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Businesspeople starting out find support from friends and social networks

The more individual social capital people possess, the more effort they will be able to make when it comes to starting their own business. Friends offer support, as do social media acquaintances. Society views businesspeople negatively, and family is often unable to help. Alexander Tatarko, lead researcher at the HSE’s International Scientific-Educational Laboratory for Socio-Cultural Research, recently released a study entitled “Individual Social Capital as a Success Factor in Starting a New Business”

Social capital is one of the most important factors contributing to economic progress. It originates from people’s desire to take initiative, to think, to make an effort, as well as to reach agreements, help one another and create new forms of interaction and new business ventures.

Trust and the benefits it creates are what is most important. Without social capital, which determines the competitiveness of the economic system, it is pointless to talk about innovative development. Until now, the relationship between individual social capital and the activity of individuals in establishing private businesses has hardly been investigated in Russia.

As part of a project called “Value and Economic Behaviour: Testing Explanatory Models in Experiments and Field Studies,” HSE experts have attempted to ascertain the relationship between individual social capital and entrepreneurial behaviour. The results of this research form the basis of Alexander Tatarko's report presented at the HSE.

Social capital creates new business

A. Aizen’s theory of planned behaviour served as the theoretical basis of the study. “We hypothesized that the more individual social capital people possess, the more effort they will be able to make when it comes to starting their own business,” said Tatarko.

The aim of the study was to determine whether social capital truly offers support at the individual level when a person starts a new business. In addition, experts set out to determine which elements of social capital (friends, family, community, social networks and organizations) make the greatest contribution when it comes to carrying out entrepreneurial intentions. As Tatarko explained, “at the macro level social capital refers to trust, which provides favourable conditions for entrepreneurship.”

Although 2,000 people were initially interviewed, the study involved 269 respondents intending to start their own business. Only 12% expressed a desire to try themselves in the role of an entrepreneur, however. Study participants completed a questionnaire to measure individual social capital (questions concerned readiness to help family and friends with different problems, number of friends, frequency of contact with relatives, and involvement in the activities of various organizations), intentions, perceived control, subjective principles, intention to start a business, and current activity required to carry it out. Structural equation modelling was used to test the hypotheses.

The research showed that help from friends and participation in the activity of organizations are the most important factors influencing people’s intention to start their own business.

The results of a repeat survey conducted a year later showed that those respondents, approximately 40% of them, who had high social capital were the ones who started their own business.

Society vs. business

The study’s authors went from the simple to the complex. To start, they asked themselves the question: “There is an intention to start a business. What is needed in order to carry out this intention?” It turned out that two conditions are necessary: external support and confidence. The second depends on the first. In society, support can theoretically be provided to potential entrepreneurs by relatives, friends, society itself (due to positive attitudes towards entrepreneurship in general), and by various organizations. This issue is one of advice on dealing with legal and financial questions, problems of bureaucracy, business organization, as well as relations with the state, partners and employees.

Having analyzed the results of the survey of potential entrepreneurs, the researchers found that individual social capital can be seen as a catalyst for intentions to start a business.

First, respondents intending to start their own business initially have a higher level of individual social capital than the group of respondents who have no such intentions, said Tatarko.

Second, the researchers found that individual social capital indicators influence entrepreneurial intentions and their implementation by means of perceived behavioural control.

Third, among the respondents who intend to start a business, those who have higher levels of social capital are more likely to have followed through on their intentions a year later.

When deciding to become a businessperson, the influence of family and society turned out to be insignificant. According to Tatarko, this can be explained by the “unestablished traditions of entrepreneurship.” “Parents are unable to share their experience in running a business, and subjective social norms are not associated with starting a business. In society, there is no understanding that the entrepreneur is a positive actor. People feel that the environment does not approve of their choice,” he said.

At the same time, it became clear that businesspeople starting out focus on themselves and their friends. Friends are the most important sources of encouragement and support. In addition, entrepreneurs receive motivation to start a business from social networks,“which currently serve as the main support structures for small business,” said Tatarko.

Bureaucracy, corruption, financial problems, and difficulties paying taxes are cited as major obstacles faced by those who start their own business. However, almost 37% of young entrepreneurs said that they did not have any problems when establishing companies.

Those respondents who could not or did not want to start a business explained their reasons as due to a shortage of funds, lack of time, family circumstances and changing goals and priorities in life.

Friends instead of institutions

From the research he has conducted, Tatarko concludes, ”in Russia, social capital can serve as a replacement for official institutions that should ensure successful entrepreneurialism.” In other words, connections replace institutions for the support and protection of private business. This results in a vicious cycle, as “striving to solve problems by means of informal connections hinders the creation of official institutions.”

“Currently in Russia, social networks essentially fill the role of primary support structures for the development of small business. Entrepreneurs starting out receive motivation to run a business from their immediate circles along with the necessary resources and required knowledge and connections,” says Tatarko.

 

February 18, 2014