Results and Literature Review
Slavec & Prodan (2012) found out that the strength of an entrepreneur’s social links is a significant factor in financing choice. The bigger the strong-tie network, the less the need for seeking finances to offset debts as the strong ties the entrepreneur has will enable him or her assemble the necessary financial resources. A majority of the respondents indicated that they have strong social ties with family members, financial institutions, accountants and friends whom they play an important role in supplementing the start-up and working capital of their business. This is in line with Slavec & Prodan’s research on social ties and financial assistance.
This also confirms that most entrepreneurs are most comfortable in utilizing bootstrapping and venture capitalism approaches to funding rather than utilize the conventional means of acquiring funds such as banks and other lending institutions. Tomory (2011) argued that many start-up companies face a number of problems when endeavouring to secure financing from external sources such as banks and other financial lenders. As a result they rely on other sources of finances by employing bootstrapping. The results of the study show that the respondents rarely utilized the financial institutions such as Common Futures but kept a strong network of friends, family and accountants among others. As such, they leveraged on the special relationships they had with these individuals to secure finances. Similarly, Daskalakis, et.al, (2013) found out that even though many businesses have forged strategic relationships with banks that have allowed their enterprises to access both short- and long-term debt, others do not have such a relationship and are incapable of accessing financial assistance of any kind from banks and other financial institutions. It is evident that most of the respondents preferred crowd funding, bootstrapping and venture capitalism for starting and working capital to borrowing from banks and other financial institutions offering this type of aid.
Additionally, a majority of the respondents revealed that they did not utilize the services of the financial institutions such as Service B.C, Access Center, Community Futures, City Hall’s economic Development Department and Paid media. Upon further questioning, a majority of the respondents revealed that they were not interested in utilizing the services of Community Futures. A possible explanation towards this scenario is the fact that many of these institutions tend to be bureaucratic and have not developed relationships with these businesses (Daskalakis, et.al, 2013). This could also be as a result of confidentiality issues of the respondents, their concerns on the level of usefulness of these institutions, limited knowledge of these institutions and their experiences with these institutions.
A majority of the respondents indicated that they sought relied on financial institutions, accountants, friends and family as informational and financial advisory agents. It is evident that the respondents have a wide social network which they rely for both information and financial assistance. This confirms the research of Semrau & Werner (2013) who found out that a strong network of contacts is needed to open up access to attractive resources, informational and financial. Sullivan & Marvel, (2011) also found out that obtaining necessary resources is a big challenge for entrepreneurs and thus an entrepreneur’s network becomes his main source for identifying and obtaining necessary resources.
The respondents indication that they keep a strong network of family, friends, accountants, financial institutions and business professionals is also in line with past research by Aldrich et al., 2013 who indicated that business owner’s associates or linkages are vital to whether he or she will have access to information and resources appertaining to the running of the entreprise. Aldrich et al., (2013) in their study found out that networks create avenues by which an entrepreneur can utilize to enhance his efforts in the acquisition of resources. By keeping a strong network of friends, family and business professionals, the study results appear to confirm the main premise of the study by Aldrich et al., (2013). The study also confirms the study of Anis & Mohamed (2012) that indicated the linkage assures the entrepreneurs a good amount of needed support and also allows them to stand up to the difficulties they face.
Communities can offer incentives and other services which will boost the development of small business development, such as financial resources and business coaching and mentoring services (McDaniel & Richison, 2010). An entrepreneur’s network connection is the major way by which he or she gains access to enterprise-related information and resources. Fornoni, Arribas, & Vila (2012) claimed that social resources play an important role in bolstering success by supporting the position and appearance of power of an entrepreneur. Social links are important resources because they enable commercial activity, let business people to be better organized, help them access commercial opportunities, and advance innovation. The results also confirm the research of Fornoni et al. (2012) who identified several benefits of social networks such as the enhancement of an entrepreneurial attitude and facilitation of the launch of the company.
Yiu, Su & Xu (2013) indicated that firms need financial capital to operate, and the absence of such resources may have key implications for business operations and the possibilities for failure. The study results strongly confirm the results of their study. The respondents indicated that start-up capital and working capital were the main problems that they faced in regards to financial resources. Most respondents also revealed that they sought information on the sources of start-up and working capital. A similar research by Allen & Hall (2009) indicated that entrepreneurs need start-up capital to commence their businesses, carry out market research and expand the products and services of the business. The study participants indicated that start-up capital was one of the major problems they faced and hence confirming Allen & Hall’s study.
References
Aldrich, H. E., & Yang, T. (2014). How do entrepreneurs know what to do? Learning and organizing in new ventures. Journal of Evolutionary Economics, 24(1), 59–82. doi:http://dx.doi.org/10.1007/s00191-013-0320-x
Calcagnini, G. & Favaretto, N (2011). The Economics of Small Business: An International Perspective. New York: Springer.
Daskalakis, N., Jarvis, R., & Schizas, E. (2013). Financing practices and preferences for micro and small firms. Journal of Small Business and Enterprise Development, 20(1), 80–101. doi:http://dx.doi.org/10.1108/14626001311298420
Fornoni, M., Arribas, I., & Vila, J. E. (2011). Measurement of an individual entrepreneur's social capital: A multidimensional model. International Entrepreneurship and Management Journal, 7(4), 495–507. doi:http://dx.doi.org/10.1007/s11365-011-0204-1
Fornoni, M., Arribas, I., & Vila, J. E. (2012). An entrepreneur's social capital and performance. Journal of Organizational Change Management, 25(5), 682–698. doi:http://dx.doi.org/10.1108/09534811211254572
McDaniel, D. L., & Richison, N. (2010). Hometown: Entrepreneurs. Economic Development Journal, 9(2), 33.
Sullivan, D., & Marvel, M. (2011). How entrepreneurs' knowledge and network ties relate to the number of employees in new SMEs. Journal of Small Business Management, 49(2), 185–206. doi:10.1111/j.1540-627X.2011.00321.x
Tomory, E. M. (2011). Bootstrap financing: Four case studies of technology companies. International Journal of Management Cases, 13(3), 531–538. doi:10.5848/APBJ.2011.00088
Yiu, D. W., Su, J., & Xu, Y. (2013). Alternative financing and private firm performance. Asia Pacific Journal of Management,30(3), 829–852. doi:http://dx.doi.org/10.1007/s10490.
