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Stefanie Pakura/Adalbert Pakura

Effects of Facebook
activities on the
performance of start-ups Stefanie Pakura Adalbert Pakura

An empirical study in the German crafts business sector


Die Auswirkungen der Facebook-Aktivitäten des Existenzgründers
auf den Unternehmenserfolg
Eine empirische Studie im deutschen Handwerk

„ Schlüsselbegriffe „ Keywords
Erfolg; Existenzgründung; Facebook; Kleinst- Facebook; marketing capabilities;
und Kleinunternehmen; Marketing Fähigkeiten; micro and small-sized enterprises; social capital;
soziale Netzwerke; Sozialkapital social networks; start-ups; success

Zusammenfassung Abstract

Die Nutzung von sozialen Netzwerken wie Face- The usage of social network services such as Face-
book ist auf dem Vormarsch. Aber kann Facebook book is on the rise. But can firm performance be
für Unternehmen ein entscheidendes Marketing- linked to the use of Facebook as a marketing and
und Networking-Tool sein, das den Unternehmens- networking tool? Analyzing data on 1,971 firms, we
erfolg stützt? Unsere Auswertungen von 1.971 Fir- show that the activity on Facebook by the owner of
men zeigen, dass die Aktivität auf Facebook durch a micro or small enterprise in the German crafts
den Inhaber eines kleinen oder Kleinstunterneh- business sector has a positive impact on firm per-
mens im deutschen Handwerk einen positiven Ein- formance. Applying the approach on marketing
fluss auf den Unternehmenserfolg hat. Aufbauend capabilities to the case of Facebook, we can link
auf bestehenden Ansätzen zu Marketing-Fähigkei- marketing capabilities (in the context of Facebook)
ten und angepasst an das soziale Netzwerk Face- directly to firm success. Facebook marketing capa-
book, können wir die Marketing-Fähigkeiten, die bilities turn into a valuable key factor for micro and
auf Facebook angewendet werden, positiv mit small enterprises to outperform their competitors
dem Unternehmenserfolg verknüpfen. Unterneh- and provide superior value to customers. Further-
mer, die aktiv ihre Marketing-Fähigkeiten auf Face- more, we investigate online social capital and so-
book zum Einsatz bringen, sind erfolgreich. cial interaction on Facebook.

Autoren
Stefanie Pakura (corresponding author), Department of Entrepreneurship and Start-up Management, Leuphana University of Luene-
burg, Scharnhorststr. 1, D-21335 Lueneburg, Germany, e-mail: Stefanie.pakura@uni.leuphana.de; Adalbert Pakura, Leuphana Entrepre-
neurship Hub, Leuphana University of Lueneburg, Scharnhorststr. 1, D-21335 Lueneburg, Germany.
Financial support from the EXIST 4 Project (Humboldt plus Schumpeter) is gratefully acknowledged. Moreover, the authors would like
to thank the Centre for Entrepreneurship in Theory & Application (Ceta e. V.), the Leuphana Entrepreneurship Hub and the Landes-
Gewerbeförderungsstelle des nordrhein-westfälischen Handwerks e. V. (LGH), for funding the project which provided data analysed
in this paper. We are thankful for the suggestions of two anonymous reviewers that much improved the final version of this paper.
Many thanks to Dinah Thompson and Magnus Thompson for proofreading.

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Effects of Facebook activities on the performance of start-ups

1. Introduction friends are already using them (Ferri et al., 2012).


Further, there is a research delta in terms of the
With the emergence of Web 2.0 applications and a possible effects of Facebook activity by entrepre-
fundamental shift to an interconnected and pro- neurs on their firm’s success. Are micro and small
suming customer (Kietzmann et al., 2011), busi- enterprises who use social networks more success-
nesses need to adapt to new conditions in the mar- ful than those who do not? Can entrepreneurs
ket. The more a customer is connected over the boost their businesses by primarily using Facebook
internet and can access instant reviews and evalu- to reach customers, clients, family and friends and
ations from other customers, the more important it to communicate and grow their networks? Do they
is to react to these new conditions and to become need specific marketing capabilities adapted for
more active in the social web. This is especially Facebook? Despite the lack of research in this
important (Storey, 1994) for micro and small enter- area, there are plenty of guidebooks (Ceyp/Scupin,
prises (definition according to The European Un- 2013; Smith/Zook, 2011) which aim to help entre-
ion, 2003). Micro and small enterprises face some preneurs to get started in SNSs and make the best
particular challenges, such as having limited of the possibilities (Kim et al., 2013) that are al-
resources for marketing and having few major ready known. For example, we already know that
clients (Jones/Rowley, 2011). Meanwhile, social users want to see entertaining and interesting con-
networking sites (SNSs) provide entrepreneurs with tent in regard to the Facebook activity of an enter-
new opportunities to interact with customers and prise (Cvijikj/Michahelles, 2013) to be engaged
business contacts, as well as their extended net- and feel connected, but there is still little research
work, including family and friends (Stam et al., on how businesses actually transfer these initial
2014). 78 % of internet users in Germany already insights into practice and how this might affect a
use SNSs on a daily basis (BITKOM, 2013) not only firm’s performance. Facebook can act as a tool to
to have fun and to interact with friends, but also to build networks and, therefore, build social capital
inform themselves about brands and products (Valenzuela et al., 2009) in a way that was not
(Correa et al., 2010). The explosion of SNSs into possible before SNSs emerged on the World Wide
almost all parts of modern life (Boyd/Ellison, 2007; Web. This paper contributes to the literature by
Donath/Boyd, 2004; Caers et al., 2013) has oc- investigating the effects of Facebook activities
curred at such a high speed that many businesses by entrepreneurs on the success of firms in the
hesitate to fully commit to the online world. Those German crafts business sector for a large sample
who do not use SNSs at all and in particular, do (N=1,971) of micro and small enterprises. We
not use Facebook, mostly worry about privacy focus on full time ventures and conduct a hierar-
concerns, especially in Germany (BITKOM, 2013; chical multiple OLS-regression analysis. The re-
Debatin et al., 2009). Researchers have begun to sults can be transferred on other sectors, since the
study why people use social media and especially crafts business sector can be viewed as typical of
Facebook (Sledgianowski/Kulviwat, 2009; Correa entrepreneurial activities in Germany in terms of
et al., 2010; Lewis et al., 2008). Caers et al.’s (2013) size, business model, and legal type, among other
meta-analysis offers an overview of the develop- characteristics. The paper consists of five sections.
ments of recent years regarding Facebook usage.1 Section 2 gives a short overview of the relevance
Kim et al. (2013) warn that small and medium of networking and social capital and discusses the
sized-enterprises (SMEs) have to increase their so- latest findings in the research on social networks,
cial media efforts to remain competitive in years to and especially Facebook. Section 3 presents our
come, where it will be a must for SMEs to be en- hypotheses in relation to the main literature while
gaged in social networks, since customers and section 4 focuses on the data and the research
methodology used. Section 5 summarizes the main
findings and section 6 concludes with the study’s
1 Furthermore, in recent studies, Abbas (2013) explores possi-
ble strategies of friendship-development on Facebook, while main points, providing a discussion of the results
Bohn (2014) focuses on how interactions on Facebook can and offering implications for further research and
be translated into social capital. Others (e. g. Wallsten 2013) practice.
examine the time that users spend on Facebook and what
other activities are impacted with these relatively new
behavior patterns.

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2. Networking activities become not only important to their users around


in the Facebook era the world but also to businesses and most recently
also to micro and small enterprises, who trust on-
Starting a business and ensuring its survival is line networks to help them become more successful
closely linked to many problems and opportuni- (Kahar et al., 2012). The purpose of the social net-
ties. While having only limited personal, financial work Facebook (from a user perspective) is to be-
and intangible resources (Stinchcombe, 1965), an come »friends« with other Facebook users, to com-
entrepreneur must learn to acquire essential re- municate with them through comments, wall-post-
sources whenever needed. Networking is crucial ings and instant messages, and to stay informed
(Johannisson, 2000; Sullivan/Marvel, 2011; Wat- about their friends’ self-published activities and
son; 2007) as it provides access to those resources interests (Caers et al., 2013). From a business per-
(Ostgaard/Birley, 1994). Therefore, by fostering spective, companies can create a Facebook-page to
and expanding their networks, entrepreneurs ex- accumulate »fans«, post status updates and foster
tend their success. The positive relationship be- discussions with the users about their products and
tween networking and a firm’s success is well ex- services.
plained (Witt, 2004; Watson et al., 2003) and it is Overall, Facebook can be utilized for many
generally assumed that successful networking purposes (e. g. Naylor et al., 2012; Ellison et al.,
consists of two dimensions: a venture having 2007; Ellison et al., 2014), such as human re-
both a good mix of relational embeddedness and sourcing and recruiting (Brown/Vaughn, 2011;
structural embeddedness in its network (e. g. Chauhan et al., 2013), as a support structure for
Granovetter, 1985, Burt, 1995). Also, it is broadly not-for-profit activities (Waters et al., 2009), for
accepted that networks positively accumulate so- prosuming (Kietzmann et al., 2011), procurement
cial capital (Birley, 1985; Gronum et al., 2012) processes for businesses (Backhaus et al., 2013;
and that it is essential for entrepreneurs, who Cyganski/Hass, 2011), and for specific marketing
want to benefit from social capital, to manage opportunities (Ceyp/Scupin, 2013; Smith/Zook,
different types of ties (Granovetter, 1985), struc- 2011; Hettler, 2010; Walsh et al., 2011). We focus
tural holes (Birley, 1985) and preferably to de- here on Facebook due to its many advantages for
velop strategies for interactions in networks (Mar- users over other SNSs (Kim et al., 2013, Stam et
tinez/Aldrich, 2011). Anderson and Jack (2002) al., 2014) and its huge user base (Statista GmbH,
define social capital as a process, and therefore 2014) in Germany. Cvijkj and Michahelles (2013)
not a »thing« or a product: it is the exchange of elaborate in detail the opportunities for a busi-
resources and information in a network. Social ness arising from engagement on Facebook, such
capital as a concept has been extensively studied as advertising (viral marketing), product develop-
in recent years (Foley/O’Connor, 2013; Nahapiet/ ment, and market intelligence. Another impor-
Ghoshal, 1998; Stam et al., 2014; Baron/Mark- tant aspect of the utilization of Facebook by
man, 2003; Baron/Tang, 2008). Furthermore, the micro and small enterprises might be »word of
link between social capital and firm performance mouth«. As early as 1968, Arndt (1968) discov-
has been well covered (Batjargal, 2003; Geda- ered the potential power behind recommenda-
jlovic et al., 2013; Cooke/Wills, 1999). Stam et al. tions. Today, this is one of the key features in the
(2014) conducted a meta-analysis that shows how highly transparent and interconnected online
social capital has a strong linkage to a firm’s per- world (Trusov et al., 2009; Jansen et al., 2009;
formance, depending on the firm’s age, it’s indus- Katona, 2013).
try and other factors. Network diversity had the So how can Facebook be of further help for mi-
strongest effect on a firm’s performance. cro and small enterprises? Used correctly, it in-
The face of marketing is changing remarkably creases the number of weak ties (Donath/Boyd,
due to the changes being caused by the emerging 2004) and can be a key factor in generating social
Web 2.0 applications (Nakara et al., 2012). Social capital (Bohn et al., 2014; Ellison et al., 2007; El-
Media in general, the multitude of »internet-appli- lison et al., 2014; Valenzuela et al., 2009; Abbas,
cations […] that allow the creation and exchange of 2013). Furthermore, Facebook builds social capital
User Generated Content« (Kaplan/Haenlein, 2010) in an »entertaining way« (Shah et al., 2012). None-
and SNSs (Boyd/Ellison, 2007) in particular, have theless, Facebook is not without critique from pri-

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vacy groups and policy makers2. But what is the small, medium and big enterprises, respectively. In
current state of adoption of social networks in gen- other words, the founders of micro or small enter-
eral, and Facebook in particular, in micro and prises deploy different networking activities to
small enterprises? There are initial approaches to these of larger companies. Relationships and net-
this question (Aharony, 2013; Durkin et al., 2013; works can be boosted by Facebook activity and
Perrigot et al., 2011), but those mainly focus on therefore might have an impact on firm perfor-
user behavior and not so much on possible out- mance. The concept of relational capital (Hormiga
comes of Facebook use. Our goal is to fill this gap. et al., 2011), which we believe can be highly effec-
In Germany, the Bitkom e.V. collects data on a tive (through interactions in social networks),
regular basis about the adoption rate of social me- might be well applicable. Hormiga describes rela-
dia services and can show that a very high percent- tional capital as the entrenchment of a firm in its
age of German SMEs are active on Facebook (BIT- relational surroundings (Hormiga et al., 2011), re-
KOM, 2013). There is currently no data specifically ferring to the presence of a business in a commu-
on micro and small enterprises, but we assume that nity, the reputation it gets and grows through in-
there will be more deep and sophisticated research teraction with its environment and so on. Any type
on this matter in the coming years due to its rising of connection the venture can make, be they for-
importance. The question remains as to why so mal or informal, can have important impact on
many SMEs, and, therefore especially micro and channels of communication, obtaining resources
small enterprises struggle to utilize Facebook as a and a wider access to distribution channels (Hor-
helpful tool (Kirtiş/Karahan, 2011). We hope that miga et al., 2011, p. 625). So if we follow Hormiga´s
our findings can motivate more entrepreneurs to lead, we can assume that a company’s mere pres-
be active on Facebook and thereby boost their ence on Facebook can be associated with reputa-
business performance. tion and visibility of the business venture and is,
therefore, an important intangible asset. So, keep-
ing in mind the specific needs and problems of
3. Hypotheses micro and small enterprises, and the potential that
can be discerned in their engagement in social
Research findings on the impact of social media media activities, we may conclude:
engagement by entrepreneurs on business perfor-
mance are extremely scant. While the research H1: Being engaged in Facebook as an entrepre-
landscape around this topic is getting more diverse neur of a micro or small enterprise is positively
at an increasingly higher rate (Caers et al., 2013), associated with his firm’s performance.
there is still very little consensus on the effects of
social media use. Recent (unpublished) research by Due to their high level of uncertainty stemming
Kraus (University of Liechtenstein, 2013), takes a from having little knowledge about market devel-
critical view of the outcomes of social media ac- opment and customer behavior (Schulte/Eggers,
tivities for SMEs. In this study, 400 decision mak- 2010), young firms usually need a more flexible
ers in SMEs in Germany, Switzerland, Austria and approach to marketing. While marketing activities
Liechtenstein were asked about their social media in general are usually perceived as a very impor-
activities and no influence on their firm’s perfor- tant success factor for enterprises (Krasnikow/Jay-
mance was found. For our purpose, we focus on achandran, 2008; O’Sullivan/Abela, 2007), entre-
micro and small enterprises to see if our results preneurial marketing is still a relatively young
differ from those of Kraus (2013). Furthermore, concept in the scientific community (Eggers et al.,
O’Donnell (2004) and Schoonjans et al. (2013) 2009). Being able to effectively implement market-
point out that there is an important distinction be- ing is highly important in situations where cus-
tween the networking and marketing efforts of tomers lack information about new ventures and
vice versa. Entrepreneurs, therefore, need to com-
municate better and engage their specific audience
2 The dangers of (mis-)use of Facebook, like deprivatization and thus need different capabilities to ensure a
and privacy violation, were covered (Debatin et al. 2009;
Ahlden 2012; Leskovec et al. 2010) in recent years due to successful business venture. The research on capa-
high media attention on these matters. bilities and their effects on firm performance has

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been diverse. Capabilities can be seen as accumu- for example, a large group of friends would allow
lated and complex bundles of knowledge and skills the entrepreneur to attract new customers in a pu-
in entrepreneurial contexts (Eisenhardt/Martin, tatively cheap and uncomplicated way, by word of
2000; Helfat/Peteraf, 2003). Some of the most im- mouth (Arndt, 1968; Trusov et al., 2009). Hormiga
portant capabilities, amongst others, are technologi- et al. (2011) point out that any ties a firm aggre-
cal capabilities (Song et al., 2005), operational capa- gates (or in this case, the entrepreneur), regardless
bilities (Worren et al., 2002) and, as mentioned if they are formal or informal, might help the suc-
above, marketing capabilities (Kotabe et al., 2002). cess of a start-up by widening the spectrum of pos-
Regarding our specific research, to find out what sible interactions. Such interactions might be with
drives entrepreneurial success in terms of Facebook business contacts and customers as well as family
activity, the impact of marketing capabilities is very and friends. Depending on the age of the company,
interesting. As stated above, entrepreneurial mar- its sector and other factors, different kinds of ties
keting is crucial in the development of a firm and can be more or less important.
the possibilities of the Web 2.0 add a new layer of Stam et al. (2014) supply an extensive meta-
opportunities for businesses. The research on mar- analysis on this matter, finding that high network
keting capabilities in an entrepreneurial context diversity has the strongest effect. Effect sizes of
with a focus on SNSs seems long overdue and our weak ties were smaller than those of structural
research tries to fill this gap by providing informa- holes, but overall we can assume with some cer-
tion about the positive effects of Facebook activity. tainty that the number of friends with different
Following Morgan et al. (2009), we adapted the types of interactions can be of high interest. In our
five capabilities »pricing, product, marketing com- research, we sum up all types of contacts (»friends«
munications, market planning, and marketing im- on Facebook) and hypothesize that the presence
plementation« for micro and small businesses to and the number of friends have a positive effect on
apply to Facebook-use in the context of the Ger- a firm’s success – for now, without splitting the
man crafts business sector. The capabilities »prod- friends into different categories. We, therefore, hy-
uct development« and »selling« could not be com- pothesize specifically:
bined with social media activities and thus were
excluded3. So what happens if we apply the effects H3: The number of friends on Facebook is
of marketing capabilities to the specific context of positively associated with a firm’s performance.
Facebook? Can Facebook be beneficial to entrepre-
neurs and their ventures? Do marketing capabili- Spending time with stakeholders, friends and fam-
ties give a strategic advantage to those entrepre- ily adds to an entrepreneur’s social capital. Re-
neurs? Synthesizing the literature, we can antici- search shows that the effort an entrepreneur in-
pate that marketing capabilities will have a strong vests into establishing relationships is highly cor-
impact on an entrepreneur’s success depending on related with the success of his venture (Hormiga et
the activity on Facebook. We conclude: al., 2011). Staying in contact with strong and weak
ties in order to get access to opportunities is also
H2: Having strong marketing capabilities crucial to success (Dubini/Aldrich, 1991). We as-
regarding Facebook as an entrepreneur is sume that a tool like Facebook can make it easier
positively associated with firm performance. for entrepreneurs to stay in contact with friends,
family and other stakeholders. Therefore, we can
Social capital theory argues that networks of rela- propose:
tionships constitute a valuable resource for entre-
preneurs (Nahapiet/Ghoshal, 1998). The impor- H4: Spending time interacting with friends
tance of weak ties and relational diversity espe- on Facebook as an entrepreneur is positively
cially, leads to the assumption regarding Facebook associated with firm performance.
that it should be important for entrepreneurs to
have a lot of friends on Facebook, preferably from
highly diverse contexts (Abbas, 2013; Bohn et al., 3 Since the craft sector is very special, it is extremely difficult
for a roofer or a bricklayer, for example, to invite Facebook
2014). Having many friends on Facebook might users to get involved in developmental processes, or to
provide connections and possible opportunities: utilize Facebook as a sales channel to customers.

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4. Methodology gender of the entrepreneur, amongst other data.


To test our hypotheses, our data was collected
4.1. Sample and procedure from the 14th survey of the panel in late 2013.
The questionnaire was sent out to 4,437 entrepre-
This study employed a quantitative approach by neurs in the craft sector in North Rhine-West-
collecting primary data from a questionnaire sent phalia. After excluding responses which had too
to entrepreneurs in the German crafts business sec- much missing data, so they could not clearly be
tor, specifically to micro and small enterprises. The identified as small enterprises, we retained 1,971
participants are already familiar with such surveys, usable surveys. Thus, the final sample consists of
thus explaining the high response rate. The study is 1,971 micro and small enterprises, a response rate
based on a German panel data set, the start-up of 44.42 % of the total sample. To assess differ-
panel North Rhine-Westphalia (Germany’s largest ences across respondents and nonrespondents, we
federal state), which undertakes annual surveys conducted independent-samples t-tests on all
among micro and small enterprises. Until 2012, 4,437 addressed enterprises along with the de-
this longitudinal study has accumulated about tailed information from the extra enterprise data-
20,000 start-ups, with annual response rates from base (e. g., the firm’s business sector). We found
35 % to 70 % (Lambertz/Schulte, 2013). Its survey no differences between the two groups. Since our
in 2014 was the fifteenth year data had been col- study particularly refers to the organizational size
lected. The panel covers successions as well as ac- (focus on micro and small enterprises) we incor-
tive participations and contains data only about porated the data from the longitudinal panel da-
full-time entrepreneurship. Therefore, it is not tabase in addition to calculate t-tests among
biased by part-time businesses. Single person en- respondents and nonrespondents along with the
terprises, which have become a very important part organizational size measured in the previous
of today’s economies (Keßler et al., 2009), are cov- year’s wave (in 2012) by number of employees
ered as far as they can be classified as a full-time and sales volume. No significant difference was
job. The panel data set predominantly includes found (number of employees: t[df:1,962] = .513, p >
firms belonging to the crafts business sector. In 0.10) and sales volume: t[df:1,731] = .734, p >
Germany, this sector can be viewed as typical of 0.10). This suggests that nonresponse bias is not a
entrepreneurial activities in terms of size, business problem in our dataset. Finally, we compared our
model, and legal type, among other characteristics. dataset concerning the responses made on the
The panel allows controlling for survivorship bias. number of employees and the sales volume with
Hidden market exits are impossible as a result of secondary data from the German federal statistical
governmental authorities having monitored all the office (Federal Statistical Office, 2014) for the
included start-ups. Furthermore, all exits can be crafts business sector and found high correlations
verified by using a special crafts register, where all between our database and the average numbers for
entries and exits have to be recorded. The panel micro and small enterprises in the crafts business
wave questionnaires cover recurring questions as- sector for the whole of Germany. This suggests that
sessing corporate development (e. g. quantity of our dataset is likely to be representative for micro
staff, sales volume, investment volume, production and small enterprises for the whole crafts business
activity, achievement of profit goals) as well as sector in Germany.
non-recurring questions. These latter topics are Hence, we can say that participants belong
different in each panel wave (including, e. g., start- only to micro and small enterprises, and that the
up financing, official advising, or entrepreneurial questionnaires were all completed by the com-
motivation). pany owner. The average age of the companies in
The panel offers an extra enterprise database the final sample was 41.1 months (standard devi-
with detailed information on the respective busi- ation [S. D.] = 23.2). The firms employed five per-
nesses and files on entrepreneurs’ biographies and sons on average (S. D. = 4.47) including the firm
business plans, which can be found alongside the owner. The average sales volume was € 350,000
panel wave data. The enterprise database provides for the previous 12 months. In the crafts business
information about the age of the enterprise, the sector, 35 % of the companies were involved in
legal form of the company, its location, and the personal services (e. g., hairdresser or chimney

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sweep), 30 % in the building installation and 4.2.2 Independent variables


building completion industry (e. g., painter or
electronics technician), 10 % in building and con- Facebook activity
struction (e. g., roofer or bricklayer), 9 % in the To determine if the business owner is an active user
motor vehicle industry (e. g., automotive me- of Facebook, we asked the entrepreneur if he or
chatronics technician), and 16 % in other indus- she had set up a Facebook page for the business
tries (including health care [7 %], industrial ser- (1 = yes; 0 = no). Even without having a Facebook
vices [6 %], and food industry [3 %]). The final business page, an entrepreneur can have a personal
dataset contains 65 % start-ups and 35 % succes- Facebook profile (private page), utilizing it for
sions or active participations (with more than communication with Facebook friends and market-
50 % participation). The majority of micro and ing for his venture as well. Therefore, we addition-
small enterprises are founded on the basis of sole ally asked for the number of friends on Facebook
proprietorship (78 %). Of the respondents, 27.5 % and the time the entrepreneur spent talking with
indicate being active on Facebook. his friends on Facebook. Facebook activity is
measured as a combination of all three questions
and refers to an overall indicator of being privately
4.2. Measures on Facebook at all, having a Facebook business
page, or even having both (1 = yes; 0 = no).
4.2.1. Dependent variable
Marketing capabilities
We wanted the dependent variable to be based on We adopted Morgan et al.’s (2009) marketing capa-
the success of the enterprise and measured by bilities items and adapted them to match marketing
objective data about the firm’s performance in- capabilities in the context of Facebook. We de-
stead of subjective self-perception of success as ployed a measure of marketing capabilities that
reported by the business owner. Since subjective had five items to measure the five distinct market-
measures of success are prone to error (Watson et related capabilities which we identified to be im-
al., 2003), we chose the number of employees as portant in the context of Facebook: product devel-
the most reliable measure for firm success. In opment, pricing, marketing communications, mar-
contrast to financial measures, such as revenue or ket planning, and marketing implementation.
profit, employment is a very stable construct that Using all of these items, a composite marketing-
allows a superior measure of success (e. g., Barba- capabilities construct regarding Facebook-use was
Sánchez/Pilar Martínez-Ruiz, 2009; Gilbert et al., generated by averaging the five items for our re-
2006; Headd/Kirchhoff, 2009; Keßler et al., 2009) gression model. Cronbach’s coefficient alpha was
and is resistant to fluctuations in economies. Fur- .899, which suggests a high level of reliability for
thermore, it is not biased by the subjective esti- this construct since the value is greater than the
mates of the entrepreneur or even the entrepre- suggested cut-off level of .700 (Nunnally, 1978).
neurs’ manipulation of the business’ apparent This measure is a valid proxy for marketing capa-
profit. Since the German crafts business sector is bilities. Take, for instance, previous research by
typical of entrepreneurial activities in Germany in Morgan et al. (2009) or Vorhies et al. (2009), which
terms of size, business model, and legal type, and has shown the high correlation between this meas-
contains predominantly ordinary business starters ure and other constructs utilized to capture mar-
with neither innovative nor technology-based keting capabilities.
business concepts (Lambertz/Schulte, 2013), the
number of employees established by an enterprise Friends on Facebook
is of particular relevance in this sector and pre- To identify how many friends the participants had
sents an important success indicator, not only for on Facebook, we asked them to name the number of
the firm itself, but also cumulatively for the na- a) close friends/family b) acquaintances c) business
tional economy. Firm success is the logarithm of contacts d) customers in their private Facebook pro-
the total number of employees including the firm file. These measures were summed up into an indi-
owner. cator of »general amount of Facebook friends«.

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Effects of Facebook activities on the performance of start-ups

Interaction with friends on Facebook our analysis. The test reported the missing values
To measure and interpret the amount of time spent in our dataset to be completely unrelated to the
on Facebook talking with different kinds of net- observed values, so missing data bias is no concern
work partners, we asked our participants to quan- in this study. After evaluating the assumptions of
tify their interaction on Facebook with the above- the regression, we conducted a logarithmic trans-
mentioned network entities (in Facebook terms: formation of the variables »sales volume« and
»Friends«) in hours per week. We added these num- »number of employees« to reduce skewness of dis-
bers up to get an indicator for »Interaction on tribution (Tabachnick/Fidell, 2010, p.89) and im-
Facebook with Friends«. prove the normality, linearity, and homoscedastic-
ity of the residuals. The dispersion of the residuals
confirms the lack of heteroscedasticity. For the
4.2.3. Control variables predictive variables, the variance inflation factor
(VIF) scores were analyzed. All showed scores
The study utilizes a number of control variables to within acceptable ranges (Ryan, 2009). Hence, col-
control for industry and firm heterogeneity and to linearity diagnostics indicated no cause for con-
ensure that the results are generally acceptable and cern.
not ascribable to other effects. We included sales To analyze the hypothesis H1, the hierarchical
volume and legal form of the organization as indi- regression analysis was conducted in two steps: in
cators of firm size. Firm size approximated by sales model 1 we only included the set of control vari-
is the logarithm of the total sales volume for the ables as predictive variable, finding that belonging
previous 12 months. Furthermore, we included the to a given craft business sector would have a sig-
business sector, firm age, and whether the firm is nificant influence on the success of the firm (e. g.,
either a start-up or a succession or active participa- especially a positive influence on those belonging
tion to account for the effects of these variables. to the service and food industry). The squared
multiple correlation R2 is .613 (F = 281.801,
p < .001). The addition of the independent variable
5. Analysis and results »being engaged in Facebook« results in a signifi-
cant increment in R2. Furthermore, model 2 shows
Variable means, standard deviations, and zero- some very interesting results regarding the effects
order correlations are reported in Table 1. All hy- of Facebook activity in the German craft business
potheses were tested using hierarchical multiple sector.
OLS-regression analyses. Regression results to The relationship between activity on Facebook
verify the hypothesis H1 are reported in Table 2, to the success of the business venture (H1) was
while the results referring to the hypotheses H2 to positive and significant (t = 4.095, p < .001), mean-
H4 appear in Table 3. There were 1,971 observa- ing that the activity of the entrepreneur on Face-
tions for each analysis presented in Table 2 to ver- book (the possibilities to interact with his custom-
ify the hypothesis that any engagement at all in ers and be connected with friends, family and busi-
Facebook as an entrepreneur is positively related ness contacts as well as the options to build up
with firm success. Since the hypotheses H2 to H4 reputation and to market his product or service) are
focus on the entrepreneurs who have reported be- of high value for micro and small enterprises. After
ing already engaged in Facebook, the regression step 2, R2 is .616 (F = 261.784, p < .001). The ad-
analysis exclusively focuses on the subgroup of ac- justed R2 of .614 for the full model indicates that
tive Facebook users. After excluding observations 61.4 percent of the variability in firm success is
with missing data concerning the independent predicted by the variables in model 2. Thus, our
variables »number of Friends«, »time spent on model has sufficient explanatory power and does a
Facebook« and »marketing capabilities«, 364 com- satisfactory job at explaining firm success. Even
plete observations remained for the analysis. so, after including the Facebook involvement vari-
We conducted the MCAR (missing completely at able in the model, the increment in R2 was small,
random) test provided by Little (1988) to ensure its significant change and the significance of the
that the missing values were scattered randomly relationship between this predictor variable and
through our data matrix and posed no problem for the firm success suggests that the Facebook activ-

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  Variablesa Mean (S. D.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

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Facebook activity
1 .2750 .4466 1.000                              
(1 = yes; 0 = no)

2 Facebook friends 194.1126 252.9959 – 1.000                            

DBW 75 (2015) 6
Interaction with friends on
3 3.4914 6.6937 – .077 1.000                          
Facebook (hours per week)

4 Marketing capabilities 3.0870 1.6889  – .264** .220** 1.000                        

5 Unlimited private company .0999 .3000 .018 –.066 –.045 –.053 1.000                      

6 Limited liability company .1202 .3253 –.022 .013 –.047 –.079 –.123** 1.000                    

7 Age of company (months) 41.1426 23.2151 –.126** .007 –.063 –.100* .023 .019 1.000                  

Succession / active
8 .3486 .4766 .012 –.134** –.029 .034 .143** .172** .058* 1.000                
participation

9 Building and construction .1015 .3020 –.083** –.008 –.008 –.138** .050* .124** .027 –.070** 1.000              

10 Industrial needs .0558 .2296 –.051* –.072 .004 .001 .044* .087** –.011 .026 –.082** 1.000            

11 Motor vehicles .0928 .2903 –.021 –.003 –.002 .061 .016 .064** .009 .059** –.108** –.078** 1.000          

12 Foodstuff .0279 .1647 .020 –.011 –.066 .014 .067** –.025 .004 .128** –.057* –.041 –.054* 1.000        

13 Health care .0695 .2544 .055* –.089 –.088 .039 .015 .022 .013 .081** –.092** –.066** –.087** –.046* 1.000      

14 Personal services .3511 .4774 092** .144** .122* .198** –.132** –.252** –.066** –.199** –.247** –.179** –.235** –.125** –.201** 1.000    

Sales volume last 12 months


15 350.8391 491.6181 –.031 .023 –.054 .050 .155** .312** .127** .285** .112** .042 .113** .105** –.017 –.325** 1.000  
(in € 1,000)

© Schäffer-Poeschel Verlag für Wirtschaft · Steuern · Recht GmbH


Number of employees
16 4.9574 4.4687 .013 .152** –.070 .080 .187** .282** .151** .348** .099** .040 –.023 .216** –.019 –.259** .734** 1.000
(including the firms owner)

aN=1,971 for all correlations except: Facebook friends, interaction with friends on Facebook, and marketing capabilities.
Sector: building installation and building completion (reference category: 30.1 %), legal form of company: sole proprietorship (reference category).
*p< .05, **p< .01 (two-tailed).
Stefanie Pakura/Adalbert Pakura

421
Tab. 1: Descriptive statistics, standard deviation, and zero-order correlations

13.11.15 13:26
Effects of Facebook activities on the performance of start-ups

ity is of significant importance concerning the In Model 2 we showed that the success of a ven-
business’ performance. So the entrepreneur’s ac- ture can be linked to the presence of its founder on
tivities and the success of his venture are deeply Facebook, we then particularly looked at how those
connected. Therefore it is of no surprise that his participants (all of them active on Facebook) can
presence on Facebook, where most of his custom- dissociate themselves by different behaviours re-
ers are already active, shows positive results. Most garding Facebook usage addressed in the hypoth-
interestingly, while only 27.5 percent of the par- eses H2 to H4. Again we conducted a hierarchical
ticipants are active on Facebook, it shows that the multiple regression analysis, introducing only the
other 72.5 percent apparently are missing out on a control variables in the first step and entering the
lot of opportunities and are potentially harming predictor variables in the second step. The goal of
their own business by ignoring Facebook and stig- H2 was to understand if marketing capabilities that
matizing it as an »unnecessary« tool. are deployed in Facebook can have a significant

Model 1 Model 2
Number of Employees Number of Employees
Variables
Standardized Standardized
t-value t-value
Coefficients Coefficients

Sector
Building and construction .012 .743 .015 .942
Industrial needs –.029† –1.921 –.026† –1.777
Motor vehicles –.065*** –4.238 –.065*** –4.241
Foodstuff .061*** 4.165 .059*** 4.066
Health care –.028† –1.859 –.032* –2.110
Personal services .114*** 6.201 .109*** 5.969

Legal form of organisation


Unlimited private company .045** 3.020 .042** 2.870
Limited liability company .045** 2.880 .044** 2.797

Age .067*** 4.648 .074*** 5.096

Succession / active
.156*** 10.133 .154*** 10.065
participation

Size .707*** 38.680 .710*** 38.950

Facebook activity (H1) .058*** 4.095

F-value 281.801*** 261.794***

Adjusted R Square .611 .614

R Square .613 .616

R Square Change 0.003***

Standardized coefficients and t-values.


N = 1,971, Sector: building installation and building completion (reference category),
legal form of company: sole proprietorship (reference category).
†< .10, *p< .05, **p< .01, ***p< .001.

Tab. 2: Hierarchical regression results of hypothesized relationship hypothesis H1

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Stefanie Pakura/Adalbert Pakura

Model 3 Model 4
Number of Employees Number of Employees
Variables
Standardized Standardized
t-value t-value
Coefficients Coefficients

Sector
Building and construction –.023 –.678 –.019 –.577
Industrial needs –.028 –.835 –.029 –.875
Motor vehicles –.098** –2.802 –.118*** –3.421
Foodstuff .080* 2.336 .069* 2.065
Health care –.109** –3.036 –.121*** –3.419
Personal services .196*** 4.566 .141*** 3.245

Legal form of organisation


Unlimited private company .041 1.235 .060† 1.831
Limited liability company .056 1.595 .062† 1.805

Age .090** 2.643 .102** 3.057

Succession / active
.149*** 4.380 .159*** 4.753
participation

Size .727*** 17.244 .701*** 16.878

Marketing capabilities (H2) .105*** 3.023

Friends on Facebook (H3) .092** 2.776

Interaction with friends on


.004 .112
Facebook (H4)

F-value 57.329*** 49.254***

Adjusted R Square .631 .650

R Square .642 .664

R Square Change 0.022***

Standardized coefficients and t-values.


N=364, Sector: building installation and building completion (reference category),
legal form of company: sole proprietorship (reference category).
†< .10, *p< .05, **p< .01, ***p< .001.

Tab. 3: Hierarchical regression results of hypothesized relationship hypothesis H2–4

influence on the success of a start-up. The con- use Facebook for his marketing purposes, the more
struct »marketing capabilities«, which describes the he can gain in terms of firm success. Regarding the
capabilities of the founder to deploy marketing last two hypotheses (H3 and H4), the number of
campaigns and locate his business as a brand, friends on Facebook emerged as a significant and
among others (see chapter 3 to H2), is also highly positive variable in the analysis (t = 2.776, p < .01),
significant and positively related to the business’s’ whereas no support was found for hypothesis H4
success (t = 3.023, p < .001). We can therefore as- concerning the time spent interacting with Face-
sume that the better an entrepreneur knows how to book friends on the social network (t = .112, p > .10).

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Effects of Facebook activities on the performance of start-ups

That means that while firm success is affected by jective performance measure for the explained
the number of friends a founder has on Facebook, variable and re-estimated the models. Using a con-
this cannot be confirmed for the time he invests to struct of three subjective success measures (reach-
talk to these friends. One explanation could be that ing revenue goals, reaching profit goals, the entre-
he benefits from the sheer number of Facebook preneurs’ ability to earn a livelihood; detailed re-
friends because he has instant access to his net- sults available from the authors) and high level of
work – but that does not mean that he has to talk reliability (Cronbach’s coefficient alpha was .798),
with all of his contacts. Maybe this is also an issue the results remain significant and coefficients keep
of age or simply of habit, meaning that most of the their signs. Moreover, re-estimating model 3 and 4
relevant communication is still made outside of with a single-item success measure (overall perfor-
Facebook. But the positive and significant effect on mance relative to major competitors last year) even
the number of friends leads us to the assumption confirmed support for H4 concerning the time
that an entrepreneur could benefit from the con- spent interacting with Facebook friends on the so-
tact-management possibilities offered by Face- cial network.
book. So if he really needs help or information
from strong or weak ties (Granovetter, 1985), Face-
book makes it very easy to get in touch with 6. Conclusion and implications
friends, family and other stakeholders. Hierarchical
regression results show that the statistically sig- This paper contributes to the research delta regard-
nificant predictor variables added significant im- ing the use of SNSs, in particular Facebook, in
provement to R2 (R2 change = .022, p<.001) and terms of success for micro and small enterprises.
thus the explanatory power of the model predicting Data on 1,971 firms, strongly representative for
business success. Our findings strongly indicate the ›ordinary‹ entrepreneurial activities in Germany,
importance of the predictor variables number of confirm and underline the importance of activity
Facebook friends and being capable of marketing in the social network Facebook in the German
capabilities in context of the social network Face- crafts business sector. Being active on Facebook
book (H2 and H3) in explaining business success. showed a highly significant effect on a firm’s per-
The determination coefficient (R2) in model 4 was formance. For entrepreneurs, our findings strongly
.664 (F = 49.254, p < .001), thus indicates that indicate that a high level of activity on Facebook
66.4 % of the variations in business success can be can bring high value to the company through the
explained. According to the F-values all models possibilities bound to a broad and diverse online-
are highly significant. network. Future research will have to address spe-
Finally, we conducted further analyses to check cific actions that entrepreneurs can undertake to
the robustness of our main findings. First, we re- most effectively make use of Facebook and other
ran our regressions using heteroskedasticity-con- SNSs. For researchers, our study underlines the in-
sistent (HC3) standard error estimators for the creasingly important role of Facebook on generat-
regression (Hayes/Cai, 2007). Hayes and Cai argue ing social capital and future research may there-
that these estimators should routinely be used fore study the activity of micro and small enter-
when conducting hypothesis tests using OLS re- prises on Facebook and the tools and activities that
gression giving greater comfort in the validity and most help the entrepreneur to achieve his goals. In
power of those tests. The additional analyses could terms of marketing capabilities we found evidence
well be used to double-check the results from the that these capabilities regarding Facebook activity
use of the OLS estimators against the results given are strongly associated with firm success.
from the use of a HC estimator, to make sure that Entrepreneurs who attributed themselves with
conclusions are not compromised by heteroskedas- high levels of marketing capabilities in the context
ticity. Since there was no heteroskedasticity-prob- of Facebook benefit the most. These conclusions
lem in our models, the findings of our OLS-regres- extend previous research work (e. g. Morgan et al.,
sions remain robust after double-checking with 2009; Vorhies et al., 2009) referring to the positive
HC3 estimators and thus can be strongly supported. effects of marketing capabilities on firm perfor-
Second, since the dependent variable is measured mance. Previous studies on firm-specific marketing
in terms of number of employees, we added a sub- capabilities have been primarily focused in a con-

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Stefanie Pakura/Adalbert Pakura

ventionally marketing context beyond SNSs’. Our prises as well as medium sized ventures in other
study examined for the first time the effect of mar- SNSs like Xing, Twitter or Pinterest. We hope the
keting capabilities in the particular context of positive results invite scholars in the field and
SNSs, in our case Facebook as valid proxy for SMEs to intensify their activity in the intersection
SNSs, and clearly showed that marketing capabili- of Social Media and Business. Most interestingly,
ties have a positive relationship with firm success while there is vast agreement on how positive net-
especially in the context of Facebook by utilizing working activities affect the generation and nur-
the opportunities offered by these sites. Thus, our turing of social capital and how important social
findings transfer previous academic work to the capital is for entrepreneurs, recent research shows
specific context of SNSs. Furthermore, we exam- that people actually do have problems understand-
ined the relationship between the entrepreneur’s ing their own network correctly due to the com-
number of Facebook friends and firm success as plexity of the social structures in which they are
well as the relationship between the actual time the embedded (Brands, 2013). Future research will
entrepreneurs spent engaging in conversations have to address whether tools like Facebook can
with their Facebook friends. Our results show a help to better understand their role in the network,
high correlation between the number of friends especially for entrepreneurs – and therefore help
and firm success among those entrepreneurs who them to benefit more from high activity on Face-
actively use Facebook, regardless of having a dedi- book. Opposed to that, we could conclude that Fa-
cated Facebook-page for their company or not. cebook actually makes it harder to comprehend his
This does not include an itemization into different or her network structure due to the loose definition
kinds or friends and therefore different kinds of of »friends« and the ever expanding online connec-
social ties – future research might address whether tions with friends and strangers. That could make
strong or weak ties are more important on Face- it actually harder to benefit from one’s network on
book. Finally, while the number of friends showed Facebook or other SNSs – Bohn et al. (2014) con-
a significant effect on firm success, we could not cluded that the amount of Facebook friends be-
find this to be true for the time spent engaging in yond a certain level does not provide support for
conversations with Facebook friends. One explana- the entrepreneur. From our point of view and
tion might be that entrepreneurs use Facebook for supported by our results, we conclude that online
marketing activities and the management of their networking sites will help entrepreneurs to sort
network, with a focus on word-of-mouth effects, their network rather than make it harder to com-
but do not take the time to communicate directly prehend.
with all their stakeholders over Facebook – instead, Regarding our own research and its limitations,
they stick to customary ommunication channels we anticipate interesting paths for future research
(e. g., telephone, face-to-face, etc.). This goes along and recommend longitudinal studies. Facebook en-
with Hormiga et al. (2011), who stated that there is gagement and marketing capabilities, as well as
no connection between the sheer amount of time social capital evolve over time; analyzing the full
establishing relations with different stakeholders effect may take some time. The cross-sectional na-
and firm success. Future research should also check ture of our study prevented the assessment of any
for Likes and Comments on Facebook-Posts and long-term relationship between those aspects and
how the Community talks about the company. This firm success. Furthermore, a more in-depth analy-
could be a vital addition to research and may be sis on differences between male and female entre-
worthwhile utilizing longitudinal research designs preneurs, different crafts or the age of the entrepre-
in future research to empirically study the engage- neur in the context of using Facebook as an entre-
ment of the Facebook-community and perfor- preneur or a venture should be on the agenda for
mance outcome over time. This could go along future research projects. Future research endeav-
with a more objective and longitudinal measure of ours should also take a look beyond the German
the variable ›interactions with friends on Face- craft sector to check for transferable outcomes in
book‹, since this explanatory variable is based on other industries and, moreover, examine other us-
subjective estimation of the entrepreneur. age scenarios of Facebook by entrepreneurs. While
Concurrently with this, more research is needed we see little value in using Facebook as a sales
regarding the activity of micro and small enter- channel or as tool for product development for a

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Effects of Facebook activities on the performance of start-ups

roofer or a bricklayer, for instance, (and therefore getting involved in SNS activities – many avoid
didn’t include those in our study), we imagine that activities in SNSs such as Facebook due to privacy
entrepreneurs in Germany outside the crafts busi- concerns (BITKOM, 2013, Debatin et al., 2009). Our
ness sector might make use of Facebook in this re- findings provide strong support for the positive re-
gard and future research should take that into ac- lationship between the entrepreneur’s/the firm’s
count. This study assessed firm success in term of Facebook engagement and firm success. Entrepre-
number of employees, which is both an objective neurs in micro and small enterprises should try to
and stable metric, because it is less driven by fluc- get involved in SNSs and especially Facebook and
tuation in economies and is not liable to subjective gain friends there, as well as to learn how to build
bias of the entrepreneur, as it used to appear for marketing capabilities in particular in the context
financial or subjective success measures. However, of SNSs that will help their business to achieve bet-
growth dimensions, such as employee growth and ter performance. The findings also offer valuable
growth in sales, are also relevant. Given the avail- implications for policy makers and consultants.
able data, the study could not address these dimen- Results suggest that consultants should encourage
sions. Further research should corroborate the entrepreneurs to become more involved in SNSs
findings with growth indicators. However, the and develop special marketing capabilities in the
study conducted additional robustness checks for context of Facebook. Policy makers could reinforce
different success measures concerning additionally the positive relationship between social network-
subjective success dimensions, which confirmed ing activities and firm performance by supporting
the results. adequate training courses which could give entre-
Despite these limitations and further research preneurs the opportunity of getting their enterprise
needs, our findings offer some important implica- start to participate in SNSs or even extend their
tions for practice. Many entrepreneurs, particularly company’s competences in marketing through the
in micro and small-sized enterprises, still struggle context of social networks.

Appendix

Marketing capabilities We, in contrast to our major competitors, …

…do a more effective job of pricing products/services


Pricing capabilities
on Facebook.

…tend to better meet the product/service


Product capabilities requirements and needs communicated by
our customers on Facebook.

…do a better job placing ourselves as a brand on


Marketing communication capabilities
Facebook.

…develop more creative marketing activities via


Marketing planning capabilities
Facebook.

…can execute advertising campaigns faster on


Marketing implementation capabilities
Facebook.

All of the answers were evaluated on a standard Likert-type seven-point scale ranging from anchors 1 (strongy disagree)
to 7 (strongy agree).

Table A1: Measurement scales marketing capabilities

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