The risk of failure is higher for new ventures than for established organizations, because new ventures are confronted with what is referred to as ‘liability of newness’. An important factor for the survival of new ventures is the level to which start-ups conform to their stakeholders’ interests as they heavily depend on resources. Organizational legitimacy means that an organization is perceived by various important stakeholders as desirable, proper and appropriate. Legitimacy is crucial for the survival of new ventures since attaining legitimacy allows new ventures to reduce and potentially overcome challenges tied to newness.
The legitimacy challenges the new ventures face are diverse, but in general there are three main legitimacy challenges: price, newness and time. New ventures struggle with the price they can ask for their technology once they go to the market. Their challenge is to what extent they still can be seen as legitimate with your pricing choices. The second challenge is newness so that customers or other stakeholders prefer to work with companies and individuals whom they know not with new ventures.
The third challenge is time. New innovative ventures normally suffer from lack of resources and complain that bringing a new innovative product to the market is extremely time-consuming. While they struggle with time constraints and a lack of resources, they may face the risk of falling behind their competitors. When a new venture develops over time through multiple stages, it is confronted with multiple legitimacy thresholds and with multiple audiences that have different legitimacy evaluation criteria.
The study of Fisher et al., published in Academy of Management Review in 2016, recognizes three stages of development for start-ups: the conception stage, the commercialization stage and the growth stage. This study suggests that three important factors influence entrepreneurs’ efforts to cross those threshold: facing the pluralistic demands of multiple audiences, failing to make changes in their direction of evolution and legitimacy buffering.
The rest will follow in part 2..