Strategies for Creating Nascent Venture Legitimacy

Paper in proceeding, 2014

Objectives This paper aims to develop an empirically based understanding of legitimacy building in nascent venture creation processes. We illuminate legitimacy building strategies available to new ventures, and their consequences, clarifying distinct characteristics of legitimacy building in the stage of nascent venture creation. Prior Work Established organizations continuously need to defend and manage their legitimacy in order to be judged as desirable and necessary (Suchman 1995). In lacking legitimacy as an established organization, new ventures are heavily subjected to liabilities of newness (Stinchombe, 1965). New ventures often engage in legitimacy-building strategies to overcome this liability, utilizing two main approaches. Numerous articles have addressed the importance of human capital and social capital to the new venture (e.g. Davidsson and Honig, 2003), while much less is known regarding how legitimacy is built as the organization emerges. Approach A multiple case, real-time, longitudinal, in-depth study. 12 participants provided 189 journal entries (2009-2010). Self-reported learning journals were submitted weekly by entrepreneurs. The data provided an opportunity to look at legitimacy building processes in nascent entrepreneurial phases of venturing. Results The results of this study indicates a dominance of pragmatically related strategies over moral and cognitive ones, as well as surprising malleability with respect to moral strategies. (Suchman, 1995; Basu and Palazzo, 2008). Implications This study suggests that relative newness of organizational technology leads to increasing focus on conformity strategies to gain legitimacy. Relatively more mundane technologies enabled (the case napkin ads) successful engagement of more manipulative strategies. This support findings of Ashforth and Gibbs (1990). We also found that our young cases were strongly engaged in moral selection strategies in terms of goal formulation. The focus of the moral selection strategy of the nascent ventures in this study is not based on the organization “as is” (Suchman, 1995) but rather on what organization the management team would like to create, and/or what they believe is feasible for it to become. Value This paper suggests that managers could more consciously devise strategies on how to deal with institutions. In terms of policy implications, this paper suggests avenues for policy makers to influence new organizations. The data indicates the primacy of pragmatic strategies over moral and cognitive. Policy could follow this indication, creating pragmatic incentives for new ventures.