The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making

THE IMPORTANCE OF SOCIAL CAPITAL FOR SMALL BUSINESS OWNERS: AN ENTREPRENEURIAL MARKETING APPROACH FOR DECISION MAKING

Cristiano Tossulino MachadoBoston – August 2013

The purpose of this paper is an investigation on how small business owners rely on their “social capital” to seek information to decision making on marketing issues.

Small businesses have scarce resources, whether financial, personnel or marketing. Companies’ needs to find trusted information about the markets that they work, about pricing, consumer preferences and habits, logistics, how to promote products and services and so on.

Analysis of previous studies showed that social capital may be an important decision making tool for small business owners.

Entrepreneurial Marketing and Decision-Making in small business

“With fierce competition and increasingly demanding customers, firms have a limited ability to forecast and define their market boundaries.” (Day and Montgomery, 1999)

“…small firms have a simple and ad hoc marketing decision-making process.”

(Kilenthong et. al., 2011)

“…small firms have fewer dominating decision makers than large firms.”

(Kilenthong et. al., 2011)

“Marketing decisions in small firms can be linked directly to specific personal goals of owners/managers.”

(Kilenthong et. al., 2011)

“…small firms can quickly response to their customers because they have flatter organization structure than large firms.”

(Kilenthong et. al., 2011)

“They are closer to customer and can access customer information better than large firms.”

(Kilenthong et. al., 2011)

Entrepreneurial Marketing in Small IT

Companies

As is known, the phenomenon of globalization affects various business sectors. But especially in the IT sector, the competition is really global.

Companies tend to rely on WOM (Word of Mouth) recommendation for building trust and confidence in the company and in the purchase decision.

This requires very close participation between the software company and the customer, which meant that co-creation of products, was often a key feature of the development of new products and services.

“Limitations for these companies include: lack of financial resource and technical employee resource; a lack of a specialized and experienced marketing and sales resource, particularly in micro-sized firms and; difficulties in balancing R&D and high levels of service.” (Jones, 2011)

These companies rely on networks and relationships to generate knowledge from customers, suppliers, employees and their partners.

“…market research and promotion are the most important marketing capabilities for small technology companies.”

(Qureshi and Kratzer, 2011)

CAPITAL SOCIAL

Social capital refers to the resources available in and through personal and business networks.

“These resources include information, ideas, leads, business opportunities, financial capital, power and influence, emotional support, even goodwill, trust and cooperation.”

(Baker, 2000).

According to Sander and Lowney 2006, social capital focuses on the social networks that exist between us, literally who knows whom and the character of those networks, the strength of the ties, and the extent to which those networks foster trust and reciprocity.

Social capital is essential for small business success. The accumulation of social capital helps businesses grow through word-of-mouth.

Start-Up USA Cultivating Social Capital

“Social, non-formalized links, between a firm (and its co-workers) and firms with which it has production relations, increase the flows of knowledge and information between the firms.”

(Westlund 2003)

“An established firm with strong customer and supplier networks can use these to shut out competitors, which perhaps have newer and more productive physical and human capital, from the market.”

(Westlund 2003).

METHODOLOGYA case study approach was chosen as it was considered the most effective method with which to obtain rich and meaningful insights (Carson et al., 2005), and in-depth interview to collect the data to be analyzed.

Two small IT companies were interviewed.

“The owner-manager was chosen as the unit of analysis on the basis that in small firms the owner-manager is a significant influence on the way that firm is operated and managed.” (Carson et al., 1995)

FINDINGSFINDINGS

On both interviews, the owner-manager mentioned several times that “who they know”, the networks that they have access is critical to do business in their sector, especially to find new clients, make decisions on pricing, marketing issues and managerial decisions.

Some transcribed answers:

“The way I do business have changed a lot after I started to participate in the ASSESPRO (Association of IT Companies) as a President for my region and the National Conferences of my product suppliers”.

“Having access to the networks offered by the associations and by the national network of representatives, has enable me exchange clients, acquire new clients, make better managerial decisions inside my company.

The experiences that my “peers” live everyday in another regions are a really good way to learn how to do business in our sector”.

“I also got better results on my management and better profitability with exchanging ideas about our business with my peers and other entrepreneurs in the IT sector”.

“I do not use to buy “market research” because is too expensive for my as a small IT company. I rely on my peers to get information about new markets and specially on pricing decisions for my products and services”.

Small IT companies do not have to work alone, associations, networks and who I know is the best way to find new clients, make better management decisions and get better results for my company”.

CONCLUSION

This study showed that the decision-making processes in small companies are largely based on networks, relationships.

In other words, social capital is crucial to successful decision-making about marketing and management issues.

Moreover, the fact that small companies have scarce resources, social capital becomes an important marketing tool and can be used as a tool for market intelligence.

Future studies could include for example: observations of competitive activity and analysis of appropriate company records and also use a larger sample of interviews with small businesses in different sectors.

THANK YOU VERY MUCH!

cristiano@marketingempreendedor.com.br