Login

Is Social Capital the Secret Ingredient for Entrepreneurial Success?

Much has been said and written about the spectacular leap in innovation by Chile, Israel, Rwanda, and South Korea.

These four very different countries have managed to harness innovation to transform their economies and achieve job creation, increased long-term productivity, and economic growth.

What could possibly be the common denominator in their success?

Economic studies around the globe consistently link entrepreneurship with growth and development. Indeed, a country’s economic growth and economic success are now determined by the strength of its entrepreneurship ecosystem. Some call this the “entrepreneurial economy.”

Backing up these successful entrepreneurs, either directly or indirectly, are local governments, which play a major role in shaping the business environment. Government leaders are crucial players in fostering and building entrepreneurship ecosystems, through their commitment to support ongoing experimentation.

Other players in the ecosystem have an equally influential role: the private and non-profit sectors, as well as universities, labor organizations, financial institutions, and entrepreneurs themselves. When all the actors in the entrepreneurial ecosystem recognize that they can spark innovation and stimulate new ideas, much can be achieved.

Surprisingly, even in a supportive environment with the right set of elements—leadership, culture, capital markets, and market demand—entrepreneurial success is not guaranteed. So, what happens to entrepreneurs in countries where ecosystems are nonexistent? How can they manage to grow their businesses in environments that are not conducive to experimentation?

According to Daniel J. Isenberg, who teaches entrepreneurship at Babson College, entrepreneurship can be stimulated when natural resources are scarce, requiring people to be more inventive. Isenberg, a former entrepreneur and venture capitalist, argues that poor states around the globe have developed entrepreneurial ecosystems based primarily on human capital.

Resilient entrepreneurs

We all know of entrepreneurs who are resourceful enough to navigate the system, despite the obstacles. They inspired the term “resilient entrepreneurs,” coined by Impact Hub and Cordaid, which have partnered to develop a deeper understanding of what makes entrepreneurs “resilient,” what they need to thrive, and what type of services and support are critical for them.

According to studies done by Cordaid and Impact Hub in several contexts around the globe, these new entrepreneurs possess specific traits that they have developed to face tough conditions and navigate the system. These traits go beyond passion, hope, and determination; they are qualities that allow the business owners to thrive in challenging situations. Resilient entrepreneurs are able to:

  • “Shapeshift”—consciously move into different roles depending on what needs to be done
  • “Co-evolve” to transcend conditions with an awareness of collective impact, and develop an ability to see other players and identify opportunities
  • “Transform and reframe the situation” to seek a new opportunity and find continuous meaning in the midst of turmoil
  • Be extremely resourceful in mobilizing resources, and continuously adapt in a flexible manner

Take David Cedeño, a Venezuelan journalist who lost his ability to walk because of an accident and now gets around in a wheelchair. Despite his physical limitations, Cedeño started an awareness campaign, “Discapacidad 0” (“Disability 0”), which offers legal and general information about people with disabilities and promotes ways to integrate them into society. He makes his living doing communications and marketing, and often speaks publicly and actively uses social media networks and other digital media to reach his Discapacidad 0 audience.

Social networks and access to information

Obstacles to entrepreneurship vary according to the local context, and include corruption, gender inequality, brain drain, conflict, exclusion of youth from the labor market, and lack of access to financial capital.

This last item tops every list of developmental and social problems. But, interestingly, social capital and access to information can in some ways substitute for the support that capital provides, and resilient entrepreneurs rely upon them.

In a context in which the government and relevant local institutions have failed, it is the social network of individuals whom entrepreneurs surround themselves with—mentors, peers, friends, family, and other entrepreneurs—that adds value and promotes trust, reciprocity, and cooperation.
Likewise, the entrepreneurial journey demands access to massive amounts of information: tax incentives, banking services, registration procedures for opening a company, and other complex bureaucratic processes that are typical of underdeveloped ecosystems. This critical information is not provided in a timely fashion or an easy-to-absorb manner by weak ecosystems; it is offered by the entrepreneur’s social networks. Thus, resilient entrepreneurs are able to navigate complex conditions with the support of information provided by their social networks.

In the end, entrepreneurship is all about the individuals involved and the quality of the social relationships they maintain. Resilient entrepreneurs are relying on social capital to find better ways to do business and resolve problems. Perhaps this is the common denominator that innovative economies possess, and that we should support to spark innovation worldwide.

From the Multilateral Investment Fund Trends blog

false