Creating the Organization 361firm could “cure sick sales.” A few days later at an industry conference, Vick was shak-
ing hands and handing out more cough drops. “That one idea must have gotten me
$25,000 worth of business,” he says.^58
Networking takes a considerable amount of the entrepreneurs’ time and money.^59 If
the networking does not improve firm performance, it can prove detrimental to the
enterprise and frustrating to the entrepreneur. Entrepreneurs should have both strong-
tie personal relationships and weak-tie extended relationships. The ideal situation is a
network of strong-tie extended relationships which give entrepreneurs the speed and
flexibility of strong ties with the informational and resource advantages of an extended
network.
Alliance Behaviors. Entrepreneurs engage in four basic types of alliances: (1) confed-
erations, (2) conjugate alliances, (3) agglomerations, and (4) organic networks. These
types are distinguished by two characteristics: (1) whether the relationship is direct or
indirect (entrepreneur’s business to alliance partner) and (2) whether the relationship is
with competing or non-competing firms.^60
Direct contact with competitors is called a confederate alliance, or simply a confed-
eration. In concentrated industries where a few firms have most of the market, confed-
erate alliances are usually created in an attempt to avoid competition through techniques
such as point pricing, uniform price lists, standard costing, and product standardiza-
tion.^61 Because these alliances resemble cartels, firms may find themselves in violation of
U.S. anti-trust law.
But smaller firms in fragmented industries—particularly new ventures in emerging
industries—have many opportunities for cooperation through alliances that are not ille-
gally collusive. For example, firms can share transportation costs by combining orders
to make a full-truckload shipment. Or they can engage in bilateral hiring practices. By
hiring each other’s workers on a regular basis, the firms can share expertise, information,
and intelligence about the market, and can upgrade each other’s operational procedures
by imitating the best of what the other has to offer. For example, in the very fragment-
ed online business education market, the University of Phoenix Online hires instructors
from many academic sources. Each instructor contributes information and techniques to
the Phoenix curriculum while also learning online techniques from Phoenix. The
instructors can bring these techniques back to their own classrooms at their home uni-
versities. Both institutions and the instructors are better off for the exchange.
Entrepreneurs must use good judgment in entering into confederate relationships.
An unscrupulous competitor can take advantage of the trust inherent in such relation-
ships. Former rivals may collude to raise profits by restraining production, raising prices,
and holding back threatening new technologies. The lack of free-for-all competition can
lead to complacency that stifles creativity and new ideas.^62
Direct contact with non-competing firms is called a conjugate alliance. Examples
include long-term purchasing contracts with suppliers and customers and joint research
and development projects. Companies that keep their separate identities and engage in
conjugate relationships are mimicking the vertical integration strategies of larger firms
to obtain certain benefits without incurring the inherent risks. For instance, a joint R&D
effort can enable a manufacturer to test the operating characteristics of a supplier’s mate-