While people are looking at money as the most important capital for a business, it has dawned on many and others are realizing that there is more to any business than the money required to get started. Many aspiring entrepreneurs don’t realize that they can even start a business when they do not have the money that is required. All they need is what is called social capital.
The social capital of any entrepreneur will be as important as their financial capital. To put this in proper perspective, it is usually the business owner’s social capital that determines how much of financial capital they can access.
Why is that so? When an entrepreneur turns to people for money, it is clear that the money requested will not be the only consideration. There are several other factors that will be considered before the request for loan will be granted or denied. What is the bank or the prospective creditor trying to do? They are simply checking the social capital of the entrepreneur.
Even when a business owner has all the funds needed to get a business going, people will not do business with that entrepreneur if they perceive that he or she does not have social capital. What are those things we may refer to as social capital? They are
Integrity – Integrity is very important in any business and when people are patronizing a business, it is most likely that what they are patronizing is integrity. The business may think that it is selling a product but the truth is that it is selling something intangible which is why people come after the product. The projected value (from marketing) and the perceived value (opinions about the product or service) must match the derived value of any customer who is dealing with you. Businesses must offer what they say they are offering. The businesses can do more but it can’t be anything less.
Trust – Do people trust the owner of the business or the company as a whole? A business may have integrity but it must still get people to trust it over time. When there is no trust people will not patronize a business. Over time, is trust is lost, word of mouth is spread and those who have not had any personal experience will join to spread the story about a business not being trusted. When that happens, the business is heading fast towards the grave.
Relationships – Relationships will be very crucial to any business and this does not mean that the founders are asking people for any special favour. Business is sometimes about building new relationships and maintaining old ones. One of the differences between business A and B is not the expertise of the people in the business but the strategic relationships that the people in those businesses have built. People feel more comfortable dealing with those they already know. Relationships also boils back to the issue of trust and integrity built over a period of time.
It is the social capital that explains how a company can give goods worth several millions to someone and wait for the person to sell off before paying the company back. No collateral is required and there is no micromanaging for whatever reason. A few business owners get this golden opportunity but they mess it up by spending everything they get. They have forgotten that the litmus test would have helped them build trust and relationship at the same time. It will also show that they have integrity. In terms of services, social capital will also make people pay more to someone than the other for exactly the same service.
Experts always advise that entrepreneurs have a business plan to show how much they will need to get a business started and keep running. One thing they need to add to that list of advice to entrepreneurs is the need to build social reputation or capital because that affects the business even more than the financial capital.
As a business owner, the more you build your social capital, the easier it becomes to build a business so take social capital as the equally important, if not more important, business capital that keeps businesses going.