Towards a Contingency Theory of How Network Structures Influence the Entrepreneurial Process

Abstract

This paper proposes that different network structures influence the entrepreneurial process – the discovery and realization of opportunities by entrepreneurs- in different ways. Generally, there are two forms of network structures that produce two forms of social capital. There are network structures with structural holes that produce information as social capital for the player brokering a hole. Then there are closed network structures that produce trust as social capital for the player placed in a closed network. The paper argues that (1) placement in structural holes increases the chances of discovering opportunities, whereas network closure decreases the chances. (2) Placement in a closed network allows for easier access to resources that facilitates realization of opportunities, whereas placement in networks with structural holes decreases the ability to gain resources. This leads to (3) entrepreneurs need different types of social capital at different times during the entrepreneurial process. Thus, they should change network structures during the process of discovering and realizing opportunities. The paper seeks to clear up existing contradictions on the role of social capital in the entrepreneurship literature and argue for a processual view on how entrepreneurs build and use different types of social capital.