The Role of Trust in New SME Creation

Abstract

<jats:p> Small and medium-sized enterprises (SMEs) are key to economic growth, and yet comparatively little research has examined the relationship between the level of societal trust and the motivations and opportunities of entrepreneurs starting new SMEs. The author tests the impact of trust on new firm formation using the Global Entrepreneurship Monitor (GEM) survey data for 2001–2003. Trust is found to be significant for starting SMEs that pursue Schumpeterian opportunities. Trust is also significant for overall levels of entrepreneurship and for opportunity entrepreneurs in developing countries. These findings add nuance to previous literature suggesting that trust is significant for all forms of entrepreneurial activity. </jats:p>

Classic soccer shoes: From an informal to a formal business start-up

“…Many customers had bought counterfeit shoes over the Internet and the marketplace was therefore full of distrust. Legitimacy and reputation are often hard for entrepreneurs to build at the start of their venture due to uncertainty and information asymmetries (Troio, 2010;Zerwas and von Korflesch, 2016). Patrick's model of a lean start-up not only allowed him to learn about the market and create a network of potential clients, but it also created good 'word of mouth' over time.…”

Trend Pie

“…In fact, starting small and offering daily campaigns at relatively low prices allowed him to generate legitimacy for his business idea in a market that was full of distrust (Anderson and Jack, 2000). Legitimacy and reputation are often hard for entrepreneurs to build at the start of their venture due to uncertainty and information asymmetries (Troio, 2010; Zerwas and von Korflesch, 2016). By providing a way for new clients to try his services with a relatively low risk and by working hard on each campaign to guarantee its success, he was able to attract potential customers who might have been weary about making a large investment upfront and to win their trust.…”