Due to the significant financial and human costs that inevitably follow a business failure, researchers have long been interested in the factors associated with firm performance. While there are many factors that can influence the success of a venture, only recently have researchers begun to highlight the potential significance of an owner’s networking involvement.
Network theory suggests that the ability of owners to gain access to resources not under their control in a cost effective way through networking can influence the success of a business venture. Networks provide value to members by allowing them access to the social resources embedded within the network; that is, networking can provide the means by which small and medium enterprise (SME) owners can tap needed resources that are ‘external’ to the firm. This form of cooperation can facilitate the achievement of economies of scale in small firms without producing the diseconomies caused by large size. Using networks can, therefore, potentially lower a firm’s risk of ‘failure’ and increase its chances of ‘success’.
The results of a large longitudinal Australian study (5014 firms over a three-year period) indicate that networking appears to be significantly positively associated with firm survival and, to a lesser extent, firm growth. The results also indicate that both formal networks (e.g. business consultants and external accountants) and informal networks (e.g. family and friends) are associated with firm survival, but only formal networks are associated with growth.
Interestingly, the results indicate that the probability of both survival and high growth peaked when SME owners were involved in about six networks. Indeed, accessing more than six networks during a year is likely to be counter-productive and, similarly, accessing any individual network on more than three occasions during a year is also likely to be counter-productive.
Finally, in terms of individual networks, accessing advice from external accountants was the only network source positively associated with both firm survival and firm growth.
I’m interested to know what networks you have found to be the most useful?
Watson J. (2007). Modeling the Relationship Between Networking and Firm Performance. Journal of Business Venturing, Vol.22, No.6, pp.852-874.