Prior knowledge and social networks in the exploitation of ...

Int Entrep Manag J (2010) 6:481–501 DOI 10.1007/s11365-010-0136-1

Prior knowledge and social networks in the exploitation of entrepreneurial opportunities María del Mar Fuentes Fuentes & Matilde Ruiz Arroyo & Ana María Bojica & Virginia Fernández Pérez

Published online: 12 February 2010 # Springer Science+Business Media, LLC 2010

Abstract In this study we analyze the effects of prior knowledge and social networks on the exploitation of entrepreneurial opportunities. The prior knowledge considered is associated with the successes and failures experienced in the entrepreneurial trajectory and, therefore, derived from the exploitation of prior opportunities. In analyzing social networks, we examine the strength of the relationships between entrepreneurs, managers and entrepreneurial associations. As an explanatory factor of the entrepreneurial process, we also include the influence of the entrepreneurial opportunities recognized. Through a hierarchical regression analysis, we show that the number of potential opportunities recognized, the number of previous opportunities successfully exploited and the strength of entrepreneurial social networks positively influence the number of opportunities developed and exploited. Keywords Entrepreneurial process . Exploitation of opportunities . Prior knowledge . Social networks

Introduction The concept of entrepreneurial opportunity has been shown to be critical in the area of entrepreneurship. For many authors, the central question is defining the M. d. M. Fuentes Fuentes (*) : M. Ruiz Arroyo : A. M. Bojica : V. Fernández Pérez Faculty of Economics and Business, University of Granada, Campus Cartuja, s/n, Granada 18071, Spain e-mail: [email protected] M. Ruiz Arroyo e-mail: [email protected] A. M. Bojica e-mail: [email protected] V. Fernández Pérez e-mail: [email protected]

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entrepreneurial process, which consists of the identification, evaluation and exploitation of such opportunities (Eckhardt and Shane 2003; Venkataraman 1997). In fact, the study of the discovery and exploitation of opportunities suggests a promising focus, as well as a challenge for research on entrepreneurship (Buenstorf 2007; Shane and Venkataraman 2000). Although all aspects of the entrepreneurial process are important, in recent research, opportunity recognition has been acknowledged as a key aspect of the entrepreneurial process and a crucial initial step (Ozgen and Baron 2007). So, the factors affecting the identification of opportunities have received more attention (Ardichvili et al. 2003; Baron and Ensley 2006; Casson and Wadeson 2007; Gordon 2007; Ozgen and Baron 2007; Park 2005; Puhakka 2007; Singh et al. 1999; Shepherd and DeTienne 2005; Smith et al. 2009; Ucbasaran et al. 2007; 2009) than those affecting the exploitation of opportunities (Choi and Shepherd 2004; Choi et al. 2008; Davidsson and Honig 2003; De Carolis and Saparito 2006; Lee and Wong 2006) from both theoretical and empirical perspectives. While it is essential to study and identify the sources of opportunities, it is considered that the entrepreneur is not born until at least one of the opportunities detected is put into action as a business. As Shane and Venkataraman (2000) state, to discover an entrepreneurial opportunity is a necessary but not a sufficient condition for being an entrepreneur. The opportunity must be exploited. These are the opportunities that can contribute to the generation of economic growth. The results of studies by Mueller (2006; 2007) and Audretsch et al. (2006) indicate that regional variations in economic performance, measured in both gross internal product and labour productivity, can be explained by the different numbers of new firms, or startups. Therefore, the number of exploited opportunities is a substantial factor that accounts for the relationship between the entrepreneurial process and regional growth. The entire process depends, however, on the entrepreneur’s decision to act on an opportunity. Therefore, our study is focused on the final stage of the entrepreneurial process. As Ardichvili et al. (2003) argue, the most important factors that influence the recognition and exploitation of opportunities are the entrepreneur’s alertness to such opportunities, asymmetrical information and prior knowledge, social networks, the personality traits of the entrepreneur and the nature of the opportunity itself. There are few studies that analyze these elements in relation to exploiting opportunities. Choi and Shepherd (2004) find a positive relationship between the probability that an opportunity will be exploited and the kind of opportunity (proceeding from knowledge of clients’ needs, the existence of established technologies), greater management capacity, and stakeholder support. De Carolis and Saparito (2006) propose a theoretical model to explain the exploitation of opportunities, considering social capital as well as personal factors such as excess of confidence, the illusion of control, representativeness, and perceived risk. Lee and Wong (2006) relate exploitation of opportunities to the entrepreneur’s personality traits and perception of the environment. Roure et al. (2007) find that the number of new firms depends on the externalities of knowledge of a region and the entrepreneur’s possession of abilities and knowledge. Davidsson and Honig (2003) analyze the effect of social and human capital on the process of discovering and taking advantage of opportunities and on the success in creating new firms. Recently, Choi et al.

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(2008) introduce a new factor, the timing at which entrepreneurs stop exploring their business opportunities and start exploiting them. In this study we analize the effects of both prior knowledge and social networks on the exploitation of entrepreneurial opportunities. As an explanatory factor of the entrepreneurial process, we also include the influence of the entrepreneurial oportunities previously recognized. The role of prior knowledge and learning in the identification of entrepreneurial opportunities has received consistent attention in the literature (e.g. Corbett 2005; Dimov 2007; Dutta and Crossan 2005; Lumpkin and Lichtenstein 2005; Politis 2005; Smith et al. 2009; Ucbasaran et al. 2009) but not much in the exploitation stage of these opportunities. According to Shane (2000), three major dimensions of prior knowledge are important for the process of entrepreneurial discovery: prior knowledge of the markets, prior knowledge of the ways to serve markets, and prior knowledge of the customer problems. As prior knowledge involves certain previous entrepreneurial experience in general business, industry, marketing, product development, management, or in previous start-up, in this study, the prior knowledge considered is associated with the successes and failures experienced in the entrepreneurial trajectory. Therefore, we deal with the previous knowledge derived from the exploitation of prior opportunities. Ucbasaran et al. (2009) argue that entrepreneurs involved in the ownership of multiple businesses (i.e., habitual entrepreneurs) may accumulate experience, which can be leveraged to identify subsequent business opportunities. Moreover, these authors note that few studies have specifically explored the relationship between entrepreneurs’ prior business ownership experience and their subsequent opportunity identification and explotaition behaviour. In addition to the prior knowldge, different studies of social networks have demonstrated the importance and variety of social networks in the entrepreneurial process. One key benefit is access to information and news (Hoang and Antoncic 2003). Networks provide useful information for business and problem-solving, as the contacts provide multiple resources. However, as Ozgen and Baron (2007) suggest, while family and close friends play an important role in several aspects of the entrepreneurial process (e.g., their emotional and financial support is often crucial to entrepreneurs’ decision to proceed), they often lack industry-specific knowledge and experience. Also, Singh et al. (1999) argues that a large social network with many ties going beyond close friends and family relates positively to idea identification and opportunity recognition. Therefore, in this study, complementary to prior knowledge derived from the learning process in the entrepreneurial trajectory, we consider that the entrepreneur needs to solidify relationships with other entrepreneurs, managers and entrepreneurial associations, from which he or she can acquire information relevant to detecting new opportunities and can gain access to critical resources for the exploitation of these opportunities. Examining prior knowledge and entrepreneurial social networks together enables us to learn more about the role that entrepreneur’s level of prior knowledge plays in improving his or her ability to evaluate and use external knowledge when exploiting new market opportunities (Cohen and Levinthal 1990). Shane (2003) argues that prior experience in setting up businesses provides information and abilities that increase the opportunity of exploiting new initiatives. In general, prior experience

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contributes to stimulating the entire process of entrepreneurial opportunities, through the knowledge and abilities derived from experience and by the expansion of social networks. An existing business can therefore be a source of new business ideas both in it self, through the entrepreneurs experience with it, as well as through the network of contacts developed by managing the business. McGrath (1999) argues that entrepreneurs with access to a large end well-functioning network, for instance through an existing business, probably will have access to a large number of good “shadow options”. Further, our research takes into account the number of possible opportunities recognized, a factor that incorporates equally the effect of both variables, prior knowledge and social networks, and that enables consideration of the entrepreneurial process as a whole. Therefore, we propose the following research questions: Does the number of opportunities exploited depend on the potential opportunities recognized? Does the number of opportunities that an entrepreneur develops and exploits depend on the success and failure of his prior business ownership experience? Does the strength of the social networks with other entrepreneurs and managers influence the number of opportunities exploited? This study is structured as follows: We first perform a theoretical review of the entrepreneurial process, which focuses on the identification and exploitation of opportunities, prior knowledge and social networks. This review lays the foundations for formulation of the hypotheses. Secondly, we explain the research methodology and statistical analyses. Finally, the last two sections present the results and the main conclusions.

Theoretical review and hypotheses Process of identifying and exploiting opportunities Entrepreneurial opportunities are those situations in which new goods, services, raw materials, and organizing methods can be introduced and sold at a greater price than their cost of production (Casson 1982). From a purely economic point of view, a question of vital importance arises concerning the existence of inefficiency in the system: If opportunities exist, why are they not exploited? The answer is clear: the process of identifying and subsequently exploiting opportunities is complex and involves some “discovery costs” (Casson and Wadeson 2007). This is one reason why different perspectives in the study of opportunities (economic, strategic, entrepreneurship) are complementary and must be considered together. For an opportunity to be developed and exploited, it must exist as a potential opportunity. But different authors disagree regarding the meaning of this concept and its origins. For one group of experts, the opportunities are there, waiting to be discovered (Kirzner 1973; Casson 1982; Shane 2003; Casson and Wadeson 2007). For others, one must consider the perspective of creation of the opportunity (Aldrich and Ruef 2006; Gartner 1985); as a result, the opportunities do not exist until the entrepreneur develops a repetitive process of action and reaction. One of the theoretical debates proposed in the literature turns on the theory of the discovery, as opposed to the theory of the creation, of opportunities. In the first case,

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different sources can lead to the existence of an opportunity (Holcombe 2003): imbalance in the market (change in preferences), factors that create new production possibilities (elimination of administrative restrictions, technological advances) and entrepreneurial activity (opportunities that come from the activities of other entrepreneurs). The latter is the most significant source of opportunities. Buenstorf (2007) expands this perspective of “entrepreneurial activity as a source of entrepreneurial activity,” speaking simply of “human activity”: opportunities are frequently an unintentional result of human activities motivated by other goals (sometimes non-economic ones). From the theoretical perspective that focuses on the discovery of opportunities, the entrepreneur is not given a passive role: the opportunities exist as objective realities but need the creative action of the entrepreneur to be discovered (Shane 2003). The potential opportunities are new forms of creating goods and services not noticed until that moment; individuals, acting alone or within an entrepreneurial organization, perceive a way to create a new relation between means and ends, a way that until that moment had been unknown or unseen (Choi and Shepherd 2004). Outside the creation-discovery debate, some authors choose to accept both perspectives (Ardichvili, et al. 2003), considering that the term “recognition” is not merely the process of becoming noticing an opportunity, but that it involves perception, discovery and creation equally. The idea of “recognition” is taken up by Lumpkin and Lichtenstein (2005), who determine that the process of recognizing opportunities is composed of two stages of discovery and formation of the opportunity. Finally, the way the author understands the emergence of the opportunity (creation or discovery) will lead him or her to define the identification, evaluation and subsequent exploitation of the opportunity differently (Companys and McMullen 2007). After identifying the opportunity, the entrepreneur proceeds to evaluate the potential opportunities. Many authors consider this phase to be parallel to the first one (Ardichvili et al. 2003), since in the identification phase following recognition, the opportunity must be made concrete and precise in the sub-stage of development, with the opportunity being evaluated (more or less articulately) in each step. If the entrepreneur evaluates the opportunity positively, the next step is exploitation. These authors identify two ways of exploiting the opportunity: creation of a new firm and exploitation of opportunities within an existing firm. The successful creation of a business is preceded by a process of successful development of opportunities that includes recognition and evaluation of the opportunity as well as its actual development (Ardichvili et al. 2003). The process described is extremely complex, as not all of the opportunities discovered are put into practice. According to Venkataraman (1997), this is due to the characteristics of both the opportunity itself and the individual. First, to exploit the opportunity, the entrepreneur must believe that the value of expected benefit is sufficient to compensate the opportunity cost of other alternatives. The entrepreneur’s considerations about the costs related to obtaining the necessary resources and his or her perception of risk and level of optimism also influence this analysis, as do other factors. That is, one must consider all of the factors related to the entrepreneur as an individual and, although they condition the probability of exploitation of opportunities, it is also clear that, the greater the number of potential

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opportunities recognized, the more likely that a greater number will be put into practice. Therefore, H1: The number of potential opportunities recognized has a positive effect on the number of entrepreneurial opportunities exploited. Prior knowledge and exploitation of opportunities Research on the relationship between knowledge and entrepreneurship has focussed on the role of the individual’s or firm’s prior knowledge in the entrepreneurial process, that is, their role in the discovery, evaluation and exploitation of opportunities. The key question, “why people discover certain entrepreneurial opportunities and not others,” has been answered both theoretically and empirically: people recognize opportunities related to their prior knowledge (Venkataraman 1997; Shane 2000). What is more, setting up a company to act on an entrepreneurial opportunity is assumed to be a mechanism for the dissemination and exploitation of knowledge (Mueller 2007). Knowledge has been defined as a “true and justified belief.” This means that individuals justify the truth of their observations based on their sensibility, experience and each individual’s unique perspective (Nokata and Takeuchi 1995). A person’s knowledge is based on different mixes of life experience and on the nonuniform distribution of information in society (Hayek 1945; Kirzner 1997). According to Venkataraman (1997), each person’s idiosyncratic prior knowledge creates a “cognitive pathway” that enables him or her to recognize and exploit certain opportunities and not others. As a result, although information about a technological change is within the reach of many people, only some possess the prior knowledge that enables them to discover an entrepreneurial opportunity and then to exploit it. Our study focuses on the idiosyncrasy of personal/entrepreneurial knowledge, the result of a unique implication of work experience, education or personal events (Venkataraman 1997). The individual plays a key role in the entrepreneurial process, such that this process cannot be explained only by factors external to the individuals and firms, such as competition. Shane (2003) argues that general business experience, industry experience, functional experience in marketing, product development or management, and previous start-up experience, all provide some of the knowledge and skills that increase the likelihood of opportunity exploitation.The prior knowledge considered in this research refers to that derived from the experience of business exploitation, both successful and unsuccessful. Prior entrepreneurial experience can, of course, involve both success and failure, and both situations result in learning and hence knowledge. Various studies have shown that the entrepreneurs involved previously in setting up a business are more successful in creating and managing new firms (Politis 2005; Starr and Bygrave 1992; Wright et al. 1998). Carroll and Mosakowski (1987) argue that in these cases the probability of exploiting new entrepreneurial opportunities increases, given that the learning derived from the prior experiences reduces the costs related to this endeavour. As a result, individuals with more experience in setting up businesses should see a specific opportunity as more desirable than it is for others, making it more likely that they will exploit it (Shane 2003).

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As Politis (2005) indicates, the nature of learning achieved in an entrepreneurial context is related to accumulated experience. Experience in setting up entrepreneurial initiatives provides those involved with greater information about the sources of entrepreneurial opportunities and, beyond this, enhances the probability of exploiting them successfully. Such knowledge reduces the entrepreneur’s uncertainty and risk aversion regarding new initiatives. More specifically, Corbett (2005) examines experiential learning within the context of opportunity identification and exploitation to better understand the entrepreneurial process. This author suggests that different learning styles may be more or less effective during the different stages of the opportunity identification and exploitation process. In the case of opportunity exploitation, the individuals who tend toward an accommodative learning preference will be more likely to successfully exploit working prototypes than their counterparts who tend toward divergent, convergent, or assimilative learning. Accommodative learning implies the use of experience and experimentation to carry out plans, seek opportunities, get involved and take action. Thus, the exploitation of an entrepreneurial opportunity becomes simultaneously a mechanism of dissemination, exploitation and creation of knowledge (Plummer et al. 2007). The topic of entrepreneurial success and failure has awakened substantial interest in researchers, although without proportional rewards: although the data accumulated show that a high proportion of new businesses do not survive the first year of their creation, most of the studies analyze the successful situations and the factors that determine them. In the definition of the entrepreneurial process, the assumption of risks has been treated as an underlying dimension. Society seems to value this attitude, but not when it ends in failure (McGrath 1999). The general perception that entrepreneurial failure is negative—a view expressed not only on the social level but also in scientific circles—translates into prejudices in both theory and research on entrepreneurship (McGrath 1999). A deeper understanding of this phenomenon is critical for understanding the entrepreneurial process. The studies that have examined entrepreneurial failure have primarily analyzed its causes (Bruno et al. 1992; Zacharakis et al. 1999). More recently, authors like Petkova (2008), Shepherd (2003), and Minniti and Bygrave (2001) call attention to the learning generated by entrepreneurial failure. For these authors, learning from failure is a key characteristic in the entrepreneurial process that can contribute substantially to success in exploiting new opportunities, as it enables the entrepreneur to analyze and specify the reasons for failure. Failures reduce uncertainties that were previously unpredictable and stimulate entrepreneurs to continue searching to explore new opportunities, as these entrepreneurs have greater learning derived from experimentation (Sitkin 1992; Singh 2007). Thus, differentiating between businesses initiated that have ended in success and failure enables us to study this kind of prior knowledge in the exploitation of new entrepreneurial opportunities in greater depth. From this preliminary evidence, we formulate the following hypotheses: H2: The number of successful businesses previously started influences positively the number of entrepreneurial opportunities exploited. H3: The number of unsuccessful businesses previously started influences positively the number of entrepreneurial opportunities exploited.

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Entrepreneurial social networks and exploitation of opportunities The study of entrepreneurs has traditionally focussed on evaluating specific personal characteristics based on personality, experience or management abilities. In relatively recent studies, however, researchers have begun to see this view as incomplete. Entrepreneurs can also enhance their success through the benefits derived from social capital or networks of contacts (Anderson 2008; Hoang and Antoncic 2003; Johannisson 1988, 2000; Shane and Cable 2002). Many academics have emphasized that entrepreneurs with experience have acquired valuable knowledge through relevant contacts. This knowledge benefits them and makes it easier to detect and take advantage of entrepreneurial opportunities (Shepherd et al. 2000; Starr and Bygrave 1992). Social capital provides networks that facilitate the discovery of opportunities such as the identification, collection and locating of scarce resources (Uzzi 1999). Likewise, social contacts provide critical resources for the exploitation of opportunities, resources such as better access to financing sources, commercialization channels, production systems, etc. According to Alder and Kwon (2002), social capital provides benefits to entrepreneurs that range from information and influence to solidarity. De Carolis and Saparito (2006) synthesize two effects of social capital that are relevant for entrepreneurs: information and influence. Access to entrepreneurial organizations, for example, can contribute to obtaining information relevant to businesses or sectors. The results concerning influence are derived from the obligations accumulated with others and the force of these commitments over time. Johannisson (1988) establishes that an important difference between entrepreneurs is whether or not they possess a diverse personal network (acquired from previous business experience or in some other way). When an experienced businessman looks for new options, he can “manage” his personal network by using it in several ways: as a generator of new ventures, as an evaluator of proposed new projects, or as a safety-net for ventures being launched. The size and strength of networks are two main variables whose influence on information flows has been subject of debate. The size of networks is important, because every link to other people represents an information channel. Those with wider networks enjoy greater access to more or less redundant information, which makes it more likely that they will take advantage of new opportunities or the emergence, combination or recombination of new ideas (Burt 2004; Obstfeld 2005). Strength represents the frequency of communication or interaction and the emotional intensity or closeness of the relationship (Fischer 1982; Hansen 1999; Reagans and McEvily 2003). Therefore, strong relationships facilitate detailed exchange of information (Granovetter 1982; Krackhardt 1992; Uzzi 1996), since they are characterized by frequent interaction, a common history and mutual trust (Granovetter 1982). This means that they require more maintenance but provide higher-quality information. In such relationships, one tends to transfer private knowledge and to commit oneself to exploratory learning (Uzzi and Lancaster 2003) which facilitates the development and exploitation of opportunities seized from the environment. In the case of weak networks of businessmen, friends or government, entrepreneurs can find new ideas or perspectives that help them generate or support new ideas or opportunities (Aldrich and Zimmer 1986). Maintaining strong networks with other entrepreneurs or managers encourages efficiency in the use of resources.

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For Davidsson and Honig (2003), entrepreneurs with networks in their own communities can utilize their individual and social capital, achieving the discovery of successful activities that those without such contacts cannot. Singh et al. (1999) have found a relationship between the number of opportunities recognized and the existence of weak relationships between the members of the network. Ozgen and Baron (2007) analyze the influence of social sources of information in recognizing opportunities and find that there is a positive effect of trust on informal industry networks and participation in professional forums and the recognition of opportunities. The exploitation of opportunities involves how resources are organized and mobilized to carry out the opportunity chosen (Baker et al. 2005). It is in this stage that the strength of the network, more than the size, is an essential factor in acquiring valuable resources for exploiting opportunities. When the network with other entrepreneurs, managers and entrepreneurial associations is strong, the quality of the information obtained from the network will be greater and the perceived risk or uncertainty smaller. The greater strength of the network reduces the level of uncertainty generated by the external dependency on critical resources (Pfeffer and Salancik 1978), since entrepreneurs can in some cases obtain them under more favourable conditions or simply be certain that the resources will be provided. Second, strong links enable access to first-hand information and strategic opportunities, derived from the interests, operations or agendas of other firms (Burt 1983). Finally, the strong links with other entrepreneurs and managers confer greater legitimacy and improve their status (Galaskiewicz 1985; Lechner et al. 2006). Having good contacts is a sign of management quality and improves a firm’s attractiveness to many groups of key interest for the firm, such as clients, employees or providers. Davidsson and Honig (2003) find that the existence of strong networks in the start-up stage seems to influence the persistence of new entrepreneurs to continue in giving form to their activities. Bruderl and Preisendorfer (1998) find that strong links are more critical than weak ones for explaining the success of firms and their survival. Starr and MacMillan (1990) also suggest that the attention provided in strong networks can be more important in the start-up stage or in the growth of the new firm. In conclusion, entrepreneurs’ networks of strong contacts with other managers, entrepreneurs or entrepreneurial associations can lead to important benefits of considerable strategic value that enable the exploitation of a greater number of opportunities. Given all of the above, we propose the following hypothesis: H4: The strength of social networks of entrepreneurs with other entrepreneurs, managers, and associations of entrepreneurs influences positively the number of opportunities exploited.

Methodology Sample To contrast the hypotheses proposed in the study, we chose a sample of 2,793 entrepreneurs that were owners or founders of firms in Andalusia, a southern region of Spain. One part of the contact data was provided by the Agency for Innovation

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and Development in Andalusia and the Association of Young Entrepreneurs of Andalusia. The rest of the data were obtained from public directories of businessmen and entrepreneurs. During the period December 2007–February 2008, we administered a questionnaire through three media: 1,680 questionnaires were sent by email, 505 by fax and 608 by telephone contact. In all cases, we explained the research goals to the interviewee. The telephone surveys were performed by a specialized firm with a computer-aided survey system (CATI). Of the total questionnaires sent, 66 responses were received by mail 25 by fax and 150 were conducted by phone. Totally, we received 242 answers that correspond to a global response rate of 8.6%. After we eliminated one incomplete questionnaire, the number of surveys used in the study was 241. We used an analysis of variance procedure in order to see if there are significant differences in the data received through the different means of collection employed. No significant differences at 0.05 level were found between mail, fax and phone returned surveys for the number of exploited opportunities (F=0.842; sig=0.842), success (F=1.004; sig=0.368) and failure (F=0.369; sig=0.692) of businesses started previously and the strength of entrepreneurial social networks (F=0.244; sig=0.784). Using the SABI database, we also checked for non-response bias. From this source, we were able to collect archival data concerning the total investment and the number of employees of the responding and a sample of 30 non-responding firms. The mean differences between the responding and non-responding companies along these dimensiones were tested using an unpaired t-test. The results demonstrated that all t-statistics were non-significant at the 0.05 level (investment: F=1.846; sig= 0.176;number of employees: F=2.618; sig=0.111). The descriptive analysis of the sample showed that 83.8% of those surveyed were the founders of the business and that 87% performed managerial tasks in their businesses. The demographic characteristics indicate that 71.5% were men and the rest women, that 37% were 35 years old or younger, 44.1% from 36 to 55, and the rest over 50. Finally, 51.5% indicated that they had studied at a university. As to motivation for starting a business, 50.6% stated that they had started their business due to necessity or in order to be self-employed, 44.8% to take advantage of an opportunity that they had evaluated as profitable, and 4.6% for other reasons. Measurement of variables Dependent variable The number of opportunities exploited was measured with one item similar to that proposed by Singh et al. (1999) for recognizing opportunities: Based on the opportunities that you have recognized in the last year, how many potential business opportunities have you developed and exploited? The respondents chose a number between 1 and 7, one from 8 to 10 or over 11. The choice of 8–10 was codified as 9, and those of over 11 as 12, a conservative estimate of the number of opportunities exploited. Thus, the measurement has a range of 0–12. This conservative codification of business opportunities is consistent with other studies (Singh et al. 1999; Gordon 2007; Ucbasaran et al. 2009). Independent variables To measure the number of potential opportunities, we used the following item from Singh et al. (1999): Based on the ideas that you have had in

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the last year, how many potential business opportunities have you recognized? The scale used was the same as that described for the dependent variable. In relation to success and failure of businesses started previously, we formulated the following two questions: Indicate the number of businesses that you have started before this one (by yourself or with others) that have succeeded, and indicate the number of businesses that you have started before this one (by yourself or with others) that have failed. The strength of entrepreneurial social networks: Strength of the links is usually measured as a composite dimension. Depending on the authors, different factors tend to be considered in its composition. Granovetter (1973, p. 1361) defines strength as a “combination of the quantity of time, the emotional intensity, intimacy (mutual confiding) and reciprocal services that characterize the tie.” Many authors make this definition operational by measuring strength through two variables (Marsden and Campbell 1984): the frequency of communication or interaction and the emotional intensity or closeness of the relationship (Fischer 1982; Hansen 1999; Reagans and McEvily 2003). Other authors add another variable to its composition; for example, Collins and Clark (2003) stress the duration of the relationship. In this study, we have considered the first definition to be the most interesting, that measuring frequency and intensity. Information on the frequency of the relationship was provided by the interviewees’ responses to the question, “On average, how frequently do you communicate with each group”? Emotional intensity was measured through the response to the question, “On average, how would you classify your relationship to each category?” In both cases, we provided a Likerttype scale of seven points. Interviewees could respond to the first question with a range of values, where 1 is “very frequently” and 7 “infrequently.” For emotional intensity, 1 is “distant” and 7 “very close.” Taken together, strength was measured as a linear combination of the standardized point values of the two components of the link’s strength (Collins and Clark 2003). The Cronbach’s Alpha of 0.857 shows very acceptable levels of internal consistency. Control variables Given that the number of businesses set up can be conditioned by one’s experience as a entrepreneur we considered this experience as a control variable and have measured it by asking the number of years as a entrepreneur. In the same way, prior experience in the sector has been considered in previous studies as a variable related to the entrepreneur’s human capital and a determining factor in establishment of business initiatives. The last control variable considered was the condition of being the son or daughter of a entrepreneur, a negative response taking the value of 0 and a positive response that of 1. This variable has received less consideration in prior studies, although the knowledge, experience and contacts that the children of businessmen can have could be a factor that determines whether they exploit a greater or lesser number of opportunities. Prior studies such as that of Davidsson and Honig (2003) have considered these three variables.

Analysis and results As the first part of the analysis, Table 1 shows the means, standard deviations and correlations between the variables considered in the study. This table also confirms

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Table 1 Means, standard deviation and correlations of the variables Mean SD

1

2

3

1. Opportunities exploited

1.60 2.02

–

2. Potential opportunities

3.14 3.11

0.619**

–

3. Successful businesses

1.08 1.87

0.359**

0.260*

4

0.30 0.73

0.167*

0.152*

0.471** –

5. Strength of entrepreneurial social networks

4.35 1.43

0.293**

0.253*

0.119

10.89 9.84 −0.065

7. Years of prior experience in the sector

10.62 9.92 −0.060

8. Son/daughter of entrepreneur

0.39 0.49

0.084

6

7

–

4. Failed businesses

6. Years as a entrepreneur

5

0.230** –

0.205** 0.205** 0.202** 0.023 – −0.130*

0.014

0.050

0.005 0.391**

0.071

0.129

0.018

0.024 0.074

–

−0.220**

*p