When building a business, financial capital is undoubtedly important, but I believe social capital can take an entrepreneur further than financial capital alone. Money provides the resources necessary to start and grow a business, but relationships can provide opportunities, knowledge, credibility, guidance, and even access to that money in the first place. For me, networking is of the utmost importance because entrepreneurship is not only about what you have; sometimes, it is also about who you know and who knows and trusts you.
In The Founder’s Dilemmas, Wasserman describes social capital as the durable network of social and professional relationships founders can use to identify and access resources (Wasserman, 2013). His examples demonstrate how professional contacts, former coworkers, classmates, professors, advisors, and other relationships can help entrepreneurs find employees, customers, cofounders, and investors. Wasserman also explains that accumulating one form of capital can create a “virtuous cycle,” as founders with greater social capital can attract additional human and financial capital. This is one reason I view social capital almost like having a large village supporting the business. The more people who know about your business, believe in it, and can vouch for it, the more opportunities that network may create.
Research supports this connection between relationships and financial resources. Dudley (2021) found that social capital increased young firms’ access to outside financing and reduced their reliance on owner equity. The study describes social capital as functioning like “social collateral” in financing arrangements. This demonstrates that social and financial capital do not necessarily operate independently; one can help create access to the other. Additionally, a meta-analysis of 61 independent samples found a positive relationship between entrepreneurs’ social capital and small-firm performance, with network diversity having the strongest positive effect (Stam et al., 2014).
I have also seen the importance of networking while entering the workforce myself. Finding good, higher-paying opportunities is not always based solely on what is written on a résumé. A professional connection, mentor, or someone willing to recommend you can sometimes open a door that your experience alone could not. I believe the same principle applies to entrepreneurship. Networking can connect a founder to someone with experience they lack, an investor they could not otherwise reach, or a mentor who can help them make better use of the financial resources they already have.
Ultimately, entrepreneurs need both social and financial capital. However, if I had to prioritize building one, I would begin with social capital. Financial capital can fund a business, but a strong network can help an entrepreneur find funding, use resources wisely, reach new people, and uncover opportunities they may never have encountered alone. Money is valuable, but having a village of knowledgeable and trustworthy people supporting the vision can be invaluable.
References
Dudley, E. (2021). Social capital and entrepreneurial financing choice. Journal of Corporate Finance, 70, 102068. https://doi.org/10.1016/j.jcorpfin.2021.102068
Stam, W., Arzlanian, S., & Elfring, T. (2014). Social capital of entrepreneurs and small firm performance: A meta-analysis of contextual and methodological moderators. Journal of Business Venturing, 29(1), 152–173. https://doi.org/10.1016/j.jbusvent.2013.01.002
Wasserman, N. (2013). The founder’s dilemmas: Anticipating and avoiding the pitfalls that can sink a startup. Princeton University Press.
