Entrepreneurial networks : their effect on new organization outcomes

Four characteristics ...intentionality, resources, exchange and boundaries... are considered both necessary and sufficient to constitute an organization (Katz and Gartner, 1988). The emerging literature on entrepreneurial networks indicates the presence of the first three of these characteristics at the pre-organization stage, suggesting that pre-organizations may be organizational in nature and perhaps may be investigated in organizational terms. Numerous studies of formal organizations describe organizational structures which render various organizational processes more or less effective. Within the pre-organization, are there parallel social structures which interact with parallel social processes to affect initial new organization outcomes? To pursue this line of inquiry, a taxonomy of social structure and process from social anthropology is used to describe pre-organizational variables which parallel formal organization constructs. A research model is developed from existing strategic management and organization theory, adapted to the entrepreneurial network environment. A positive relationship is hypothesized between three pre-organization variables; (1) Size, (2) Degree (a social structure counterpart to integrating structure, it measures inter-connectivity within the pre-organization), and (3) Frequency (a social process counterpart to communication frequency within formal organizations, it measures how often pre-organization members interact with each other); and first-year new organization growth. This effect Is expected to be more pronounced in high-turbulence (Ansoff, 1985) environments. Forty four entrepreneurs were interviewed. Multiple regression was used to test the hypotheses. Strong, positive relationships were found between pre-organization size and new organization first year growth (adjusted R₂=-26, F ratio=16, p=.0001); and pre-organization degree and new organization first year growth (adjusted R₂=-22, F ratio=12.8, p=.001). In a model with both pre-organization size and pre-organization degree, pre-organization frequency was significant, suggesting the possibility of interaction effects. Post hoc analysis yielded a model with two pre-organization interaction terms; Size*Degree and Size*Frequency, which were significant predictors of new organization first year growth (adjusted R₂=.48, F rat1o=20.9, p=.0001). The data did not support hypotheses which predicted a stronger effect in high-turbulence environments. These results constitute an initial confirmatory finding that existing formal organization theories which relate structure and process to performance may have some explanatory power at the pre-organization stage. Degree, a structural variable; and frequency, a process variable, both interacted with pre-organization size to affect initial new organization growth. There are practical implications for entrepreneurs.