Social Capital in Action: From Nought to Xero

Abstract

Typically internet start-ups (e-ventures) are innovative, independent, original companies that focus on information as their competitive factor. They are characterised by enormous growth potential, giving rise to technical and market risk. Resourcing these ventures can be daunting usually requiring significant financial and human capital and once the venture is formed they are subject to a liability of newness with no track record, legitimacy or endorsement for the product/service. Whilst entrepreneurs bring their own resources and skills to the business it is necessary to seek additional complementary resources through sustainable exchange relationships to ensure the ventures success. This report has used a case study of a New Zealand e-venture to provide qualitative evidence of how resources were secured to start and initially grow the business. Using Napahiet and Ghoshal's (1998) three dimensional model of social capital it has analysed the evidence against scholarly theory to determine how social capital assisted the founders and the company to fulfil resource requirements and overcome the liability of newness. Napahiet and Ghoshal define social capital as "the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by individuals or social unit" (p.243). The report found that the high level of social capital the founders brought to the venture assisted in gaining quick access to finances, skilled staff, competitive information and potential customers. The social capital used to develop personal business relationships for the venture has been transferred into the company's organisational relationships that will provide future growth opportunities. The founders have benefited from having a diverse range of strong and weak contacts that provided referrals to new contacts and assisted in establishing a good reputation and trust, thus facilitating the exchange and combination of resources. Social capital has given the e-venture a uniqueness resulting in a competitive advantage that competitors would find difficult to imitate.