Diane M. Sullivan (2007) Recognizing Opportunities and Generating Ideas Part II Entrepreneurial Networks and Evolutionary Creativity: The Nexus of Opportunity Recognition and New Venture Management

Social Networks and Creativity Characteristics that make some better at recognizing opportunities and management new ventures Social NetworksCreativity V SR

Social Networks Characteristics of one’s social network affects opportunity recognition and venture development Characteristics of one’s social network affects opportunity recognition and venture development You Network Tie Refers to any relationship you have with another person The people represented in a network are generally called “actors” When mapping the network of one individual, that person is called the “focal actor” A graphical representation of a network of relationships is called a network map. People indicated as dots/circles Relationships indicated as lines

Important Network Characteristics Certain network tie characteristics associated with better outcomes (e.g., more opportunities recognized, better firm performance, power positions, etc.) Certain network tie characteristics associated with better outcomes (e.g., more opportunities recognized, better firm performance, power positions, etc.) Network Size Network Size Network Tie Strength Network Tie Strength Strong Ties Strong Ties Weak Ties Weak Ties Structural Holes Structural Holes Bridging Ties Bridging Ties

Network Size You Large Network characterized by many tiesSmall network characterized by few ties Benefits of Larger Networks 1.Very helpful in earlier stages of venture development 2.More opportunities identified 3.Better firm performance 4.Faster IPO 5.Network growth Benefits of Smaller Networks 1.Helpful in later stages of venture development i.Provides a more parsimonious group of “helpers” later on

Network Tie Strength: Strong Ties Strong Ties are determined as such by three characteristics of these relationships: 1. Long duration of relationship 2. Closeness of relationship (close/very close) 3. Frequency of contact (frequently interact) In depicting strong ties on a “network map”, strong ties are indicated by solid lines positioning the focal actor close to the connecting strong tie. Drawbacks of Strong Ties 1. Provide access to redundant information 2. Provide access to similar or redundant contacts (e.g., no help in expanding an actor’s network) Strong-ties: characterized by frequent interactions between coworkers, friends, and spouses Benefits of Strong Ties 1.Generally trustworthy 2.Provides depth of information 3.Usually helpful in early-stage funding You Mom Dad Spouse Best Friend

Network Tie Strength: Weak Ties Weak-ties: characterized by infrequent interactions between acquaintances You Weak Ties are determined as such by three characteristics of these relationships: 1. Short duration of relationship 2. Closeness of relationship (not close) 3. Frequency of contact (infrequently interact) In depicting weak ties on a “network map”, weak ties are indicated by, dotted lines from the focal actor to the connecting weak tie. The weak ties will also be positioned farther away from the focal actor. Benefits of Weak Ties 1. Provide unique perspectives 2. Helpful for identifying opportunities 3. Helps entrepreneurs expand their network Drawbacks of Weak Ties 1. May be difficult to sort through information 2. Over time tend to become strong ties 3. Sometimes difficult to create exchange relationship with (requires cues of legitimacy)

Structural Holes Structural holes (SH) describe the scenario where there are gaps (holes), between groups of networks. SHs occur because people tend to focus on activities inside their own network group, which creates “structural holes” in the information flow between groups (Burt & Ronchi, 2005). Group 1 Group 3 Group 2 Benefits of SHs 1.Present areas where diverse information may reside. 2.SHs are the starting point for most true innovations. Drawbacks Associated with SHs 1.If one lacks SHs in their network  redundant information flow and the potential to miss important venture, industry, market, and technology information. 2.The likelihood of path dependency drawbacks and blind spots increases without SHs in one’s network.

Bridging Ties Bridging ties describe the situation where an actor is tied to another actor within the network who has no other links with that network. Benefits of Bridging Ties 1.Actors holding bridging positions are more likely to receive novel information vs. the rest of the network 2.Bridging actors more likely to receive new information earlier than others in the network 3.This leads to more power and control benefits for the actors holding the bridge position (e.g., the brokering position) Drawbacks of Bridging Ties 1.If you do not hold the bridging position, you may be in a weak position You Broker between 3 network groups Group 1 Group 3 Group 2

Other Important Entrepreneurial Network Issues to Consider Understanding your network can help to know where network “gaps” need to be filled To roughly evaluate your entrepreneurial network: List names of your contacts that can help with business-related issues a) a) Count the number of contacts within your business network = network size Next to their name, list the business functions they can help with a) a) Examine the business functions listed and determine if any are missing Next to the business function(s), list each contact’s relationship to you (e.g., friend, family, acquaintance) a) a) Count the number of friends and family = strong ties b) b) Count the number of acquaintances = weak ties i. i. With which business functions do your strong ties help? ii. ii. With which business functions do weak ties help?

Other Important Entrepreneurial Network Issues to Consider The types of networks that are beneficial to entrepreneurs vary during different phases of venture development The types of networks that are beneficial to entrepreneurs vary during different phases of venture development Early-stages benefit from large, diverse networks Early-stages benefit from large, diverse networks Later-stages benefit from more parsimoniously diverse networks Later-stages benefit from more parsimoniously diverse networks Managing your network over time can impact venture performance Managing your network over time can impact venture performance Understanding others’ networks can help to know where they can add value and where they need value added Understanding others’ networks can help to know where they can add value and where they need value added Evaluate your contacts’ networks to find gaps, areas from which you can benefit, and areas where you can help Evaluate your contacts’ networks to find gaps, areas from which you can benefit, and areas where you can help Creating win-win situations between network partners  higher venture performance Creating win-win situations between network partners  higher venture performance

Emerging Issues with Business Networks Online Networking focused on professional networking combines business and social networking Cautions and Recommendations: Employers increasingly using online social networking website to screen candidates Facebook.com Myspace.com Online networking is only useful to the extent that focal actors effectively manage and utilize their network

Creativity Opportunity recognition is at least, in part, a creative process Opportunity recognition is at least, in part, a creative process New venture development and management can benefit from understanding and managing the creative process New venture development and management can benefit from understanding and managing the creative process Per the text, for an individual, the creative process can be broken down into five stages (next slide) Per the text, for an individual, the creative process can be broken down into five stages (next slide)

Creativity Figure 2.2 Five-Steps to Generating Creative Ideas Variation Evaluation and Selection Retention Evolutionary View of the Process of Creative Idea Generation 5 6

Creative Process and Entrepreneurial Opportunity Construction V SR V SR V SR Entrepreneur(s)Network/Resource Market/Industry Providers/Venture Team More Extent of Venture Organization Less Idea GenerationIdea ExplorationIdea Exploitation