ABSTRACT. The “network approach to entrepreneurship”
is a prominent theoretical perspective within the literature on
entrepreneurship. This literature assumes that network
resources, networking activities and network support are
heavily used to establish new firms (network founding
hypothesis). Further, those entrepreneurs who can refer to a
broad and diverse social network and who receive much
support from their network are more successful (network
success hypothesis). Based on a study of 1,700 new business
ventures in Upper Bavaria (Germany), the article gives an
empirical test of the network success hypothesis. It is argued
that one reason, why previous studies did not consistently find
positive network effects, may be that social capital (network
support) is used to compensate shortfalls of other types of
capital (human capital and financial capital). This compensa-
tion hypothesis, however, does not find empirical confirma-
tion. On the other hand, however, the network success
hypothesis proves to be valid in our analyses, i.e. network
support increases the probability of survival and growth of
newly founded businesses.
If we look at the debate and literature on entre-
preneurship, we can see that the topic of social
networks is a prominent and outstanding issue.
This literature assumes that entrepreneurs try to
mobilize, and actually benefit from social network
resources in the start-up period of their businesses.
Indeed, there is plenty of empirical evidence that
illustrates the importance of social ties in the
formation and maintenance of new enterprises.
Nevertheless, neither from a theoretical point of
view nor from the empirical side we can be fully
satisfied with these accounts. Concerning the
theory, the discussion about networking of entre-
preneurs uses the language of social networks,
but very seldom the real concepts and statistical
tools of general network analysis are employed.
Empirically, many studies about entrepreneurship
and social networks mainly follow a qualitative
approach, they are based on small samples, and
they ignore important variables that should be
controlled for by appropriate statistical procedures.
This paper focuses on the just mentioned empir-
ical problems. We will present the results of
empirical analyses intending to test two hypotheses
of the network approach to entrepreneurship.
According to our opinion, an adequate design of
the study, a large sample and elaborated statistical
techniques are the main advantages of our
The plan of the paper is as follows: Section II
begins with some general comments on the so-
called network approach to entrepreneurship. By
that, the two hypotheses we want to test are
specified and developed. Section III introduces our
empirical data, and describes the variables and
methods we will use. The presentation of the
empirical findings in Section IV centers around
the two hypotheses. Section IV.1 refers to the
“network compensation hypothesis”, and Section
IV.2 to the “network success hypothesis” (these
are the shorthand labels we will use for the two
hypotheses). Section IV.2 includes the results of
a baseline model of entrepreneurial performance
that captures crucial determinants of the success
of newly founded businesses. These results may
be interesting, independent of our discussion about
Network Support and the Success
of Newly Founded Businesses
Small Business Economics 10: 213–225, 1998.
1998 Kluwer Academic Publishers. Printed in the Netherlands.
Final version accepted on July 19, 1996
Institute of Sociology
University of Munich
Institute of Sociology
University of Rostock