Organizational Membership and Business Success: The Importance of Networking and Moving Beyond Homophily
The homophily principle is that similarity breeds connection and affects the structure of personal networks in all kinds of social structures. The result is that networks become very homogeneous. The “birds of a feather flock together” limit social worlds because they restrict the movement of information received by people, the attitudes they form, and the interactions in which they engage. Research has shown that homophily is strongest in race and ethnic interactions, followed by divides in age, religion and gender. This paper examines organizational membership, business networking and homophily among entrepreneurs engaged in classic enterprises such as retail and service industries. The search for information and resources to improve entrepreneurial enterprises is a major task of the self-employed. Using a sample of black entrepreneurs, this work examines the impact of networking outside of the structure of homophily. We ask if this networking is perceived as improving the overall operation of the business. We examine the characteristics of entrepreneurs and how these characteristics affect the decisions to move outside of familiar homophily networks. Granovetter’s network theory of strong/ weak ties is used to describe the process of networking in both types of voluntary organizations. Homophily, which captures networks among people who are similar along a certain dimension, has added significantly to our understanding of why and how “birds of a feather flock together” (McPherson, Miller and Smith-Lovin 1982 1986; Woodard 1988) and influence social structure. This literature is expansive, and can be divided into scholars concerned with status homophily and value homophily (Lazarsfeld and Merton 1954). Our work falls into the value homophily, since we are concerned with how breaking “sameness” networks leads to better value creation for firms. This is measured by their membership in a black or white voluntary organization and the networking opportunities that emerge from their choice of affiliation. Entrepreneurs who own classical enterprises, such as retail and personal services, experience many competitive challenges. Research has shown that when race is a variable, black entrepreneurs choose to network in non-black voluntary organizations to acquire support, contacts, useful information and credibility (Ostgaard and Bach 1996), and to find out about new products and when to enlarge a market (Falemo 1989). Networks are organized systems of relationships that can be defined as a specific kind of relationship that links sets of persons, objects or events (Nelson 1988; Szarka 1990). Most network research has been conducted on large owner manager manufacturing firms (Golden and Dollinger 1993; Human and Provan 1997) which conduct business in local and regional markets. Little research has been conducted on networking by small Rhodes 33 Please address all correspondence to John.Butler@mccombs.utexas.edu entrepreneurial firms in rural and low population urban areas, who sell a large variety of products in more varied markets and rely on primary groups and close personal ties, or homophily, for information and resources. Research has shown the importance of homophily on the structure of founding entrepreneurial teams; it has its greatest impact on the composition of the group (Ruef, Aldrich and Carter 2003). An entrepreneur may be defined as an individual who, when he/she sees an opportunity will manage risks to establish and maintain a business (Bygrave and Hofer 1991). Although the findings have implications for all entrepreneurs, a black sample allows us to draw on the rich literature that stresses issues of homophily within the context of ethnic enterprises. This literature examines interaction between defined “ethnic” firms and organizations of the larger society. A voluntary organization is defined as a formal organization irrespective of size in which membership is optional (McPherson, Miller and Smith-Lovin 1982; 1986; Woodard 1988). These organizations are classified by purpose into instrumental or task oriented, and expressive or social oriented. The purpose of this paper is to develop conceptual characteristic frameworks that are associated with a black entrepreneur’s membership in a black or non-black voluntary organization and how the ethnicity of voluntary organizational membership influences the type of social and business networking. Theoretical Considerations The entrepreneurship literature has many examples, or cases, of the importance of “birds of a feather” flocking together, or homophily. For example, research on ethnic enclaves shows how people with the same nationality produce enclaves where interdependency among a broad range of businesses satisfies their mutual needs and furthers coordination and cooperation to reduce competition. This enclave effect has been prominent in America, where immigration has been one of the defining elements of the country (Butler 1991; Butler and Wilson 1988; Greene 1997; Portes and Bach 1985; Rhodes and Butler 2004). Many enclave communities are often at the pre-enclave stage where there is not a broad representation of businesses for interdependency among firms to occur. These communities have sub-economies that range in their development between enclave and pre-enclave economies (Butler and Wilson 1988). Despite the stage of development, there are protected market advantages based on ethnic loyalty that produces a captive market for labor and customers, facilitates ease of communication, encourages financial networking and creates trust in business dealings (Light and Rosenstein 1995). An entrepreneur may have dense strong expressive tie networks composed of immediate family, relatives, and friends who share known information. There are also extended, less dense networks, with indirect weak ties to other aggregations and individuals in distant areas of a social system where new information is available (Dubini and Aldrich 1991; Granovetter 1973; 1983; Light and Rosenstein 1995). Membership in non-ethnic voluntary organizations may lead to instrumental weak tie contacts and new resources; membership in ethnic voluntary organizations may lead to both instrumental tie contacts and expressive strong tie contacts. The latter is more likely to provide access to widely known resources (Lin, Ensel and Vaughn 1981; Marsden 1988; McPherson, Miller and Smith-Lovin,1986). 34 Challenge