Networking Behavior and Networks

of Born Global Startups

during Start-Up, Growth and Internationalization

The Case of Israeli Internet Entrepreneurs

Name: Philip Schneider

Student Number: 364108

Master Program: Entrepreneurship and New Venturing

Coach: Dr. Wim Hulsink

Co-reader: Dr. Koen Dittrich

Date: 4th of December, 2013

Preface

The author declares that the text and work presented in this Master thesis is original and that no

sources other than those mentioned in the text and its references have been used in creating the

Master thesis.

The copyright of the Master thesis rests with the author. The author is responsible for its contents.

The Rotterdam School of Management (RSM) Erasmus University is only responsible for the

educational coaching and beyond that cannot be held responsible for the content.

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List of Abbreviations

B2C Business to consumer

GT Grounded theory

ICT Information and communication technology

IDC Interdisciplinary center university

IDF Israeli defense forces

MNE Multinational enterprises

RBV Resource-based view

SME Small and medium enterprises

SNA Social network analysis

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List of Figures

Figure 6: LinkedIn Network Overview (p.55)

Figure 7: Network Structure Gili Golander (p.56)

Figure 8: Network Structure Yotam Cohen (p.56)

Figure9: Network Structure Erez Dickman (p.57)

Figure 8: Active Networking Requests per Startup Stage (p.58)

Figure 9: R Square Values of Best Fitted Lines (p.58)

Figure 10: Days Needed to Make One New Connection per Startup Stage (p.59)

Figure 11: Percentage of Active and Passive Networking Requests (p.60)

Figure 12: Active Network Growth of Gili Golander (p.61)

Figure 13: Active Network Growth of Yotam Cohen (p. 62)

Figure 14: Active Network Growth of Erez Dickman (p.63)

Figure 15: Comparison of International Network Distributions: Countries (p.65)

Figure 16: Comparison of International Network Distributions: Cities (p.67)

Figure 17: Active Network Growth of Gili Golander by Country (p.68)

Figure 18: Active Network Growth of Yotam Cohen by Country (p.69)

Figure 19: Active Network Growth of Erez Dickman by Country (p.70)

Figure 20: Comparison of Industry Network Distributions in Absolute Numbers (p.71)

Figure 21: Comparison of Industry Network Distributions in Percentage (p.71)

Figure 22: Active Network Growth of Gili Golander by Industry (p.74)

Figure 23: Top 10 Industry of Gili Golander‘s Active Network Growth (p.75)

Figure 24: Active Network Growth of Yotam Cohen by Industry (p.75)

Figure 25: Top 10 Industry of Yotam Cohen‘s Active Network Growth (p.76)

Figure 26: Active Network Growth of Erez Dickman by Industry (p.77)

Figure 27: Top 10 Industry of Yotam Cohen‘s Active Network Growth (p.78)

Figure 28: Comparison of Country/Industry Network Distributions (p.79)

Figure 29: Country/Industry Distribution of Gili Golander‘s Network (p.80)

Figure 30: Country/Industry Distribution of Yotam Cohen‘s Network (p.81)

Figure 31: Country/Industry Distribution of Erez Dickman‘s Network (p.82)

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Executive Summary

Born global startups that operate globally from day one are changing the international business and

academic research landscape as we know it. Thus, researchers have called for new methods -

merging entrepreneurship, internationalization and strategic management theory with network-

based theory. Firstly, we review the research on traditional entrepreneurship, internationalization

theory and international entrepreneurship. Secondly, we discuss the research on networking

behavior and network theory in relation to firm formation and internationalization. Lastly, take a

grounded theory approach to analyze the entrepreneurial networks.

In this study, we apply a well established network assessment, the HUMAX assessment, as

well as a new approach to social network analysis using the network data of the world‘s largest

online professional network, LinkedIn. The leading research questions are: How does the

networking behavior of entrepreneurs, the network size, as well as the network composition change

over time? Does the network distribution vary in terms of country, city, or industry during the

different startup stages? Does the incubational heritage of startups create unique, path-dependent

networks?

Firstly, we analyze the core entrepreneurial networks of strong ties using the HUMAX

assessment. The HUMAX analysis yields little differences between the networks. All three

entrepreneurs have the same HUMAX network profile: a cohesive, closely connected network with

a blended composition and equal focus. Secondly, the LinkedIn database of network relationships

was used to analyze the networking behavior as well as the entrepreneurial network composition

and evolution.

The LinkedIn analysis reveals similarities and differences in networks and networking

behavior depending on the stage of the entrepreneur. Overall, we found similar trends over the

course of the new venture formation with regards to levels and frequency of networking activity, as

well as similar distributions of spatial and industrial network compositions. We graphed the

networking behavior over time and applied an R square analysis of best fitted lines to the network

growth and found that the active networking increases in an exponential fashion, starting at firm

founding. We conducted an ANOVA analysis of equal means to the industry and country

distributions and found that the networks have different compositions. We calculated the network

diversity indices for the country and industry distributions using the Simpson Diversity index. We

found that the less experienced the entrepreneur, the less diverse the network in terms of country

and industry compositions.

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Table of Contents

.........................................................................................Chapter 1: Introduction 8

..........................................................................................................1.1. Personal Motivation 9

..............................................................................................1.2. Site and Sample Selection 10

........................................................................................................1.3. Literature Overview 12

..................................................................................................................1.4. Research Gap 14

................................................................................1.5. Research Design and Methodology 15

....................................................................................................................1.6. Contribution 17

.....Chapter 2: Literature Review on Internationalization and Born Globals 19

........................................................................................2.1. Traditional Entrepreneurship 19

....................................................................................2.2 Theories on Internationalization 21

......................................................................................2.3 International Entrepreneurship 24

Chapter 3: Literature Review on Networking Behavior and Networks of Born ...................................................................................................................Globals 32

..........................................................................................................................3.1. Networks 32

......................................................................................................3.2. Networking Behavior 33

.............................................................................................................3.3. Network Position 36

...........................................................................................................3.4. National Networks 37

...................................................................................................3.5. International Networks 38

..................................................Chapter 4: Methodology and Research Design 43

..................................................................................................................4.1. Research Gap 43

....................................................................................................................4.2. Methodology 44

.............................................................................................................4.3. Research Design 47

......................................................................................................................4.4. The Sample 49

..............................................................................................Chapter 5: Analysis 52

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..................................................................................................5.1. The Humax Assessment 52

...................................................................................................5.1.1. The Network Profiles 53

..............................................5.1.2. The Network Duration and Frequency of Interactions 54

................................................................................5.2. The LinkedIn Network Assessment 55

........................................................................................................5.2.1. Network Structure 56

...................................................................................................5.2.2. Networking Behavior 58

.................................................................................................5.2.3 International Networks 65

.........................................................................................................5.2.4 Industry Networks 70

................................................................5.2.5. Industry Network Distribution per Country 78

..........................................................................................Chapter 6: Conclusion 83

...............................................................................................6.1. Summary and Discussion 83

...................................................................................................................6.2. Shortcomings 87

............................................................................................................6.3. Further Research 88

.............................................................................................................References 90

............................................................................................................Appendices 99

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Chapter 1: IntroductionIn this chapter, we will introduce the phenomena of born globals and point out the importance of

networks in the new venture formation and evolution, in order to explain the purpose of this study:

understanding the networking and networks of born globals during the startup, growth and

maturity. Then, we explain our personal motivation as well as the site and sample selection. We

outline the existing literature on born globals and network theory, and point out research gaps.

Then, we derive the methodology and show the contribution of this research.

Technological advances, changes in the international business environment and the globalization of

customers and markets, gave birth to a new breed of ventures, called born global firms (Knight &

Cavusgil, 2009). Born globals are defined as business organizations that, from inception, seek to

derive a significant competitive advantage from the use of resources and the sale of outputs in

multiple countries (McDougall and Oviatt, 1994). New ventures that operate globally at or near

inception are a growing and important phenomena (2009). They are the heralds of a new economic

era of substantial benefits that derive from the exchange of ideas, goods, and people as countless

small firms trade with each other around the world that is becoming a global village (2009). Born

globals are revolutionizing international business and reshaping the global economy (Zucchella and

Scabini, 2007). Since they operate globally from inception, they challenge traditional research on

firm internationalization that suggests internationalization is a slow and gradual process (Johanson

& Vahlne, 1977).

The study of traditional entrepreneurship is the „examination of how, by whom, and with

what effects opportunities to create future goods and services are discovered, evaluated and

exploited“ (p. 218, Shane & Venkataraman, 2000). Thus, the behavior of entrepreneurs is the key

determining factor in the process of starting new ventures (Zucchella & Scabini, 2007). Scholars

have found that the founders‘ networks are critical for the performance, survival and growth of new

ventures (Aldrich, 1988, Aldrich & Zimmer, 1986; Castilla, 2003; Coviello, 2006; Greve, 1995).

New ventures embedded in resourceful and densely connected networks are more successful

because networks provide access to necessary complementary resources, support and information

(Castilla, 2003). While some networks promote certain actions, others constrain certain actions

(2003). Networks change over time as new ventures require different resources and capabilities

during the different startup stages (2003).

Accordingly, the purpose of this thesis is to investigate the entrepreneurial networking

behaviors and networks of born globals during the entrepreneurial process. We take a longitudinal 8

network perspective on born global firms and focus on the effect of the network size and diversity

of relationships. We analyze the professional background, position and location of their

relationships over time, in order to shed light on what kind of resources and quality of information

born global founders have access to. Using ego-network data of Israeli Internet entrepreneurs, we

apply two network assessments in order to investigate and compare the composition of network

connections. Firstly, we analyze the founders core network using the HUMAX social capital

assessment, and, secondly, contrast these findings with an analysis of their professional, online

network on LinkedIn. We apply ANOVA tests on the distribution of network locations and

occupational backgrounds to test for equality in the entrepreneurial network distributions.

Furthermore, we show the evolution of their networks in relations to funding rounds and event

participation. Comparing the networks at the different startup stages from a longitudinal point of

view gives us an impression of the networking dynamics and the influences of funding rounds and

industry conferences.

In this research the leading research questions are: How does the networking behavior of

entrepreneurs, the network size, as well as the network composition change over time? Does the

network distribution vary in terms of country, city, or industry during the different startup stages?

Does the incubational heritage of startups create unique, path-dependent networks?

1.1. Personal Motivation

Successful entrepreneurship and new venture creation needs more than just a great idea or an

innovative new product, entrepreneurs need the right environment and connections to strive,

innovate and grow.

In the last years, I have attended many meet-ups, events and conferences in the Netherlands

and Israel. Based my personal networking experience, I have noticed distinct differences in

networking behaviors that motivated me to dive deeper into the topic of entrepreneurial networking.

Early stage entrepreneurs, colleagues and friends from university actively seek to connect with me

on LinkedIn after meeting them. Business oriented founders network more actively than technical

founders. New generations of entrepreneurs use online business networks more than seasoned

entrepreneurs, who prefer traditional means of communication, such as email. Networking takes

time and repeated interactions. Successful, late stage entrepreneurs are more hesitant to connect to

entrepreneurial novices on LinkedIn. Instead, late stage entrepreneurs use networks to find

information about and connect to existing or potential customers and business partners. Venture

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capitalists and angel investors are easily accessible, if you meet them in the right context, that is at

certain kind of events, such as demo and pitch events or startup weekends. The more connections

you have in common with highly influential people, the easier it is to build similar new connections.

These patterns made me wonder about the different networking dynamics of novice and

successful entrepreneurs. What relationships do successful entrepreneurs form with whom over

time at different startup stages? Does the activity or direction of networking behavior vary over

time? What connections do entrepreneurs actively seek and passively develop over time that

potentially enhance their venture survival chances and performance? How many angel investors and

venture capitalists do successful entrepreneurs actually connect to before or after successful funding

rounds? Is it beneficial to build up an international network and reputation abroad before raising

funding or venturing at home or abroad? What are the influences of events, conferences and

incubation programs on the network position and composition of entrepreneurs?

1.2. Site and Sample Selection

Israel is the second best entrepreneurial eco-system in the world after Silicon Valley (Startup

Genome Report, 2012). The Israeli startup eco-system has become a global role model for global

innovation and the successful commercialization of cutting-edge technologies. Israel has gained

fame through its unique public policies and initiatives fostering entrepreneurship, such as its

incubation and acceleration programs.

Israel -also known as the Startup Nation- is a peculiar case of a successful entrepreneurial

eco-system. Although Israel is located far away from major markets and surrounded by enemies of

the state, who boycott Israeli products, Israel has produced a large number of highly successful,

high-tech entrepreneurs and startups. New ventures located in countries with small national markets

must think and act global from day one (Cavusgil & Knight, 2009). Small, local markets and

international connectedness to surrounding countries have positive effects on the early and

significant internationalization of new ventures (Knight, Madsen, & Servais, 2004). Especially,

high-tech firms need to target global markets from day one (2009). Despite, or maybe because of

Israel‘s hostile environment and troubled history, Israel has successfully managed to create a self-

sustaining startup eco-system.

Born out of necessity, the state of Israel is a startup in and of itself with scares natural and

physical resources. Thus, Israel‘s human resources are its most important asset. Israel‘s populations

is a heterogeneous mix of immigrants from all around the world with many scientific and artistic

talents. The demographics, history and geo-political dynamics of Israel are unique, but there are

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numerous lessons to be learnt from the Israel‘s innovation capacity that can be applied to regional

economic growth, human resource development, effective use of capital, management of

technological resources, and the development of international network ties. We hope to discover

some of these lessons by showing common networking patterns and networks of Israeli high-tech

entrepreneurs.

The sample of three entrepreneurs in this study have been chosen because they are in

Internet industry in the business-to-consumer (B2C hereafter) sector and they were founded in Tel

Aviv.

The entrepreneurs themselves differ in terms of role and function. Gili Golander is the Chief

Marketing Officer of Bazaart. Yotam Cohen is the Head of Business Development at Wibbitz. And

Erez Dickman is the Chief Technology Officer of The Gift Project. The three startups differ in terms

of their startup stage and fundraising success as well as incubational heritage.

Bazaart raised $25,000 seed funding. Wibbitz received $2,800,000 in seed and series A

funding. The Gift Project raised $1,250,000 in its seed and series A, it was later acquired by Ebay

for $20 million.

Bazaart has participated in an American-Israeli incubation program, called DreamIt

Ventures. Wibbitz originates from an Israeli university incubation course, called Zell Program. The

Gift Project was founded right after the founders served for several years together in an elite

technology and intelligence unit of the Israeli Defense Forces (IDF hereafter).

Accelerators and incubators are local hubs in which networks converge. Many are backed by

serial entrepreneurs, the municipality, the university, or foreign investors with a local presence. The

owners and managers of incubators potentially provide a rich and diverse network of contacts

(Hansen, Chesbrough, Nohria, & Sull, 2000). They facilitate and shape the formation of networks.

Regional hubs act as consolidation and distribution centers for networks (Casson & Guista, 2007).

Most accelerators and incubators provide basic benefits such as office space, mentoring, funding,

and basic business services. Highly networked, industry-specialized incubators offer more value to

its incubates than others thanks to their preferential access to industry-related networks of suppliers

and buyers, entrepreneurial drive and economies of scale (2000). „When there is a wealth of

opportunities, there is a poverty of access because so many entrepreneurs are chasing so few

potential partners, all of whom are extremely busy“ (p. 78, Hansen, Chesbrough, Nohria, & Sull,

2000). In the ideal case networked incubators create formal links with external experts, bring

outside experts on site, schedule occasional but regular meetings, establish processes for

exchanging information and know-how across startups, implement economic incentives, and hire

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specialized deal brokers (2000). Incubates can easily build networks within their industry, which

helps them to access the appropriate resources, capabilities and information beyond their firm

boundaries. Thus, the question arises, whether some incubation paths, such as the IDF, DreamIt

Ventures or the Zell program, are more effective in connecting startups with the appropriate

networks for success than others.

1.3. Literature Overview

In the past, firms were limited in their ability to expand globally due to high initial investments and

fixed costs, lack of foreign market knowledge and high uncertainty (Knight & Cavusgil, 2009).

However, the global environment and the conditions of international business have dramatically

changed in terms of accessibility, speed and complexity (2009). The technological advances in

information communication technology, transportation and production have reduced costs,

facilitated the globalization of supply chains and led to the emergence of global niche markets

(Rialp, Rialp, & Knight, 2005). Technical innovations and globalization have reshaped markets and

industries at a global scale, which in turn has led to an unprecedented, worldwide economic

integration and interdependency (Knight & Cavusgil, 2009; Zucchella & Scabini, 2007).

Therefore, new ventures can and must increasingly compete internationally at or near

inception against large, established enterprises. International entrepreneurship is defined as the

discovery, enactment, evaluation, and exploitation of opportunities across boarders to create

opportunities (Oviatt & McDougall, 2003). Born globals are business organizations that, from

inception, seek to derive a significant competitive advantage from the use of resources and the sale

of outputs in multiple countries (McDougall and Oviatt, 1994). Born globals and its founders

display distinctly different characteristics, than domestically oriented firms. Founders of born

globals have a international strategic orientation, strong global vision and high commitment to

foreign markets. Thanks to their previous, substantial, international business experience, they have

built up international market knowledge and social and business networks on which they rely on

during their internationalization (Knight & Cavusgil, 2009). Born globals often follow a niche

strategy. A global niche market strategy focuses on narrowly defined customer segments of

sophisticated buyers across multiple countries (2009). Born globals seek early international growth

via international market diversification in order to earn higher profit in lucrative foreign markets,

amortize product development costs quickly and confront competitors in their home markets more

effectively (Zucchella & Scabini, 2007). Despite their limited resources, born global firms develop

competitive advantages. Intangible resources and unique processes enables born globals to

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differentiate themselves and create unique, high-value, high-quality offerings (2009). Yet, born

globals also have to remain flexible and adapt quickly to changing foreign market conditions (Rialp

et al., 2005). Dynamic capabilities enables firms to develop, integrate and reconfigure resources in

order to achieve congruence with ever-changing foreign market changes (Eisenhardt & Martin,

2000; Nelson & Winter, 1982). Hence, the performance of born globals critically depends on their

learning and networking capabilities (Weerawardena et al., 2007). Many born globals enter multiple

markets simultaneously by leveraging information technologies from networks of independent,

foreign intermediaries (Cavusgil & Knight, 2009; McNaughton, 2003). Born globals preferably use

hybrid organizational structures to internationalize. Strategic alliances and networks help the early

stage, resource poor firm to overcome the liability of newness, access complementary resources and

preserve scares resources for the development of core technologies and processes (McDougall,

Shane & Oviatt, 1994). Therefore, global networks and alliances are of upmost importance for the

international performance of born global firms (Yeoh, 2004).

Any economic activity is embedded in social structures and networks (Granovetter, 1985).

Born globals require different kinds of networks during different startup stages (Casson & Giusta,

2007; Greve, 1995). Professional and personal networks help born globals to overcome the resource

limitations and lacking market knowledge. Social and professional networks enable entrepreneurs

to acquire useful information and complementary resources that support their entrepreneurial

process (Aldrich & Zimmer, 1986; Greve, 1994). Resourceful networks offer entrepreneurs

complementary resources, such as knowledge, support and distribution, and therefore networks

reduce the environmental uncertainty and hinderances in operations (Alvarez & Barney, 2001;

Greve, 1994; Floyd & Wooldridge, 1999; Zuchella & Scabini, 2007). The larger the founder‘s

network, the more information, ideas and feedback they receive (Cooper et al., 1994; Greve, 1995).

On the one hand, they information about business opportunities, potential partners, prospective

customers as well as the resources and capabilities to exploit these opportunities. Networks also

provide entrepreneurs with important information about competitor intentions and actions. Timely

information enables them to react quick and, for instance, launch a product or feature before a

competitor does (Zucchella & Scabini, 2007). Hence, networks can be a source of competitive

advantage. On the other hand, networking requires managerial time and effort. Furthermore, the

internationalization process of born globals can either be enhanced or hindered by international

partners. Large, early partners have a major influence on the international market and selection and

entry mode (Coviello & Munero, 1997). Early partners and customers refer and introduce born

globals to their network (1997). Collaboration and cooperation with major foreign partners

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increases the visibility and viability of born globals in the foreign market space (Baum & Oliver,

1991). A reputable and cohesive network facilitates the emergence of social capital (Coleman,

1988). Especially in the early stages, entrepreneurs need social credibility and legitimacy in order

to gain the acceptance of initial foreign customers (Cooper, 2002).

1.4. Research Gap

After reviewing the academic literature on international entrepreneurship and networking, we found

that network theory is an important and emergent perspective in international entrepreneurship.

„Economic actors are tied up in social relations that may influence available decision alternatives

and choices. Persons with whom a prospective entrepreneur interacts, may contribute information

or resources that are conducive for a business funding.“ (p. 4, Greve, 1994). The question arises,

how many and what kind of relationships do founders develop during the different startup stages

that facilitate the entrepreneurial process? Entrepreneurs do not only need to find information on

opportunities, but co-founders and thus they are likely connect to entrepreneurs experts in the

industry in which they want to establish their venture in. Building industry connections helps to

validate their ideas and get valuable feedback. What kind of connections do they seek to connect

with during the early versus later stages? Which events and incubation advance the entrepreneur‘s

network the most?

Although much has been written about born global firms, the research on born globals is still

an emergent field (Cavusgil & Knight, 2009; Zucchella & Scabini, 2007; McDougall, Shane &

Oviatt, 1994). Traditional internationalization theories cannot accurately explain the emergence and

success of born global firms (Cavusgil & Knight, 1996; Cavusgil & Knight, 2009; McDougall et al,

1994). Traditional research approaches, such as the monopolistic advantage theory, product life

cycle theory, stage gate theory or internationalization theory fail to explain the phenomena of born

globals because they rest on the assumption that firms internationalize long after their establishment

(Cavusgil & Knight, 2009). Most established theories fail because they rest on the assumption that

firms internationalize long after their establishment and thus traditional theories are biased towards

large, mature firms. Further, they emphasize too much on the firm level, while ignoring the role and

importance of the entrepreneur and his or her network (McDougall, Shane & Oviatt, 1994).

Traditional theories „focus on the wrong questions and wrong level of analysis“ (p. 484, McDougall

et al., 1994). Neither the stages models of internationalization nor the network perspective hold

explanatory power concerning the rapid internationalization of born globals.

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Therefore, Coviello & MacAuley (1999) argued that the internationalization and network

theories should be integrated. „There is a clear overlap here between investigation of networks as a

path to internationalization by researchers in international business and researching networks and

networking within the domain of the marketing and entrepreneurship interface“ (p.779, Fillis,

2001). Zucchella and Scabini (2007) integrated previous theories on international entrepreneurship

and emphasized the need to study this field from a wider perspective, taking into account

individuals‘ and firms‘ behavior and comparing it across different organizations, in order to develop

a dynamic perspective instead of single event analysis. A longitudinal network approach is

frequently called for in order to explain the often non-linear internationalization of new ventures

(Bell, 1995, Castilla, 2003; Greve, 1994). Hoang and Antoncic (2003) recommend for future

integrative work that incorporate timing effects, explores environmental contingencies on network

development and understands the impact of entrepreneurial outcomes on network development

processes. „Ideally, any research method applied to network analysis should be time sensitive in

order to be able to assess the evolutionary processes and dynamic character of a network. If the

research is focused on new ventures, the method should also be able to incorporate the earliest

stages of the firm’s life cycle“ (p.42, Coviello, 2005). Greve (1994) proposes future research on

wheather network compositions change during the entrepreneurial process. If networks remain

stable, this might indicate network compositions that are more conducive of successful

entrepreneurship. „Moving from a firm-level analysis to one that focuses on the individual

entrepreneur, future research could examine the networks of lead entrepreneurs in comparison to

each other, over time.” (p. 57, Coviello, 2005). Since the network development is fundamental to

understanding international entrepreneurship (Coviello, 2006; McDoubgall & Oviatt, 2003; Oviatt

& McDougall, 2005), „it is about time that we learnt more about what kinds of regional networks

help to promote superior economic and social development.“ (p. 132, Castilla, 2003). In order to

develop our knowledge, Anderson et al. (1994) call for more exploratory case studies on

development processes of entrepreneurial networks.

1.5. Research Design and Methodology

We use three case studies comparing and combining an established SNA, the HUMAX assessment

of social capital, with an assessment of the Entrepreneurs‘ LinkedIn network. We gathered the

HUMAX surveys as well as the longitudinal LinkedIn data of three Internet entrepreneurs based in

Tel Aviv. Information on investment rounds and investors were retrieved from Tech Crunch, the

IVC database and CrunchBase.

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We conduct a social network analysis (SNA hereafter) to look at the resource based view

and capability framework. In particular, we take a grounded theory (GT hereafter) approach to

analyze the entrepreneurial networking behavior (that is their networking capability over time) and

the entrepreneurial networks to certain industries and locations (that is their potential access to

resources and informations beyond their firm boundary). „Grounded theory is a general

methodology for developing theory that is grounded in data systematically gathered and

analyzed.“ (p.273, Strauss & Corbin, 1994). Through GT, we do a comparative analysis of

incidents, events and other conditions that facilitate, interrupt or prevent the startup, growth and

internationalization of born global startups. We examine and compare the networking actions and

interactions and consequent outcomes.

The HUMAX assessment addresses three dimensions and well-established measures of the

participants’ social capital: Structure, composition and focus. The HUMAX assessment classifies

the network in three dimensions in order to create a network profile of the social capital. The

structural dimension describes the pattern of network connections. It ranges from cohesive to

versatile to expansive. The network composition looks at the characteristics of the people in the

network. The network composition is characterized as homogeneous, blended or diverse. The

network focus dimension refers to attentiveness of the network in certain areas or activities. The

structure is measured in the network size, its adjusted size (network size minus group overlaps),

density (connections between connections), strong and weak ties as well as avoidance ties. Network

composition captures the demographic diversity in terms of age, education, gender, and race. The

focus of the network looks at the network concentration on family, work, affiliations and

international experience. In addition, the frequency of interactions and duration of connection is

taken into account.

LinkedIn keeps a virtual log book on networking behavior. We harness this digital rolodex

to investigate the networking activities of entrepreneurs over time. This research is rather

exploratory in nature trying to discover common patterns in real world cases with a new tool. We

use the network LinkedIn network size, timing and direction of connections in order to reveal the

networking behaviors of entrepreneurs. More specifically we look at the network location (country

and city), occupational background (industry), and tie direction (out-ward and in-ward). The active

networking requests of the entrepreneurs because intentions manifest themselves in behavior.

Behavior, that is actions and interactions, give meaning to the entrepreneurial process (Zuchella &

Scabini, 2007). Active requests are analyzed over time in order to show the effects of successful

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funding raising and industry events on the entrepreneurial networks. We aim to identify patterns or

trends of behaviors that show underlying networking intentions and strategies.

1.6. Contribution

Networking theory links strategic management, international business and organizational studies.

„The international business literature, the dynamic capabilities framework and the entrepreneurship

studies all converge on the role of social and inter-organizational networks in supporting

competitiveness and growth“ (p. 98, Zucchella & Scabini, 2007). We try to move the field of born

global research forward by comparing and combining two different network assessments: On the

one hand, a social capital assessment (HUMAX), and an assessment of network resources and

networking capabilities (LinkedIn). Yet, especially longitudinal network analysis has been neglected

due to the difficulty of gathering data. By using LinkedIn as a data source we try to overcome the

limitations of past cross sectional SNAs.

This research extends the field of international entrepreneurship and network theory by

focusing on the longitudinal effects of events on inter-personal and inter-organizational networks

that facilitate the startup, growth and internationalization of international new ventures. Thus, we

shed light on the evolution of entrepreneurial networks enhancing our understanding of

relationships that drive the entrepreneurial process. Analyzing the network developments of

founders over time will improve our understanding of the behavior of entrepreneurs, that is their

broader networking activities and patterns as well as their impact on the startup stages. Looking at

the entrepreneur as well as the startup from a network perspective over time may help us understand

why, how and when entrepreneurs develop economic network relationships. The mapping and

comparison of evolutionary networking behaviors through LinkedIn progresses the theory building

on born globals and network dynamics. „The network mapping technique exemplifies the notion

that a picture is worth a thousand words. More specifically, network mapping and analysis can be

useful for start-up owners/managers as a basis for reflection on their evolutionary path, future

planning and action.“ (p. 56, Coviello, 2005). The identification and analysis of network patterns

with respect to organizational stages and milestones permits the analysis of linkages between

networking activities and organizational development. The longitudinal analysis of entrepreneurial

networks by industry, location and timing gives us the ability to test dominant internationalization

theories, such as the Uppsala Model or the Stage Model, from a new angle (Johanson & Vahlne,

1977, Johanson & Vahlne, 1992). Using LinkedIn data to explore the network composition and

17

evolution as well as the networking direction has never been done before to the best of our

knowledge.

This research has important implications for entrepreneurial networking behavior, financing

decisions of venture capitalists and angels, as well as government programs. With our research

questions we address Cavusgil and Knight‘s (2009) question as to what the role of network

relationships are in early, substantial and successful internationalization? „How do networks

advance early internationalization goals and performance? What types of network contacts are most

beneficial? Which public policies facilitate and promote the development and progress of startups?

Government initiatives such as incubator programs provide support for startups, but how effective

are they? Do they connect the entrepreneurs with the right resources and networks to overcome

resource constraints and liabilities of newness?“ (p. 97, 2009).

Novice entrepreneurs should be aware of the importance of building and managing early

stage networks and the changes in networking dynamics over time depending on the venture stage.

Venture capitalists and angel investors might be well advised to look for entrepreneurs that have

established appropriate networks of local and international industry contacts for favorable

internationalization and growth. Finally, with this LinkedIn tools governments, associations,

universities and other organizations could evaluate the impact and effectiveness of their events,

conferences and incubation programs in terms of changes to the business networks of it‘s

participants.

18

Chapter 2: Literature Review on Internationalization and

Born Globals

In this chapter we examine the conceptual foundations of born globals. We discusses the literature

on traditional entrepreneurship, theories on internationalization and international

entrepreneurship. Research on born globals has its roots in entrepreneurship, international

business and strategic management (Zucchella & Scabini, 2007). Entrepreneurship research has

contributed to the understanding of individual level factors, such as the role and behavior of the

entrepreneur. On the one hand, it shows that, innovative, pro-active, risk-taking behavior of the

entrepreneur. On the other hand, research emphasizes that a global vision and previous

international experience and global networks are key predictors for the successful startup

formation and performance of born globals. International business theory focuses the

internationalization processes of firms. Strategic management explains firm and business

development processes with the resource-based view as well as the capability framework. Born

globals have challenged traditional internationalization theory. We will show why international

business theories, such as the monopolistic advantage theory, the product life cycle theory or the

stage gate theory, are not applicable to born globals. We will explain why strategic management

theories, such as the resource-based view and the capability framework, are still suitable for the

analysis of born globals. However, scholars increasingly argue that the research on

entrepreneurship, international business and strategic management converges on the role of

network theory. Therefore, we will conclude this section by justifying our approach to investigate

the RBV and capabilities of born globals through a network-based research approach. In the

following chapter, we will then further dive into the academic findings on network(ing) theory.

2.1. Traditional Entrepreneurship

Entrepreneurship is the driving force of economic development and societal progress. Entrepreneurs

have long been recognized as the organizers and coordinators of economic production and

distribution (e.g. Say, 1803). Entrepreneurs are individuals who undertake business activities in

uncertain situations with uncertain returns on economic activity (Cantillon, 1755). Schumpeter

described entrepreneurship as the creation of „new combinations including the doing of new things

or the doing of things that are already being done in a new way“ (p. 13, 1934). Entrepreneurs

possess the „ability to see things in a way which proves to be true, even though it cannot be

19

established at the moment“ (p. 85, Schumpeter, 1934). Entrepreneurial activities constitute

opportunity scanning and alertness, evaluation, and risk-taking behavior to mobilize and coordinate

resources and capabilities in order to create new products and services (Shane & Venkataraman,

2000). Entrepreneurs successfully recognize and exploit business opportunities, assume risks and

take innovative and pro-active decisions (Cavusgil & Knight, 2009). The entrepreneurial process

combines opportunities, unique resources and organizational assets, which converge and reinforce

each other (Zucchella & Scabini, 2007). In order to survive and grow, startups must differentiate

themselves from established firms, in the market place or create new markets via new products and

services. The study of entrepreneurship is the „examination of how, by whom, and with what effects

opportunities to create future goods and services are discovered, evaluated and exploited“ (p. 281,

Shane & Venkataraman, 2000). Research on entrepreneurship investigates the creation and growth

of new ventures, the effects of individuals and teams involved, the distinct strategies utilized in the

creation process as well as macro economic effects, such as job and wealth creation (Zucchella &

Scabini, 2007).

Entrepreneurship has been studied on the individual and organizational level. On the

individual perspective, different approaches have been taken, such as character traits, attitudes,

intentions and behavior. However, personal traits and characteristics of being alert to opportunities,

risk taking and innovative hold little explanatory power over why someone starts a new venture.

Instead Jenk (1950) and Kilby (1971) emphasized the the behaviors and activities are more capable

of predicting. „Behavior more than any other attribute gives meaning to the entrepreneurial process,

and only through actions can we know the entrepreneur“ (p.72, Zucchella & Scabini, 2007).

Learning entrepreneurial skill sets occurs through previous interactions and experiences of market

mechanisms and connections. Entrepreneurial performance is contingent on several interrelated

factors, such as a combination of personal characteristics, general management skills, people

management skills, high motivation to succeed and deep industry knowledge (Zucchella & Scabini,

2007).

On the organizational level, entrepreneurial orientation is a key research construct.

Entrepreneurial orientation describes a firm‘s strategic orientation, that is the specific

entrepreneurial features of decision-making styles, techniques and practices (Lumpkin & Dess,

1996). Entrepreneurial orientation consists of three dimensions, namely innovativeness, pro-

activeness and risk-taking. Innovativeness refers to the creation of new ideas, experimentation, the

departure from established routines. Pro-activeness alludes to the anticipation of future needs and

wants. Risk-taking concerns decision making under uncertainty with a high cost of failure (Covin &

20

Slevin, 1991; Zucchella & Scabini, 2007). The combined effect of innovativeness, pro-activeness,

and risk-taking allows entrepreneurs to develop a first mover advantage, target premium markets,

skim the market ahead of competition (Zahra & Covin, 1995) and control the market by dominating

distribution channels and establishing brand recognition (Zucchella & Scabini, 2007). The founder

or top management has a significant role and influence on the entrepreneurial orientation of the

organization because he or she acts as a role model of organizational behavior. „Similarly to non-

behavioral organizational-level attributes, like organizational culture or structure, do not make a

firm entrepreneurial. An organization‘s actions make it entrepreneurial. (...) Behavior is the central

and essential element in the entrepreneurial process.“ (p.74, Zucchella & Scabini, 2007). Therefore,

founder or CEO behavior provides key evidence to explain why and how firms behave differently.

The founder or top management is at the heart of the organizational orientation, and hence their

behavior can explain the path dependence of the new firm. Their decisions are guided by their

fundamental beliefs, values, knowledge, experience and learning (Andrews, 1980; Guth & Tagiuri,

1965).

In this section, we have shown that individual and organizational behaviors and orientations

are decisive. On the one hand, an innovative, pro-active and risk-taking orientation is necessary on

the individual level. On the other hand, the entrepreneur‘s organizational orientations, such as

global vision, previous international experience and networks are prerequisites for successful

venturing across borders. Individual and organizational level research converges on the behaviors

and actions of entrepreneurs and top management. If we are to understand the internationalization

of new ventures and born globals, tracking and analyzing the behavior of the entrepreneur is

critical. Yet, gathering data on entrepreneurial behavior over time is difficult, especially networking

behavior. In the next section, we will show why traditional internationalization theories do not hold

anymore. In the section thereafter we draw attention to findings about born global startups and

discuss the resource-based view and capability frameworks.

2.2 Theories on Internationalization

Traditionally accepted theories and frameworks on internationalizing firms are at odds with the

emergence and success of born global firms (Knight & Cavusgil, 2004). Research perspectives,

such as the monopolistic advantage theory, product life cycle theory or stage gate theories fail to

explain the phenomena of born global firms (McDougall, Shane & Oviatt, 1994).

The monopolistic advantage theory states that firms internationalize due to unique sources

of superior ability, knowledge or competitive advantage over foreign firms in their home markets

21

(Hymer, 1976). Foreign firms are unable to compete against firms with a monopolistic advantage

despite their local market knowledge because they would have to pay the full price to develop

necessary knowledge, ability or competitive advantage. Monopolistic advantage theory does not

apply to born globals because it assumes that firms develop their competitive advantage in domestic

markets before they make foreign direct investments (McDougall, Shane & Oviatt, 1994). On the

contrary, many born globals are solely virtual firms because they leverage their network

relationships in order to access necessary, complementary resources (Coviello &Munro, 1995). The

focus on core competencies and value creating activities distinguishes them from other, more

resourceful competitors. Their entrepreneurial drive and action, rather than the resources the own or

control, are the defining elements of their internationalization (Knight & Cavusgil, 2004).

Therefore, born globals challenge traditional views on international business via foreign direct

investment.

The product life cycle theory postulates that firms internationalize because they need to take

advantage of low cost production means in order to protect foreign markets. When products have

reached the end of their life cycle, competition becomes cost-based and thus foreign, lost cost

competitors threaten markets that had previously been severed through means of exporting (Vernon,

1966). However, product life cycle theory cannot explain born globals because they focus on high

value niche products and because they internationalize right at inception. Further, born globals

prefer hybrid entry mechanisms, instead of exporting (McDougall, Shane & Oviatt, 1994).

However, born globals that have more resources readily available engage in more in ownership of

international operations, rather than hybrid structures (1994).

The oligopolistic theory postulates that that firms internationalize because other firms

internationalize (Knickerbocker, 1973). Firms imitate the actions of other firms in order to reduce

the risk of being different. By imitating others firms reduce the risk of being left behind, since they

are equally advantaged or disadvantaged. However, born global firms internationalize because they

are too small to compete directly. Through early internationalization, they avoid competition, rather

than imitate them (Jolly, Alahuhta & Jeannet, 1992).

The Uppsala Model (Johanson & Vahlne, 1977; Johanson & Vahlne, 1992) and the

Innovation Model (Bilkey & Tesar, 1977; Cavusgil, 1980; Reid, 1982) state that internationalization

is a gradual process through a series of incremental stages. Two factors are the reason for cautious

transitions, firstly a lack of market knowledge, and secondly uncertainty about the successive

internationalization decisions. The Uppsala model proposes that firms gradually progresses through

certain stages, accumulating foreign market knowledge, reducing uncertainty about foreign

22

investments and thus enhancing the commitment to foreign markets (Cavusgil, 1982; Johanson &

Vahlne, 1977; Johanson & Vahlne, 1992). Firms go through different internationalization stages that

focus on the acquisition, integration and use of knowledge about foreign markets, starting with low

risk, low commitment exporting to high risk, high commitment foreign direct investments

(Johanson & Vahlne, 1977; Johanson & Vahlne, 1992). According to the Uppsala model, firms

increase their commitment to foreign markets gradually in order to amass sufficient experiential

knowledge. Firms enter culturally close markets, and internationalization is a slow process because

learning takes time (Johanson & Vahlne, 1977, Johanson & Vahlne, 1992). The Innovation Model

states that internationalization is a gradual process with an incremental acquisition of relevant

knowledge and experiences (Bilkey & Tesar, 1977; Cavusgil, 1980; Reid, 1981). Slow

internationalization indicates the entrepreneur's inability to acquire the relevant knowledge and

market information quickly (Cavusgil, 1980). However, the stage gate models, that is the Uppsala

and Innovation model, do not accurately explain the behavior and success of born globals

(McDougall, Shane & Oviatt, 1994). Born global firms leap frog intermediate stages of

internationalization and become instant global players (Ganitsky, 1989; McDougall, Shane &

Oviatt, 1994). Hedlund and Kvernaland (1985) discovered that new ventures take more direct and

rapid entry modes into foreign markets. Fifty percent of the firms in their study went from exporting

to manufacturing, without setting up foreign sales organizations.

Traditional perspectives also argue that internalization is often unplanned (Cavusgil &

Knight, 2009). Unsolicited customer requests may trigger early internationalization through

exporting. Yet, SMEs are often resource constraint and hence have to carefully manage and plan for

diverse foreign conditions and contingencies. Therefore, internationalization decision has to

account for numerous variables inside and outside of the firm, which have different implications for

the internationalization process. Important considerations are limited firm resources, product type,

product life cycles stages, level of foreign competition and the balance of domestic and foreign

demand. As firms internationalize often enter several markets simultaneously with multiple entry

modes firms constantly adapt to evolving conditions (Nordstrom, 1991). No expansion or entry

mode is irreversible or terminal once started. Nevertheless, international expansion and operations

have largely been limited to large established firms due to initial high fixed costs, high uncertainty,

difficulties of managing cross border operations (Cavusgil & Knight, 2009). Technological

advances as well as globalization have changed the environmental conditions of international

business in nature, speed and complexity.

23

Trends in the external environment have enabled SMEs to sell, market and compete globally.

The worldwide reduction of trade barriers, industrialization, economic development and advances

in technology have led to an unprecedented, worldwide economic integration and interdependency

(Cavusgil & Knight, 2009). As a consequence, countless new business opportunities have emerged

around the world. Buyer needs in industrialized countries has become more demanding, specialized

and homogeneous. Buyer lifestyles and preferences have converged. Buyers source globally and

hence new risks and rivalry from foreign firms materialized (2009).

At the same time, firms are better equipped to manage the speed and complexity of

international business. Thanks to technological advances in information, communications,

manufacturing, and transportation technologies, firms of all ages, sizes and resources bases can

internationalize. The easy access to ICT, worldwide transportation systems and widespread

adoption of the Internet, SMEs can compete effectively against MNEs (Cavusgil & Knight, 2009).

The global integration and internationalization of value chains has caused not only the opportunity

but the necessity for firms to internationalize.

In this section, we have discussed why traditional internationalization theories are not

appropriate anymore. We have shown how the external, international business environment has

changed in favor for born global startups. In the following section, we will zoom in on the features

and strategies of born globals that allow them to operate globally from the very first day of their

funding. Further, we will explain why the resource-based view and the capabilities framework still

applies to born globals. Yet, we will argue that a network-based research approach is better suited to

analyze born globals.

2.3 International Entrepreneurship

International entrepreneurship is defined as the discovery, enactment, evaluation, and exploitation

of opportunities across boarders to create opportunities (Oviatt & McDougall, 2003). McDougall

and Oviatt (1994) define international new ventures as business organizations that, from inception,

seek to derive a significant competitive advantage from the use of resources and the sale of outputs

in multiple countries. International new ventures are also defined as organizations that coordinate

and integrate internal and external resources, reconfigure the firm‘s asset structure in terms of

product portfolio and internal processes and personal and organizational experience together with

organizational networking (Zucchella & Scabini, 2007). International new ventures are also called

„born globals“ (Knight, 1996), „global start-ups“ (Oviatt & McDougall, 1995), „instant

24

internationals“ (Fillis, 2001), „international new ventures“ (Oviatt & McDougall, 1994) or „Innate

Exporters“ (Ganitsky, 1989).

The founder attitudes and characteristics as well as the strategic orientations of born globals

differ substantially from domestic oriented firms. The founders of born global companies are

characterized by a strong international vision, background and experience (Etemad, 2004). Foreign

education and work experience of founders has a positive impact on the internationalization speed

and performance (Zucchella & Scabini, 2007). Foreign experiences lead to favorable

internationalization competencies, such as local and international networks, knowledge and

background (McDougall, Shane & Oviatt, 1994). Previous international experience results in

knowledge of the international business environment and how to organize the firm for optimal

operations in foreign markets (McDougall et al., 2003). A preexisting international network has a

positive effect on the status, degree and speed of internationalization (Aspelund, Madsen, and

Moen, 2007; Zucchella & Scabini, 2007). Oviatt and McDougall (1994) reported that born globals

have an international vision from inception with a strong focus on international growth, selling and

marketing innovative via external, foreign networks. Born globals are characterized substantial

international activity at or near inception, despite limited tangible and intangible resources

(Cavusgil & Knight, 2009). They occur industry independent and emphasize international

diversification, product differentiation strategies with a strong focus on superior product quality.

New ventures operating in global, highly internationalized industries are more likely to venture

abroad (2009).

Born globals vary in characteristics, strategic orientation and internationalization speed

(Aspelund, Madsen, and Moen, 2007). They generally focus on growing niche markets and enter

through low commitment modes. Born globals are tightly managed organizations that typically

leverage external, independent intermediaries for marketing, sales, and distribution via advanced

communications and information technologies (Freeman, Edwards, and Schroder, 2006). They

exhibit much heterogeneity in international marketing strategies. Some born globals concentrate on

a few, lead markets, while others spread out across numerous markets (Cavusgil & Knight, 2009).

The reasons for strategic heterogeneity can be found in the founding process of the firm,

organizational factors and environmental conditions. Born globals typically excel internationally

through differentiation and focus strategies, but should avoid cost leadership strategies (Cavusgil &

Knight, 2005). Technology is the most critical competitive lever (Renie, 1993). Because born

globals do not possess the necessary resources for extensive marketing and advertising campaigns,

they need to rely on their superior technology to differentiate. Proprietary knowledge in knowledge

25

intense industries is highly instrumental for rapid and extensive international growth (McNaugton,

2003). Born globals usually develop innovative products, excellent customer service or patented

know-how to differentiate from competitors (Miller & Friesen, 1984; Porter, 1980) Product

uniqueness offers a buffer against larger rivals in form of a „monopolistic advantage“ (Hymer,

1976). „The combined role of global technological leadership, unique product positioning, and

quality focus imply that upstream organizational activities related to knowledge development,

R&D, innovativeness, and product-based differentiation play a significant role in positioning of

born globals for international success.“ (p.62, Cavusgil & Knight, 2009). The greater the knowledge

intensity in an industry, the greater the degree and success of internationalization (Fernhaber,

McDougall and Oviattt, 2007). Following a focus or differentiation strategy allows born globals to

concentrate on optimizing value-adding activities (Knight, 2001). An organizational focus on

customers and markets lets born globals develop complex systems of specialized resources tailored

to the needs of target markets. This leads to increased product performance and customer

satisfaction. Therefore, born globals need intimate customer relationship in order to understand,

develop and adapt product features meeting the needs of specific customer segments better than

unfocused competitors.

Born globals seek international growth for numerous reasons. International operations are

necessary in order to grow via market diversification, earn higher profits margins from lucrative

international markets, serve international customers better, gain economies of scale, and confront

competitors in their home market. Further, international operations enable born globals to quickly

amortize the product development costs and obtain ideas for new products. Thus, selling

internationally is not an option but a necessity for resource poor born global firms. Early and

substantial internationalization is not related to a higher firm failure, than the incremental

internationalization of traditional firms (Mudambi and Zahra, 2007). Especially markets with high

growth rates are more beneficial environments for born globals, than emerging or mature markets

(Fernhaber, McDougall and Oviattt 2007; Mudambi and Zahra, 2007). However, Ganitsky (1989)

also noted that high growth markets are often attracting the attention and entry of large, established

firms, which then outspend and outperform smaller born global firms.

Early internationalization is triggered by various factors. Unique niche products, an

inappropriate supply of critical resources, or small domestic markets force born globals to

internationalize early (Kudina, Yip, Barkema, 2008). On the one hand, the lack of competent local

suppliers in foreign countries can cause an export pull. Born globals with superior technical ability

serve sophisticated foreign buyers and consequently dominate cross-national niche markets. Small

26

global niche markets may be too small to attract the attention of larger, established firms (Knight &

Cavusgil, 2004). Some born globals, on the other hand, actively push their exports to foreign target

markets by promoting their products and services via information technologies. Small domestic

markets seem to push new ventures to internationalize early (Kudina, Yip & Barkema, 2008).

External factors are very influential in the decision to internationalize. The inappropriate supply or

quality of inputs pushes firms to internationalize early. In the study of Cavusgil, Knight, and

Riesenberger (2008), Japanese born globals opened American offices in order to gain access to

American venture capital funding. In general, new firms in industries with widely available venture

capital are more likely to internationalize (Cavusgil & Knight, 2009). The presence and support of

international partners encourages early internationalization. Born globals internationalize

aggressively through leveraging and controlling multiple distribution channels, serving diverse

markets, and thus developing high market visibility (McDougall, 1989). Thus, many born globals

can progress very rapidly through or skip internationalization stages. They may undertake licensing

agreements or direct foreign investments in manufacturing and assembly arrangements directly,

without first becoming exporters (Knight & Cavusgil, 2004; Nordstrom, 1991; Reid, 1984). Born

globals often use a range of internationalization modes simultaneously. Internationalization may, for

instance, include outsourcing and direct sales over the Internet as well as complex international

joint ventures.

The Internet has driven down the costs of international operations, communications and

business intelligence. It has enabled entrepreneurs to learn about foreign target markets and

competition, and build relationships with stakeholders at a global scale. Born globals use the

Internet for business intelligence, communication, marketing, customer relationships, sales

transactions and fulfillment activities (Cavusgil & Knight, 2009). The Internet allows entrepreneurs

to build and maintain relations with multiple partners, suppliers, clients, agents, distributors, R&D

partners, and software developers -both nationally and internationally. Thanks to the Internet,

worldwide communication has become inexpensive and omnipresent. Email, data and voice

transmission enables instant and direct interactions between partners and stakeholders (Servais,

Madsen and Rasmussen 2007). The Internet has opened the global market place to firms that would

otherwise lack the resources to internationalize (Cavusgil, 2002; Friedman, 2005; Wymbs, 2000).

The improved availability and quality of information, more efficient data transmission, integration

of key markets, rapid improvements and increased investment in various technologies all point to an

increased ability to internationalize rapidly and target numerous countries simultaneously (2009).

Public and private databases, online search engines, social networks, platforms for management,

27

and support, outsourcing providers and crowd funding sites help entrepreneurs to build and manage

their resource, knowledge and skill base for international success. By establishing a presence on the

Web, even the smallest firms can become instant multinational enterprises. Outsourcing through

freelancer over the web permits entrepreneurs to take advantage of labor cost differences across

countries and focus on the development of core technologies and processes (2009). Information

communication technology is an important resources and potential competitive advantage (Barney,

1991; Collis, 1991; Wernerfelt, 1984). Zhang and Tansuhaj (2007) found that the effective

utilization of ICT enhances international firm performance, market and international orientation as

well as organizational learning. ICT capabilities helps and forms firm strategies. ICT capabilities

are critical for born globals, yet ICT is most powerful in conjunction with other resources and

capabilities (2007).

The resource based view demonstrates that certain organizational resources can provide

firms with a competitive advantage, if they are valuable, rare, immobile and hard-to-imitate

(Penrose, 2002; Peng & York, 2001). This view suggests that differential endowment of

organizational resources is an important determinant of company strategy and performance

(Cavusgil & Knight, 2009; Collis, 1991; Wernerfelt, 1984). The resource based view, RBV

hereafter, hold the assumptions that firstly resources are heterogeneously distributed across firms

and industries, and that secondly resources are immobile. Therefore, resource based competitive

advantages are sustainable and long-lasting (Barney, 1991; Collis, 1991; Hunt, 2000; Mahoney,

1995; Penrose, 2002). The strongest competitive advantages derive from historic circumstances and

causal ambiguity and social complexity. The knowledge, experiences, capabilities and networks of

entrepreneurs are examples of imperfectly mobile, causal ambiguous, socially complex and historic

advantages, that are hard to imitate by competitors. Imitation is only possible via the same time

consuming process of irreversible investment and behaviors (Collis, 1991). Particular

circumstances, social structure and causal relationships of the founder need to be observed and

interpreted for competitive imitation (Mahoney, 1995). If born global firms possess unique, tacit

knowledge, proprietary technology or substantial product differentiation, they can build a global

monopoly position (Porter, 1980). Many born global firms offer superior products and services due

to their product-process innovations that give them a global competitive advantage. Technical

eminence and innovative, unique and high quality products or breakthroughs are conducive for

international growth. Proprietary technologies and distinctive intangible assets seems to be

particularly important for born globals. If, however, a resources are not patent protected, equally

distributed or easy to access, superior utilization of if can be a competitive advantage (Hunt, 2000).

28

Because born globals are usually resource poor, they can neither depend on large intangible

financial or human resources, nor sizable tangible assets such as plants, properties or equipment.

Instead they have to build up and rely upon other means to build the firm and internationalize

simultaneously. In order to succeed born globals need to take advantage of their organizational

culture, entrepreneurial drive, their unique knowledge and competencies, as well as their

international network relationships.

The youth, inexperience and newness of born globals is a curse and a blessing. On the down

side, youth is a liability that represents a barrier to entry. Founders usually struggle to obtain the

necessary resources and networks for internationalization. Born global founders must undertake

substantial marketing and gain the acceptance of initial customers in order to attract foreign

intermediaries. On the upside, youth avoids problems of path dependence and inertia.

Organizational inertia limits the organization‘s flexibility and limits the speed and direction of

strategic changes (Collis, 1999). If new ventures start by building a dominant position in the

domestic market, they might have to revise and unlearn routines and practices, when they

internationalize. Changing established routines becomes more difficult the longer they had been

established, since they usually challenge and contradict existing ones (Autio et al., 2000; Barkema

& Vermeulen, 1998). The absence of organizational heritage enables born global companies to

develop efficient and effective international activities. The exposure to diverse, foreign

environments offer a numerous opportunities for experimentation, learning and innovation (Zahra et

al., 2000). Therefore, born globals operating in multiple market exhibit a steep learning curve and

quickly progress through internationalization stages. External networks with foreign partners,

suppliers and customers are a major contributor to a firm‘s technological, market and social

learning, and hence international performance (Yeoh, 2004). Learning capability and product

adjustment via experimentation with different business models and pricing is paramount for

successful internationalization. Proactive learning and experimentation help to deal with the

uncertainty and turbulence of rapid internationalization (Chetty and Campbell, 2004).

Dynamic capabilities refer to the firm‘s ability to achieve organizational goals and

objectives. Dynamic capabilities allow firms to integrate, reconfigure, gain and dismiss

organizational resources. They gear organizational resources, operational routines and competencies

toward attain superior performance (Eisenhardt & Martin, 2000; Nelson & Winter, 1982). Dynamic

capabilities allow firms to utilize and grow resources and competencies to create or respond to

market changes (Zucchella and Scabini, 2007). Dynamic capabilities help firms to achieve new

resource configurations to achieve congruence with markets as they emerge and evolve (Eisenhardt

29

& Marting, 2000; Teece et al., 1997). Dynamic capabilities a need to be systematically developed

and directed by entrepreneurs (Lado, Boyd, & Wright, 1992). Therefore, dynamic capabilities

important for born globals because international environments are diverse, complex, and dynamic.

The most critical capabilities for internationalization are marketing capabilities, networking

capabilities and learning capabilities (Knight & Cavusgil, 2004; Weerawardena et al., 2007).

Marketing capability is the firm‘s capacity to craft effective marketing strategies and campaigns.

These are mainly traditional marketing functions such as product development, product-market

communications, pricing, and distribution. Dynamic capabilities concern the routines through which

the firm learns from sources in the market, the firm‘s network relationships (Dosi, 1988; Nelson &

Winter, 1982; Teece et al., 1997). Routines transcend organizational boundaries and diffuse through

network relationships (Greve, 1994; Rogers & Shoemaker, 1971). Weerawardena et al. (2007)

emphasize the importance of networking capabilities for the internationalization process and

performance of born global firms. Networks with foreign partners, suppliers and customers are a

major contributor to a firm‘s technological, market and learning, and hence international

performance (Yeoh, 2004). International operations and relationships introduce born globals to a

variety of environmental conditions that offer learning opportunities, which are not present in home

markets (Zahra et al., 2000). Therefore, internationalization results in organizational learning, new

dynamic capabilities and eventually to a competitive advantage (Autio et al., 2000; Cohen &

Levinthal, 1990). In general, capabilities, especially dynamic capabilities, contribute to the

successful internationalization of born globals. Internationalization, in turn, enhances firm

capabilities.

In summary, traditional theories on internationalization do not hold anymore, such as the

monopolistic advantage theory, the product life cycle theory or the stage gate theory. The new

phenomena of born global firms necessitates a different research approach. The founder‘s behavior

is the key determinant and predictor of the startup‘s success. Born global founders differ from

traditional founders. Born global entrepreneurs need to have an innovative, proactive, risk-taking

orientation, a global vision as well as previous international experience and global networks. Most

successful born globals follow a niche strategy with extensive international diversification or focus

on a few global lead markets. Born globals internationalize because of higher profit margins abroad,

quick amortization of development costs, and economies of scale. Triggers for internationalization

are internationalizing customers, inappropriate supply abroad or superior, proprietary technology.

According to the RBV, a competitive advantage that is based on valuable, rare, immobile and hard-

30

to-imitate resources are especially powerful in conjunction with ICT capabilities. The Internet is the

key enabling technology for born global startups. Due to the liabilities of newness, smallness and

resource constraints, born global firms often leverage other organizations through the Internet as

their to go to market strategy. The Internet enables born globals to instantly and cheaply reach and

communicate with customers and suppliers around the globe. The RBV and the capabilities

frameworks still hold some explanatory power over the performance of born globals. However, due

to the importance of partners and collaborators of born globals, scholars have called for the network

approach to investigate international entrepreneurship. „The networking dimension appears

important in International Entrepreneurship, especially for the born-global firms, which rely on

inter-firm alliances and interpersonal social networks in order to overcome resource constraints and

lack of knowledge when they internationalize“ (p.94, Zucchella & Scabini, 2007). The dependence

of born globals on ICT technologies, such as email or social networks, in order to manage their

global operations might offer new avenues for research. Internet-based technologies typically keep

a digital record of past activities that allow us to shed light on the entrepreneurial behavior from a

longitudinal perspective. Throughout the literature review on born globals, we have numerously

referred the role and importance of relationships and networks for the successful startup, growth

and internationalization of new ventures. We will now turn our focus specifically on the role and

importance of networks -national and international- on the performance of born globals.

31

Chapter 3: Literature Review on Networking Behavior and

Networks of Born Globals In the following chapter, we will examine the academic literature on networking behavior and

positions, which facilitate the international business performance of born global firms. Firstly, we

will examine networks in general. We will elaborate on the network benefits such as the diffusion of

information, resources and capabilities, and access to markets and technologies, as well as inter-

organizational learning,. Then, we will discuss findings on entrepreneurial networking behaviors.

We show mixed finding concerning the networking direction, features and outcomes of good

networking behavior as well as different classifications of networks and networking. Thirdly, we

will analyze and evaluate the possible, consequent network positions. Network centrality and

network density are crucial constructs that impact the nature and usefulness of networks. Lastly, we

compare the influences and evolutions of national and international networks from born globals.

Overall, this section discusses how the entrepreneurial networking behavior, the subsequent

network position, the network composition and the partner selection can affect the performance of

born globals.

3.1. Networks

Individuals and organizations are connected to one another in the form of networks. A network is

composed of a series of direct and indirect ties between network nodes. Network embeddedness

characterizes the complex interdependencies between actions of individuals, firms and its ongoing

relationships with the environment (Granovetter, 1985). An organization’s environment consists of

regional as well as international networks to organizations and institutions, such as universities, VC

firms, law firms, and trade associations. The regional, inter-organizational networks of new

ventures are equivalent to the personal networks of founders (O‘Donnell, Gilmore, Cummins,

Carson, 2001). Certain networks promote certain actions, but in turn constrain other actions

(Castilla, 2003). The actions of founders (attitudes and behaviors) and outcomes of new ventures

(performance, survival and legitimacy) can be best explained in terms of their position in networks

(2003).

Research in sociology and entrepreneurship shows that inter-organizational networks affect

resource mobilization, evolution of organizational environments and economic institutions (Castilla,

2003; Coviello & Munro, 1997; DiMaggio & Powell, 1983; Greve, 1995; Granovetter, 1985;

Stinchcombe, 1965). In the early stages, networks allow entrepreneurs to compete without having to

32

possess all the resources necessary to go to market because new ventures are resource constraint

(Cooper et al., 1988; Dubini & Aldrich, 1991; Starr and MacMillan, 1990). Social networks make

the operations of new ventures easier because entrepreneurs can utilize their networks to find

necessary resources to exploit new opportunities and compete effectively in the marketplace

(Aldrich & Zimmer, 1986; Aldrich and Martinez, 2001; Johannisson, 2000; McEvily & Zaheer,

1999). Gulati, Nohari and Zaheer (2000) found that the importance of entrepreneurial networks lies

in their ability to provide access to information, resources, markets and technologies. Networks

enable entrepreneurs to access the required complementary knowledge, support or distribution

channels (Greve, 1995; Zucchella & Scabini, 2007). Previous network studies found that inter-

organizational relationships provide the benefits of information diffusion and inter-firm learning

(Abrahamson & Rosenkopf, 1997; Liebeskind et al. 1996; Nahapiet & Ghoshal, 1998; Powell et al.,

1996). New capabilities and resources can be acquired and leveraged through inter-organizational

networks (Anand & Khanna, 2000; Dussauge, Garrette & Mitchell, 2000; Hitt, Ireland & Lee,

2000). Thus, networks enable entrepreneurs to cope with environmental uncertainty and

impediments in their operations (Alvarez & Barney, 2001; Freeman, Edwards, and Schroder, 2006;

Floyd & Wooldridge, 1999).

Especially in highly competitive environments, networks have become important (Gulati,

Nohria, & Zaheer, 2000). New ventures can deal with the pressure of highly competitive markets by

developing ties with a resourceful networks within the overall eco-system and exchanging

knowledge with other partners. Therefore, „The composition of the network and the degree of

information, skills and resources it has are significantly important for the success of the firm“ (p.

91, Zucchella & Scabini, 2007). Generally speaking, the availability and access of complementary

skills and resources that enhance the entrepreneurial performance depends on the network ties and

their composition of resources.

In sum, the value of networks stems from their ability to extend the abilities and capacities

of new ventures. Networks enable new ventures can tap into resources, capabilities, information,

knowledge, technologies, support, and distribution beyond their firm boundaries.

3.2. Networking Behavior

Born globals have been found to be proactive and strategically aggressive in their networking

efforts (Coviello & Munro's 1997; Welch & Welch, 1996). Others scholars propose that born

globals may be reactive to unsolicited customer requests and reliant on previously established

relationships for growth and internationalization (Bell, 1995; Sharma and Blomstermo, 2003).

33

Overall, the literature on the networking behavior of international new ventures offers mixed

findings concerning the networking direction and overall behaviors.

Uzzi (1997) emphasizes three main components that govern the behavior of network

partners: trust, fine-grained information and joint problem-solving. „Relationships are coordinated

by trust and so access to better resources is ensured; informations more reliable and widespread and

finally the joint-problem solving arrangement deepening relationships lead to a continuous flow of

knowledge and innovation“ (p. 91, Zucchella & Scabini, 2007). Similarly, Freeman and Cavusgil

(2007) emphasize collaborative behaviors that foster trust, reciprocity, and adaptability.

Collaborative behaviors strengthen relationships, and foster information exchange and mutual

learning among partners (Zucchella & Scabini, 2007). Collaborative behavior helps to build key

relationships and networks into national and international markets. The information exchange is

more reliable in networks that are based on trust (Uzzi, 1997). Implicit and open-ended contracts -

power, influence and threat of losing reputation- are more efficient than market mechanisms based

on legal contracts (Hoang & Antoncic, 2003). Thus, in repeated interactions, expectations and

obligations promote actors to behave in a trustworthy way. In networks with a large amount of

social capital the collective interest is put first.

Cohesive networks can facilitate the formation of social capital. Social capital helps to gain

credibility and legitimacy (Cooper, 2002). Particularly, in the early phases, founders and new

ventures need legitimacy, because new ventures do not appear as accountable and reliable as

established organizations. New ventures need to establish an external perception of legitimacy to

accumulate resources and survive competition with existing organizations (Delmar & Shane, 2001).

Hence, networks relationships have reputational and signaling effects. Entrepreneurs can build

credibility and legitimacy through the association with well-respected individuals and

organizations. Individual and firm linkages lead to external validation, reduces the risk perceptions

and enhances the access to resources (Hoang & Antoncic, 2003). Therefore, networks enable

outsiders to easily gauge the potential of a venture through the network of new ventures. In

summary, collaborative network behavior is based on trust, fine-grained information, joint problem-

solving, reciprocity, and adaptability create mutual learning and social capital, which is in turn is

associated with positive reputational and signaling effects to outsiders.

Network development and maintenance takes time, but can be a source of competitive

advantage. The accessibility of relationships can be classified in four different categories:

continuing, sleeping, terminated and future relationships (Hinttu, Forsman and Kock, 2002).

Continuing relationships with weak and strong ties are considered fundamental to the business and

34

hence most important and intense. Sleeping relationships may be useful because their value stems

from the fact that they can be reactivated in times of need. Terminated relationships, on the other

hand, offer no mutual help anymore and they are difficult to reactivate. Future relationships offer

the potential of future opportunities. Hence, entrepreneurs are always on the look out for developing

relationships and ties with new, useful social ties. „The time spent developing and maintaining

social relationships can be considered a source of competitive advantage, since most successful

entrepreneurs seem to regards developing new contacts with individuals, and re-establishing or

maintaining relations with people with whom they have not been recently in contact, as high on

their list of priorities“ (p. 92, Cavusgil & Knight, 2009). In general, sleeping, continuing as well as

future relationships are value able and useful to startups and their founders, but to a different

degree.

Despite the consensus about the importance of networks, a debate still exist about the nature

and subsequent usefulness of network ties and their tie strength. Hinttu, Forsman and Kock (2002)

argue that different types of networks, both strong and weak ties are important for

internationalization. On the one hand, strong ties supply reliable information, while weak ties

provide information faster and without constraints. The firm‘s internationalization strategy emerges

as a pattern of behavior that is directed by a diverse set of network relationships. Information about

opportunities and threats govern the firms market selection and entry (Coviello & Munro, 1997).

Strong ties are characterized by frequent interactions. Entrepreneurs spend a considerable amount of

time with people to find out, if they are reliable and useful relationships for their network before

they engage in business activities together. Granovetter (1973) found that weak ties are more

important for exploration of opportunities. In a network of weak ties, participants can move freely

and obtain information from multiple network clusters easily. Strong network ties may become

depended on each other and thus hinder participants to exploit opportunities on their own

(Granovetter, 1973). Uzzi (1993) found that optimal networks should be open towards new arm‘s

lengths ties to escape lock-ins. Overall, weak ties in low density networks as well as strong ties in

high density networks are both conducive to the entrepreneurial process (Greve, 1995).

Hinttu, Forsman and Kock (2002) developed a classification of social relationships

according to their number and strength. Thereby, entrepreneurs can be classified into four

categories, namely, atomistic, collective, safe and hub entrepreneurs. Atomistic entrepreneurs is a

lonely individual with only few, weak connections. The collective entrepreneurs has many weak ties

in different circles from which he seeks information. The quality of the information cannot be

guaranteed due to the weakness of the ties. The safe entrepreneur builds a few, strong and long-

35

lasting relationships as a source for reliable information. However, dependence on a small number

of strong ties poses the threat of a strategic lock-in. The hub entrepreneur develops many strong

social relationships and takes a strong, central position within the network. He has access to many,

different networks and information flows, which he can consequently utilize to recombine resources

and capabilities in order to pursue new opportunities (Hinttu, Forsman and Kock, 2002).

In summary, entrepreneurs vary in their networking behavior and strategy. Over time,

entrepreneurs build network relations. Based on the tie strength of these relationships -that is the

nature and frequency of interaction- the relationships can be categorized as continuing, sleeping,

terminated and future relationships. Weak as well as strong ties are important, but they serve

different purposes. Weak ties provide fast and easy access to information, while strong ties are more

reliable. In cohesive networks, trust, fine-grained information exchanges, joint problem-solving,

reciprocity and adaptability facilitates the creation of social capital, legitimacy, credibility and

reliability. According to their networking behavior, entrepreneurs can be classified as atomistic,

collective, safe and hub entrepreneurs.

3.3. Network Position

The position of founders within the network is important. Networks evolve over time, and so does

the network position of actors within it. Network centrality indicates how important and powerful

an individual or organization is in the network (Castilla, 2003; Greve 1995). A central network

position enables entrepreneurs and investors to spot new opportunities faster, get access to

resources, better information and hence enable actions and coordinations between partners to better

exploit opportunities (Aldrich and Zimmer, 1986; Burt, 1992). Networks provide critical

information about competitors‘ intentions and actions. Thus, in fast changing environments

characterized by rapid technological change, timely information creates a competitive advantage

over other firms (Zucchella & Scabini, 2007). Knowing about product developments of competitors

early on and launching one‘s own product before can be of tremendous value. Therefore, network

centrality enhances access to better resources and timely information and hence firm strategy-

making, competitiveness and performance.

Embeddedness in social networks shapes and facilitates the allocation of resources, support

and information necessary for the development of new ventures and the development and success of

the overall region in the long run (Castilla, 2003). Therefore, entrepreneurial activities are more

successful when entrepreneurs are embedded in a densely connected networks. In highly dense

networks, information flows rapidly and information overlaps are high (Greve, 1995). In low

36

density networks information bridge contacts that link different cliques are more prominent and

important because they give entrepreneurs access to other indirect contacts (Mizruchi, 1982). Dense

network ties in collaborative networks enhances the development of knowledge exchange,

technological performance and collaboration opportunities with partners (Castilla, 2003; Stuart,

1998).

In sum, the network position shapes and facilitates the allocation of resources, support and

information necessary for the development of new ventures. Networks, especially dense networks,

help new ventures to cope with resources scarcity and environmental uncertainty by providing

access to complementary resources, capabilities, technologies, knowledge, learning, information,

advice, support and distribution channels.

3.4. National Networks

Domestic as well as international network connections play an important role in the creation and the

development of born globals. Born globals often obtain resources and resources form their domestic

as well as international network partners (Laanti, Gabrielsson, & Gabrielsson, 2007). Domestic

network relationships play a mediating role between early internationalization and profitable

international performance (Zhou, Wu, Luo, 2007). Network relationships can act as a catalyst for

developing leads and linkages into new markets. Social networks aid to identify opportunities and

help to develop a competitive advantage through the accumulation of international market

knowledge (2007). Many born globals acquire international market knowledge through their

domestic networks before they first enter foreign markets (Sharma and Blomstermo, 2003). This is

in line with Coviello (2006), who argues that venture development is path-dependent and therefore

pre-existing networks are important in the venture development. Generally speaking, national and

international networks facilitate early and profitable internationalization through the accumulation

of international market knowledge and linkages to new markets.

Location choices are a critical factor for the success of entrepreneurial firms because they

determine the local networks entrepreneurs can build or access. Entrepreneurs choose the most

profitable and feasible match of firm- and location-specific characteristics. Entrepreneurs engage in

close business relationships in small, local contexts. Geography has a significant influence on

network development, in particular the location of hubs. In hubs large amount of connections

converge. They act as consolidation and distribution centers for the traffic of and over networks

(Casson & Guista, 2007). Hubs are also often connected to other national and international hubs.

37

Incubation and acceleration programs take place in hubs that provide temporal proximity

and exposure to other founders, new ventures, potential partners and customers. Incubators offer

tremendous value through introductions and referrals of strategic partnerships. Gloor et al. (2008)

suggest that „much more work is needed to better understand the differences in networking

behavior (...), and the influence of business networking hubs on entrepreneurial network

building.“ (p. 243). The incubation partners can enable startups to quickly launch the business,

increase the Web site traffic, and speed up the diffusion of new technologies (Hansen, Chesbrough,

Nohria, & Sull, 2000). Two factors are paramount for networked incubators. Firstly, networked

incubators institutionalize networking, that means they have mechanisms in place that support

networking. Secondly, networked incubators provide preferential access, but not preferred

treatment. Meetings with incubator partners do not guaranteed outcomes, but full attention of busy

people. Since networked incubators bundle networking needs, they can scale networking benefits.

„Networking no longer depends on the personal connections of a few people and can be scaled up

to include many mechanisms and managers networking on behalf of numbers companies“ (p. 79,

Hansen, Chesbrough, Nohria, & Sull, 2000).

In sum, domestic inter-firm networks and local hubs, such as incubator programs, can add

tremendous value to new ventures. Through inter-organizational knowledge and information

transfers internationalization has been found to be path-dependent. Local hubs, such as incubators

and accelerators, can add value through introductions and referrals to strategic, national and

international partners. Thanks to incubation and acceleration programs, startups can focus their

networking efforts and benefit from institutionalized networking and preferential access to partners

and potential customers.

3.5. International Networks

International networks enable entrepreneurs to gain information, access to cheaper resources, labour

conditions, customer habits and needs, legal systems and knowledge in general in order to reduce

the risk involved in going abroad (Zucchella & Scabini, 2007). International network relationships

give entrepreneurs access to a broader, more diverse set of informations, opportunities and

resources. Networks are critical for the market access, financing, distribution channels and contracts

for both internal and external development. The firm‘s network compositions provides the basis for

the acquisition, mobilization, and development of needed resources. Thus, born globals need to

develop and leverage their networking competencies to develop alliances and collaborative

38

partnerships. Only then, they can achieve rapid growth internally via alliances with distributors,

suppliers and other partners.

Large, foreign partners lead the selection of markets and entry modes. Foreign network

relationships are bridges to foreign markets. Therefore, they induce the motivation and opportunity

to internationalize (Sharma and Hohanson, 1987). „Network relationships may not only drive

internationalization, but influence the pattern of market investment.“ (p. 372, Coviello and Munro,

1997). The market selection and entry mode of the born globals are directed by early partners and

network relationships (Coviello & Munro, 1997). Selected international markets were have been

found to be spread globally, displaying little psychic similarity or physical proximity (Coviello &

Munero, 1995; Bell, 1995). Early partners abroad introduced and referred the new ventures to their

own network relationships and customers over time and thus created new business opportunities

(Coviello & Munro, 1997). International partners act as catalysts for international growth. Thus, the

selection of early, mayor, international partners is of critical importance for firm performance,

growth and survival. Given these points, international network relationships induce motivation to

internationalize in certain markets, provide opportunities, information about customers and partners,

and offer the resources and capabilities to exploit them. Born globals often leverage network

relationships for market selection and entry in order to reduce their financial and market risks

(Cavusgil & Knight, 2009).

Early internationalizing startups often externalize internationalization and marketing

activities because the collaboration and cooperation with major, international partners enhances the

visibility and viability of the new venture in new markets (Baum & Oliver, 1991). International

partners carry out downstream promotion, pricing, and customer relationship activities.

Relationship with foreign distributors are a key resource for born globals because of foreign

partners can more effectively and efficiently market products to their existing customer base.

International network relationships lower market and financial risk and uncertainty of international

markets (e.g., Selnes & Sallis, 2003; Nerkar & Paruchuri, 2005). In short, large, foreign partners

enhance the visibility, viability and consequently the performance of born global firms, while they

simultaneously reduce financial and market risks. Because of resource scarcity, born globals often

avoid costly, direct international market entry modes, such as foreign direct investment (Rasmussen

et al., 2001). Instead, born globals typically leverage complementary resources, competencies and

networks of foreign intermediaries (Freeman, Edwards, & Schroder, 2006; Oviatt & McDougall,

1994). The nature and flow of resources from the network can vary from firm to firm, and across

the internationalization stages.

39

The type and flow of resources from networks varies and evolves as the born global

transitions through various internationalization stages (Cavusgil & Knight, 2009). In the beginning,

born globals use their networks to generate organizational skills and competencies, such as

marketing, technological and learning capabilities. During the internationalization the focus shifts to

developing human resources that support further growth. Then, the firm shifts to building its own

client and distribution base (2009). Generally speaking, international networks provide access to

international markets, financing, distribution and contracts for internal and external firm

development, but vary depending on the internationalization stage.

Born globals simultaneously leverage a diverse set of international intermediaries and form

complex relationship structures through different entry modes. Exporting is the preferred, initial

internationalization strategy due to its flexibility and cost-effectiveness. Coviello and Munero

(1997) found that firms firstly enter into loose product development agreements with large, foreign

partners. Afterwards, those agreements develop into formal contracts. Also, born globals often

employ a diverse set of entry modes, such as exporting, joint marketing or development agreements,

piggy-backing, and joint ventures at the same time. Thus, internationalizing firms quickly develop

complex relationship structures with multiple foreign partners. Collaborative partnering also

provide infusion of capital and align interests for a successful market entry. However, Coviello and

Munero (1997) found that foreign product development facilities and sales offices occurred only in

the late stages of internationalization, that is in year 5-7, in order to better facilitate relationships

and increase control over marketing activities.

The downside of partnering with large foreign partners is that born globals put themselves at

risk by extensively relying on international partners. Foreign partners often use their position of

size, power and control to influence or bargain with born globals. Entrepreneurs need to be willing

to adapt their relationships and products to meet the changing needs of partners (Freeman et al.,

2006). Foreign partners may withhold information or switch to competitors (Coviello & Munro,

1997). As a consequence, international new ventures often develop new products for diversified

markets or establish separate support facilities in order to decrease their reliance on mayor partners

(Cavusgil & Knight, 2009). With increasing market success, international new ventures strive for

greater autonomy, decision making power and control over network relationships (Coviello &

Munro, 1997). Becoming a more central player within the foreign network allows new ventures to

increase their negotiation and bargaining power over time.

In summary, international network relationships provide opportunities for accelerated firm

performance and rapid international growth. Born globals use international partners to externalize

40

marketing and distribution activities in order to reduce financial risks, market uncertainty, and

increase their market visibility and viability. However, building international partnerships also

require sacrifices of managerial time and control in exchange for complementary resources or

international market access. Slow international growth indicates that entrepreneurs and managers

are unable to obtain relevant knowledge, experience, or market relationships (Coviello and Munro,

1997). The internationalization and resource flows with foreign intermediaries occurs in stages.

First, born globals acquire organizational skills, such as marketing, technology and learning

capabilities. As a second step, born globals develop their human resources for further growth. Third

and lastly, born globals build their own client and distribution base abroad. In general, born globals

leverage multiple intermediaries simultaneously. The evolution of international entry modes and

distribution strategies of born globals can be separated in four phases. First, born globals use

flexible, low-cost exporting. Then, born globals enter into loose product development agreements.

As a third step, formal contracts are established to align interests between partners. Lastly, born

globals open foreign sales offices. Large, international partners can have positive and negative

effects on newly formed born globals. On the one hand, foreign partners can offer their

complementary resources, competencies and networks. On the other hand, they often use their

position of power in order to bargain on prices, influence the product development, market selection

and entry modes of born globals.

To summarize and conclude this chapter, born global entrepreneurs need to be aware of the

importance and the influences of network relationships on their startup, growth and

internationalization efforts.

Networks aid the resource mobilization, organizational evolution and interactions with

economic institutions. Born globals develop network relationships reactively as well as strategically

proactively. Collaborative networking behavior needs to be based on trust, fine-grained information,

joint problem-solving, reciprocity, and adaptability to create mutual learning and social capital,

which is in turn is associated with credibility, legitimacy, positive repetitional and signaling effects

to outsiders. Network development and maintaining takes time and effort, but can yield a

competitive advantage due to better and faster information exchanges. Sleeping, continuing and

future relationships offer value to the firm and its founders. Entrepreneurs vary in their networking

strategy and competency. According to the frequency and depth of interactions, entrepreneurs can

be classified as atomistic, collective, safe and hub networkers. Weak and strong ties are equally

important, they need to be balanced because they serve different purposes. Different types, both

41

strong and weak ties, are necessary for successful internationalization. Weak ties are important

information for exploration, while strong ties can help the exploitation of opportunities. Weak ties

provide fast and easy access to information, while strong ties are more reliable sources.

The availability and access of complementary resources, capabilities and information that

enhance the entrepreneurial performance critically depends on the social capital of entrepreneurs as

well as the composition of their networks. A central network position enhances access to better

resources and timely information and hence firm strategy-making, competitiveness and

performance. Networks help new ventures to cope with environmental uncertainty and resources

scarcity by providing access to complementary resources, capabilities, technologies, knowledge,

learning, information, advice, support and distribution channels.

Incubator programs can add value to born globals by creating network relationships between

incubates, as well as through preferential access to valuable potential partners and customers.

International network relationships induce motivation to internationalize in certain markets, provide

opportunities, information about customers and partners, and offer the resources and capabilities to

exploit them. Large, foreign partners enhance the visibility, viability and consequently the

performance of born global firms, while they simultaneously reduce financial and market risks.

Born globals simultaneously leverage a diverse set of international intermediaries and form

complex relationship structures through different entry modes. International networks provide

access to markets, financing, distribution and contracts for internal and external firm development.

The entry and internationalization modes of born globals change over time. First, exportation is

preferred, then loose product development and later formal contracts are established. In the last

phase, born globals open foreign sales offices. Born globals need to do so over time because large

foreign partners often use their size and power to bargain on prices, withhold information or

influence the product development in their favor. In the next section, we will introduce common

approaches to network research, point out research gaps and subsequently derive our research

approach for this study.

42

Chapter 4: Methodology and Research Design

4.1. Research Gap

Scholars have increasingly recognized the role and importance of network theory in the

entrepreneurial process and internationalization of firms (Christensen & Rosenbloom, 1995;

Coviello & Munro, 1997; Granovetter, 1985; Greve, 1997; Henderson & Clark, 1990; O‘Donnell,

Gilmore, Cummins, Carson, 2011; Soh & Roberts, 2003).

Past studies on entrepreneurship link networking activities with positive effects on the

performance of entrepreneurial firms (Aldrich & Martinez, 2001; Johannisson, 2000). Yet, little is

known about the networking behavior and networks of born global firms. Networking behaviors

could be identified and examined more in-depth in the context of network theory (Coviello &

McAuley, 1999). The environmental context of entrepreneurial behavior has been acknowledged as

an critical factor from the early to late stages of the firm formation (Granovetter, 1985; O‘Donnell,

Gilmore, Cummins, Carson, 2011). The SNA approach can help to understand the nature of the

relationship between social networks of actors (Castilla, 2003). „Such types of network analyses are

indispensable steps for the understanding of industrial and regional economies.“ (p.23, Castilla,

2003). Yet, so far studies have neglected the effects of dynamic networks of innovators and their

socio-organizational dynamics (Soh & Roberts, 2003, Christensen & Rosenbloom, 1995;

Henderson & Clark, 1990).

Traditional models on internationalization emphasize that internationalization is a slow,

risky, and resource intensive process (Johanson & Vahlne, 1977; Cavusgil, 1982), but the rise and

success of born globals indicate that traditional internationalization models must be revised

(Cavusgil & Knight, 2009). Johanson and Vahlne (1992) state that internationalization is a gradual

process, involving interactions and relationship building over time. However, Coviello and Munro

(1997) found that internationalization stages can be identified in their sample of born globals, but

they do not match patterns identified in the past research. „Small software firm behaves differently

to those represented by the general models of incremental internationalization“ (Coviello and

Munero, 1997). Coviello & Munro (1997) show that the patterns of networks, market selection and

market entry do not capture the internationalization process accurately in the traditional stage gate

model. Therefore, scholars have called for an integration of entrepreneurship, internationalization,

and strategic management theory with social network analysis. „Our understanding of the

internationalization process (...) can be enhanced by integrating the models of incremental

internationalization with the network perspective“ (p.23, Coviello & Munro, 1997). Research on 43

born globals will benefit from empirical studies to understand how and when firm‘s international

growth patterns reflect stages related to surrounding processes such as networks (Zucchella &

Scabini, 2007). Researcher found different networking patterns of born globals (Coviello, 2005;

McEvily & Zaheer, 1999). Thus, „a broader range of cases would also enable further investigation

of the idiosyncratic nature of network interactions and the seemingly more predictable patterns for

network structure.“ (Coviello, 2005, p. 728). Future research suggestions also call for focusing and

tracing the evolution of the networks of founders at the individual rather than firm level. „Moving

from a firm-level analysis to that focused on the individual entrepreneur, future research could

examine the networks of lead entrepreneurs in comparison to each other, over time.“ (p.58,

Coviello, 2005). In order to “develop our knowledge, detailed case studies of development

processes within different types of networks are needed” (p. 12, Anderson et al., 1994). Networking

is a crucial skill or competency for entrepreneurs that has received little attention (O‘Donnell,

Gilmore, Cummins, Carson, 2011).

4.2. Methodology

The network-based research methodology has been a loose federation of research approaches (Burt,

1980). It‘s roots lie in anthropology, sociology, psychology, strategic management,

entrepreneurship, even mathematics (Hoang & Antoncic, 2003). Two main network-based research

approaches on entrepreneurship have emerged, process- and outcome-oriented research. Process-

oriented research defines the network as the dependent variable, and analyzes the „how networks

affect the entrepreneurial process and lead to positive outcomes for the entrepreneur of their

firms“ (p. 168, Hoang & Antoncic, 2003). In contrast, outcome-oriented research specifies the

network as the independent variable, examines „how entrepreneurial processes and outcomes in

turn influence network development over time“ (p. 168, Hoang & Antoncic, 2003). The authors

argue that both dynamics need to be addressed in order to build a rich and dynamic theory within

the entrepreneurial context. In their review of seventy network-based research papers on the role of

networks in entrepreneurship research, they found that the majority of research has focused on

outcome-oriented research, that is the impact of networks on the entrepreneurial process. Process-

oriented studies have been less common.

Hoang and Antoncic (2003) call for three avenues to be pursued. Firstly, greater integration

between process- and outcome-oriented research; Secondly, more longitudinal, qualitative research;

and thirdly multi-method, qualitative research designs. Similarly, other researchers urge to apply a

more holistic, in-depth research approach, combining observations and interviews with longitudinal

44

data (Coviello, 2005, 2006; O‘Donnell, Gilmore, Cummins and Carson, 2011). Gathering

longitudinal data has been the main issue in investigating networks of innovators (Hoang &

Antoncic, 2003; Freeman, 1991; Granovetter, 1985; O‘Donnell, Gilmore, Cummins, Carson, 2011).

The general criticism on previous longitudinal network research is that it relies on surveys

and cross-sectional methods (Coviello, 2003, 2005; Hoang & Antoncic, 2003). Cross-sectional

methods compare networks of different individuals in different stages. This approach entails severe

limitations and issues due to the research design. The difficulty lies in telling apart development and

attrition. „Because the same actors are not observed through time, it is possible that selective

attrition, which is unobservable and uncontrolled for, may be driving the results“ (p.180, Hoang &

Antoncic, 2003). In order to advance the theory building of network-based research within the

entrepreneurial context, a time-based understanding of the network evolution is essential (Coviello,

2005, 2006; Greve, 1995; McEvily & Zaheer, 1999; Larson & Starr, 1993; Hite & Hesterly, 2001).

We need a time sensitive analysis of the evolutionary process, dynamic character of networks and

firm performance. „For research that seeks to explain entrepreneurial outcomes, incorporating

processual insights such as order or timing effects could better explain the impact on early venture

survival“ (p. 1881, Hoang & Antoncic, 2003).

The social context of entrepreneurs can be described by the size, activity, tie direction,

distance and centrality (Aldrich, 1998; Aldrich & Zimmer, 1986; Greve, 1994). The network

structure and nature of network interactions between actors is defined by a set of morphological

dimensions. Firstly, the pattern and structure are expressed in density (loose or tight-knit),

reachability (easy or hard), and range (social heterogeneity). Secondly, the interactional dimension,

which consider the network process can be classified in terms of content, intensity, frequency,

duration. Network dynamics -pattern and structure- can be measured using quantitative data, while

interactional dimension -content, intensity, frequency, and duration- need a qualitative approach

(O‘Donnell et al., 2011).

Similarly, Hoang & Antoncic (2003) point out three dominant areas in network-based

research, namely content of network relationship, governance, and structure. These building blocks

aim to illustrate the network development in the entrepreneurial process and explain the network

impact entrepreneurial outcomes. Firstly, network content refers to the resource and information

flows. Network size and centrality determine the amount of resources that can be accessed.

Secondly, the governance of networks alludes to mechanisms that direct network behavior, such as

trust and reputation. Thirdly, network structure describes patterns of direct and indirect relationships

between actors.

45

We apply a grounded theory approach to the social network analysis of our case studies. „Grounded

theory is a general methodology for developing theory that is grounded in data systematically

gathered and analyzed“ (p.273, Strauss & Corbin, 1994). GT makes constant comparative analysis

of a case against other case in order to find similarities and regularities (Cobin & Strauss, 1995).

Patterns reveal order in the data and help the development of general theory. „The theory evolves

during the actual research and it does this through continuous interplay between analysis and data

collection“ (p. 273, Strauss & Corbin, 1994).

The HUMAX assessment classifies the network in three dimensions in order to create a

network profile of the social capital. The structural dimension describes the pattern of network

connections. It ranges from cohesive to versatile to expansive. The network composition looks at

the characteristics of the people in the network. The network composition is characterized as

homogeneous, blended or diverse. The network focus dimension refers to attentiveness of the

network in certain areas or activities. The structure is measured in the network size, its adjusted size

(network size minus group overlaps), density (connections between connections), strong and weak

ties as well as avoidance ties. Network composition captures the demographic diversity in terms of

age, education, gender, and race. The focus of the network looks at the network concentration on

family, work, affiliations and international experience. In addition, the frequency of talks and

duration of connection is taken into account.

The LinkedIn analysis is based on the number of network connections, the location of the

connection in terms of country and city, as well as the number of industry positions held by network

connections. We distinguish between active and passive requests to connect (Appendix 4, 5). The

active networking requests of the entrepreneurs because intentions manifest themselves in behavior.

Behavior, that is actions and interactions, give meaning to the entrepreneurial process (Zuchella &

Scabini, 2007). We analyze active requests over time in order to show the effects of successful

funding raising and industry events on the entrepreneurial networks. Can we identify patterns or

trends that show an underlying networking intentions and strategies? We analyze the the network

compositions using ANOVA tests (Appendix 11, 13, 18) and the Simpson Diversity Index

(Appendix 9). Does networking the network composition and vary from entrepreneur to

entrepreneur or change over time depending on the startup phase or attended events?

46

4.3. Research Design

We used two social network methods to assess he social capital of the entrepreneurs, the HUMAX

assessment and a LinkedIn application that was programmed specifically for this study. We used

these two methods to create a comprehensive analysis of the entrepreneur’s personal social capital

and compare the results, as well as possibilities and limitations of the methods. The three

entrepreneurs filled out the HUMAX questionnaires in June and July 2013 (Appendix 1). We also

extracted their LinkedIn data in the same time frame.

The HUMAX assessment is an online administrated survey that analyzes the social capital

of people and organizations. The HUMAX Corporation sells these network assessments as a

consultancy service online. The assessment originated from Wayne Baker’s academic research on

social networks and social capital at MIT, Harvard and the Michigan University. According to his

website, the HUMAX method has become the “standard for egocentric network data collection and

analysis” (humaxnetworks.com). The HUMAX assessment addresses three dimensions and well-

established measures of the participant’s social capital: Structure, composition and focus. The

results are based on a series of questions and steps. Firstly, the participant has to point out his or her

core network in a so-called name generator. As a second step, the participant is asked to answer

questions about their core network ties, such as age, education level and ethnicity. Thirdly, the

relationships between network ties are specified, ranging from strong, weak, avoidance or no tie. As

a last step, the participant needs to answer a few questions about his or her background and

affiliations. The HUMAX index has been tested for its accuracy, validity, reliability and error

(humaxnetworks.com). The assessment relies on self-reported data. Therefore, the results heavily

depend on the participant’s ability to recall their interactions. Yet, the self-reported data of socio-

metric tools have been found to be very accurate (Wassermann & Faust, 1994). The validity of

network tools refers to their ability to measure what they intended to measure. Construct validity

describes the tool’s ability of well measurements can be compared across different methods.

Criterion validity refers to how well measurements explain an outcome, such as performance. Little

research has been done on the validity of social network research. However, research has shown the

HUMAX’s ability to predict outcomes well, such as pay or promotion (Obstfeld, 2001). The

reliability of a tool is its ability to reproduce the same results over repeated experiments. Because

networks evolve over time it is questionable whether the test re-test reliability of network

assessments is questionable (Wassermann & Faust, 1994). Network theory predicts that structure

would be the most changeable dimension over time, and that composition and focus should be the

47

least changeable over time. Research has confirmed that the results of the HUMAX index change

very little within a period of one year (humaxnetworks.com). The findings are in accordance with

the generally accepted network theory. Due to the homophily principle, which says that people

favor similarity, network theory predicts that the network focus changes very little. People stick to

people like themselves. Lastly, measurement errors occur, if a difference exists between true and

observed values. Fixed-choice data collection designs are particularly prone to this bias. However,

the HUMAX assessment does not restrict the number of name nominations. It is a dynamically

generated network instrument with unlimited choice (Wayne & Marquis, 2001). Through its online

automation, the tool is available 24/7, less burdensome and more comprehensive than paper-based

tests. Based on the answers, a customized report and a visual network diagram is automatically

computer-generated. The assessment’s feedback is immediate and thus optimal for learning and

self-improvement. The assessment is a statistical analysis that compares the participants’ answers

against a baseline population of other participants.

The Network Assessment harnesses the information of LinkedIn. LinkedIn -the world‘s

largest professional networking site with over 200 million members- has not been used for

academic research. LinkedIn is an online rolodex of professional contacts. Members can access

other member profiles, jobs, news and updates. LinkedIn stores it‘s members personal and

professional information about their careers and enables them build a network of contacts, called

connections. Members build their network by inviting other members to join their network.

Connecting with other members requires either a shared connection, or the introduction through

other members. Members, who have been invited to connect have to confirm and approve the

connection. Therefore, mutual value and trust needs to be attested by both members. LinkedIn also

stores information on when the founder invited someone else, or when some else invited the

founder to become a connection. Therefore, we are able to assess, which network and when

founders seek connections actively in certain industries, countries and job positions. The data we

able to extract for this research comprise the following information about their respective LinkedIn

connections: connection names, location in terms of country and city, industry and companies in

which the connections held positions, the company sizes, number of indirect connections through

these direct connections. We approximate the reputation and influence of the entrepreneurs using

the network size of direct connections as well as the tie direction. The network size is evidence of

how many persons a founder is in contact with. Interacting with as many people as possible

enhances the chance of receiving useful information and resources. The network directedness

indicates the attractiveness and influence of the entrepreneurs.

48

Startup stages and performance have been defined in numerous ways. Firstly, Wilken (1979)

distinguishes between three phases: first, the motivation to startup, second, the the plan to start the

business, and lastly starting the business operations. Yet, the line between phase one and two are

fluid and blurry. Secondly, Kazanijan (1988) developed a four stage framework, namely stage I

(concept generation, resource acquisition and technological development), stage II (production-

related start-up and commercialization), stage III (sales growth and organizational issues) and stage

IV (stability and profitability). Because of blurry phase transitions and unavailable sales data we

separate the startup stages through the fund raising rounds, that separate the startup phases.

We define the phase after a seed investment as the startup stage, after a series A investment

as growth stage and after the acquisition as the exit stage. We use the valuations as a proxy for firm

performance. Firm valuations are a common proxy for performance because external investors

evaluate and validate the firm through extensive due diligence. Firm valuation allow us to gauge the

performance and future potential of the new venture from an outside perspective.

We retrieved the founding and funding data from two sources, the IVC Research Center and

Tech Crunch’s Crunch Base. The database of the IVC research center is the most extensive database

on the Israeli startup eco-system. The IVC database includes detailed listings of thousands of Israeli

high-tech companies, venture capital and private equity funds, angles, investment companies. The

database offers timely industry news and reports, press releases and surveys (ivc-online.com). The

Crunch Base is an extensive online database that stores data about the startups covered in Tech

Crunch articles. Tech Crunch is one of the leading online magazines covering startups worldwide

(techcrunch.com).

4.4. The Sample

Three founders took part in this study, namely Gili Golander from Bazaart, Yotam Cohen from

Wibbitz and Erez Dickman from the Ebay Social Center Israel, formerly known as The Gift Project.

According to the GT approach, we selected a group of individuals that are most representative for

the startup, growth and internationalization of born globals (Strauss & Corbin, 1994). We did not

sample for entrepreneurs as such, but sampled for incidents, events, happenings and conditions that

facilitate, interrupt, or prevent the startup, growth and internationalization of born globals as a

consequence of their networking behavior and network composition (Corbin & Strauss, 1995). In

accordance with GT, the sample of this study was selected in order to vary and contrast conditions

49

as much possible in order to determine which condition might have an impact upon the firm and

funding success as well as network internationalization (1994).

The study participants were chosen because they are founders of Internet firms from the Tel

Aviv -one of the world‘s leading high-tech innovation centers (Startup Genome Report, 2013).

Israel‘s success rests upon it‘s unique entrepreneurial culture and globally renowned startup

ecosystem. Tel Aviv is the business, financial and commercial hub of Israel's economy and the core

of its booming high-tech industry. The „Tech Mile“ located at the Rothschild Boulevard is home to

dozens of Internet startups. Small countries such as Israel, the Netherlands, Singapore, and the

United Arab have developed an international-oriented business culture with a widespread expertise

in international business activities (Cavusgil & Knight, 2009). Israel has a small domestic market

and hostile neighboring countries. Therefore, the environmental conditions force new Israeli

ventures to internationalize at or near inception to America, Europe or Asia.

All three participating entrepreneurs are in different startup phases and have different

functions at their startups (Appendix 3.1, 3.2, 3.3). Gili Golander is Co-founder and Chief

Marketing Officer of Bazaart. Bazaart is a fun and easy way to make amazing collages. Bazaart is

backed with $ 25.000 by DreamIt Ventures. During the incubation program, Gili and her team

spend three months in New York City to make connections to potential customers and investors.

Yotam Cohen is the co-founder and Chief Business Developer of Wibbitz. Wibbitz is a text to video

technology that can automatically turn any text-based article, post or feed into a video. He gained

served for 6 years as a commander of a combat vessel in the Israeli Navy. Afterwards, he graduated

"cum laude" as a student of business and entrepreneurship from the Interdisciplinary Center

University (IDC hereafter), where he also founded Wibbitz. Wibbitz is backed by Initial: Capital,

Kima Ventures, Lool Ventures and Horizon Ventures with a total investment of $ 2.8 million. The

capital infusion was used to open headquarter in New York City to help the commercialization of

Wibbitz (techchrunch.com). Erez Dickman is the co-founder and Chief Technology Officer of The

Gifts Project. The Gifts Project is a social e-commerce platform for Group Gifting that helps online

retailers, marketplaces and gift stores to leverage their social buying experience. The Gifts Project

was initially backed with $250.000 by the prominent angel investors Eyal Gura and Dr. Yossi Vardi.

At the same time of the firm founding, a development agreement with EBay was established

(crunchbase.com). Gemini Israel Funds and Index Ventures invested in the Series A round with $1

million. Later, Ebay acquired The Gifts Project for estimated $ 20 million and The Gifts Project

became the Ebay Israel Innovation Center.

50

The three entrepreneurs have different organizational heritages. Gili Golander was an

employee before she joint the DreamIt incubator. Yotam Cohen founded Wibbitz after attending a

university course that serves as an incubation program. Erez Dickman received his training in an

elite technology and intelligence unit of the Israeli Defense Forces (IDF hereafter). The IDF is

world renown for spinning off innovative technology ventures. Erez Dickman founded his venture

right after several years of serving in this elite military unit. Therefore, we consider the IDF as his

incubation program in this study. Although the IDF held no equity in his venture, Erez‘s technical

skills, capabilities and network connections have formed during the years of military service.

Incubators and accelerators have become the hothouses of the new Internet economy

(Hansen, Chesbrough, Nohria, & Sull, 2000). They represent a new organizational model to help

startups grow into sustainable, large-scale companies. Most incubators offer office space, funding,

mentoring and basic services in exchange for an equity stake in the new venture. Incubators have

become the synonym for a profit-oriented organizations that grow new Internet-based ventures.

Between 1996 and 2000, more than 350 for-profit incubators have been created worldwide (2000).

Incubators provide benefits such as office space, coaching, funding, and common, basic services,

such as information technology systems, public relations, recruitment, legal counsel, insurance, and

accounting services. Because incubators pool the resource needs of startups, they can get better

rates from top-tier providers (Hansen, Chesbrough, Nohria, & Sull, 2000). Further, service

providers engage in supporting activities in hope of future business once the startups matured.

Through the preferential access to potential partners and advisors of the incubator, startups can gain

access to resources and partners that enable them to establish themselves in the market place ahead

of competitors. The authors Hansen, Chesbrough, Nohria, & Sull (2000) argue that highly

networked incubators provide superior value to entrepreneurs, startups and investors because they

offer mechanisms to facilitate partnerships among incubates as well as large, established firms from

it‘s network. Thereby networked incubators foster knowledge and talent exchange between them

and build mentoring, marketing and technology relationships. Preferential access to a network of

potential partners and customers is a critical characteristic of incubators (2000). Yet, only few

incubators provide a significant level of networking opportunities to related businesses (2000).

Thus, comparing the network composition and evolution of entrepreneurs from DreamIt Ventures,

the Zell Program and the IDF gives us interesting insights into the added value of these programs.

51

Chapter 5: Analysis

In this section, we will use a GT approach to firstly analyze the results of the HUMAX assessment

and the results of the LinkedIn SNA.

5.1. The Humax Assessment

The HUMAX assessment analyzes the network structure, composition and focus and separates each

dimension in three categories. Therefore 27 network profiles are possible. Two fundamental profile

types exist: CHI on the left hand side and XDE on the right hand side.

On the left side lays the Profile CHI, which is a cohesive, homogeneous network with internal

focus. This type of social capital stands for trust and cooperation among a close group of similar

people. On the upside, this network helps to build a loyal, group with a common identity and

purpose. On the downside, this type of network hinders the acquisition of outside information and

resources and is prone to groupthink.

On the right hand side of the social capital spectrum lays the XDE profile, which is an

expansive, diverse network with an external focus. This profile type supports entrepreneurial

opportunity seeking. It aids the acquisition of new information and resources and fosters learning.

Yet, finding consensus, common expectations and a mission is difficult. Conflicts and rigidity are

frequent.

52

Figure 1: The Dimensions of the HUMAX Assessment

5.1.1. The Network Profiles

In the following graphs, Gili Golander is located in the left, Yotam in the middle, and Erez in the

right columns of the tables. The visualizations of the network structures can be found the Appendix

2.1, 2.2, 2.3.

The network structures of all three core

networks have a different absolute (10, 5, 12) and

adjusted size (7.8, 3, 5.3). They also exhibit different

densities (20%, 30%, 54%). The presence of strong

network ties is equal or larger, than weak ties.

Noticeably, no avoidance ties are present in either

network.

The overall compositions are diverse (63%,

63%, 50%). Gili‘s network has highly diversified

age, education and gender diversity, but no ethnic

diversity. Yotam Cohen has the most diversified

network in terms of age and gender and blended

education diversity. Erez‘s network has diverse age

and education diversity, but only slightly blended

gender and ethnic diversity.

The overall focus of the network is blended

(53%, 43%, 46%). The family focus (30%, 40%,

17%) is almost equally with work focus (30%, 40%,

42%) across all entrepreneurs. Gili‘s network has the

highest global focus (70%) compared to Yotam

(40%) and Erez (42%). Noticeably, the industry

affiliations are low for all (2%, 11%, 0%).

All three entrepreneurs exhibit a CBQ network profile type, a cohesive network with a blended

composition and equal focus on internal and external focus. In terms of structure, the three

entrepreneurs have strong connections in a cohesive, closely connected network with below average

number of people. The networks have a blended composition of people with similar as well as

53

Figure 2: The HUMAX Network Structures

Figure 3: The HUMAX Network Compositions

Figure 4: The HUMAX Network Focus

different demographics. The network focus lies equally on work and family ties. Further, the

networks consist of mixed domestic and international ties and have some ties to outside

organizations and associations.

The CBQ profile is located in the between the two extremes of CHI and XDE. It strikes the

balance of composition and focus, but it is more cohesive and thus more similar to CHI, than XDE.

According to the HUMAX reports, the cohesiveness of the entrepreneurs’ network may it easier “to

obtain the advantages associated with profile CHI than the advantages associated with profile

XDE.” (p.4, HUMAX report of Gili Golander). In other words, the core network of the Israeli

Internet entrepreneurs is based on a small, closed group of people with a high degree of trust and

cooperation. This makes it easier to build loyalty, a common purpose, and identity, which helps to

get work done.

5.1.2. The Network Duration and Frequency of Interactions

The entrepreneurs have known the majority of their core network ties for a long time. Fifty or more

percent of the network ties have been in their network for more than 7 years (50%, 60%, 58%). The

frequency of talks follows a U-shape pattern with some very frequent and some very infrequent

interactions. However, the entrepreneurs converse with their core network on a weekly or daily

basis (60%, 60%, 58%).

Since all three entrepreneurs display the same CBQ social capital profiles and exhibit similar

patterns of duration and frequency of interactions with their core network, we might find answers

that explain the difference of their venture and funding performance in their total entrepreneurial

network connections. Therefore, we now turn to the LinkedIn analysis and explore the

54

Figure 5: HUMAX Duration of Connection Figure 6: HUMAX Frequency of Interaction

entrepreneurial networks in terms of structure, composition and dynamics over time of their

LinkedIn networks.

5.2. The LinkedIn Network Assessment

The LinkedIn sample of this study comprises 3 entrepreneurs with 2332 connections in total, 1092

outward sent invitations to network and 1240 inward facing invitations. The ANOVA tests

(Appendix 11, 13, 18) discussed later in this chapter will show that the network compositions are

not equal. Therefore, we present the Simpson diversity indices (Appendix 9) already in the

following network overview.

Gili Golander has build up 797 network ties and has grown her network by 67%, since the

company founding. The location diversity is 0,41 and industry diversity is 0,07 overall. Yotam

Cohen‘s network size is 833. He has actively grown it by 43%, since starting up. His network‘s

location diversity is 0,51 and industry diversity is 0,1.

The earlier stage, the more actively the entrepreneurs have been growing their networks. The later

stage the entrepreneur, the more international and industrial diverse the networks. Erez‘s network,

the exit stage entrepreneur, is the most international and most diverse overall. Gili Golander, who is

in the early startup stage, has the least international and industrially diverse network.

Startup'Stage

FundingNetworkSize

Ac5ve'Network'Growth

since'Start:Up

Loca5onDiversity*

Industry'Diversity*

Gili$Golander

Startup $25k 797 533$(67%) 0,41 0,07

Yotam$Cohen

Growth $2.8m 833 360$(43%) 0,51 0,1

Erez$Dickman

Exit $21.25m 702 199$(28%) 0,55 0,15

*Calculated$with$the$Simpson$Diversity$Index$(from$0$=$focused$to$1$=$diverse),$rounded$to$two$decimal$places

55

Figure 6: LinkedIn Network Overview

5.2.1. Network Structure

Gili Golander spans a network of four main clusters. The blue one is the largest and most closely

connected, followed by green and orange. The blue and orange clusters share the most connections.

Therefore, they are grouped closer together. The purple group of connections is the smallest most

most loosely connected, but sharing connections with all other clusters. The green cluster is more

disconnected from the rest of the network with only a few well connected boundary spanners.

Yotam Cohen has seven clusters. The largest two are green and blue, which are very closely

interconnected. Adjacent, but smaller and more loosely connected are the dark orange, light orange

and pink clusters, to which two small sets of connections are again adjacent to, located in the upper

left and above the main clusters.

56

Figure 7: Network Structure Gili Golander

Figure 7: Network Structure Yotam Cohen

Erez Dickman‘s network consists of five main clusters. The green and dark orange clusters are large

and tightly interconnected. Whereas, the blue one is a little bit smaller, but connected to three

adjacent, small ones in light orange, light blue and pink.

Overall, the network structures vary considerably as other researcher suggested (Greve,

1995). Unfortunately, due to the restrictions of the LinkedIn API, we were not able to extract

network data for a more detailed, structural analysis in Gephi for instance. Therefore, we had to use

a LinkedIn app, called LinkedIn Labs, to show the different overall network structures and rely on a

visual analysis. Hite and Hesterly (2001) argue that the cohesiveness of the network decreases as

the new firm moves from emergence to early growth. This seems to be correct in Gili‘s case. Hite

and Hesterley (2001) further argue that the cohesiveness of the network decreases as the new firm

moves from emergence to early growth. The cohesiveness of network clusters indeed seem to

increase over time as Erez‘s network clusters are most tightly connected. Future research should

further examine the evolution of network structures over time.

57

Figure 7: Network Structure Erez Dickman

5.2.2. Networking Behavior

In this section, the overall number of outgoing and incoming invitations of the entrepreneurs are

compared. Then, the actively sent out invitations are plotted and compared per startup stage.

Thirdly, we look at the number of days necessary to request a new connection across the startup

stages. Lastly, we zoom in on the active, individual networking behaviors over time in relation to

events, such as the completion of funding rounds and events that the entrepreneurs have attended.

In the sample, the entrepreneurial network growth is exponential over time. More specifically, the

sample includes 173 active connection requests during the pre-startup phase, 643 during the startup

phase, 463 during the growth phase and 199 during the exit phase. First we will compare the

longitudinal network growth due to actively requested connections. Overall, we see a hockey stick

network growth in LinkedIn connections of all three entrepreneurs. The highest network growth

occurs in the later startup stages of the entrepreneurial career. The longer the entrepreneur is active,

the more higher his/her active networking activity. Further, the more technical-oriented the founders

the less connections they make per stage as well as in total.

The entrepreneurial network growth is best described as exponential or polynomial. However,

technically oriented founders have a smaller difference of R square values between and exponential

growth. Therefore, the network growth of technically oriented founders can be well described as

linear too.

58

Figure 8: Active Networking Requests per Startup Stage

Figure 9: R Square Values of Best Fitted Lines

The startup stages differ considerably in terms of days spent in each stage. Therefore, we

need to look at the network growth per day in each stage, in order to better understand the

entrepreneurial networking behavior and its changes.

Gili has been networking online for 2009 days, Erez for 1552 days and Yotam 792 days. Gili has

spent 80% of that time during her career as an employee and only 20% as an entrepreneur. Yet,

while it took her 11 days to make a new connection during her pre-startup phase, she made a one

new connections every day as an entrepreneur on average.

The trend of making new connections more rapidly over time can also be seen in Yotam

Cohen‘s networking behavior. He spent 92 days networking online prior to his startup, but it took

him on average 31 days to make a new connection. Following the establishment of his startup the

days reduced to four and then to 1 day during the growth phase. Erez Dickman needed 18 days to

make one new connection during pre-startup and startup, but during the growth phase only four.

The days needed for a new connection increased to 7 again after the acquisition by Ebay.

Greve and Salaff (2003) found that network patterns of startup novices and experienced

entrepreneurs are systematically different depending on the startup phase. We can confirm the

finding as we see that the entrepreneurs become more active over time. In addition, the total

outward and inward networking direction varies significantly too. The percentage of active and

passive networking requests differs significantly from novices and more experienced entrepreneurs.

The role and function entrepreneurs take on within the venture might have a meaningful impact on

the level and direction of networking activity. Gili Golander is responsible for the marketing within

the startup. Yotam Cohen and Erez Dickman, on the other hand, are more technology oriented

founders. Future research should go further explore the influence of the role and function of

entrepreneurs on their level and type of networking behavior. CMOs seem to be more active

networkers than CTOs. Technology focused founders seem to be less active networkers, than

marketing oriented founders. Gili‘s ratio of networking direction is about 70:30, whereas Erez‘s

59

Figure 10: Days Needed to Make One New Connection per Startup Stage

ratio is around 30:70. Gili Golander‘s number of total active requests (533) is almost as high as

Erez Dickman‘s passive requests (503). The differences in networking direction could also be

attributed to several factors besides success and reputation, such as the quality and quantity of

attended events, the discipline in adding people on LinkedIn after meeting them a as well as the

importance and usefulness entrepreneurs place on building connections on LinkedIn.

Past research on the entrepreneur‘s networking patterns and strategies to network has produced

mixed results concerning entrepreneurial networking strategies (O‘Donnell, et al., 2011). In the

early phases of starting up, entrepreneurs explore the opportunities with a small circle of close

contacts. Next, in the planning phase entrepreneurs mobilize a larger social network to get access to

additional information and resources. Then, networks are found to contract in the establishment

phase (2003). However, Coviello (2005) disputes this finding. Instead he found networks to grow

continuously from the early to late stages. The network size is a reflection of the extent to which

entrepreneurs have access to resources (Hoang & Antoncic (2003). The larger the network, the

greater the social capital and potential for accessing information and resources (Greve & Salaff,

2003). Due to the mixed results, Coviello (2005) concludes that „future research should allow for

mapping and analysis of network expansion, consolidation and contraction, and encompass the very

early stages of the firm’s lifecycle“ (p. 57). If the development of born globals is facilitated by

network relationships, it is reasonable to assume that such ties emerge pre-internationalization

(Coviello, 2005). Yet, network research has neglected the early stages of the firm‘s life cycle.

Therefore, we now compare the individual network growth per startup stage.

60

Figure 11: Percentage of Active and Passive Networking Requests

Gili Golander’s network growth

is exponential in nature. A s a n

employee, Gili made 146 connections

with long periods of inactivity and

small, occasional increases. We see a

first spike in networking shortly before

she was accepted into the DreamIt

incubation program. Then, after the seed

funding round, her network growth

intensifies, especially after events that

are part of btw. followed shortly after

the incubation program. During the

startup phase, her connection requests

increase by 72% to 387. About six months after the incubation program we see a change in Gili‘s

network growth. Gili still regularly networks actively but increases have decreased.

The change in active network requests happens shortly before she received the seed funding

from DreamIt ventures. Particularly interesting are the differences in the time intervals and activity

of networking requests, that is the ratio and length of vertical and horizontal lines. Before the seed

funding round, long horizontal lines alternate with small vertical lines. After the seed funding the

horizontal lines are shorter, while the vertical lines grow larger, and the alternations of horizontal

and vertical lines become more frequent. In other words, the steps become shorter and steeper over

time. That means that before the seed investment, Gili Golander has had long periods of no activity

interrupted by short periods with little networking activity. Whereas shortly before and after the

seed funding, active networking request have become more in terms of frequency and number.

Further, the event analysis reveals that the seed funding event is accompanied by a steep rise in

connections before and after. While this high activity lasts also during the incubation period, which

ends with the US demo day, we can see that the first two months are accompanied with heavy

networking activity, whereas the last month before the demo day was less than half of the months

before. Networking spikes after the demo day of DreamIt ventures again as well as after events of

ThinkNext and TechXchange. Thus, the heavy networking activity continues for four months, but at

a decreasing rate. Then, the network continues to grow in smaller but frequent steps.

In general, we can see a tremendous change in networking behavior of Gili Golander from

the pre-startup to startup phase. She actively connected to about four times as many people during

61

Figure 12: Active Network Growth of Gili Golander

the startup phase compared to the pre-startup phase. Events have had a pronounced effect on the

network growth of Gili Golander. She made made new connections shortly before and during the

initial phases of the incubation program. Just before the demo day her focus briefly shifted away

from networking activities. The incubation program was followed by one national and one

international event, which boosted her networking activity. Then networking with new people

occurred frequently, but in less quantity. The question arises what kind of connection did Gili

Golander make during the DreamIt incubation program. We will turn to this in the section on the

changes of the network composition.

Yotam Cohen displays a similar

exponential network growth pattern, but

it is lagged in terms of startup stage and

later flattens out into an S curve. We can

roughly identify four growth phases:

firstly very little networking during the

pre-startup phase, secondly moderate

growth during the startup phase between

seed and Series A funding, thirdly high

growth for three months after series A,

and lastly moderate, but steady growth.

Yotam Cohen started his venture

right out of university. Pre-startup he

barely networked actively, while he participated in the Zell Program. This trend continues even after

the first seed funding round until he attended his first event, Tech Crunch Disrupt San Francisco.

There we see the first spike in active networking requests, which is again followed by months of

inactivity. Half way through his startup phase, he begins to regularly network actively. Shortly after

the second Tech Crunch Disrupt in New York City, the active network growth starts to increase in

magnitude month after month throughout Series A funding. Interestingly, the first Tech Crunch

event happens shortly after Seed funding and the second event happens shortly before Series A

funding round. In the middle of the startup phase, between the Tech Crunch events, Yotam‘s

networking behavior changed from some networking with longer periods of inactivity to regular,

first small and later substantial networking -especially after the Series A funding. Then, again

similar to Gili, the increases decrease over time, but networking continues to occur regularly. As

62

Figure 13: Active Network Growth of Yotam Cohen

Gili Golander, Yotam started to attend events after starting up, that is only after the initial seed

funding had already happened. Overall, the active network growth curve is very similar to Gili‘s,

but lagged in time. While Gili started to network heavily right after seed funding, Yotam started

only after the Series A round. Pre-startup and startup phase combined make up 21% of Yotam active

networking requests, whereas 79% happened during the growth phase. Also similar to Gili is the

trend of steep increases, that suddenly decrease after about six months of intense networking.

Overall, Yotam‘s network growth is resembles Gili‘s active network growth but it is lagged in time,

saturating recently.

The investors had interesting effects on Yotam Cohen‘s network. Shortly after and shortly

before closing the funding rounds the seed investment, Yotam Cohen participated in Tech Crunch

Disrupt events. The fellow Israeli Roy Carthy, the managing partner of Initial Capial, invested in the

seed and series A funding of Wibbitz and he is also a writer for Tech Crunch (wibbitz.com, 2013).

Yotam Cohen attended two American Tech Crunch events between seed and series A. Li Ka-shing

has had a similar effect on Yotam‘s networking behavior. Li Ka-shing, a Hong Kong based

billionaire and principal at Horizons Ventures, was the lead investor in the $2.3 million series A

(techcrunch.com, 2013). Months after the investment, Yotam participated in an event in Hong

Kong, called MadVentures. All three events were accompanied by spikes in active networking

activity. The introduction and access to the investors‘ networks only happened after the investors

had already made their investments in Wibbitz, as in the case of TechCrunch and Mad Ventures.

Erez Dickman sent the least

networking invitations of the three

entrepreneurs. He sought to connect to 199

people, compared to Yotam (360), and Gili

(533). Pre-startup, Erez served in an elite

research and technology unit of the Israeli

Defense Forces and added 24 network

connections, 12% of the total active

requests. After the military service, he went

on to found his first venture, The Gift

Project. During the startup period, Erez‘s

networking dipped and he added only 10

new connections, that is 5% of the overall

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Figure 14: Active Network Growth of Erez Dickman

network growth. However, after the Series A Funding, Erez became a more active networker.

Similar to Yotam Cohen, Erez‘s networking request spike shortly after the Series A round. Erez

more than doubled his active requested network up to 69, 35% of the total growth. This upward

trend continues after the acquisition by Ebay, but in smaller steps and with periods of little or no

active growth. After the exit, he added 96 new connections, 48% of his overall network growth.

Similar to Yotam, Erez became very active in the growth phase, and continues after the exit, but less

intense.

Erez Dickman network growth resembles a mix between Gili Golander and Yotam Cohen.

The growth pattern is also initially flat during the pre-startup phase throughout the angel investment

up to the seed funding. After the seed funding we see a high network growth rate up to the exit

stage. After the acquisition by Ebay the network growth continues to be significant and steady, but

the periods of no active networking increase again.

To conclude, entrepreneur‘s networking behavior, that is patterns and strategies, change over

time. Researchers have shown that networks grow continuously throughout the entrepreneurial

process (Greve, 1995). The larger the network, the better the firm performance due to additional

informations and resources. However, when we compare at the active networking efforts per startup

stage, we can see that Yotam and Erez also showed the highest percentage of active networking

activity in the growth phase of their venture, that is, after they raised their first Series A round. The

small size of the network during the early stages suggests that the network of their early stage might

not have been important in order to raise their series A round.

The comparably low levels of active networking of Yotam and Erez during the startup phase

may indicate that they first focused on building their startup and digital product, instead of

networking. New ventures are time and resource constraint. Although network ties provide access to

resources, information, legitimacy, and reputation, they also entail costs, such as maintenance and

information processing costs (Hui, 2003). The time necessary to network and the excess availability

of alternative information and resource pools may dampen the positive impact of networks. Yotam

hardly networked during the pre-startup phase and raised from 1% to 20% of his networking

requests during the startup phase, in which he attended two tech crunch disrupt conferences. Yet,

79% of Yotam‘s active networking occurs during the growth phase, that means after the initial

product had been built and launched. Similarly, Erez‘s active networking shows a dip during the

startup phase (from 12% to 5%), and higher networking activity during the growth phase (35%).

Interestingly, his level of active networking increases after the acquisition by Ebay (48%).

64

Therefore, Erez Dickman‘s networking behavior may have been influenced by the change in roles

and responsibilities as he changed from being to entrepreneur to being a manager.

5.2.3 International Networks

In this section, we compare the international networks that the entrepreneurs have developed in the

course of their career. Research has shown that international networks develop pre-

internationalization and influence the country selection and entry mode of born globals. Despite

entrepreneurship research that shows that firm development is path-dependent, most of our

understanding of born global networks relates to initial foreign market entry and activities post-

internationalization (Shane, 20009). Organizational growth and development may be imprinted

through ties and knowledge generated already pre-founding (Shane, 2009). But to which countries

and cities have the Israeli entrepreneurs actually built networks? Do their international networks

differ between the entrepreneurs? Not only markets have globalized, but also professional networks.

How many connections do the Israeli entrepreneurs have to the international startup hubs, such as

San Francisco, New York or London?

The majority of the LinkedIn network of all three entrepreneurs is located in Israel, followed by the

United States, and Great Britain. Therefore, the majority of the network connections come from the

native country as well as English speaking countries. However, by far most of the network is

located in the home market Israel. The more successful the entrepreneurs the higher the percentage

of Israeli connections: Erez Dickman (72%), Yotam Cohen (69%), and Gili Golander (58%).

Regional connections might be more important for technically sophisticated Internet technologies.

The United States are the second most dominant across all three entrepreneurs. This might have

Figure 15: Comparison of International Network Distributions: Countries

65

several reasons: The United States are the single largest, single governed, English speaking market.

The United States are also the most innovative and entrepreneurial country (Startup Genome

Report, 2013).

Despite the difference in startup phase, the three entrepreneurs have a similar distribution of

international network connections in terms of country locations. The majority of the network,

however, resides in Israel (66% on average). In fact, the later the stage of the entrepreneur, the

higher the percentage of local connections. The second highest network population comes from the

United States (on average 20%), followed by Great Britain (on average 5%). All other nationalities

make up one or zero percent on average.

In absolute numbers, Gili has the least connections of all three in Israel, yet the most of all

three entrepreneurs in the United States, Great Britain, and Others -despite being in the very early

stages of her startup. Besides Israel, the United States and Great Britain. The growth of American

connections coincides with the incubation program in New York City. However, we will see in the

next section that the incubation program brought together people from across the United States and

allowed Gili to make connections to San Francisco, Boston, Los Angeles, and Philadelphia. Later in

this analysis, we shed further light on the industrial networks, in which Gili‘s connections are

active. The preferential access of the incubator to certain industries in New York city might very

well have influenced the feedback, business and development decisions of Bazaart.

Past research has shown that international networks and born global success are

interconnected (Coviello & Munero, 1997). However, consumer-facing Internet startups might

follow a different logic, than other industries because network connections do not necessarily

coincide with the user base. Most users of the Bazaart App, for instance, come from Brazil an

Russia, but as we see here, Gili has no professional connections to these markets.

Yotam did not attend an American incubation program, but American Tech Crunch events on

the east and west coast. Therefore, Yotam was -similarly to Gili- also able to build networks across

the United States. Most notably, Yotam has built the most connections -compared to Gili and Erez-

to Hong Kong, where also one of his major and prominent series A investors comes from. Did he

make the connections to the Hong Kong network before or after the series A investment? We will

turn to this question in the section following the next section.

66

Looking at internationally recognized startup hubs, the three entrepreneurs have actively

made the most connections to the local startup hub Tel Aviv. Internationally, the most connections to

global startup hubs are to New York (8% on average), San Francisco (7% on average) and London

(4% on average). All other international startup hubs make up only have one or zero percent of the

entrepreneurial networking requests.

On first sight, the networks to international startup hubs seem similar. However, the Anova test

reveals that the networks are in fact different. With a p-value of 1,7385 e to the power of -15, we

have to reject the null hypothesis of equal means.

Gili Golander has actively built the largest international connections to New York, but the

least to San Francisco. Erez Dickman, on the other hand, has actively networked the most to San

Francisco, he actively sought the least connections to Tel Aviv and New York. Yotam Cohen has

been most active in Tel Aviv and Hong Kong of all three, and average in San Francisco and New

York. Gili and Yotam have also built more than twice as many connections to London, than Erez.

According to the Startup Eco-System Report (2012) the most entrepreneurial cities around

the globe are: Silicon Valley, Tel Aviv, Los Angeles, Seattle, New York City, Boston, London,

Toronto, Vancouver, Chicago, Paris, Sydney, Sao Paulo, Moscow, Berlin, Waterloo (Canada),

Singapore, Melbourne, Bangalore, and Santiago de Chile. Interestingly, the networks to South

American, Russia, India and Singapore are non-existent in this sample of entrepreneurs.

In this section, we analyze how the individual networks have internationalized over time.

Researchers have found that international networks support the successful startup development. In

which stages have the entrepreneurs actually build international network ties?

67

Figure 16: Comparison of International Network Distributions: Cities

During the pre-startup phase, Gili‘s

largest number of network connections

were located in Israel (87), Great

Britain (42), and France (6). She had

no connections to the United States.

After she started her venture she made

132 new connections in the US. This

increase is only surpassed by new

Israel-based network ties (+238).

British and French connections did not

increase and stays at 42 and 6

connect ions. Interest ingly, the

category ‘Others‘ increased from 3 to

20.

Therefore, Gili‘s network always grew strongest in her home market. Her network

diversified strongest during the startup phase -with a focus on the United States. Gili Golander has

pre-dominantly been actively networking in Israel during her per-startup phase with 87 Israeli

networking requests. She also made and 42 connections to Great Britain and 6 to France, 3 to

Canada and 2 to Germany. After founding Bazaart, her networking behavior changed. Her local

Israeli connections quadrupled. Whereas, she made no connections in the United States before

starting up, she made 132 connection requests in her startup phase. Yet, her active requests of

British connections decreased from 42 to 17, and all other nationalities stagnated.

68

Figure 17: Active Network Growth of Gili Golander by Country

Yo t a m C o h e n ‘ s n e w

networking invitations

have been focused on

Israeli connections. During

the Pre-Startup phase,

Yo t a m m a d e t h r e e

connections in Israel and

one from the United

States. During the Startup

P h a s e , h o w e v e r, h i s

network grew extensively

in Israel (+38) as well as

abroad into the US (+34) and a little into the UK (+4). It was not until the growth phase that Yotam

sought connections to non-hebrew, no-english speaking countries -most notably Hong Kong.

During the Growth phase, Yotam made an additional 201 connections in his home market, 41 in the

US, and 18 in the UK. However, he also diversified his network in terms of nationalities: Hong

Kong (+7), Others (+5), France (+4), and Canada (+3). Thus, the international connection requests

made up over 50% for the first and only time during the growth phase (USA 46%; GB 6%).

Overall, 72% were domestic and 28% international requests during the growth phase. The total

network requests of Yotam are made up of 242 Israelis (67%), 76 American (21%), 22 British (6%),

7 Chinese (2%), 5 Others (1%), 4 French (1%) and 3 Canadian (1%).

Compared to Gili Golander, Yotam‘s active networking effort is not as large, nor diversified

overall. By far the most connections he actively approached were located in his home market Israel

or English speaking, such as the United States, Great Britain and Canada. However, Hong Kong

connections lead the group of minorities.

Erez Dickman has the least active network growth with 28% growth overall. Yet, his network is

most diversified internationally. Interestingly, the extensive and rapid international diversification

takes place during the exit phase.

69

Figure 18: Active Network Growth of Yotam Cohen by Country

Early on, we see a steep rise in

Israeli connection requests, which then

stagnates around 140 connections.

Yotam also sought to connect to many

other country locations that are not

included in the ten most frequent

nationalities. At first the increase is

slow with 21 in the pre-startup phase,

32 in the startup phase, then it

accelerates with 85 requests. And

finally in the exit stage the ‘Others‘

category even overtakes the Israeli

growth with an additional 144

invitations. Besides the American

invitations, all the other nationalities

increase only very slowly and almost

insignificantly. Overall, the total ‘Others‘ requests amount to 282, the total Israeli to 178, and the

total American to 41.

To conclude, the three entrepreneurs have developed similar country and city networks, but

at a different speed and magnitude. In general, we can see that the international diversification takes

places during the later stages of the startup. Prior to starting up, the entrepreneurs did hardly

network internationally.

5.2.4 Industry Networks

In this section, we compare the industrial networks of the entrepreneurs. Industry connections are

found to be important for a successful startup. As we showed in the literature review, networks

provide entrepreneurs with access to resources, capabilities, technologies, knowledge, information,

advice, support and distribution channels. All three entrepreneurs are in the Internet industry, but

have different business models and customers. Do the distribution of industry connections differ as

a result? Which industries are most dominant?

70

Figure 19: Active Network Growth of Erez Dickman by Country

Figure 20: Comparison of Industry Network Distributions in Absolute Numbers

Figure 21: Comparison of Industry Network Distributions in Percentage

To illustrate the industry expertise of the networks, we accumulated the number industry positions

that have been held by the network connections. The graphs show the distribution of the industry

positions per industry for each entrepreneur.

Overall, the distribution is fairly similar across the sample, although the are not equal. Since

we have to reject the null hypothesis of equal means due the Anova analysis with a p-value of of

1,2877 e to the power of -17.

In total, Yotam Cohen‘s network has the highest number of industry positions in his network

with 1.206, followed by Gili‘s with 1189, and Erez with 898. Overall, most of the network

connections are in the Internet industry (196, 293, 282), followed by the Computer Software

industry (139, 132, 168), Venture Capital industry (64, 92, 28), Information Technology (63, 56,

62), and Higher Education (27, 25, 36). Yet, we can see that certain industry are more dominantly

represented, depending on the entrepreneur.

71

Gili Golander has 41 connections in the Apparel & Fashion industry, compared to 6 and 0;

70 in the Financial Services Industry, compared to 28 and 17; 57 in Management Consulting,

compared to 26 and 17; 52 in Online Media, compared to 31 and 5; and 20 to Editing and Writing,

compared to 4 and 0. Yotam Cohen has the most connections to Venture Capital (92) compared to

the other two entrepreneurs (64 and 28). Also, his network holds the most positions in the

Marketing and Advertising industry (58, compared to 33 and 23). Erez Dickman, on the other hand,

has noticeably more connections to the Computer Software and Security industry (40, compared to

9 and 7).

Entrepreneurs utilize networks to access complementary information, resources, markets

and technologies (Greve, 1995; Gulati, Nohari & Zaheer, 2000). We see the difference in businesses

reflected in the industrial networks. Bazaart, Gili Golander‘s venture, started as a collage app that

allowed it‘s users to purchase fashion. However, shortly after the incubation period in New York

City Bazaart changed its focus and business model to general collages. As Castilla suggested

(2003), certain networks promote certain actions and decisions. The fashion connections in New

York might have influenced their decision to build an app for fashion. When the environment

changed upon return to Israel, Bazaart changed its business model away from fashion.

Wibbitz, in contrast, established offices in New York City in order to stay connected to the

media and publishing industry. Wibbitz, Yotam Cohen‘s venture, provides text-to-video for

newspapers and online content publishers in order to increase their website‘s stickiness and

advertising revenues. In accordance, Yotam has developed the most connections among all three to

the Marketing and Advertising industry, Entertainment, Media Production, Newspapers, and

Broadcasting Media. However, his network in venture capital is most outstanding.

In contrast to Erez Dickman, although he has already raised several rounds of funding and

sold his venture, he has the least connections to venture capital. In accordance with his role as the

CTO, he has strong networks in Internet and ICT. In comparison, he also dominates the technology

focused industries, such as computer software, computer and network security, research, and higher

education.

To conclude, despite the fact that researcher have found that the network composition and

the degree of expertise within the network are critical for firm success (Zucchella & Scabini, 2007),

differences in industrial networks are rather small. Thus, the network composition might have little

impact on firm performance or fund raising success.

72

We now examine the industrial network evolution of the entrepreneurs. Entrepreneurs

network intentionally: Depending on the phase of the startup, entrepreneurs utilize different

network connections (Greve, 2003) „One important question remains to be answered is whether the

particular mix of occupations that are present among people running a business has changed as a

result of business founding process or if this composition of connections is more conductive of

successful entrepreneurship throughout the establishment process than other combinations of

occupations“ (p. 17, Greve, 1995). Put differently, what are the characteristics of network ties in

terms of occupational background, and which network composition is most beneficial in which

stage? Hite and Hesterly (2001) also argue that the evolution of firm networks are dominated by

path-dependent processes during emergence but become more intentionally managed as the firm

moves into early growth. They need access to certain resources and thus build connections in

certain industries.

We assume that entrepreneurs network for a reason. Therefore, we analyze the actively

requested connections over time separated by the lifecycle stage of the startups. Because networks

change over time, Hite and Hesterly (2001) suggest that networks evolve during the entrepreneurial

process to adapt to the firm‘s changing resource needs and challenges. „The composition of the

network and the degree of information, skills and resources it has are significantly important for the

success of the firm“ (p. 91, Zucchella & Scabini, 2007). Thus, the industry positions of the network

reveal in what environment the entrepreneurs move into, btw move away from, in order to advance

their venture to the next level. The industry background of the connections influence the type an d

quality of information flow and feedback entrepreneurs receive. Which industry connections are

prevalent in the different stages? Do the more successful entrepreneurs (in terms of fundraising)

differ from less successful ones in terms of the industry connections that they have made? Can we

observe a trend or a pattern of connections that are active in certain industries during certain startup

life-cycle stages? Is the entrepreneur a product of his/her environment or the other way around?

All three entrepreneurs are active in the Internet sector. How closely are they connected to

their industry of choice? How closely are they connected to related technology focused industries,

such as ICT, or Computer Software? More importantly, when did they meet them? Greve (1995)

suggests that entrepreneurs built connections in the industry, in which the entrepreneurs aim to build

their startup in, before they startup in order to receive valuable feedback from industry peers. We

will also take a closer look at the industries that are considered vital for entrepreneurship, such as

Venture Capital, Law, Accounting. At what stage do entrepreneurs go out to meet investors and

connect to them on their professional network? One would think that Marketing and PR are critical

73

for new venture building -especially in the early stages of the startup. But how many industry

experts do the entrepreneurs really meet in industries such as Public Relations, Newspapers,

Publishing, Editing and Writing? We will also take a closer look at industries that focus on

internationalization, such as International Trade and Development.

As a pre-startup employee, Gili connected

with 33 people from the computer hardware

industry, 17 in design, and 10 in human

resources. Merely four connections were

active in the Internet sector, four in Venture

Capital and Private Equity, and three in Law

Practices.

During the startup phase, Gili‘s

number of connections soared. While she

made only 5 connections in International

Trade and Development during the pre-

startup phase, she made an additional 96

International Trade and Development

connections in the startup phase, making it

the number one industry with a count of 101.

Computer Hardware was the industry with the

most connections in the pre-startup phase (+33) and we see another steep rise, the second biggest

change during the startup phase (+42).

74

Figure 22: Active Network Growth of Gili Golander by Industry

Interestingly, Gili did not seek to connect to any management consultants during her pre-startup

employment phase. Yet, when after starting her venture she connected to 37. The design industry

was number two during pre-startup (17) and she more than double her connections active in that

field (44).

Yotam Cohen started his venture right out of

a new venture university course. Thus, his

professional network on LinkedIn during the

pre-startup phase was very short and his

active networking requests were very limited

(Computer Software +1, Human Resources

+1). As part of the curriculum, the incubation

program exposed him and his co-founder to

other entrepreneurs and potential investors,

but no btw. few active connections were

made on LinkedIn.

However, during the startup phase,

Yotam‘s industry connections in the Internet

(+13) and Software (+7) and ICT (+3) surged

-making it the top three industries. Also, Yotam actively connected to two VCs, one lawyer and one

marketing and advertising professional. Taken together he also made five venture-related

connections in Media Production (+2), Online Media (+1), Publishing (+1) and Entertainment (+1).

75

Figure 24: Active Network Growth of Yotam Cohen by Industry

Figure 23: Top 10 Industry of Gili Golander‘s Active Network Growth

Overall, he made a total of 22 connections product and technology development related

(Internet +12, Computer Software +6, ICT +3, Program Development +1), five business

development related (Media Production +1, Online Media +2, Publishing +1, Entertainment +1),

and four support service related (VCs +2, Law +1, Marketing and Advertising +1). Therefore,

Yotam simultaneously pursued all avenues of startup related industries with a strong focus on

product and technology development focus: 72% product and technology development, 16%

business development and 13% support services. This trend continues during the growth phase.

In the growth phase, however, the percentage of product and technology development

decreased, while his connections in the VC and Financial Industries leaped. Product and technology

related industries industries increased by 62 connections (Internet +27, Computer Software +19,

ICT +7, Telecommunications +7, Computer and Network Security +19, Program Development +1).

Finance related industry ties grew by 22 connections (VC +14, Financial Services +5, Investment

Management +2, Banking +1. Business development related industry network ties enlarged by 18

(Online Media +8, Publishing +4, Media Production +2, Broadcast Media +2, Newspaper +1,

Entertainment +1). Support services grew by 15 connections (Marketing and Advertising +4, Public

Relations and Communications +2, Accounting +4, Management Consulting +4, Human Resources

+1). Overall, the distribution looks as follows: 53% technology related industries, 19% finance

related, 15% business development, 13% support services.

Interestingly, Yotam seems to pay it forward. After the successfully starting up and fund raising

millions, Yotam‘s connections to university educators increased by 5. Apparently, Yotam also seeks

connections to professors -not only from his own university and incubation program, but for

instance Tel Aviv University too. Whereas Gili‘s connections in International Trade and

76

Figure 25: Top 10 Industry of Yotam Cohen‘s Active Network Growth

Development surged during the startup phase, Yotam actively connected only to one connections in

that industry during the growth phase.

Contrary to Gili, Yotam developed connections to industries that are very much related to

his venture (Internet, Software, ICT, Online Media, Telecommunications, Marketing and

Advertising) and fund raising (VC, Financial Services). His network also diversified more broadly

over time as seen in the rise of the ‘Others‘ category (‘Others‘ are industries that are not represented

by the top 45 industries).

Similar to Yotam Cohen, Erez

Dickman actively developed

connections to industries that are

very much related to his startup

( I n t e r n e t , S o f t w a r e , I C T,

Computer and Network Security),

financing (Venture Capital and

P r i v a t e E q u i t y, F i n a n c i a l

Services), successfully starting up

(Marketing and Advertising) and

universities (Higher Education).

But during the growth phase, he

a l s o i n c r e a s i n g l y m a d e

connections in International Trade

and Development, similar to but during a later stage than Gili Golander.

77

Figure 24: Active Network Growth of Yotam Cohen by Industry

Erez Dickman actually developed most of his Internet as well as Software industry connections

during the growth and exit phase, not prior to starting up. Despite being in computer software

during his military service. His other industry connections also increase only after the Series A

funding.

Concluding, the three entrepreneurs have actively build very different network compositions

over time. Overall, Yotam and Erez have build more connections in industries that are directly

related to technology (e.g. Internet), funding (e.g. Venture Capital) or their customer industry (e.g.

Online Media). However, they have done so only after they received funding. Gili Golander, on the

other hand, has the largest increase in network connections in rather unrelated industries (e.g.

International Trade or Computer Hardware).

5.2.5. Industry Network Distribution per Country

In this sections, we scrutinize the industry distribution further and separate it on a per country basis.

In which countries do the entrepreneurs have which industry connections? Do industries exist that

are rather local, than global, such as support services like accounting or law? Does it help the

fundraising performance to know many venture capitalists in Israel or abroad?

78

Figure 27: Top 10 Industry of Yotam Cohen‘s Active Network Growth

Figure 28: Comparison of Country/Industry Network Distributions

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When we compare all three entrepreneurs‘ active networking behavior in a country/industry

distribution, we can see that major differences lie in the following Israeli industries: Internet,

Computer Software, ICT, Management Consulting. Considerable difference also exist in Israeli

Online Media, Publishing, Venture Capital, and Public Relations and Communications. The size of

the American Internet connections, on the other hand, does not vary significantly between the

entrepreneurs. Neither does the size of the American Computer Software differ meaningfully.

The overall network size of venture capitalist does vary between the three entrepreneurs.

Erez Dickman, who has already had one successful exit, has the most VC connections in Israel as

well as America. He has about twice as many VC connections as Gili and Yotam in both Israel and

America. Gili, in contrast, has almost double the network of management consultants in Israel and

America.

79

Figure 29: Country/Industry Distribution of Gili Golander‘s Network

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In the Internet industry, Gili has 102 Israeli, 53 American, and 13 British connections. When we

look at the Venture Capital Industry, we can see that Gili has 33 Israeli connections, 15 American,

and 10 in Great Britain. Surprisingly, Gili has a larger network in Online Media (33) and Publishing

(33) within the United States, compared to Israel (9 each).

The initial product idea of Bazaart was a collage-style fashion ship app. She has more than

twice as many Apparel and Fashion industry connections in the States (26), than in Israel (12). After

the incubation program and the stay in New York has ended, Bazaart pivoted to a general collage

making app. This might indicate that the environment and its feedback does indeed impact the

business decisions of entrepreneurs.

80

Figure 30: Country/Industry Distribution of Yotam Cohen‘s Network

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Overall, Yotam has the most network ties to the Internet industry (202 Israeli, 62 American and 15

British). The software industry takes the second place with 110 Israeli, 15 American, and 2 British

industry contacts. The third most connections are in the ICT industry (37 Israeli, 8 American, and 2

British). In terms of venture capital, Israeli (56), American (24) and British (6) connections

dominate his VC network. Yet Yotam also made five VC connections in Hong Kong, where one of

his Series A investors is from. The Hong Kong network is also rather diverse, consisting of five

Non-profit Organizations, four Consultants, two Internet and two Software connections.

Yotam has made more or equal numbers of connections in Israel and abroad in all industries

-apart from International Trade and Development (4 Israeli, 8 American), Online Media (8 Israeli,

14 American), Publishing (4 Israeli, 7 American), and Government Administration (1 Israeli, 2

American).

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Figure 31: Country/Industry Distribution of Erez Dickman‘s Network

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The networking efforts of Erez are focused on Israel, less on the USA, and a little on Great Britain.

Erez Dickman‘s largest number of networking invitations are sent to Internet sector (188 Israeli, 56

American, 8 British, and 4 Spanish), followed by the Software industry (123 Israeli, 58 American,

and 3 in British), and Information Technology (47 Israeli and 11 American). In the Venture Capital

industry Erez has made 20 Israeli, 7 American, and 1 British connections. The contacts to Higher

Education are mainly located in Israel (30 Israeli, 3 American, and 3 German). Compared to the

other two entrepreneurs, Erez has more network ties to the Computer and Network Security

industry, which are also mostly local (28 Israeli, 7 American, as well as 2 British and 2 French).

To wrap up, the industry per country distribution reveals that some industry are more local,

some more abroad. Most of the technology related industry networks occur in the home market and

some in the United States.

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Chapter 6: Conclusion

6.1. Summary and Discussion

In this thesis, we examined the network and networking of Israeli Internet entrepreneurs. We used

and compared two different kinds of network assessments, a self-reporting one called the HUMAX

assessment, and a LinkedIn tool, built for this thesis. The HUMAX Assessment considered the

interactional dimensions in terms of content, intensity, frequency, duration. The quantitive LinkedIn

tool showed the networking behavior -level of activity, frequency, and direction- and network

dynamics -structure and composition. We analyzed the entrepreneurial networks and evolution in

terms of the RBV (network composition and access to certain industries and locations) and the

capabilities framework (behavioral dynamics and networking capabilities over time). Using these

tools, we took a grounded theory approach on entrepreneurial networking and networks to answer

the following research questions: Does the networking behavior of entrepreneurs, the network size,

as well as the network composition change over time? Does the network distribution vary in terms

of country, city, or industry in the different startup stages? Does the incubational heritage of

startups create unique, path-dependent networks?

The HUMAX index found that the entrepreneurs have a similar profile of their core network of

strong ties. According to the HUMAX index, the entrepreneurs have grown networks with cohesive

structures, blended compositions, equal internal and external focus on work and family, as well as

inside and outside organizations. The majority of the core network has been established for more

than 7 years and the entrepreneurs are in contact with about half of their core network on a regular

basis. Therefore, the majority of the core network has long been established before starting the

ventures, and it continues to be stable, meaningful and important throughout the entrepreneurial

process.

The LinkedIn SNA showed differences in active networking behavior. We found that the

networking directions vary between early, mid, and late stage entrepreneurs. Early stage

entrepreneurs send out more networking invitations, than they receive. Later stage entrepreneurs

receive more invitations than they send out. This might reflect the increased reputation and

influence signaled through successful fundraising.

The academic literature also holds contrasting views on networking behavior and strategies

of entrepreneurs. Some scholars found entrepreneurs intentionally managing and aggressively 83

growing their networks (Cavusgil & Knight, 2004; Larson and Star, 1993; McDougall, 1989;

McDougall et al., 2003). Other scholars have discovered that networking is reactive (Bell, 1995), or

proactive as well as reactive (Coviello, 2006; Coviello & Munro, 1997). Hence, O‘Donnell et al.

(2011) raised the question weather entrepreneurs are more proactive or reactive in his/her

networking activities? Network ties can be classified as whether it was initiated by the entrepreneur

('outward'), or initiated by an external party ('inward'). As born globals progress though the life

cycle stages, the firm‘s network identity and social capital enhances (Coviello, 2005). The

attractiveness of certain individual in the network have important signaling and reputational effects

(Hoang & Antoncic, 2003). Thus, over time, the general tie direction changes from out-ward to in-

ward directed. In his case studies, Coviello (2005) found mixed tie directions, but noted one

commonality. During the internationalization, the majority of new ties were outward facing, which

suggests that sample firms lacked attractiveness in terms of reputation and identity.

Our research also confirms the findings of Coviello (2005) and Hoang & Antoncic (2003):

The data suggests that the startup stage, reputation and fundraising success has a significant

influence on the networking activity and direction. Gili, who is in the very early stages, displays the

highest percentage of active networking activity. Yotam and Erez, who have successfully raised

significant investment, are more passive, than Gili. The percentage of actively requested networking

invitations varies from 67%, to 43% and 28%. The more early stage the entrepreneur, the more

active his/her networking behavior. Therefore, the more successful, btw. the more late stage the

founders, the more often they are invited to connect on LinkedIn. However, all three entrepreneurial

networks are rather similar in size, despite being in different startup stages, ranging from 797 (Gili),

to 833 (Yotam), and 702 (Erez).

Our research challenge past findings. Greve (1995) found that entrepreneurial networks

contract during the firm formation. We found, on the contrary, that the most of the network growth

occurred exponentially at or near the firm formation. Only in the later startup stages the increase of

networking activity decreases.

According to Kaufmann and Schwartz (2009), the exposure to and participation in events

benefits the networking of entrepreneurs. We showed that the participation in events generally

trigger spikes of actively sent out network requests. Especially events related to early investors

caused the entrepreneurs to network very actively, such as the DreamIt Demo Day or the Tech

Crunch events. But not only early partners and customers refer and introduce born globals to their

network (Coviello & Munero, 1997), but the early investors do as well. The investor related events

occurred in the early and mid stages of the entrepreneurial process. Afterwards, we see a profound

84

change in networking behavior of the entrepreneurs. After the spikes after events, we see generally

higher levels of and more frequent networking activity. To conclude, the networking capability and

capacity increases and later decreases over time. The networking behavior indicates that the

networking capability is learnt and improved over time in the midst of the firm formation.

Successful fundraising and the participation in events are accompanied with profound, longterm

changes in networking behavior.

The entrepreneurs of the different incubation programs show different networking patterns.

The DreamIt incubation program was accompanied by intense, national and international

networking early on. The IDF and Zell program, however, did not cause the participating

entrepreneurs to significantly build additional connections on LinkedIn during incubation. Yet, the

entrepreneurs of the IDF and Zell, that network less in the very early stages, have been more

successful in terms of fundraising. Contrary to Weerawardena et al. (2007), who state that

performance of born globals critically depends on their networking capabilities, our findings

indicate that it might not be important to build extensive networks before firm formation or during

incubation programs. In addition, Hansen, Chesbrough, Nohria, & Sull (2000) argue that incubators

provide value by providing access to potential customers and facilitating partnerships. The DreamIt

incubator did offer Bazaart exposure and access to one of the wold‘s the fashion capitals: New York

City. However, Bazaart‘s has not yet been able to raise additional funding yet. In fact, it has

changed its business focus away from fashion after the incubation program.

The network analysis of the LinkedIn data also revealed that the networks differ in terms of

structure and composition. We found that the entrepreneurial networks change in size and diversity

over time. Distributions of country locations, city locations, as well as industry positions held by the

network are similar, but not equal. Most of the network connections are located in Israel, followed

by the United States and Great Britain. The majority of city locations reside in Tel Aviv, New York

City and San Francisco.

According to traditional internationalization theory, firms and networks internationalize long

after firm founding (Cavusgil & Knight, 2009). However, if the development of born globals is

facilitated by network relationships, it is reasonable to assume that international networks emerge

pre-internationalization (Coviello, 2005) In our sample, we have to reject Coviello‘s assumption.

Networks internationalize after the firm founding. In fact, the network diversity increases over time,

especially during the later growth and exit phase. The Simpson diversity index shows that the later

stage the entrepreneur, the more diversified the active networking efforts of entrepreneurs in terms

85

of industry and location. This contradicts the finding, that born globals need to rely on their

previous, substantial, international business experience (Cavusgil & Knight, 2009).

Many born globals have been found to enter multiple markets simultaneously by leveraging

networks of independent, foreign intermediaries (Cavusgil & Knight, 2009; McNaughton, 2003).

Strategic alliances and networks help the early stage, resource poor firm to overcome the liability of

newness, access complementary resources and preserve scares resources for the development of

core technologies and processes (McDougall, Shane & Oviatt, 1994). In accordance with

McDougall et al. (1994), the most successful startup in this sample -The Gift Project- established a

development agreement with Ebay at the same time as the seed investment. Especially in the early

stages, entrepreneurs need social credibility and legitimacy in order to gain the acceptance of initial

foreign customers (Cooper, 2002). However, as we can see in the network analysis, Erez Dickman

did not have an extensive network or large social capital at firm founding. This points to the

importance of the reputable and highly networked angel investors -rather than the network of the

entrepreneur- in order to build alliances with foreign intermediaries.

Greve (1994) suggests that some network compositions might be more favorable than

others. We found that entrepreneurs that seek connections to industry peers and potential customers

are more successful. In our sample, a considerable variance exists in industries to which the

entrepreneurs actively sought connections. The more successful entrepreneurs, Yotam Cohen and

Erez Dickman, actively built more connections to industries that are related to technology focused

and customer related industries. However, the active growth into these related industries occurred

only after the Series A investments during the growth stages. In the early startup stages, Yotam and

Erez made very little connections overall. Comparing these industry networks per country, we see

that the national industry distributions are replicated internationally. Yotam‘s and Erez‘s large,

domestic technology focused industries have a only slightly smaller, American counterparts.

Interestingly, this is not the case for customer related industries. Customer networks of

Israeli entrepreneurs are larger abroad. Gili and Yotam have built larger American, than Israeli

networks in customer industries, such as Online Media and Publishing. Gili was able to build these

networks through the incubation program in New York City. Yotam was able to make these

American connections through attending TechCrunch events as well as Wibbitz‘s New York offices.

Researchers found that born globals preferably use hybrid organizational structures to

internationalize (Cavusgil & Knight, 2009). Coviello and Munero (1997) found that foreign product

development facilities and sales offices occurred only in the late stages of internationalization, that

is in year 5-7, in order to facilitate marketing and commercialization activities. Contrary to Cavusgil

86

and Knight (2009) and Coviello and Munero (1997), Wibbitz established their own New York City

offices already in year 1-2, in order to support commercialization and customer development.

To conclude, the comparison of the HUMAX assessments did not yield significant difference in the

networking and networks of born global entrepreneurs. The LinkedIn analysis, however, offers

novel insights into the networking behavior and capabilities of entrepreneurs as well as the

resources and geographies entrepreneurs have access to through their networks during the startup,

growth and internationalization.

We believe that the greatest contribution is not what we found in this study, but what we will find in

the future. For the first time, we have explored the use of LinkedIn‘s big data for the academic

SNA. In the future, we hope that we can map the evolution and dynamics of entrepreneurial eco-

system networks as a whole -including all stakeholders related to the entrepreneurial firm

formation.

6.2. Shortcomings

LinkedIn is only one of many tools in the networking toolbox of entrepreneurs. Therefore, this

study could also be seen as a study on how entrepreneurs use LinkedIn itself. Technology focused

entrepreneurs might rather use other means of communication and networking. Internet forums or

google groups -that are related to certain topics or skills- might be used more likely, than LinkedIn.

Many entrepreneurs also rather connect to others on Facebook instead of LinkedIn. Prominent

investors, such as Yossi Vardi, does not use LinkedIn. He rather uses e-mail to communicate. Very

accomplished and successful individuals do not want to be approachable to everyone through

LinkedIn. Therefore, their LinkedIn is not visible. Nowadays, there are many ways of

communication, but the personal referral or introduction might still be the most powerful after all.

The timing or direction of connection might not be important indicators after all. Maybe, the

entrepreneurs just happen to meet someone and thought they might be nice to know or valuable in

the future. Many reasons play a role in why or why not certain connections have or have not been

made on LinkedIn. Some even disregard LinkedIn as unimportant and instead rely on personal

connections and recommendations. The direction of the networking invitation might not be import

either. Maybe someone is just quicker and more diligent in adding connections on LinkedIn, than

others.

87

The sample and software used in this study also entail limitations. The sample size is very

small and thus not representative. In the process of conducting this study, we experienced a few

difficulties that prohibited a larger sample size. Firstly, we experienced that entrepreneurs are very

concerned with their personal information and the privacy of their network, which is why many

rejected to take part in the study. Thus, we hope that as research on LinkedIn networks becomes

more established, future researchers will face less resentment and privacy concerns. Secondly,

completing the HUMAX questionnaire takes quiet a lot of time -thirty minutes or more- depending

on how many network connections you name. Most entrepreneurs want to focus on their new

venture and do not have time to complete long-winded questionnaires. We further heard as feedback

that they did not gain a lot of value from the HUMAX reports. Thirdly, the LinkedIn software needs

further automation in order to avoid human errors. Especially retrieving and adding the dates of

connections manually took a very long time, since hundreds of names and dates had to be matched

in the excel sheets.

The data itself has limitations. In this data set, positions are not separated between past and

current jobs. Start and end dates of positions were often missing. Many connections also held

multiple positions at the same time, making the data handling rather difficult. This data set does not

allocate the positions per person. So, if we see that someone‘s network has 5 positions in a certain

industry, we do not know whether it is one person that has had 5 positions in that industry or

whether 5 people have one position each.

Furthermore, the API of LinkedIn restricts the access to data about the network of the

network. When we tried to analyze the network of the network, that is the indirect connections, we

found that LinkedIn caps the number of connections above 500. LinkedIn data on indirect

connections is only accurate until 500 connections. If, for example, a direct connection has more

than 500 contacts, the LinkedIn data shows that he has only 500 contacts. Therefore, analyzing the

network of the network using Gephi or UCINET proved difficult. It is, however, possible in theory,

if you have highly developed programming skills.

6.3. Further Research

Since the analysis of network structure is uni-dimensional, it has also been suggested to

complement such an approach with a quantitive investigation (Coviello, 2005; O’Donnell &

Cummins, 1999). Coviello (2005) argues that a qualitative approach is necessary, when rich, deep

and process-based information is required. „Matching these various [qualitative] patterns back to

the [quantitative] network analysis could provide further insight to the dynamic interplay between

88

the entrepreneur(s), the firm and its network.“ (p.55, Coviello, 2005). Combining qualitative and

quantitative approaches would allow researchers not only to identify patterns, but further explain

specific network characteristics through decision making processes. Future research could combine

the LinkedIn Network Assessment with parts of the HUMAX questionnaire. Thereby, a separation

between strong and weak LinkedIn ties could be determined. In addition, the network structure -as

demonstrated with the LinkedIn Labs app- should be analyzed over time, encompassing multiple

entrepreneurs from the same startup or venture fund.

We found evidence that the indirect network connections vary considerably. Erez Dickman,

for example, had a substantial indirect network in Silicon Valley, while the others had not. However,

since the size of indirect networks were capped at five hundred connections in our data set, we

abandoned this research alley. Yet, future research could explore these differences further with a

better data set. Because certain network compositions of direct and indirect ties may be better than

others. Hui (2003) found that direct and indirect ties offer different benefits. Hui (2003) found a U-

shaped relationship between the number of direct ties and startup failure. Due to the managerial

cost, acquiring additional direct ties may decrease the firm‘s performance. „The strength of a firm‘s

network does not come from the number of direct ties, but rather, from the number of indirect ties to

which those direct ties are linked“ (p. 65, Hui, 2003). Thus, the number of indirect ties may

ultimately more important than direct ties.

Our sample included a Chief Marketing Officer, a Chief Business Developer and a Chief

Technology Officer from different startups. Future research should examine and compare the

networking behavior of entrepreneurs of the same startup. Given that we generally observed a spike

in networking activity at or immediately after participation in events. The number, type and quality

of events has a dramatic effect on the network of entrepreneurs. The active and passive invitations

should be further analyzed. One could quantify the networking direction in relation to reputational

effects of successful fundraising or demo days more in depth.

89

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Appendices

1. HUMAX Questionnaire Overview

2. HUMAX Network Visualizations

2.1. Gili Golander

99

2.2. Yotam Cohen

2.3. Erez Dickman

100

3. Company Timeline and Events Attended

3.1. Bazaart, Gili Golander

3.2. Wibbitz, Yotam Cohen

101

3.3. The Gifts Project

4. Active Networking Requests in Percentage

102

5. Screenshots of Passive LinkedIn Invitations

6. Active Network Requests per Startup Stage

7. Days Per Startup Stage in Percentage

103

8. Active and Passive Networking Requests

9. The Simpson Diversity Index

DeJong, T. M. (1975). A comparison of three diversity indices based on their components of

richness and evenness. Oikos, 222-227.

10. Total International Networks in Percentage

104

11. Anova Test of Country Locations

12. Total City Locations in Percent

105

13. Anova Test of City Locations

14. Country Locations of Gili Golander‘s Outgoing Networking Requests

106

15. Country Locations of Yotam Cohen‘s Outgoing Networking Requests

107

16. Country Locations of Erez Dickman‘s Outgoing Networking Requests

108

17. Tables of Total Industry Network Positions

109

18. Anova Tests of Industry Positions

110

19. Industry Positions over Time of Gili Golander

111

20. Industry Positions over Time of Yotam Cohen

112

21. Industry Positions over Time of Erez Dickman

113

22. Industry and Country Distribution Table of Gili Golander

23. Industry and Country Distribution Table of Yotam Cohen

24. Industry and Country Distribution Table of Erez Dickman

114