The purpose of this paper is an investigation on how small business owners rely on their “social capital” to seek information to decision making on marketing issues. The methodology used was bibliographical research and in-depth interview with two small IT (Information Technology) companies. The study showed that social capital is critical to build “market intelligence” and to decision making about marketing, especially in the small business environment.

1. THE IMPORTANCE OF SOCIAL CAPITAL
FOR SMALL BUSINESS OWNERS:
AN ENTREPRENEURIAL MARKETING
APPROACH FOR DECISION MAKING
Cristiano Tossulino Machado
Boston – August 2013

2. The purpose of this paper is an
investigation on how small business
owners rely on their “social capital”
to seek information to decision
making on marketing issues.

3. Small businesses have scarce
resources, whether financial, personnel or
marketing. Companies’ needs to find trusted
information about the markets that they
work, about pricing, consumer preferences
and habits, logistics, how to promote
products and services and so on.

4. Analysis of previous studies
showed that social capital may
be an important decision making
tool for small business owners.

5. Entrepreneurial
Marketing and
Decision-Making in
small business

6. “With fierce competition and
increasingly demanding customers,
firms have a limited ability to
forecast and define their market
boundaries.”
(Day and Montgomery, 1999)

7. “…small firms have a simple
and ad hoc marketing
decision-making process.”
(Kilenthong et. al., 2011)

8. “…small firms have fewer
dominating decision makers
than large firms.”
(Kilenthong et. al., 2011)

9. “Marketing decisions in small
firms can be linked directly to
specific personal goals of
owners/managers.”
(Kilenthong et. al., 2011)

10. “…small firms can quickly
response to their customers
because they have flatter
organization structure than
large firms.”
(Kilenthong et. al., 2011)

11. “They are closer to
customer and can access
customer information
better than large firms.”
(Kilenthong et. al., 2011)

12. Entrepreneurial
Marketing in Small IT
Companies

13. As is known, the phenomenon
of globalization affects various
business sectors. But especially
in the IT sector, the
competition is really global.

14. Companies tend to rely on
WOM (Word of Mouth)
recommendation for building
trust and confidence in the
company and in the purchase
decision.

15. This requires very close
participation between the software
company and the customer, which
meant that co-creation of products,
was often a key feature of the
development of new products and
services.

16. “Limitations for these companies include:
lack of financial resource and technical
employee resource; a lack of a specialized
and experienced marketing and sales
resource, particularly in micro-sized firms
and; difficulties in balancing R&D and
high levels of service.”
(Jones, 2011)

17. These companies rely on networks
and relationships to generate
knowledge from customers,
suppliers, employees and their
partners.

18. “…market research and
promotion are the most
important marketing
capabilities for small
technology companies.”
(Qureshi and Kratzer, 2011)

19. CAPITAL
SOCIAL

20. Social capital refers to the
resources available in and
through personal and
business networks.

21. “These resources include
information, ideas, leads, business
opportunities, financial
capital, power and
influence, emotional support, even
goodwill, trust and cooperation.”
(Baker, 2000).

22. According to Sander and Lowney 2006, social capital
focuses on the social networks that
exist between us, literally who knows
whom and the character of those
networks, the strength of the ties, and
the extent to which those networks
foster trust and reciprocity.

23. Social capital is essential for small
business success. The accumulation
of social capital helps businesses
grow through word-of-mouth.
Start-Up USA Cultivating Social Capital

24. “Social, non-formalized
links, between a firm (and its co-
workers) and firms with which it has
production relations, increase the
flows of knowledge and information
between the firms.”
(Westlund 2003)

25. “An established firm with strong
customer and supplier networks can
use these to shut out
competitors, which perhaps have
newer and more productive physical
and human capital, from the market.”
(Westlund 2003).

26. METHODOLOGY
A case study approach was chosen as it was
considered the most effective method with
which to obtain rich and meaningful insights
(Carson et al., 2005), and in-depth interview to collect
the data to be analyzed.

27. Two small IT companies were interviewed.
“The owner-manager was chosen as the
unit of analysis on the basis that in small
firms the owner-manager is a significant
influence on the way that firm is
operated and managed.”
(Carson et al., 1995)

28. FINDINGS
FINDINGS

29. On both interviews, the owner-manager
mentioned several times that “who they
know”, the networks that they have
access is critical to do business in their
sector, especially to find new
clients, make decisions on
pricing, marketing issues and managerial
decisions.

30. Some transcribed
answers:

31. “The way I do business have changed a
lot after I started to participate in the
ASSESPRO (Association of IT Companies)
as a President for my region and the
National Conferences of my product
suppliers”.

32. “Having access to the networks offered
by the associations and by the national
network of representatives, has enable
me exchange clients, acquire new
clients, make better managerial
decisions inside my company.

33. The experiences that my “peers” live
everyday in another regions are a really
good way to learn how to do business
in our sector”.

34. “I also got better results on my
management and better profitability
with exchanging ideas about our
business with my peers and other
entrepreneurs in the IT sector”.

35. “I do not use to buy “market research”
because is too expensive for my as a
small IT company. I rely on my peers to
get information about new markets and
specially on pricing decisions for my
products and services”.

36. Small IT companies do not have to work
alone, associations, networks and who
I know is the best way to find new
clients, make better management
decisions and get better results for my
company”.

37. CONCLUSION

38. This study showed that the
decision-making processes in
small companies are largely
based on networks,
relationships.

39. In other words, social capital is
crucial to successful decision-
making about marketing and
management issues.

40. Moreover, the fact that small
companies have scarce
resources, social capital becomes
an important marketing tool and
can be used as a tool for market
intelligence.

41. Future studies could include for
example: observations of
competitive activity and analysis of
appropriate company records and
also use a larger sample of
interviews with small businesses in
different sectors.

42. THANK YOU
VERY MUCH!
cristiano@marketingempreendedor.com.br