Venture Legitimacy Research Articles

New venture legitimacy diffusion beyond the local entrepreneurial ecosystem: the transformative role of brokerage and network activities

PurposeNew ventures often encounter legitimation challenges due to their liability of newness and foreignness. This particularly applies to the legitimacy beyond the local entrepreneurial ecosystem (EE). The present study examines how new ventures’ local legitimacy influences legitimacy diffusion beyond the local EEs. It considers both the direct relationship between new venture local legitimacy and its diffusion beyond the EE and the moderating effects of legitimacy brokerage and network activities on this relationship.Design/methodology/approachA hierarchical multiple linear regression is employed to test a series of hypotheses using the data of 228 Finnish firms which was collected with an online survey.FindingsFirms that garner active local legitimacy have a greater chance to diffuse that legitimacy beyond an existing ecosystem. Results also reveal that network activities and legitimacy brokerage enhance (positively moderate) the association between (passive and active) local legitimacy and its diffusion.Originality/valueThe present study contributes to and extends the literature at the intersection of new venture legitimacy and legitimacy diffusion beyond the existing EE – an aspect which has not been sufficiently studied.

Legitimacy Challenges in Terms of Succession Planning and Internationalization in Family Businesses

Venture legitimacy refers to the generalised presumption or perception that a business entity's distinct procedures are proper and convenient or desirable within specific socially constructed systems of values and opinions. Entrepreneurial legitimacy is obtained by conforming to distinct normative, cognitive, and structural norms within entrepreneurship and communicating adherence to these norms. This concept has been widely used in entrepreneurship, including family businesses (FBs), which is the focus of this paper.

Venture Legitimacy in South-North Internationalization

Venture Legitimacy in South-North Internationalization

Legitimacy-building role of incubators: a multiple case study of activities and impacts of business incubators in a developing Chinese city

PurposeBusiness incubators are advantageous to new venture legitimacy because they provide rich access to entrepreneurial resources, and their incubation networks can offer endorsement to incubatees. However, empirical evidence on this topic is limited, and the existing literature relies predominantly on the Western context. Given that not all developing country incubators have resourceful and reputable external entrepreneurial networks as in the industrialized countries, and that new ventures need to build legitimacy along cognitive and socio-political dimensions that require different actions to influence different stakeholders, this study investigates empirically how business incubators facilitate their incubatees to build legitimacy in a context where resource and reputation conditions are weak. The purpose of this paper is to clarify how business incubators perform legitimacy-building roles effectively.Design/methodology/approachA multiple case study of business incubators in Chongqing, a second-tier Chinese city, is presented. Using grounded theory, this paper draws its findings from a synthesis of interviews and secondary data of seven incubators and their ten incubatees.FindingsThe legitimacy-building role of business incubators is performed well in this research context. Evidence is presented that incubators play different roles in building different dimensions of incubatees’ legitimacy. Government-associated incubators play a salient role in building incubatees’ socio-political legitimacy whilst non-government related incubators shape their incubatees’ cognitive legitimacy.Originality/valueThis study contributes to the business incubators literature by revealing how incubators perform the legitimacy-building role when their resource endorsement is weak. The results suggest that incubators need to strengthen their ties with external stakeholders and that new ventures need to take key stakeholders into consideration when they select incubators to enter.

A cognitive approach to the expected value of work integration social enterprises

AbstractResearch SummaryOftentimes, social enterprises simultaneously pursue competing organizational goals. For example, this can mean having a social goal (e.g., integrating vulnerable populations into the labor market) and a commercial goal (e.g., being profitable). I propose a theory according to which for such social enterprises, how they are perceived depends on how their goals are presented and on the type of categorization process used by their evaluating audience. These two factors together impact a venture's legitimacy and expected value. I also show that these effects vary with the level of knowledgeability of the audience performing the evaluation. Taken together, the results of this paper have implications for the cognitive perspective on strategic entrepreneurship as well as the literature on categories in markets and on hybrid organizations.Managerial SummaryI study the different category primings that influence the customer's perception of work integration social enterprises (WISEs). These social enterprises can either direct their customers' attention toward comparability with a category prototype (prototype‐based categorization), or toward a customer goal (goal‐based categorization). I find support for the idea that, depending on which organizational goal is emphasized first and foremost by a WISE (e.g., social or commercial), the activation of either category priming impacts the venture's capacity to create value. Ultimately, this work establishes the cognitive foundations of social enterprises' competitive advantage by showing the type of category priming (goal‐based vs. prototype‐based categorization) that positively impacts a WISE's expected value as a function of “who” the targeted customers (less vs. more knowledgeable customers) are.

Social impact models, legitimacy perceptions, and consumer responses to social ventures

Social entrepreneurs create hybrid ventures that combine revenue-generating business models with social impact models to produce value for two primary stakeholder groups: consumers and beneficiaries. The interactions between social entrepreneurs and their beneficiaries are heavily studied. However, consumers’ responses to a venture having a social impact model have received almost no scholarly attention even though a large number of hybrid ventures rely heavily on consumers to make their business models viable. In this study, we draw from legitimacy theory and pair an experimental design with structural equation modeling to examine consumer responses to ventures with a social impact model. We hypothesize and find that a social impact model influences consumers’ perceptions of venture legitimacy. Legitimacy perceptions are, in turn, related to consumers’ purchase intentions and willingness to recommend the venture to others. Our findings produce insights into how social entrepreneurs appeal to consumers to create financially sustainable ventures.

From the theories of financial resource acquisition to a theory for acquiring financial resources - how should digital ventures raise equity capital beyond seed funding

For many digital ventures, acquiring financial resources in multiple rounds beyond seed funding to grow has become an important part of their entrepreneurial journey. The success rate of raising equity capital beyond their seed investments is, however, very low. Existing entrepreneurship studies on financial resource acquisition have explored separately how entrepreneurs organize their networks, establish venture legitimacy, and decide on funding sources. However, despite being identified as an important subprocess in new venture creation, little is known about why, when, and how entrepreneurs engage potential investors to increase the likelihood of post-seed investments. Hence, this paper synthesizes the literature on financial resource acquisition, theoretical concepts in entrepreneurial financing, and practice knowledge to frame a set of design principles to create a prescriptive process model to increase the likelihood of success in post-seed financial resource acquisition.

When the beacon goes dark: Legitimacy repair work by subsequent actors in an emerging market category

Extant research explains how entrepreneurial ventures can serve as a beacon in emerging market categories, blazing a trail for other ventures and contributing to their successful legitimation. However, what happens when a beacon is unsuccessful? Using a qualitative case study of particularly sensitive interviews and secondary data from the social venture accelerator category, we examine how subsequent entrants overcome recursive legitimacy challenges caused by beacon underperformance and failure. Through our study, we develop a model of legitimacy repair work, which consists of decoupling legitimacy assessments, prioritizing distinctiveness identity claims, and enabling selective generalization. Following legitimacy loss, we highlight how actors prioritize and sequence distinctiveness claims over legitimacy claims, which we refer to as distinctive legitimacy. We also identify a key mechanism of selective generalization, where identity claims are made to direct audience attention toward some (and not other) attributes of the organization and category to acquire resources. Our findings have important implications for new venture legitimacy: mitigating legitimacy loss, the process of optimal distinctiveness, and legitimacy management over time.

The temptation of exaggeration: Exploring the line between preparedness and misrepresentation in entrepreneurial pitches

The prevalence of exaggeration in entrepreneurial pitches is one of the more striking behaviors that entrepreneurs display in their interactions with prospective investors. By viewing such behavior through the lens of interpersonal persuasion and deception theory, we believe that exaggeration’s impact on investor decision making can be understood by examining its close cognitive relationship to both lying and preparedness. Across three studies we investigate the impact that exaggeration and preparedness have on new venture legitimacy and funding potential, and examine the circumstances in which exaggeration may produce beneficial outcomes. For transparency we posted all data, code and study materials on the Open Science Framework, at https://bit.ly/2XfwYky.

Research opportunities in the study of B2B new ventures: Perspectives from the entrepreneurship literature

The goal of this article is to identify research opportunities for scholars interested in B2B new ventures. The author focuses on opportunities that arise from a consideration of three important topics in the entrepreneurship literature: business model development, venture legitimacy, and top management teams. It is argued that significant opportunities exist for research that expands our understanding of (1) entrepreneurial paths from initial means to a fully specified business model, (2) the design of a portfolio of legitimation strategies, and (3) the impact of top management team characteristics and processes on venture characteristics, venture performance, and top management team outcomes.

The Complexities of New Venture Legitimacy

For entrepreneurs, establishing and maintaining new venture legitimacy is a complex endeavor. Various factors complicate this process, including issues of optimal distinctiveness, audience diversity, market category evolution, and multiple legitimacy thresholds. Moreover, the establishment and maintenance of new venture legitimacy is an intricate process that unfolds over time. In this essay, I review and integrate prior work on new venture legitimacy not only to highlight these complications, but also to consolidate insights, theoretical nuances, and empirical observations to describe what happens when entrepreneurs confront multiple complications at the same time. In so doing, I propose that configurational approaches provide a valuable theoretical perspective to enhance knowledge related to new venture legitimacy. I also highlight exemplar studies that have adopted these perspectives, accounting for multiple new venture legitimacy complications in a single analysis. This provides a basis to understand recent advances in the new venture legitimacy literature, and inspires and opens up new research opportunities for further exploration.

The Influence of Individual Legitimacy-Building Factors and Gender on Funding in Accelerators

As a perception of external audience members, organizational legitimacy is a relatively unobservable construct but can be indirectly inferred through the actions taken by external stakeholders. Despite the growing body of research around new venture legitimacy, there has been limited investigation into individual-level founder legitimacy. This research study sought to understand whether individual-level, legitimacy-building factors affect female-led ventures differently than male-led ventures by looking at how gender moderates the relationship between individual legitimacy indicators (e.g., age, entrepreneurial experience, and education) and organizational legitimacy, signaled through outside equity investment. Secondary data collected from accelerator programs was utilized to conduct this analysis. Since equity financing is a key benefit of accelerator programs, these programs provided a useful context to test how gender interacts with founder legitimacy to influence outside equity investment. The results revealed that gender significantly interacts with both age and education to influence outside equity investment. Female founders benefitted by being younger and having more education, whereas male founders benefitted by being older and having less education, suggesting that females and males are judged differently against legitimacy criteria.

Turning Antagonists into Supporters: Establishing Legitimacy in Hostile Environments

This study gives insights into how new ventures can establish legitimacy in hostile environments, where a large number of audiences carry pre-existing negative views of an organization’s activities or agenda. Based on the case of how a new social venture in Egypt gathered support from stakeholders, who were highly skeptical and even suspicious of the organization from the onset, we identify a new model of legitimacy building that is particularly applicable to hostile environments: optimal deviance. We show how optimal deviance enables a new venture, whose agenda is perceived to be inherently incompatible with existing institutional norms, to establish its deviance in a way that appears as non-threatening and inoffensive to key audiences. Our study has implications for research on new venture legitimacy and social entrepreneurship.

When the Going Gets Tough: New Venture Legitimacy Buffering to Mitigate Product Development Failure

The introduction of its first product, serves as a critical milestone for a new venture, generating legitimacy and providing a route to earning revenue and market share that can enable the venture to evolve and grow. However, major product development failures can constitute a legitimacy crisis for new ventures. Although prior research has suggested that legitimacy can be acquired and maintained through different types of actions such as founder human capital, investor reputation, patenting and various kinds of inter-organizational relationships, research is yet to systematically investigate how the value and information conveyed by these different mechanisms could vary over the course of evolution of the venture. Hence our research question is, “How might new ventures maintain legitimacy in the face of product development failures and how might this vary over the course of the venture’s evolution?” We test and evaluate the effectiveness of different types of legitimacy buffers on a sample of 256 VC funded new ventures founded in the biotechnology industry over the period 1990 to 2012. By examining the course of development of the venture’s first product, we posit that the efficacy of legitimacy buffers used by ventures will vary based on the stage of development at which product failure occurs. We then theorize when and how different types of buffers protect a new venture from adverse legitimacy judgments imposed by financial resource providers in the face of significant failures. Our study makes important contributions to the literature on new venture legitimacy and entrepreneurial resource acquisition by providing a temporal perspective on the changing criteria for legitimacy judgements over the course of a new venture’s evolution.

New Venture Legitimacy Diffusion: The Role of Storytelling and Social Networks

Legitimacy diffusion is critical for new venture success, survival, and growth. Storytelling is a powerful technique to acquire legitimacy as well as to diffuse it. The focus of the current study i...

Venture legitimacy and storytelling in social enterprises

ABSTRACTGaining venture legitimacy is important for social enterprises to survive; yet, many of them face legitimacy deficit and fail sooner than their commercial counterpart. Entrepreneurship scholars have recently recognized that storytelling is linked to new venture legitimacy which may lead to a reduction in the chances of venture failure. However, existing knowledge regarding the relationship between storytelling and social venture legitimacy is limited. Using case studies from social enterprises in Indonesia and the United Kingdom, this article examines how storytelling can lead to venture legitimacy in a social entrepreneurship context. Utilizing a narrative transportation approach, the research details what actions can be taken to support social enterprises. The article contributes to the literature by providing a conceptual framework that links storytelling and venture legitimacy in the social entrepreneurship domain.

The U.S. Space Launch Industry: Ecosystem Evolution as Entrepreneurial Context

Prior studies in entrepreneurship have commonly used industry as the context to understand how environmental characteristics affect new venture creation and development. Industry-level framing, however, limits capturing the effects of actor interdependencies that extend beyond the boundaries of many industries. We move beyond an industry view and apply an ecosystem perspective to explore how ecosystem evolution affects new venture creation in a focal industry. Through our historical analysis of the U.S. commercial space launch industry, we show that market uncertainty, technological uncertainty, and overall risk evolve as an ecosystem evolves. In turn, these factors affect venturing activity by altering the availability of human and financial capital as well as by their influence on industry and venture legitimacy. Our analysis contributes to the entrepreneurship field by advancing the relevance of an ecosystem-as-context perspective and examining the relationship between ecosystem evolution and new venture creation.

Structure as Strategy? How Organizational Form Influences New Venture Legitimacy Strategy

Unlike traditional corporations, public benefit corporations stipulate that they will pursue non-financial goals in addition to maximizing economic profits. Combining work in both hybrid organizations and new venture legitimacy strategies, we seek to clarify to what extent new ventures use organizational form to seek and gain legitimacy. Our research aims to contribute to the nascent stream of benefit corporation literature by investigating legitimacy strategies associated with this new organizational form. In our study, we explore the extent to which new ventures use legal form to seek legitimacy, and from whom. Specifically, we ask: How do legitimacy strategies of new ventures of the same organizational form differ? What are the potential consequences of differing legitimacy strategies? We build a novel database of over 450 public benefit corporations and find organizations use the public benefit corporation form for different legitimacy strategies. In investigating this process, we develop nuanced legitimacy strategies based on two dimensions, transparency and robustness. We suggest that public benefit corporations may actually take longer to achieve legitimacy despite widespread adoption and institutional-level legitimacy. We also begin to see how varying degrees of robustness and transparency either hinder or help PBCs gain legitimacy to different audiences.

Work-family conflict, organizational ambidexterity and new venture legitimacy in emerging economies

For entrepreneurs, work and family are inextricably intertwined. Entrepreneurship literature provides inadequate accounts on the relationship between entrepreneurs' work-family conflict (WFC) and new venture legitimacy, and the underlying mechanism. We categorize WFC into work interference with family (WIF) and family interference with work (FIW), and develop a conceptual framework to explore the mediating effects of organizational ambidexterity, the simultaneous execution of effectuation and causation, between WFC and new venture legitimacy. Also, we explore gender difference in the relationship between FIW, organizational ambidexterity and new venture legitimacy. The research is conducted in an emerging economy. In alignment with our expectations, we find that: (1) effectuation and causation strategy mediate the positive relationship between WIF and new venture legitimacy, and the negative relationship between FIW and new venture legitimacy, and (2) female entrepreneurs are less likely to choose effectuation strategy when faced with high level of FIW. Interestingly, there are no differences between female and male entrepreneurs in the likelihood of choosing causation strategy when they are confronted with high level of FIW. Theoretical and practical implications for future research on WFC in entrepreneurship research field are discussed.

Name, Name, But Different: How Novice and Experienced Entrepreneurs Legitimize Thier Ventures

New ventures face significant legitimacy challenges, compelling entrepreneurs to take symbolic actions and generate positive legitimacy judgments. However, while scholars have recently begun to acknowledge that legitimacy judgments are not uniform across audiences, the fact that entrepreneurs are not uniform either, escaped scrutiny. To address this gap, we zoom in on the role of prior entrepreneurial experience – a key individual difference related to entrepreneurs’ cognitive development – in shaping a single yet fundamental legitimation decision that every entrepreneur has to make: Naming the venture. We use a qualitative research design, including think-aloud verbal protocols and semi-structured interviews, to compare samples of experienced and novice entrepreneurs as they name exactly the same new venture that begins with exactly the same idea. Our key finding is that novice and experienced entrepreneurs approach venture naming differently, thereby making different legitimacy claims using distinct symbolic communication strategies. We build on these findings to theorize about the relationship between entrepreneurial experience and legitimation work and provide propositions for future research on new venture legitimacy in general and venture naming in particular.