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Social networks across the

SME organizational lifecycle
James W. Peltier and G.M. Naidu

56

Department of Marketing, University of Wisconsin-Whitewater, Whitewater,

Wisconsin, USA
Abstract
Purpose The purpose of this paper is to investigate how social networks evolve as small business
enterprises transition across the organizational lifecycle. It aims to give attention to how social
identities of small business owners impact social networks and whether social networks improve
organizational performance in small firms.
Design/methodology/approach A sample of small to medium-sized enterprise (SME) owners
employing less than 500 employees was drawn from the local directory of businesses in two Indian
cities. A total of 297 SME owners participated in the study, for a response rate of 85.6 percent.
Findings The findings show that social networks for small businesses change as firms transition
from startup to growth and beyond. Personal networks were most important during startup, with
other social networks growing in contact frequency and importance over time. The findings also show
that small business owners can be classified along network preferences and that social networks lead
superior performance.
Research limitations/implications The study focused on a limited set of performance indices.
Future research should assess a wider set of organizational metrics and should investigate granular
aspects of transitional networks.
Practical implications The findings suggest that small business owners cannot adhere to the
status quo and must instead be willing to change business practices as their organizations evolve
across the organizational lifecycle.
Originality/value The study provides evidence that small business owners use different types of
social networks and that the range and value of the strategic advice that they receive differ as their
organization unfolds over time. The research contributes to the literature by showing that social
networks and entrepreneurial learning practices are not static, and instead must be viewed in terms of
dynamic decision making needs and processes.
Keywords Social networks, Social identities, Entrepreneurs, Small business owners,
Organizational lifecycle, Performance, Small to medium-sized enterprises
Paper type Research paper

Journal of Small Business and

Enterprise Development
Vol. 19 No. 1, 2012
pp. 56-73
q Emerald Group Publishing Limited
1462-6004
DOI 10.1108/14626001211196406

Introduction
There is a growing consensus that forming, nurturing, and managing internal and
external relational networks are critical to the success of innovative and small business
ventures (Jones and Holt, 2008; Ngugi et al., 2010; Street and Cameron, 2007). Broadly
defined, relational networks represent the aggregation of all interactions through
membership in formal organizations and relational encounters entrepreneurs create
and nurture with suppliers, distributors, consultants and customers, or any of a wide
range of other social contacts, including friends, family, and acquaintances (Dodd and
Patra, 2002). Through cooperative interactions with varied types of social network
members, small businesses place themselves in a better position to develop effective
strategies and tactics needed for thriving in an ever-changing global landscape (Lee
and Jones, 2008; Molina-Morales and Martnez-Fernandez, 2010). Combined, social

networks are valuable components of entrepreneurial learning and can enhance the
success of small businesses through the creation of organizational assets in the form of
human, market, financial, and technological capital (Fuller-Love and Thomas, 2004;
Jack et al., 2008)
Although social networking is receiving increased attention in the small business
and entrepreneurship literature, major shortcomings exist with regard to the
transitional nature of entrepreneurial learning networks over time (Hampton et al.,
2009; Littunen and Niittykangas, 2010; Zhang et al., 2008). Virtually silent is research
that examines the evolutionary nature of social networks in terms of their importance
and contact frequency across the organization lifecycle, and specifically from start-up
and/or acquisition through growth (Elfring and Hulsink, 2007; Klyver, 2008; Xu et al.,
2008). A greater understanding of these networking needs will extend the literature by
highlighting how effective small business are at transitioning from launch to growth,
and how social networks may benefit this transition (Hampton et al., 2009; Hite, 2005;
Lechner and Dowling, 2003).
Also of significance, research is increasingly questioning whether entrepreneurs
have social identities (Watson, 2009) and whether these social orientations impact the
frequency and effectiveness of different types of social network relationships (Shaw,
2006). Although a steady stream of research has emerged on the personality
characteristics of entrepreneurs, relatively unexplored is the extent to which an
entrepreneurs social orientation moderates the degree of information sharing that
exists within and across SMEs (Bowey and Easton, 2007) and the extent to which small
businesses seek input from associates within and external to their organization
(MacDonald et al., 2007; Molina-Morales and Martnez-Fernandez, 2010). Given the
gaps in the social networking and entrepreneurship literature, four research questions
have emerged:
(1) How do social networks and entrepreneurial learning mechanisms evolve as
small business enterprises transition from start-up/acquisition to growth?
(2) Do small business owners differ in their configurations of social identities?
(3) How do the social identities of small business owners impact social networks?
(4) Do social networks improve profitability and organizational performance in
small firms?
Research framework: social network theory
The social network approach to asset creation is founded on the principle that the
relationships entrepreneurs have with others is a key resource for creating and
building business ventures (Aldrich et al., 1987; Carsrud and Johnson, 1989). Structural
social capital helps entrepreneurs access information, knowledge, resources and
financing by participating in networks rich in structural holes (Casson and Della
Giusta, 2007). Although not meant to be exhaustive, social networks have been
described in terms of three types of relational interactions (see Johannisson, 1995). The
first are exchange networks, made up of an organizations set of commercial
relationships, most notably associated with vendors and customers. Communication
networks encompass the set of organizations and individuals from which the
entrepreneur could receive support in terms of business contacts and knowledge
needed for making sound business and financial decisions and could include

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consulting firms, financial advisors, trade associations, and other sources of expertise
(Klyver, 2008; Palakshappa and Gordon, 2007). Lastly, personal networks may exist in
the form of ongoing communications with family members, relatives, friends and
acquaintances. Exchange and communication relationships can be viewed as
formal/external networks, while family and personal relationships can be
conceptualized as informal/internal networks (Mackinnon et al., 2004; Sequeira et al.,
2007). Although in the current research we conceptualize social assets in terms of
exchange, communication and personal networks, social networks often have fuzzy
and overlapping boundaries with varying degrees of multi-plexity, leading to
continuous rather than a finite number of relationships, all of which could run in
multiple directions and encompass different qualities and values (Mitchell, 1969).
Traditionally, social network theory has been applied to entrepreneurial
organizations in two ways to illustrate that an entrepreneurs social network of
contacts allows access to resources that are not possessed internally, and to
demonstrate that relational networks enhance economic exchange (Anderson and Jack,
2002). When a network relationship is entrenched within a social relationship and
directly impacts an entrepreneurs decision making process, the linkage is deemed to
be relationally embedded (Uzzi, 1996). As Staber and Aldrich (1995) state,
sociologists now take as axiomatic the proposition that economic action, including
entrepreneurial behaviour, is embedded in interpersonal social networks (p. 442).
Granovetter (1985) argues that all relationships are socially embedded and that the
degree of embeddedness has a direct and positive impact on economic actions and
performance.
Research hypotheses
Social network theory and business transitions
Research on the transitional and temporal nature of relational networks is scarce ( Jack
et al., 2008). Transitional networking can be framed in part on the notion of network
culling (Larson and Starr, 1993), which has been conceptualized as an iterative process
involving the exploration, evaluation and selection of network partners. This culling
process underscores the dynamic nature of social networks, and particularly with
regard to the evolution of ones network over time as new relationships are added, as
some are dropped, and some modified (Bowey and Easton, 2007). This temporal
evolution of networks and network ties has important ramifications for understanding
innovative decision making involving opportunity assessment, resource utilization,
and the governance of launching, growing, and maintaining small firms (Miller et al.,
2007). In some instances, network relationships create organizational assets often
referred to as social capital (Burt, 1992). Social capital is amassed when entities in the
network establish relationships, relationships that build trust and expectations of
fairness and reciprocity (Grabher, 1993; Granovetter, 1985). The empirical and
theoretical treatment of business networking has paid little attention to understanding
how complex sociological ties or attachments develop among small businesses or
within small communities where an increasing number of businesses fail (Cope et al.,
2007).
The creation, modification, and elimination of social networks over time are
important areas of inquiry (Bowey and Easton, 2007). Hite and Hesterly (2001) contend
that emerging firms might rely more heavily on close, relationally embedded ties

(personal networks) early on in their organizational lifecycle. This reliance on closely

embedded relational networks might be traced in part to higher levels of trust
associated with these informational exchange partners (Mackinnon et al., 2004). Family
and friends might thus have their most important impact during the planning stages of
a potential venture (Greve and Salaff, 2003). Later, as the business transitions into a
growth mode and beyond, the entrepreneur might be more inclined to extend the range
and depth of its relational linkages in the form of exchange (vendor and customer
research) and communication (consultants, financial advisors, trade associations, etc.)
networks (see Hite and Hesterly, 2001). As a consequence, the characteristics of
network ties may change and these changes may affect opportunity discovery,
resource access and mobilization (e.g. Hite, 2003; Uzzi and Gillespie, 2002). For
example, Larson and Starr (1993) examined the evolution of network ties in emerging
firms and suggested that even newly established work related ties may evolve to
become more relationally-embedded over time as social exchanges are layered over the
business relationship, thus increasing the influence of the tie on the firm (Granovetter,
1985; Uzzi, 1996; Uzzi and Gillespie, 2002). Likewise, Lechner and Dowling (2003) found
that the mix of networks evolve as firms develop, with the relative importance of more
personal social networks decreasing over time in favor of more external relationships.
Logically, the preceding discussion suggests that a small business owners social
identity is not necessarily static and might evolve as the organization proceeds through
the organizational life-cycle. This is consistent with Halls (2002) identity-change
process model that implies that an entrepreneurs social identity might be altered over
time as organizational goals change along with the effort needed to succeed in dynamic
and competitive markets. As such, as the decision situation changes so too can an
individuals social identity in response to the changing context in which these decisions
are made (Tajfel and Turner, 1986). There is some expectation that although relative
importance might deviate over time, entrepreneurs with a greater family- and/or
personally-based orientation will utilize personal and family-oriented networks more
across all stages of the organizational life-cycle and those with a more external
orientation will always form relationships with exchange and communication social
networks (Greve and Salaff, 2003).
Based on this review, we posit the following:
H1. Advice from personal networks (family and friends) will be the most used
social network during the start-up stage of the organizational lifecycle.
H2. Advice from personal networks (family and friends) will have the highest
perceived value during the start-up stage of the organizational cycle.
H3. The frequency advantage of advice received from personal networks (family
and friends) over other types of social networks will decrease from the
start-up to the on-going stage of the organizational life-cycle.
H4. The value advantage of advice received from personal networks (family and
friends) over other types of social networks will decrease from the start-up to
the on-going stage of the organizational life-cycle.
H5. The frequency of advice and value of advice received from exchange
networks (customers and suppliers) will increase from the start-up to the
on-going stage of the organizational life-cycle.

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H6. The frequency of advice and value of advice received from communication
networks (consultants, financial advisors, competitors) will increase from the
start-up to the on-going stage of the organizational life-cycle.
H7. The frequency and value of advice received from personal networks
(family/friends) will decrease from the start-up to the on-going stage of the
organizational life-cycle.
Social network theory and social identities
Consistent with emerging research by Down (2006), and Peltier et al. (2009, 2012),
entrepreneurs self-identity is expected to play a role in the internal and external
orientation that they take in making business decisions. Hite (2003) contends that the
nature, scope and importance of relationally embedded linkages for solving business
problems may differ based on the interpersonal characteristics of an entrepreneur and
the social setting in which the interactions take place. In this way, the type of social
identity employed by an entrepreneur may play a major role in impacting opportunity
discovery and resource mobilization (Hite, 2005; Larson and Starr, 1993). Moreover, the
interdependence of individuals and groups in the social network and that these social
members share common goals are expected to be key aspects of external social
identities (Ellemers and Bos, 1998).
Watson (2009) contends that an entrepreneurs social identity will impact the degree
and value of information seeking and sharing (MacDonald et al., 2007). Pertinent to
social networks, information access comes from multiple sources, including past
experience, customers and competitors, and other players in the social environment.
Information accessibility and fit thus determine which social groups (if any) become
salient and thus influence the frequency and value of that information and the extent to
which ones social identity is impacted (Ullrich et al., 2007). As such, a key ingredient
for capturing social identities is the ability to categorize small business owners with
regard to their preferences for varied network relationships, and specifically, exchange
networks, communication networks, and personal networks (Sequeira et al., 2007).
Importantly, the information access process undertaken is thus a function of whether
small business owners define themselves in terms of a more personal or social identity,
and when an external social identity is prevalent, which type of social network serves
to guide behaviour (Haslam et al., 2003).
H8. A family/personal-oriented social identity will result in greater use and
perceived value of personal networks at all stages of the life-cycle; and an
external-focused social identity will result in greater use and perceived value
of exchange and communication networks at all stages of the life-cycle.
Social identities, entrepreneurial learning and economic performance
Despite the increasing consensus that entrepreneurs and small businesses must form
networks to survive, relatively few empirical studies have investigated the link
between an entrepreneurs social identity and firm performance (Watson, 2009).
Granovetter (1992) argues that socially embedded relations are also closely linked to
productivity and economic performance vis-a`-vis the ability to make better decisions
through information sharing and tactic knowledge exchange, and particularly in
decision environments containing high levels of task complexity and uncertainty. We

argue that regardless of the social identity type in which entrepreneurs fall, social
entrepreneurs will outperform non-social entrepreneurs. Linking back to the notion
of social capital, Casson and Della Giusta (2007) contend that the capitalized value
of social networks contribute to future economic performance, a view supported by
Molina-Morales and Martnez-Fernandez (2010) and Zhang and Fung (2006).
(1) H9. Firms operated by small business owners characterized as having a
stronger internal or external social identity will outperform firms operated by
individuals with a weaker social identity.
Methods
Sample
Respondents were selected from the local directory of businesses and chosen to
participate by a systematic random sample of firms employing less than 500
employees (most were much smaller than 500). Some completed the survey while the
interviewer awaited but the majority of the respondents asked the surveyor to come
and pick it up one or two days later. The interviewers were female faculty from local
educational institutions, which had a great impact on the willingness to participate in
the study. A total of 312 questionnaires were returned. Given this face-to-face data
collection approach and that the sponsoring universities were identified, nearly all of
the surveys had complete data. Of the 312 returns, 15 were removed because of missing
data pertaining to the performance measures, for a final response rate of 85.6 percent.
The profile of respondents is provided in Table I.
Measurements
To generate insight into social network usage, we asked the small business owners to
indicate their level of Contact Frequency (five-point scale: never, once in a while,
sometimes, frequently, very frequently) and Value of Information Received from these
contacts (five-point scale: no value, slightly valuable, some value, valuable, very
valuable) for the three types of Social Networks (personal network family/friends;
exchange network current/potential customers, suppliers; and communication
network business/financial consultants, non-competing businesses, competing
businesses) at two points in time along the organizational life-cycle (start-up/planning
stage and current/ongoing strategic planning stage).
To assess social identity, respondents indicated their level of agreement (five-point
scale: strongly disagree to strongly agree) with 28 statements, which were then used to
cluster respondents to serve as independent variables for H8 and H9 (see Table II).
Using a five-point comparative scale (inferior to competition, below average, average,
above average, superior to competition), four Comparative Firm Performance
Measures were also collected (sales growth, market share growth, profit growth, and
overall success of business).
Cluster analysis
We were also interested in determining whether the social identity of the respondents
impacted the frequency and value of the advice they receive from personal, exchange,
and communication networks (H8). To test H8 we first conducted a K-means cluster
analysis utilizing the 28 question instrument measuring respondents perceptions of
different types of social networks and how they apply to their business/themselves.

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Table I.
Profile of respondents

Characteristic

Profile (%)

How business started

Start-up
Acquired from family
Acquired externally

72.3
22.7
5.0

When business was started

Within ten years
11-15 years
15 years

51.6
25.8
22.6

Family involvement in business

Spouse
Parent
Children

22.6
25.6
15.8

Age
, 34
35
45-54
55

20.2
35.4
30.6
12.8

Education
High school or less
Some college/tech
Graduated college
Post graduate

4.1
11.5
47.2
37.2

Company sales (Euros)

, 73,000
73,000-217,999
218,000-364,999
365,000-730,000
. 730,000

26.3
27.0
11.5
18.4
16.8

Two, three, and four cluster models were conducted, with the three-cluster
segmentation model providing the cleanest separation in the segments. Table II
shows our three-segment solution and the mean scores for each of the social identity
statements (all significant at p , 0:01). The three clusters that emerged were named
Family/Personal Social Identity, External Social Identity and Weak Social Identity.
What is first evident from Table II is that entrepreneurs with an External Social
Identity (n 146) make up the majority of the respondents, followed by
Family/Personal Social Identity (n 85); and Weak Social Identity was the smallest
group of entrepreneurs (n 66). In this regard, 78 percent of the respondents seem to
seek some type of relational networking partners, either family/personal networks or
external networks.
Findings and discussion
Prior to conducting tests of our hypotheses, and to determine whether the various
firmographics could confound our tests, for H1, H2, H3, H4, H5, H6 and H7 we
compared the frequency/value of advice received from social networks based on

Social identity statements

I seek business advice from many different
people
My family/friends play a large role in my
business decisions
My family/friends are important support
groups
My family agrees with my business
decisions
My family really cares about the success of
my business
My parents have been a major influence in
my business life
I am often in conflict with my family
regarding my business
I dont trust the advice that I receive from
non-family members
I am very secretive so competitors wont
know my strategies
My friends have often given me bad advice
I have a strong network of business
acquaintances
I have a strong network of suppliers who
help me make decisions
I have a strong network of experts who help
me make decisions
I spend a lot of time developing a strong
relationship network
Advice from non-family members is better
than from family
I share my business advice with others
Business organizations are important for
sharing ideas
I have a high tolerance for risk
Others would describe me as a team player
I have open communications with external
business members
I am often in conflict with members of my
relationship network
I dont like to work in teams
I am a competitive person
Others like to work with me
Many people seek my advice
I dont look to other businesses to see how I
can improve mine
My family is an important part of the
success of my business
I trust the advice that my family gives me

Family/personal
identity
(n 85)

Weak social
identity
(n 66)

External
identity
(n 146)

3.24

2.61

3.71

4.14

2.91

3.42

4.38

3.48

3.79

4.04

3.55

3.82

4.48

3.74

4.08

3.96

2.59

3.13

1.89

2.36

2.49

2.35

2.88

2.36

3.01

3.24

3.49

2.15
3.35

2.53
2.91

2.49
3.92

3.28

2.61

3.88

3.04

2.45

3.85

3.55

2.95

3.87

2.20

2.64

3.16

3.22
3.76

2.68
3.08

3.66
3.97

3.48
3.67
3.71

3.03
3.29
3.21

3.90
3.90
4.08

2.16

2.36

2.66

1.96
3.80
3.91
3.88
1.97

2.77
3.41
3.52
3.68
2.50

2.16
4.07
4.15
4.21
2.01

4.36

3.71

3.62

4.19

3.65

3.65

Social networks

63

Table II.
Social identity segments:
cluster centers and
one-way ANOVAS of Sig
means ( p , 0.05)

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Table III.
Frequency and value of
strategic advice (H1 and
H2): one-tailed paired
t-tests of start-up/
planning stage of
organizational life-cycle
rank-ordered by value
of advice

whether the firm was started vs. acquired (independent sample t-test) and the number
of employees, firm revenue, and when started/acquired the firm (one-way anova). For
H8-H9 we compared social identity segments across these same groups as well. Few
significant differences existed across the groups, increasing confidence that
firmographics will not confound our hypothesis testing procedures.
Specific to H1, Table III provides the mean frequency scores for each type of
strategic advice sought during the start-up/planning stage of the organizational
lifecycle. A one-tailed paired t-test was conducted to test H1 that family/friends would
be most frequently sought for strategic advice during the start-up/planning than all
sources of advice. As expected, the frequency of strategic advice received from
family/friends (mean 2:93) during the start-up/planning stage of the organizational
lifecycle was significantly higher than all of the other networks types, providing strong
support for H1.
Table III also presents the value scores of the advice received during the
start-up/planning stage of the organizational life-cycle. A one-tailed paired t-test was
conducted to test H2 that family/friends would provide the most valuable advice
during start-up/planning. As shown in Table II, the mean value score of the strategic
advice provided by family/friends (mean 2:23) was significantly higher than all of
the other network types except current/potential customers (all other relationships
significant at p , 0:01), showing strong support for H2.
H3 investigated the frequency of strategic advice sought from network members
when transitioning from start-up to current/on-going operations of the organizational
life-cycle. Specifically, it was hypothesized that the frequency advantage of strategic
advice received from personal networks (family/friends) relative to other types of advice
would decrease as organizations transitioned out of the start-up stage to on-going
operations. As shown in Table IV, as expected, no statistical difference was found for the
frequency of advice received from personal networks and that received from
current/potential customers, business/financial consultants, and suppliers (because
directional hypotheses were not made, a one-tailed paired t-test was used in the
analysis). However, significantly more frequent strategic advice was received from all
four networks than from competing and non-competing businesses (p , 0:001).
H4 examined the value of strategic advice across the organizational lifecycle.
Specifically, H4 hypothesized that the value advantage of strategic advice given by

Family/friends
Current/potential customers
Business/financial consultants
Suppliers
Competing businesses
Non-competing businesses

Frequency
Start-up/planning

Value
Start-up/planning

2.93 *
2.68
2.71
2.70
2.20
2.02

3.23 * *
3.13
3.01
2.92
2.52
2.16

Notes: All comparisons were tested using one-tailed paired sample t-tests. *Family/friends
significantly more frequent than the other network types (all significant at p , 0.05 or better).
* *Family/friends significantly more valuable than all network types except current/potential
customers ( p , 0.01)

Current/potential customers
Business/financial consultants
Family/friends
Suppliers
Competing businesses
Non-competing businesses

Frequency
Current/on-going

Value
Current/on-going

2.95 *
2.98
2.83
2.89
2.35
2.10

3.26 * *
3.12
3.02
2.96
2.55
2.21

Notes: All comparisons were tested using one-tailed paired sample t-tests. *(a) No significant
difference between Family/Friends and Current/Potential Customers, Business/Financial Consultants,
and Suppliers. (b) All four are significantly more frequent than Competing and Non-Competing
Businesses. * *(a) Current/Potential Customers are now significantly more valuable than Friends/
Family ( p , 0.05). (b) Except for Business/Financial Consults (n.s.), Current/Potential Customers
provide significantly more value than the remaining network types ( p , 0.01). (c) No significant
difference between the value of Family/Friends and Business/Financial Consultants, and Suppliers. (d)
Family/Friends continue to be more value than Competing Businesses and Non-Competing Businesses

personal networks (family/friends) relative to other network members would decrease

as organizations moved from the start-up to on-going stage of the organizational
life-cycle. Using one-tailed paired t-tests, Table IV provides support for H4 in two
ways. First, the value of strategic advice received from current/potential customers
during the current/on-going stage of the organizational lifecycle was significantly
greater (p , 0:01) than for personal networks, suggesting a transition away from the
value of personal sources to critical information sought from target markets. Second,
the fact that no significant difference was found between the value of advice received
from family/friends and business/financial consultants, and between family/friends
and suppliers, further highlights the decreasing importance of personal sources of
information as organizations transition out of the start-up stage. However, advice from
personal networks continues to be more valuable during the current/on-going stages of
the organizational lifecycle than that received from competitors (p , 0:01).
H5 and H6 hypothesized that the frequency and value of strategic advice received
from exchange networks (H5) (suppliers and customers) and communication networks
(H6 (consultants, financial advisors, and competitors) will increase from the
start-up/planning stage to current/on-going operations. H7 predicted a drop in the
(a) frequency and value of strategic advice received from personal networks
(family/friends) when moving from start-up/planning to current/on-going operations.
To test these hypotheses, one-tailed paired t-tests compared the mean frequency and
value scores for each of the network members during the start-up/planning stage was
compared to those found for the current/on-going stage of operations.
Table V shows general support for H5 regarding exchange networks. Specifically,
both the frequency and value of strategic advice received from current and potential
customers increased from start-up to current/ongoing operations. Although the
frequency of advice received from suppliers increased across the organizational
lifecycle, its value did not.
H6, which involved the transitional nature of advice received from communication
networks, received moderate support. Specifically, both the frequency and value of
advice increased for business/financial consultants. Although the frequency of advice

Social networks

65
Table IV.
Frequency and value of
strategic advice (H3 and
H4): one-tailed paired
t-tests of current/on-going
strategic planning stage
of organizational
life-cycle rank-ordered by
value of advice

2.20
2.02
2.71
2.93

Communication networks (H6)

Competing businesses
Non-competing businesses
Business/financial consultants

Personal networks (H7)

Family/friends

Table V.
Network type change
scores: one-tailed paired
t-tests of frequency and
value of strategic advice
2.68
2.70

2.83

2.35
2.10
2.98

2.95
2.89

Frequency
Current

20.1

0.15
0.008
0.27

0.27
0.19

Change

0.05

0.05
n.s
0.001

0.001
0.001

Sig.

3.23

2.52
2.16
3.01

3.13
2.92

Value
Start-Up

3.02

2.55
2.21
3.12

3.26
2.96

Value
Current

2 0.21

0.03
0.05
0.11

0.13
0.04

Change

66

Exchange networks (H5)

Current/potential customers
Suppliers

Frequency
Start-up

0.001

n.s
n.s
0.05

0.05
n.s.

Sig.

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received from competing businesses increased from start-up to current/ongoing

operations, no significant difference was found for the value of this advice. Lastly, the
frequency and value of advice from non-competing businesses remained unchanged
and little used across the organizational lifecycle.
The transitional nature of strategic advice from family/friends was also
investigated (H7). As shown in Table V, the frequency and value of strategic advice
received from family and friends decreased as the organization moved from the
start-up to the current/ongoing stage of the organizational lifecycle; providing strong
support for H7.
H1, H2, H3, H4, H5, H6 and H7 all investigated various social network
relationships and the transitioning of the frequency and value of these social networks
across the organizational life-cycle. Individually each hypothesis was supported,
combined they help validate the premise that social networks evolve over time (Bowey
and Easton, 2007; Granovetter, 1985; Larson and Starr, 1993; Uzzi, 1996; Uzzi and
Gillespie, 2002). Beyond the broad notion of evolving networks, the findings also
support Hite and Hesterly (2001), Greve and Salaff (2003), and Lechner and Dowling
(2003) that the mix of networks shift away from personal social networks during early
stages of the organizational life-cycle to include a wider range of external relationships
as the company expands over time.
As would be expected, Table VI provides general support for H8 that
Family/Personal social networkers utilize and place the greatest value on personal
networks across the organizational lifecycle than the other segments (see
italicized/means). Similarly, External social networkers utilize and value exchange
and communication networks more than Family and Non-Networkers (Weak Social
Identity) (see italicized/means). Of interest, both Family/Personal and External
networkers have similar usage and value perceptions for advice provided by current
and potential customers during the on-going stage of the life-cycle, suggesting that
Family/Personal Networkers shift some of their focus to customers as they move
beyond the start-up stage.
H8 provides support for the contention that small business owners can be classified
into social identify segments based on their need for and the use of personal and
external network partners (MacDonald et al., 2007; Tajfel and Turner, 1986; Watson,
2009), and particularly with regard to the frequency and value of information sought
from these network partners (Ullrich et al., 2007). Moreover, the findings suggest that
small business owners can be grouped by their preferences for exchange,
communication, and personal networks (Sequeira et al., 2007) and that these specific
networks guide their decision-making behaviour (Haslam et al., 2003).
Lastly, H9 predicts that firms operated by entrepreneurs with an internal
(family/personal) or external social identity will outperform firms operated by
entrepreneurs with weaker social identities. To test H9, one-tailed independent sample
t-tests were conducted to compare entrepreneurs with stronger family/personal social
identities to those with weak social identities, and entrepreneurs with stronger external
social identities to those with weak social identities. As shown in Table VII, H9 was
supported for three of the four firm performance measures, including market share
growth, profitability growth, and overall success of the business. These tests provided
strong support that as compared to having a weak social identity, having either a
family/personal social identity or an external identity contributes to firm performance.

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Table VI.
One-way ANOVAS of
frequency and value of
advice across social
identity segments

Organizational life-cycle
stage

Weak social
identity

External
identity

Sig.

Frequency of advice: start-up/planning

Family/friends
Current/potential customers
Non-competing businesses
Competing businesses
Suppliers
Business/financial
consultants

3.66
2.58
1.85
2.18
2.64
2.55

2.51
2.40
1.85
1.90
2.20
2.26

2.68
2.86
2.19
2.34
2.94
3.01

0.001
0.05
0.05
n.s.
0.001
0.001

Value of advice: start-up/planning

Family/friends
Current/potential customers
Non-competing businesses
Competing businesses
Suppliers
Business/financial
consultants

3.94
3.27
1.99
2.58
2.95
2.85

2.83
2.85
1.86
2.04
2.53
2.64

3.00
3.17
2.38
2.68
3.07
3.25

0.001
n.s.
0.01
0.01
0.05
0.01

Frequency of advice: current/ongoing

Family/friends
Current/potential customers
Non-competing businesses
Competing businesses
Suppliers
Business/financial
consultants

3.43
3.10
1.96
2.41
2.93
2.98

2.52
2.53
1.86
1.90
2.30
2.45

2.62
3.04
2.29
2.50
3.12
3.21

0.01
0.01
0.01
0.001
0.001
0.01

Value of advice: current/ongoing

Family/friends
Current/potential customers
Non-competing businesses
Competing businesses
Suppliers
Business/financial
consultants

3.84
3.35
2.15
2.71
3.05
3.12

2.33
3.02
1.98
2.27
2.18
2.43

2.86
3.31
2.34
2.58
3.24
3.41

0.000
n.s.
n.s.
n.s.
0.001
0.001

Performance measure
Table VII.
One-way ANOVAS of
mean firm performance
indices

Family/personal
identity

Sales growth
Market share growth
Profitability growth
Overall success of
business

Family/personal
identity

Weak social
identity

Sig.

External
identity

Weak social
identity

Sig.

3.75
3.64
3.72
3.99

3.67
3.38
3.42
3.59

ns
0.05
0.05
0.001

3.73
3.63
3.70
3.86

3.67
3.38
3.42
3.59

ns
0.05
0.01
0.01

Our findings for H9 support and extend the recent work of Watson (2009) and
Homburg et al. (2009) which suggest that having a social identity, whether personal or
external, leads to superior performance as compared to small business owners with
weak social identities. Superior performance associated with having a social identity

regardless of its internal-external orientation is in line with Casson and Della Giustas
(2007) contention that social networks are organizational assets. These assets are likely
the result of better decision-making through the acquisition of tactic knowledge not
presently possessed by the small business owner (Granovetter, 1992). In agreement
with (Mackinnon et al., 2004), the fact there was a clear delineation in terms of the social
identity segments for categorizing small business owners contributed to the ability to
detect performance effects.
Conclusion
We reported the findings from a study of 297 Indian entrepreneurs regarding the
extent and value of strategic advice they received from personal, exchange and
communication networks as they move along the organizational lifecycle and how the
use/importance of entrepreneurial learning networks change as the organization
transitions along the organizational lifecycle. Each of our transitional hypotheses
received support, suggesting that it is important to understand not only the types of
social networks that entrepreneurs use, but that the range and value of the strategic
advice that they receive differ as their organization unfolds over time. In this regard we
provide clear evidence that social networks and entrepreneurial learning practices are
not static, and instead must be viewed in terms of dynamic decision making needs and
processes.
Given that our study was motivated by the need to better understand the nature and
scope of social networks as the goals, needs and actions of a small business are
transformed over time (see Hampton et al., 2009), we extend the literature by providing
empirical evidence that social networks and social identities are evolutionary
constructs. Dating back to the early work of Mitchell (1969), we also contribute to
growing literature attempting to develop insight into the fuzzy nature of social
boundaries and how small business owners extend their networks to acquire the
needed knowledge to successful move their business along the organizational lifecycle.
Because our study focused primarily on the frequency and value of various network
relationships, future research should investigate more granular aspects of transitional
networks across all types of social and non-social relationships, including personal and
business relationships. Research is particularly needed to assess network and
organization transitions based on evolving goal structures (Ullrich et al., 2007),
opportunity discovery and assessment (Miller et al., 2007), financial and human capital
access and mobilization (e.g. Hite, 2003; Uzzi and Gillespie, 2002), and any in a wide
variety of specific marketing (Frazier and Huddleston, 2009) or other function-based
problem solving strategies and tactics (Cope et al., 2007). Although our study focused
primarily on for-profit organizations, it would be interesting to investigate whether the
need for and transition of social networks differ for non-profit and/or social
entrepreneurs. This line of research would help to further our understanding of the use
and importance of exchange, communication and personal networks across different
types of organizations and different sets of organizational objectives.
We also added to the literature by showing that entrepreneurs have social identities,
ones that form with priority given to family and personal network relationships or
toward more external relational contacts. Importantly, we also provided evidence that
both types of social identities contribute equally to firm performance and that having a
social identity leads to greater economic success over those organizations that fall

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outside of these two internal/external orientations. Given that a limitation of our study
is that we focused on a limited set of performance indices, future research should
investigate a wider set of organizational metrics (Watson, 2009). Especially important
is research that examines the relationship between social networks and performance
indices at various stages of the organizational and entrepreneurial lifecycle (Uhlaner
et al., 2007). As with the needed focus on more granular network orientations,
performance effects also need to be expanded through the inclusion of more advanced
statistical models that parse out the impact that varied social networks and network
relationships have on wide-ranging organization success indices (Homburg et al.,
2009).
The fact that entrepreneurs differ in their entrepreneurial and network orientation
and that these differences impact network utilization confirms the need to explore these
issues in greater detail. Research is especially needed to further our understanding of
how social networks evolve over time, how the use of these social networks are affected
by varied organizational and situational factors, whether additional network segments
exist, and any in a wide range of other areas that investigate profitability metrics and
organizational firmographics. We acknowledge that although quantitative
techniques/measures and large scale samples generalizing benefits, he findings to
broader populations, future research should incorporate deep probing techniques like
critical incident interviewing to develop a richer understanding of what actually takes
place as business transition across various stages of the organization life cycle
(Watson, 2009).
From a strategic perspective, our findings contribute to the managerial literature by
underscoring the importance for small business owners to reach out for
decision-making information to any in a wide range of social network partners. Our
findings suggest that small business owners cannot adhere to the status quo and must
instead be willing to change business practices as their organizations evolve across the
organizational lifecycle. Research involving critical incidence interviewing is needed to
provide a richer framework for understanding the strategic evolution process.

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About the authors
Dr James W. Peltier is a Professor of Marketing at the University of Wisconsin-Whitewater and
previous holder of the Irvin L. Young Chair of Entrepreneurship at UW-Whitewater. In addition
to directing the creation of the entrepreneurship major at UW-Whitewater, Dr Peltier has
published over 80 refereed articles, many on small to medium-sized enterprises and small
business owners. James W. Peltier is the corresponding author and can be contacted at:
Peltierj@uww.edu
Dr G.M. Naidu is Professor of Marketing (Emeritus) at the University of
Wisconsin-Whitewater. In addition to publishing a extensive array of refereed journal articles,
Dr Naidu was the founder of the Global Business Resource Center at UW-Whitewater. A center
designed to assist SMEs and entrepreneurs.

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