Question

Both human capital and financial capital are important to young firms. Give examples that illustrate this and the contrast between the two kinds of capital.

Answer 1

Human capital is simply the ability, expertise and experience of an person (or a population) perceived by an entity or a group in terms of their importance or expense. You have certain talents, qualities of character, intelligence, and experience, and these are worth a certain amount to your employers and, for that matter, to your mates. In general terms, you can think of human capital as the amount of money you still have to gain for the rest of your life. The younger you are, the higher the human capital is as long as you have more years in the workplace. The more talent you have, the stronger the intellectual resources. The more valuable your expertise is, the higher the human resources.

Financial capital is the sum of all your assets minus your debts – your net worth, in other words. Add up the sum of all you own and the balances of your account, and deduct all your loans from that – that's your total financial resources.

Search for resources While this is widely assumed to be financial capital, the study found that human capital was far more significant. This sometimes meant co-founders or staff, but it also means investors, customers and other stakeholders who can help the start-up grow. Given the scope of the challenge, this can also confuse entrepreneurs, many of whom may have excellent technological abilities, but lack the network or expertise to even know where to start. This can also contribute to entrepreneurs staying trapped in the world they know, rather than venturing into their comfort zone. Entrepreneurs of affluent backgrounds tend to have a broader social network to tap into and out of.

The first strategic firms to be introduced were to try to build a diverse workforce. Given the relative homogeneity of the local population, this usually forced firms to spread their recruitment net broadly and seek to draw talent from major metropolitan areas within Switzerland or abroad.
A second consistent approach found in companies was to embrace an open culture in which workers were encouraged to communicate through organizational silos. The authors claim that this kind of community represents in many respects the small-town feel of their host communities.