Understanding Enterprise

Entrepreneurship and Small Business, fourth edition

by Simon Bridge and Ken O'Neill

Case study: chapter 13

Return to full list of case studies.

The Conscise project looked at different definitions of social capital to identify elements under six headings which fell into the three categories of trust and reciprocity, shared norms of behaviour, and effective information channels. Identify and categorise the different forms of social capital from the following case study
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Victor, Scott and James were all product designers that specialised in designing environmentally friendly products and had worked on various projects for Bio Solutions, a medium-sized organisation based in Dublin. The trio had known each other for years and in their spare time had been working on a water sanitation device that required no electricity, was easily transportable and produced no by-products harmful to the environment. While working on the project in Scott's garage the three inventors were putting the finishing touches to their prototype and began to discuss the next step forward. It was suggested by James that the infrastructure already in place at Bio Solutions would mean that they could get the product to market quickly if they were willing to relinquish control over certain aspects of the overall direction in which the product would develop. Scott was not so sure. All the men agreed that the product certainly had commercial applications and as Bio Solutions was a private, for-profit organisation, they would be obligated to exploit these opportunities rather than focus on providing the product for the areas in greatest need in a commercially viable way as the three had initially intended. It was agreed that in order to accomplish their objectives that they would have to establish their own enterprise, Green Tech.

Step one was to raise some capital in order to further develop and test the product in order to start contacting the relevant organisations that would help them get the product off the ground. None of the men were overly enamoured with this side of the business. They called in Roy, an accountant friend from university with whom they had stayed in touch. After listening for half an hour to technical jargon that made little sense to him, Roy politely asked his college friends simply what the product did and who it was for? Victor explained that it was a device that could be used in remote areas and disaster zones to purify water without the use of electricity. Roy was intrigued. Having volunteered in his gap year he was aware of the problem that was being addressed and took an interest in the enterprise. He asked the inventors for a few days in order for him to think about the best way to secure some funding and promised to contact them later in the week. When asked about his hourly fee he told them not to worry about it as the product was something that he believed could be of great benefit to many. After more investigation Roy returned and said that, due to the significant initial outlay of cash needed and the risk involved, the venture would have to secure funding from a number of sources mainly consisting of the bank, private investors and a grant scheme that he had come across that funded green energy- and technology-based projects. The Green Tech men were excited that the enterprise was beginning to look viable and appointed Roy as their accountant due to his knowledge of the need for the product and appreciation for what they were trying to accomplish.

Victor remembered a project that he had worked on funded by a retired local businessman called Terry who had asked him to develop a specialised pump for an irrigation system a few years back. Terry was passionate about the environment and since his retirement had funded a number of green programmes around Ireland with different degrees of success. Knowing that he was going to be present at the 'Sustainable Future' exhibition for green energies in the RDS next month, the three sat down with Roy in order to formulate a business plan to show him.
On the day of the exhibition Terry was presented with the business plan and was asked whether or not it would be a project he could be interested in. Although the enterprise was on a much larger scale than anything Terry had been part of previously, he was eager to be involved but due to the amount of investment required he was going to need to gather a group of likeminded acquaintances to gauge their interest. A few days later Victor, James and Scott got a call from Terry asking if they were available to meet a group of potential investor friends of his in order to discuss the proposed enterprise further. After a two hour meeting it was agreed that the opportunity in front of them was one that had a lot of risk for relatively little reward. That said the group of investors were still intrigued, and following reassurance from Terry, they agreed to see it as more of an act of philanthropy than an investment and were on board, so Green Tech had the go ahead. The owners were well aware of the fact that it could be a while before the business started to generate revenues and as a result knew that they would have to secure a bank overdraft and apply for the grant identified by Roy. James agreed to take the lead on completing the grant application while Victor and Scott dealt with the bank which proved to be slightly easier than anticipated. The bank manager was not only impressed with the credentials of the inventors in their own right, but was also very familiar with a number of the backers of the enterprise who were important clients for the bank. Having secured the overdraft they checked in with James who had been struggling with the application until consulting a former colleague, John, who was very familiar with the application process having worked for a major funding body for a number of years before he retired. He was able to advise James exactly how to match the merits of his new product with the necessary criteria and within a week he had the application submitted.

While waiting for a response regarding the grant, Green Tech began to source materials and a producer that would be willing to manufacture their system. Dan had been a childhood friend of Scott and although the two rarely saw each other, they would cross paths from time to time. In addition to being a friend of Scott's, Dan had also been busy over the years building his business which mainly made plastic containers and similar products for a number of customers on a national basis. Having arranged to meet for a coffee, the two discussed the design of Green Tech's product and if Dan could facilitate them in making it. The problem arose that the initial volume that Scott proposed was hardly worth Dan's time although as it would still result in a modest profit he agreed on the basis that if the company was successful, he would be in line for the larger orders. Scott agreed and he and his fellow owners worked tirelessly over the next few weeks testing the prototype and making alterations where necessary to ensure that the first batch of water purifiers are ready for the market.

Once the grant had been confirmed the trio were now certain that Green Tech had the necessary resources in place in order to enter into the market. Scott, Victor and James all took the significant step of resigning from their positions in order to dedicate all their time to the enterprise. With the funding now in place and the prototypes tested and improved, the trio were able to begin mass production and start their journey trading as Green Tech.

Identify and categorise the different forms of social capital apparent in the case study.

Suggested Solution

Trust

  • One group of people that perhaps demonstrated the greatest degree of trust was the initial investors. While all the inventors were well known in the industry and had a very credible portfolio of products already designed and in the market, the investors were still faced with a prototype rather than a finished article. Terry, having dealt with Victor in a previous occasion was instrumental in gathering the group of potential investors together to even consider the proposal which is an important example of the use of social networks (see next section). With the trust that had been previously established it could be argued that the trio would have found it difficult to have access to this group of investors without the use of social capital.
  • When dealing with the bank, we can again see social capital at work. The involvement of such high profile investors as well as the reputation of the three owners made it a lot easier for the trio to secure the overdraft that they required in a time when banks were less than eager to lend. It is unlikely that an enterprise with a product still at a relatively early stage of development, would be able to secure an overdraft without the added credibility of the investors behind them. There was a degree of trust shown by the bank based on the combination of the individuals involved.

Formal and informal social networks

  • The group effectively used a number of networks in order to accomplish their goals. Victor used his connection with Terry to try and secure funding and ultimately access a network that was external to the group in the form of Terry's acquaintances. This is a resource that would have been inaccessible to the young enterprise and certainly would not have appeared in any form of a business plan.
  • Although the Green Tech owners approached the bank by themselves, the fact that the manager was aware that the project had the backing of a number of high-profile clients meant that the group were, to an extent, trading off the names of their investor contacts.
  • Looking at the examples of using their own more immediate networks, the owners of Green Tech, being aware of their own limitations, contacted their college friend Roy for advice on forming the company and through accessing his expertise they became aware of the grant available that allowed them to start mass production.
  • As the business was starting off with an experimental batch of product, it was always going to be difficult sourcing a manufacturer to produce the product. Using his contact, Dan, Scott was able to agree that Dan would produce the purifiers in exchange for the contract to do so again if the enterprise took off.
  • John's experience proved invaluable in determining what the funding body was looking for and was a key reason why Green Tech secured the grant and ultimately was able to go into mass production.

Reciprocity & mutuality

  • Roy was initially asked as a friend casually to look at the proposed enterprise although through his research into the grants available, he helped the business on its way and in doing so secured a client in Green Tech.
  • It is clear to see that the social capital in this case is reciprocal. Dan, through his initial act of goodwill, will benefit from receiving a contract from Green Tech should the company manage to take off. Although there are no immediate benefits for Dan it is not necessarily the case that social capital has to be simultaneously realised by both parties in order to be reciprocal.

Shared norms of behaviour

  • It is clear that the three individuals displayed the same behaviours from the very beginning. Rather than offer the product purely for profit, they were eager to keep control over how all the purifiers would be offered to the market. In addition to merely sharing the attitudes of one another the behaviours of the men also mirrored each other. Working through the night to test prototypes and giving up their spare time in the development stage all illustrate behavioural norms that gelled the group together.

Shared commitment & belonging

  • It was clear that the investors were aware of the complications in taking an equity position in an organisation that is established with such a noble cause. Removing funds from the business in the form of dividends would ultimately reduce the ability of the organisation to accomplish its goals. It was for this reason that they saw the opportunity more as a charitable act than a business decision and through their actions reflected the commitment evident in the Green Tech owners.
  • Roy, through his past experience volunteering in areas that could have benefited from the purifiers, took a personal interest in the business to the extent that he initially examined the financial requirements of the enterprise without charge and even went to the trouble of researching grants that may be available to Green Tech.
  • Finally the entrepreneurs themselves showed a major commitment to the project by leaving their secure jobs in order to concentrate full-time on their business.

Effective information channels

  • John gave the entrepreneurs a specialised knowledge regarding the grant application process from which they may otherwise not have benefited.
  • Their accountant Roy was able to identify the grant opportunity that permitted them to start mass producing the product.
  • Terry provided Green Tech with access to investors who may not have otherwise invested.