Contact: Dr. Franz T. Lohrke, Chair, Management & Marketing Department, and Entrepreneurship Program Coordinator, 205-726-2373, ftlohrke@samford.edu

How do entrepreneurs build trust when starting a new venture?

When entrepreneurs start a business, they often face difficulties in convincing outside resource providers to invest in their new venture. These providers (e.g., suppliers, customers, and bankers) often perceive an "adverse selection" risk stemming from the venture's limited track record. An entrepreneur who can successfully overcome this "liability of newness" will have a better chance of acquiring resources, and, in turn, increase the venture's probability of success.

An entrepreneur's social network can provide a significant source of social capital, which may help overcome this liability. Entrepreneurship research has frequently examined how such networks develop and suggests that trust plays a significant role in this process. Despite its recognized importance, only limited research, to date, has examined how trust evolves during and interacts with the entrepreneur's network development.

A recent study by Samford University management professor Franz Lohrke and his coauthor, Delmonize Smith at the Rochester Institute of Technology, proposes a model that looks at two different types of trust and how these can vary as entrepreneurs build their social networks. The first type, affective trust, is based on emotional connections between entrepreneurs and resource providers, whereas the second type, rational trust, depends on factors such as how one potential partner perceives the other's abilities. Based on their model, the authors hypothesize that entrepreneurs will rely primarily on affective trust when initially forming social networks, but this reliance will decline over time as cognitive trust becomes increasingly important. They conclude by suggesting future research avenues for trust research in an entrepreneurship context.

The paper is forthcoming in the Journal of Business Research.