Without the deep reserve of funds available to corporations, start-ups are instead relying on informal networks to achieve their business goals

Having been involved with the Global Entrepreneurship Monitor (GEM) research for nearly six years, I knew the score when I started up my company. If you know an entrepreneur, you are more likely to set up a business. The value of knowing others who have been in similar situations to you and who bear the same battle scars cannot be underestimated. More than this, if there is a critical mass of people who are setting up business around you, then you are in an environment where setting up a business is the norm and, as a result, you are predisposed to setting up one yourself. In other words, entrepreneurial networks create a strong demand for entrepreneurship.

But entrepreneurs don't just use networks as a self-tutoring and coaching tool. They are more important than that. In a socially-networked and interdependent world, entrepreneurs connect with people who are engaged in activities and markets that create intangible and tangible value for everyone who engages in them. Some connections generate ideas and inspiration, some generate conversations that lead to new markets and opportunities and others spark action that turns the opportunities into business propositions. 

My business aims to promote entrepreneurship and its role in generating sustainable economic development—we're organising the World Entrepreneurship Summit in 2008. As a start-up, my resources are limited and I rely heavily on the loose collection of "mates" that I have around me. I have needed people to do logos and branding, to set up the website, to manage the accounts, to deliver the research and the reports and, more than anything else, to get the news out that this is what I am doing.

In other words, I cannot build my business without my network. It is my Human Resources department, my finance department, operations management, production-line, marketing department and everything else that a bigger and more established firm would have in-house.

Years ago, Oliver Williamson wrote a book called Market and Hierarchies. In it he argued that big companies will decide what is core to their operations and have those activities within their own hierarchy so that, through strategy, they have a degree of control over how core aspects of the business are delivered. Those activities that were non-core would be put out to the market and controlled through the nature of the contract with the supplier. Risk is minimised through the calculation of whether hierarchy/strategy or the market/contract best delivers the required result.

What has struck me over the past few months is just how relevant this approach is to understanding how entrepreneurs work as they grow their businesses. Entrepreneurs inherently deal with risk. They do not have a hierarchy—many work alone or with small groups of associates because the costs of growing a hierarchy are too high to merit the time it would take to develop an organisational structure. 

Instead, entrepreneurs have networks. But what is really interesting is that, particularly at the early stages of development, these networks are informal. People work together because of a shared, mutual interest in the outcome. Where there is a likely collective long-term benefit, entrepreneurs, like no other group of people I've worked with, will share their time, resources and energies to help. The material risks are borne by the business founder and the reputation risks borne by the network. It is in everyone's best interest to keep the reputation risks low, so everyone delivers the overall goal—which is often to make a difference or a change while also providing a financial return.

Entrepreneurs are driven, creative and goal-oriented. All have their own ideas about their business, how to grow it and, of no less importance, about where the gaps are and how to plug them. While they will hold on to the intellectual property that is their market opportunity, they will also cast their eyes about to identify the right people to work alongside them to make achieving that goal more likely. 

Rebecca Harding is managing partner of Delta Economics and a director of GEM UK.