Regional social capital has a significant role to play in helping entrepreneurs set up their own businesses, says Johannes Kleinhempel.
Many people would like to become entrepreneurs, yet few try, and even fewer manage to start a business or become self-employed.
Given that entrepreneurship is such an important driver of innovation, employment, wellbeing, and growth, this has far-reaching consequences. As we consider how business can work as a force for good, it’s clear that understanding the drivers of entrepreneurship is of critical importance, not just from an academic perspective, but also to inform policymaking.
Indeed, why entrepreneurial activity is more common in some contexts than in others is a pressing question for policymakers seeking to encourage entrepreneurship, as well as for managers wishing to promote intrapreneurship and corporate entrepreneurship.
In a recent paper, co-authored with Sjoerd Beugelsdijk and Mariko Klasing, we looked at entrepreneurship as a dynamic four-step process. The first stage is never considering entrepreneurship in the first place, the second is the pre-establishment stage, the third is starting out as a young entrepreneur, and the last is being an established entrepreneur. These stages capture the different underlying ‘situational’ characteristics –such as goals, milestones, needs, and constraints– faced by entrepreneurs that change along the entrepreneurial process. This approach helps expose when bottlenecks arise in the venture creation process.
The entrepreneurial process does not take place in a vacuum but is deeply embedded in its context, such as where a would-be entrepreneur lives. We argue that regional social capital, created through repeated interactions within voluntary associations like sports groups and professional associations, is a particularly important driver of entrepreneurship.
We specifically sought to understand how social capital impacts individuals in their entrepreneurial journey, and the benefits of regional social connectedness. Previous research has already found that regional social capital helps people to gain access to information and resources. Recognising that goals, needs, and constraints change throughout the entrepreneurial process, we argue that the generally positive effect of regional social capital should be largest when individuals who want to become entrepreneurs attempt to mobilise the resources required to launch a venture formally.
Analysis and findings
To test our hypotheses, we analysed the levels of entrepreneurial engagement for more than 22,000 individuals who live in 110 regions across Europe, combined with regional social capital measured as average membership in voluntary associations.
We found that regional social capital positively influences the entrepreneurial process, but to different degrees at different stages of the journey. While regional social capital does not inspire an initial interest in entrepreneurship or help young ventures - once started - survive, it does increase the odds that individuals who want to start a business manage to do so. As such regional social capital mechanisms are most relevant when you are trying to start a business.
Many governments and international organisations support entrepreneurship by providing practical training or making structural adjustments. However, these programmes typically pay less attention to socio-cultural conditions.
Therefore, our findings have potentially important implications for policymakers by highlighting that entrepreneurship is embedded in its socio-cultural context.
Voluntary associations don’t just generate social capital for one’s spare time, they also facilitate entrepreneurship and innovation too. And this can be boosted by fostering membership and participation in such organisations. Fostering bridges between multiple associations, for example by providing physical meeting spaces that can be shared by multiple associations, would further enhance the benefits of voluntary associational membership.
At the same time, policies that negatively influence membership in voluntary associations either directly or indirectly – like cutting funding – can have an unintendedly large negative impact. Short-term savings could be more than offset by the loss of positive spill-overs generated from membership in voluntary associations.
Our study advances our understanding of entrepreneurship as a dynamic process in which the social context exerts a profound and changing influence. This challenges an implicit assumption in comparative entrepreneurship research, namely that contextual factors have a uniform impact on different stages of the venture creation process.
Our research provides fresh insights into how socio-cultural conditions shape entrepreneurship, underlining both the critical importance of regional social capital in entrepreneurship and the changing role of contextual conditions over the course of the entrepreneurial process. We hope that these fresh insights can help inform future policymaking and enable a more entrepreneurial environment going forward.
For further information see: Kleinhempel, J., Beugelsdijk, S., & Klasing, M. J. 2022. The Changing Role of Social Capital During the Venture Creation Process: A Multilevel Study. Entrepreneurship Theory and Practice, 46(2): 297–330.
Johannes Kleinhempel is a Presidential Academic Fellow of Comparative and International Business at Alliance Manchester Business School