Edinburgh Napier University

  Much of the research into new firm formation focuses upon the entrepreneur and their characteristics or motivations (Brockhaus & Horwitz, 1986), or the external economic environment (Chandler & Hanks, 1994). However, theories based upon isolated, independent actors operating in a self-contained manner therefore ignore some of the key influences on their behaviour and are thus likely to prove inadequate (Cuevas, 1994:82; Granovetter, 1992). These theories and resulting research largely ignore the wider network of social relationships between the founder and others who influence her/him and their behaviour. These other key actors, such as funders, critical suppliers and the buyers, family, friends, advisers and individuals that serve in leadership or subordinate roles etc. may all have a direct "strategic" influence on the development of the firm (Gartner et al, 1994).
Theoretically, in order to more fully understand the behaviour of individual entrepreneurs or the process of new firm formation, it is necessary to understand their relationships with other organisations and individuals as well as their individual characteristics. Also, empirically these relationships need to be controlled for in any analysis of the factors influencing firms' start-up and success if they do not play a significant role in the process. Social networks consist of those persons that an entrepreneur has direct relations with (called personal networks by Dubini and Aldrich, 1991) and so may include professional advisors. These are, of course, distinct from networking by companies in order to build competitive advantage (McKiernan, 1992; Jarillo, 1993).
This chapter reviews the links between social networks and new business formation, the insights that these links offer for policy development and research questions that they raise. It seeks to complement the work of McNicholl in another chapter of this book. Section two reviews these links within two areas of research: entrepreneurship and regional development. Section three presents empirical evidence that social networks may be significant in new firm formation and explores some methodological issues concerned with developing the analysis of networks. Section four considers the policy implications of social networks research and is followed by the conclusion.