Building Social & Financial Capital – Week 3

roads

Imagine, for a moment, attempting to start a business without the help of a single person. Now lets take this a step further and say that you cannot enlist the help of anyone besides yourself for the rest of the life of the business – no suppliers, no employees, no investors, nothing. Having such a stipulation would quite clearly make starting, operating, and growing a business completely impossible: it takes a variety of people to run any business. Although the scenario you just imagined is extreme, it highlights the importance of people and all of the unique value that each individual brings to a venture. This building and maintaining of networks, connections, and relationships with people is called social capital – and it is a vital resource to the entrepreneur who understands how many different individuals it takes to launch and grow a business. Furthermore, social capital allows the formation and growth of a second much-needed kind of capital, namely, financial capital. In the rest of this article, we will more closely examine the importance of both social and financial capital to the entrepreneur and how it impacts their success.

“Social capital is the durable network of social and professional relationships through which founders can identify and access resources” says Noam Wasserman in his book, The Founder’s Dilemma. But now that we know what social capital is, and its importance to entrepreneurs, how can we make increasing our “balance” this resource a daily habit? The Forbes article, 4 Reasons Social Capital Trumps All by Chris Cancialosi recommends “offering advice or resources to others without expecting an immediate benefit.” He goes on to state that this is a prime way of establishing yourself as a trusted individual and a knowledgeable expert. Once these characteristics have been established in the minds of others, you will be able to more easily count on their time or resources in the event that you need their assistance.

One of the results of social capital, as alluded to in the first paragraph, is the possibility of subsequent gain in financial capital. The importance of financial capital when founding a business goes without saying, and can be the difference between actually materializing an idea or driving a startup into bankruptcy. Although raising money for a business can come in several different forms an from countless kinds of people, it is important to remember that in order to negotiate any kind of agreement or deal a relationship (of at least some degree) must first be established. As a result, it really is more important for an entrepreneur to focus his or her efforts on building relationship with others – you never know who you’ll need to count on one day. And remember, it is always wise to think of the accumulation of social capital as a long-term goal. Although you may not need the services of a person today, it is possible that you will many months or even years into the future.

In the end, helping others while expecting nothing in return will grow trust and respect and help us achieve our entrepreneurial goals while first helping others to achieve their dreams. Business really can be a beautiful thing, don’t you agree?


Sources:

Cancialosi, Chris (2014). 4 Reasons Social Capital Trumps All. Forbes.com. Retrieved from http://www.forbes.com/sites/chriscancialosi/2014/09/22/4-reasons-social-capital-trumps-all/#4ef9760a7b24

Wasserman, Noam (2012). The Founder’s Dilemmas. Princeton, NJ: Princeton University Press

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7 thoughts on “Building Social & Financial Capital – Week 3

  1. Austin,

    I continue to be impressed with the connections made in your writing. You’ve got an excellent point about the correlation between social and financial capital and how they are, for the most part, mutually exclusive. Social capital is an absolute gateway to financial capital and when starting a new business, I’d have to agree that it is much wiser to build your social network before focusing on the financial end. I think that social capital will inevitably lead to financial capital; however, financial capital may not grant someone the right kind of social capital.

    1. Thank you, Trevor. I have to admit, this has been a really interesting topic for me to learn about, and I thoroughly enjoyed writing this article. We really should, as you said, focus on building our social capital before we expect to grow our financial capital. It’s definitely possible to become rich and miss out on lots of great opportunities to get to know great people, but I think the odds are in the favor of those who seek to build their social network first.

  2. Austin, You had me a bit nervous at the beginning of your blog and talking about the thought of doing it alone and truly alone. Then you said it, “completely impossible”…ok I am better!!. It put the venture process in perspective of the importance of social capital with the connection to future financial capital. I believe I had a small idea floating in the back of my mind when reading and learning about social capital that there could be assistance to financial capital, but the overall importance of it was the gain of knowledge, guidance and mentorship. Also, you ended your blog with how we can help others with their dreams too with these connections and partnerships. It just solidified how social capital is an ever growing group for the betterment of all.

    1. Hi Colleen!

      Haha, I’d be afraid as well if a business needed to be run that way! We really need people in order to give flight to our ideas. Without people, it’s like expecting a bird to fly without air. And you’re very right, social capital can lead to financial capital – and that is perhaps, one reason it should be pursued. But I think that we should primarily pursue it for the good of others – otherwise we’ll always “use” people and that won’t make many friends in the long run. Helping others, that’s where it’s at!

  3. Hey Austin!

    Great post! I love reading your posts and how you interpret what we are learning! You are right, we can’t do this alone! It does take a lot of people to help build your business. Not only in the traditional way we think of as funding, employment, etc, but in building connections that will help our business grow in the future. That’s what it’s about! Networking, I’m a true believer in it. The people we meet along our way will help us in the long run, and we will be able to help them too! Like you said “Helping others is where it’s at” Absolutely! Beautiful Job!

    1. Hey Christina! Thanks so much for the kind words, I’m glad you enjoy the posts. You’re absolutely right, we need to remember exactly what you just said. Networking – it really is vital!

  4. I learned a lot from your post. When thinking of running a business, I did have the mind set of having a tight circle in which few people can enter. It can be difficult to rid an “anti” Social Capital mindset and allow others to enter and contribute to your business. But, as your post and the Forbes article you linked points out – the benefits of social capital can be the greatest asset to a business. As the Forbes article states, “Even if you’re earning millions of dollars and have a great team, though, without a network of supporters, the first bump in the road may just send you careening into a ditch”.

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