Creating the Organization 357
NETWORKING AND ALLIANCES
Today’s entrepreneurs are deeply embedded in networks, partnerships, alliances, and col-
lectives.^44 Networking, the process of enlarging the entrepreneur’s circle of trust, is a
negotiation process.^45 How entrepreneurs access networks and how those networks help
them succeed are the subjects of this section.
Benefits and Motivations for Networking
Entrepreneurs usually have a wide range of friends, acquaintances, and business asso-
ciates, and they can use these informal network relationships to obtain resources
and opportunities for their firms. These networks provide them with information
about their environment and enable them to build reputation and credibility for them-
selves and their firms. Networks of people (and of other firms) are socially complex,
casually ambiguous, and usually idiosyncratic. They depend on that particular entrepre-
neur. The networks themselves can be sources of sustainable competitive advantage,
and they can also be a means of procuring other sources of sustainable competitive
advantage.
Entrepreneurs employ various forms of networking. Chapter 8 pointed out the pros
and cons of taking in a partner, and Chapter 9 has already illustrated the benefits of vir-
tual organizations. Chapter 4 discussed joint ventures in terms of momentum factors
and entrepreneurial strategy, and Chapter 7 dealt with the importance of networks in
finding sources of financing. The modern well-connected entrepreneur has distinct
advantages over the rugged individual of previous generations.
There are four basic motivations for formal network participation or joint-venture
formation.^46
- Joint ventures increase the internal capabilities of the venture and protect its
resources.
- Joint ventures have competitive uses that strengthen the current strategic position.
- Joint ventures have long-term strategic advantages that augment the venture’s
future resource flexibility.
- Joint ventures further the social concerns and promote the values of entrepre-
neurs.^47
Internal Motivations. Internal uses of alliances are motivated by various cost and risk-
sharing arrangements that can reduce uncertainty for the venture. For example, sharing
the outputs of minimum-efficient-scale plants avoids wasteful duplication of resources,
utilizes byproducts and processes, and may even allow the partners to share brands and
distribution channels. Joint ventures can also be used to obtain intelligence and to open
a window on new technologies and customers. These relationships can help a firm imi-
tate innovative managerial practices, superior management systems, and improved com-
munications patterns.
When the Japanese industrial giant Matsushita came to Silicon Valley in the late
1990s to learn from the many start-ups there, it was looking for alliances. The compa-
ny invested $50 million in an incubator and a venture capital fund and drew in nine new
high-tech American businesses. All these companies are potential suppliers or partners
