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Exploring the Limits of Social Connections in Entrepreneurship: Friends as Shades

Exploring the Limits of Social Connections in Entrepreneurship: Friends as Shades

Mar 22, 2011

Could having friends be bad for business? In the first installment of this two-part series, we explored social dynamics that could “turn friends into chains.” In this second article, we focus on a more subtle and perhaps more harmful aspect of social connections: their blinding potential.

In social network research, the idea that social connections have a cognitive effect is an established fact: they are a prism through which one sees the world (Podolny 2001). It may be worth keeping in mind that prisms do not only reveal new aspects of the world, but that they can also distort perception.

Think differently. Have no friends.  

Researchers are far from being in agreement over the idea that social relationships have a positive impact on creativity.

For instance, consider network structure. While many researchers have argued that being connected is great for creativity because it allows exposure to more information and perspectives (Burt 2004), a growing number of studies note that many of the most original and disruptive ideas in industries as well as in science come from outsiders (Perry-Smith 2006; Fleming 2007). The latter idea is old but still very relevant for entrepreneurs today: individuals who are too embedded inside a particular set of relationships (especially if they are homogenous) tend to find it harder to have original ideas. New research from HBS Professor and MIT alumn Karim Lakhani finds that the best ideas in InnoCentive’s competitions typically come from isolated individuals, especially women scientists (Jeppesen and Lakhani 2009).

What about collaboration? Again, no real consensus exists. A stream of research that is particularly developed among organization scholars has argued that collective work is more creative because it can involve individuals from different backgrounds and these divergent origins may inspire the collaborators and push them to make better decisions (Hargadon 2003; Hargadon and Bechky 2006; Singh and Fleming 2010). In contrast, a long-standing research stream in brainstorming (psychology) literature has repeatedly found that people working in groups are actually less creative than the same number of individuals working separately (Allen and Hecht 2004). Groups tend to be unproductive for several reasons: the flow of conversation is often chaotic (Nijstad, Stroebe, and Lodewijkx 2003), some people do not dare speak out of fear of being judged (Diehl and Stroebe 1987), and group members tend to focus on consensual ideas (Stasser and Birchmeier 2003). Current research by one of this article’s authors with MIT Sloan Professor Fiona Murray, finds that – at least in scientific research (and as measured through citations) – the cost of collaboration seems to outweigh the benefits (Bikard & Murray, 2010).  

Do you really know what is best for you?

Beyond the issue of following the consensus, connections can also blind an individual by leading him or her to be over-confident about the abilities of their friends.

Familiarity tends to produce a bias in people’s evaluations of products and other people (Zajonc 1968). For this reason, potential investors are likely to consider entrepreneurs that they have prior experience with to be more capable and more honest—thereby increasing their willingness to invest in them. Sorenson and Waguespack’s (2006) study of the feature film industry is particularly revealing. Firm distributors exhibit a strong tendency to allocate more resources to films produced by those with whom they have had prior interactions, “approving larger production budgets, marketing these films more heavily and scheduling them on more attractive release dates” (Sorenson and Waguespack 2006, 583). On the surface, films by producers with a prior relationship to the distributors appear to outsell others. But in reality, once the resource allocation process is controlled, these films actually perform worse at the box office!

It is natural for one to perceive his best friends positively and to want to choose him as a business partner. After all, friendship brews not only familiarity, but also trust and emotional attachment. Such trust and confidence often create blind spots in one’s vision and leads a person to search locally rather than globally for business partners and economic resources. Studies have found that most entrepreneurial teams are composed of groups with strong personal ties, such as family members and workplace friends (Martin Ruef, Aldrich, and Carter 2003). These strong-tie teams often underperform weak-tie teams (M. Ruef 2002), particularly in sectors of technological innovation (Greenberg 2009). This result is fairly understandable, since people with strong ties usually share the same work experience and social circles and consequently possess redundant information that is no good for “creative recombination.” Uzzi further finds that while entrepreneurs benefit from moderately strong relationships with bankers, they are disadvantaged when these ties are too strong because they stop considering external options.

In other words, when relations determine the choice of business partners, society as a whole, in addition to the actors selecting partners, suffer as they pass over more able parties (Siegel 2007).

Beware of the blinding effect of social connections!

It has become a cliché to think of the business school student as a smartly-dressed young go-getter handing out his or her business card. The purpose of this article (and the previous one) is to highlight the potential (hidden) downsides of social connections in entrepreneurship. We believe that the “social capital” metaphor (Burt 1992) could, in fact, be deceiving, since social relationships cannot—and should not—be accumulated like money.

Let’s be clear. We do not believe that entrepreneurs need to be loners, totally isolating themselves from the world in order to be successful. However, we do take issue with the excessive glorifications of social relationships and collaboration. With social connections, as with many other aspects of life, more is not necessarily better.



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