“Building Social and Financial Capital” Week 3 Blog Post

“Building Social and Financial Capital”

“Is now the right time?”  That is a question any new business owner has probably anxiously pondered prior to starting their operation. There are many factors that go into the decision of whether or not to start a new business.  “Do I have the passion for this business?” That is another question one should ask themselves. Probably at the top of the list of questions is whether or not one has the financial capital to start a business. Everyone realizes that financial capital is a must to start a business.  Many hopeful business owners have had sleepless nights trying to figure out how to raise the money to begin their entrepreneurial journey. There are many ways that a small business can gain financial capital.  “Bootstrapping” is seemingly the most common. This is where a small business owner will raise his own money through hard work. The owner might have a second job outside of their new business. The founder taking minimal or no salary in order for the business to develop is not uncommon in the beginning stage of many startups. Another way is to take out a small business loan. There are many programs available through the Small Business Administration. There are some disadvantages to SBA loans. There are usually strings and bureaucracy involved. Still another way to raise money is to beg and borrow from love ones. Tell them how important it is for you start your business and maybe they will help in the effort.

Few new business owners have considered the need for social capital. Having social capital might be considered axiomatic or maybe even taken for granted. Social capital is an intangible asset that a business can claim.  This kind of capital is gained through networking. It can be achieved through meeting potential clients at a chamber of commerce meeting. Through social media, there is an endless possible stream of social capital. It can be obtained through the owner’s years of experience in a particular industry. For example, someone who has worked for a plumbing contractor for several years decides to start his own operation. That person would bring contacts that he has gained over the years to his business. This might included home builders that he has met or homeowners that liked his work. 

Social and financial capital “go hand in hand.”  By adding partners to the business, one can increase both social and financial capital.  The new parter can bring additional financial assets to the table.  Social capital can be gained through new partners. Some people that the new partner is connected with might be known by the original founder, but many are not. Better costs might be realized by finding new vendors or new potential clients might be introduced. Additional partners might be able to bring in an angel investor. An angel investor is an individual who believes in your startup and is willing to invest some of their personal capital into your business.

Most entrepreneurs are naturally creative. By remembering the importance of social capital and how it relates to financial capital, a successful entrepreneur can use that innovative talent to expand their network. This network can be used to gain the financial capital their business needs to get off of the ground.

References:

The Founder’s Dilemmas:Avoiding and Anticipating the Pitfalls that Can Sink a Startup, Noam Wasserman, 2012

4 Reasons Social Capital Trumps All, Chris Cancialosi, Entrepreneurs, September 22,2014

4 Realistic Ways to Fund your Business, Forbes, Brent Gleeson, August 29, 2013

Differences Between an Angel Investor and a Venture Capitalists, Business.com, Will Jiang, August 28,2017