Resourcing new businesses: social networks, bootstrapping and firm performance

Abstract

It is commonly reported that new businesses have difficulty in accessing finance. Such businesses can engage in ‘bootstrapping’ activities as a way of compensating for the lack of finance and other resources. This paper extends prior research on start-up finance by investigating how social networks can help new ventures to acquire bootstrapped resources and how these resources influence business performance. Based on theoretical considerations, the paper proposes a framework linking social networks and bootstrapping activities to the performance of firms during the early stages of operation. The model is tested using structural equation modelling. Results obtained from the longitudinal study based on a sample of 211 entrepreneurs indicate that social networks play a key role in the acquisition of bootstrapped resources. The study differentiates between the roles of strong ties, weak ties and brokerage in accessing three different types of bootstrapped resources: payment related, owner related and joint utilisation techniques. Furthermore, bootstrapped resources make a direct impact on firm performance as well as mediating the impact of social networks. It is suggested that the results of this study have significant implications for scholarly interest in business start-ups as well as those involved with supporting nascent entrepreneurs.