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Social Capital and Start-Up Performance: The Role of Customer Capital

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Interfirm Networks

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Abstract

Research has provided ample evidence for the importance of entrepreneurs’ social capital for venture creation. Scholars have particularly focused on relationships with investors, suppliers, administrative boards, and on interfirm networks. However, anecdotal evidence illustrates that social capital with customers can be most decisive, as obviously, an established customer base instantly generates sales, word-of-mouth, and referrals. Based on longitudinal data from 450 German start-ups in franchised services, I explore the role of social capital with customers for successful start-up. The results document a strong linkage between customer capital and start-up performance. Entrepreneurs’ subsequent efforts for managing customer relationships successfully (concerning retention, cross- and upselling, referrals) moderate the linkage. However, contrary to expectations, performance advantages are rather short-lived. Yet, initial customer capital still pays off in terms of opportunities for faster expansion.

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Notes

  1. 1.

    Two mechanisms explain why social ties provide access to resources under information asymmetry (Podolny 1994). First, ties create social obligations that cause parties to behave generously towards each other (Gulati 1995). Second, decision makers may be interested in preserving the exchange of private information, to be able to remove some ambiguity from future decisions (Burt 1992). The first rationale offers a socialized perspective, the other is consistent with self-interest.

  2. 2.

    “A given form of social capital that is valuable in facilitating certain actions may be useless or even harmful for others” (Coleman 1990, p. 302). On whether franchisees are truly “entrepreneurs”, see Kaufmann and Dant (1999).

  3. 3.

    Sveiby (1989, 1997) pioneered the inclusion of customer capital as intangible assets of firms. He classified three customer types according to their contributions to value creation. The first type improves employees’ learning and ideas; the second enhances external structure through referrals to new customers or the establishment of prestige; the third enhances the internal structure through leveraging R&D or knowledge transfer.

  4. 4.

    Fischer and Reuber (2007) further pointed out that in high-motivation contexts, a firm’s individual reputation is more important to customers than the overall reputation of the category to which the firm belongs. So the start-up’s reputation can count more than the franchisor’s. Additionally, franchisor reputation is the same for all franchisees, so differences depend on the start-up.

  5. 5.

    I run the analyses once with, once without those entrepreneurs that moved across a greater distance. However, I do not find significant differences in results.

  6. 6.

    Of the sample franchisees, 31 % could not transfer any customer. The situation is more complex when customers have multiple suppliers or a few customers spend disproportionately. I could not specify these issues.

  7. 7.

    I also controlled for competition from non-system sources on a yearly basis, but results were inconclusive.

  8. 8.

    SCTRANSFER refers to the social capital transfer variable. Higher initial performance allows investments in additional marketing or customer acquisition and binding activities e.g., which in turn may affect future performance.

  9. 9.

    I also estimate a random effects model which, in line with the results presented here, also documents the importance of customer transfer and CRM activities for start-up performance, but not for performance over time.

  10. 10.

    Studies on franchisee selection criteria focus on demographic factors like age, business or industry experience, personality, or financial strength (Altinay and Miles 2006; Clarkin and Swavely 2006; Jambulingam and Nevin (1999); Wang and Altinay 2008; Williams 1999). Yet, there is little empirical support for which criteria lead to the desired results (Birley and Westhead 1994; Jambulingam and Nevin 1999; Saraogi 2009); scholars conclude that franchisee selection calls for further research (Clarkin and Swavely 2006; Saraogi 2009; Wang and Altinay 2008).

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Authors and Affiliations

  1. Institute of Strategic Management, Westfälische Wilhelms-Universität Münster, Leonardo-Campus 18, 48149, Münster, Germany

    Brinja Meiseberg

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Editors and Affiliations

  1. Department of Management, University of Vienna, Vienna, Austria

    Josef Windsperger

  2. Centre Recherche en Economic et Management (CREM), Universite de Rennes 1, Rennes Cédex 7, France

    Gérard Cliquet

  3. Institut für Strategisches Management, University of Münster, Münster, Germany

    Thomas Ehrmann

  4. Department of Organization, Erasmus University, Rotterdam, The Netherlands

    Georg Hendrikse

Appendix

Appendix

1.1 Measurement Scales and Items

Note: The scales were considered formative constructs. Seven-point Likert scales are used to provide responses for each item, 1—“Strongly disagree”, 7—“Strongly agree”. Constructs and items are taken from Reinartz et al. (2004).

1.1.1 (a) Activities to Retain Customers (RETENTION)

With regard to your start-up firm, to what extent do you agree to the following statements?

  1. (1)

    We maintain an interactive two-way communication with our customers.

  2. (2)

    We actively stress customer loyalty or retention programs.

  3. (3)

    We integrate customer information across customer contact points (e.g., mail, telephone, Web, fax, face-to-face).

  4. (4)

    We are structured to optimally respond to groups of customers with different values.

  5. (5)

    We systematically attempt to customize products/services based on the value of the customer.

  6. (6)

    We systematically attempt to manage the expectations of high value customers.

  7. (7)

    We attempt to build long-term relationships with our high-value customers.

1.1.2 (b) Activities to Manage Up-Selling and Cross-Selling (CROSS_UP)

With regard to your start-up firm, to what extent do you agree to the following statements?

  1. (1)

    We have formalized procedures for cross-selling to valuable customers.

  2. (2)

    We have formalized procedures for up-selling to valuable customers.

  3. (3)

    We try to systematically extend our “share of customer” with high-value customers.

  4. (4)

    We have systematic approaches to mature relationships with high-value customers in order to be able to cross-sell or up-sell earlier.

  5. (5)

    We provide individualized incentives for valuable customers if they intensify their business with us.

1.1.3 (c) Activities to Manage Customer Referrals (REFERRAL)

With regard to your start-up firm, to what extent do you agree to the following statements?

  1. (1)

    We systematically track referrals.

  2. (2)

    We try to actively manage the customer referral process.

  3. (3)

    We provide current customers with incentives for acquiring new potential customers.

  4. (4)

    We offer different incentives for referral generation based on the value of acquired customers.

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Meiseberg, B. (2015). Social Capital and Start-Up Performance: The Role of Customer Capital. In: Windsperger, J., Cliquet, G., Ehrmann, T., Hendrikse, G. (eds) Interfirm Networks. Springer, Cham. https://doi.org/10.1007/978-3-319-10184-2_7

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