𝗛𝗶𝗱𝗱𝗲𝗻 𝗲𝗰𝗼𝗻𝗼𝗺𝗶𝗰𝘀 𝗼𝗳 𝘁𝗿𝘂𝘀𝘁 𝗶𝗻 𝗲𝗻𝘁𝗿𝗲𝗽𝗿𝗲𝗻𝗲𝘂𝗿𝘀𝗵𝗶𝗽!

Reported by Weng Patrick Atokor | Journalist at Weng Global

Entrepreneurship is often presented as a numbers game. Entrepreneurs are encouraged to raise capital, develop products, study markets, manage cash flow and pursue profitability. But behind many successful businesses lies another form of capital that rarely appears on a balance sheet: trust.

Trust determines whether a customer will buy from a new company, whether an investor will back an unfamiliar entrepreneur, whether employees will remain committed and whether business partners will honour agreements when circumstances change.

In this sense, trust has an economic value. It can reduce the cost of doing business, open access to opportunities and create relationships that eventually translate into financial returns.

Research published in Economic Inquiry found a positive relationship between entrepreneurs’ willingness to trust others and business success, with successful entrepreneurs showing greater investment in trust than less successful entrepreneurs.

𝗧𝗿𝘂𝘀𝘁 𝗰𝗼𝗺𝗲𝘀 𝗯𝗲𝗳𝗼𝗿𝗲 𝗺𝗼𝗻𝗲𝘆

For many entrepreneurs, the first investment they make is not necessarily financial. It is psychological.

Before an entrepreneur convinces someone to invest money, there is often a process of building confidence. The entrepreneur must believe in the idea, communicate that belief and persuade others that the business deserves their time, resources or money.

This is where psychological capital becomes important.

Psychological capital includes qualities such as self-efficacy, optimism, hope and resilience. Research on entrepreneurship argues that these psychological resources can influence opportunity evaluation and help entrepreneurs access other resources, including financial capital.

A business owner who lacks confidence may struggle to approach investors, negotiate partnerships or continue after failure. Conversely, an entrepreneur with resilience and optimism may continue searching for solutions when the first opportunity disappears.

This does not mean confidence alone guarantees success. Rather, psychological strength can determine how effectively an entrepreneur uses the financial and social resources available.

Research involving micro-enterprises in East Africa similarly found that psychological capital and social competence are important parts of entrepreneurial activity, because entrepreneurs must manage risk while interacting with investors, customers, employees and business partners.

𝗪𝗵𝘆 𝘁𝗿𝘂𝘀𝘁 𝗵𝗮𝘀 𝗮𝗻 𝗲𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝘃𝗮𝗹𝘂𝗲

Every business transaction carries some degree of uncertainty.

A customer pays before receiving a service. An investor provides capital expecting future returns. A supplier may deliver goods before receiving payment. Employees work today in expectation of future salaries and opportunities.

These relationships depend partly on confidence that the other party will fulfil their obligations.

The OECD has highlighted trust as an important element of economic activity, noting that it can reduce transaction costs, support investment and innovation, and facilitate cooperation between people and organisations.

This is the hidden economics of trust.

When people trust one another, fewer resources may be required to constantly monitor, verify and protect every transaction. Businesses can negotiate more efficiently, form partnerships faster and devote more attention to production and growth.

Where trust is extremely low, the opposite can happen. Entrepreneurs may face additional costs for verification, enforcement, monitoring and risk protection.

𝗧𝗿𝘂𝘀𝘁 𝗰𝗮𝗻 𝗼𝗽𝗲𝗻 𝗱𝗼𝗼𝗿𝘀 𝘁𝗼 𝗳𝗶𝗻𝗮𝗻𝗰𝗲

Access to finance remains one of the major challenges facing entrepreneurs, particularly small businesses.

However, investors do not only examine an entrepreneur’s business plan. They also consider whether the entrepreneur appears reliable, capable and capable of managing resources responsibly.

Research on start-up financing has found that higher social trust is associated with a greater likelihood of obtaining external financing.

This helps explain why an entrepreneur with limited financial resources can sometimes attract significant support, while another with a seemingly strong idea struggles to raise money.

The difference may be credibility.

A strong reputation can serve as an informal form of economic collateral. It does not replace money, contracts or proper financial records, but it can make people more willing to take a calculated risk on an entrepreneur.

𝗖𝘂𝘀𝘁𝗼𝗺𝗲𝗿 𝘁𝗿𝘂𝘀𝘁 𝗶𝘀 𝗮 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗮𝘀𝘀𝗲𝘁

For consumers, trust can be the difference between trying a new company and ignoring it.

A customer who trusts a brand is more likely to purchase repeatedly, recommend it to others and remain patient when problems occur.

This is especially important for businesses operating online, where customers may have limited physical contact with the company.

For digital entrepreneurs, reputation therefore becomes part of the product.

A website may have an attractive design and competitive prices, but customers still want answers to basic questions: Will my money be safe? Will the product arrive? Will the company respond if something goes wrong?

Building trust answers those questions before the customer asks them.

𝗧𝗿𝘂𝘀𝘁 𝗮𝗻𝗱 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗻𝗲𝘁𝘄𝗼𝗿𝗸𝘀

Entrepreneurs rarely build successful companies alone.

They depend on networks of suppliers, employees, investors, advisers, customers and other entrepreneurs.

The OECD notes that informal business networks often depend strongly on trust between individuals and can create channels for cooperation and communication.

This means networking should not simply be understood as collecting contacts.

The real economic value of a network comes from the relationships behind those contacts.

Knowing someone is useful. Having someone who trusts your judgement, reliability and ability to deliver can be much more valuable.

𝗕𝘂𝘁 𝘁𝗿𝘂𝘀𝘁 𝗶𝘀 𝗻𝗼𝘁 𝗯𝗹𝗶𝗻𝗱 𝗳𝗮𝗶𝘁𝗵

Entrepreneurs must also understand the risks of excessive trust.

Trust without verification can expose a business to fraud, poor decisions and financial losses.

Research on trust and entrepreneurship shows that trust has both positive and negative dimensions and operates alongside control and formal safeguards.

Successful entrepreneurs therefore need intelligent trust.

This means building relationships while maintaining appropriate contracts, financial controls, documentation and accountability.

The goal is not to eliminate risk. It is to manage risk intelligently.

𝗧𝗵𝗲 𝗿𝗲𝗮𝗹 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁

The economics of entrepreneurship extends beyond money.

Financial capital can purchase equipment, inventory, technology and advertising. But trust can help an entrepreneur gain access to the people, opportunities and relationships required to make those resources productive.

Psychological capital gives entrepreneurs the courage and resilience to pursue opportunities. Social capital connects them with people. Trust strengthens those relationships. Financial capital then provides the resources to scale.

Together, these forms of capital create a stronger foundation for sustainable enterprise.

For Africa’s growing entrepreneurial ecosystem, the lesson is particularly important. Building successful businesses requires more than increasing access to finance. It also requires strengthening credibility, professional ethics, reliable institutions and relationships that encourage cooperation.

Trust may not appear in an entrepreneur’s accounting records, but its economic consequences are real.

In the end, investors may provide the money, customers may provide the revenue and employees may provide the labour. But trust often determines whether these people are willing to participate in the first place.

That is the hidden economics of trust: before capital moves, confidence usually moves first.

𝗦𝗼𝘂𝗿𝗰𝗲𝘀

• OECD — Business and Finance Outlook 2019: Why Trust Is Important in Business and Finance.
• OECD — For Good Measure: Trust and Social Capital.
• Batsaikhan, M. — Trust, Trustworthiness, and Business Success: Lab and Field Findings from Entrepreneurs, Economic Inquiry.
• Journal of Business Venturing Insights — The Missing Capital: The Case for Psychological Capital in Entrepreneurship Research.
• Journal of Global Entrepreneurship Research — Psychological Capital and Entrepreneurial Outcomes.
• Welter, F. — All You Need Is Trust? A Critical Review of the Trust and Entrepreneurship Literature.