now consider how your business is affected by social capital and how much it will struggle without it. It’s worth the time to build social capital. Your business may depend on it.
Social capital and the power of relationships: Al Condeluci at TEDxGrandviewAve
https://www.youtube.com/watch?v=qaBUV2J0ax4
The second video provides four ideas for building more social capital for your business.
4 Steps to Building Social Capital with Dr. Ivan Misnera
https://www.youtube.com/watch?v=9qSwD7RAw1g
References:
Building Your Social Capital. (2017, January 13). Retrieved September 03, 2018, from https://balancedachievement.com/areas-of-life/social-capital/
Condeluci, A. (2014, June 03). TEDxTalks Social capital and the power of relationships: Al Condeluci at TEDxGrandviewAve. Retrieved September 06, 2018, from https://www.youtube.com/watch?v=qaBUV2J0ax4
Misner, I. (2011, November 23). 4 Steps to Building Social Capital with Dr. Ivan Misner®. Retrieved September 06, 2018, from https://www.youtube.com/watch?v=9qSwD7RAw1g
Wasserman, N. (2012). The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, NJ: Princeton University Press.
After research, it seems that social capital can tie all the types of capital together. Having a strong network can bring all the resources needed to acquire both financial and personal capital. If you have a foundation of social capital, it can lead you to success in finding investors, good team members, and suppliers all in one package… Your resources included on your blog are a great addition to supplementing the material, I will be digging deeper! Thank you!
Thank you for your response to my blog post! I agree that social capital is a foundational element for business owners. Having social capital leads to great results.
Kay,
I am a big fan of your posts because of all the additional resources you include such as videos and links to articles. I agree with your point on social capital being one of those necessary resources to a startup’s survival. I read an article about how enough social capital might help to overcome financial shortcomings via investors and other entrepreneurs. I think social capital is a two way street and sometimes we focus only on how we can benefit for relationships. I liked how you mentioned employees and customers as part of one’s social capital which are also very important in an entrepreneur’s network. Overall when it comes to social and financial capital, it’s always better to have it and not need it, than need it and not have it.
Thank you Jose for your positive comments! I was just thinking today social capital is so important that not having social capital could really harm a new venture. Both Financial and social capital are assets for new businesses to have plenty of.
Another great post! I find it interesting how you used the contrast of the number of connections a person with a disability has compared to the number of connections a person without a disability has. In my own life, I have found that to be true. My daughter, who has autism, is an anime artist and she has a very small business selling commissions of her work. The number of contacts she has compared to her other peers is pretty minimal. This makes me wonder how many resources are out there to help people with disabilities build social and financial capital as opposed to resources that are available to people who do not have one.
Thank you for your response to my blog post. I am certain that more needs to be done to help people with disabilities build social and financial capital. People with disabilities have so much to offer! Wonderful to hear about your daughter’s success! Prayers for much growth in her business!
Kay,
Great post this week. Your detailed list on desired outcomes and how social and financial capital impacts these outcomes was very enlightening. I also liked how you referenced our lives as an island, it is filled with things, people. Your point that we can’t/shouldn’t operate alone is spot on. Your post read well and is resourced. I look forward to reading more of your posts!
Good luck with your venture!
Merida
Thank you for your response to my blog post. Most people do not want to be totally alone and as people we do need resources to survive! A business must also have viable resources.
Hi Kay,
As you point out, social capital is so important. Many founders focus too much on financial capital and neglect the power of their social networks in their entrepreneurial endeavors. As an entrepreneur, who you know (and who they know) can be an extraordinarily powerful factor in not only getting a business off the ground but keeping it running well. Thanks for the reminder.
Again, I really love that you add resources to consider in your posts!