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Description
To investigate the extent to which founders can influence their firms, I formulate a framework that considers the interaction between three main facets of founding teams' backgrounds, namely, industry status, entrepreneurially relevant demographic features, and social capital. As the propositions and illustrations suggest, the presence of one type of capital may reduce the dependence on or need for others. The model has applicability to a variety of industries with uncertain outcomes resulting from the commercialization of early-stage technology (e.g., biotechnology, nanotechnology, software, or hardware) or subjective quality (e.g., restaurants or movies).
Introduction
This is an article about how the past can influence the present. I tackle the question of how peoples' prior work experiences, affiliations, and status may help or hinder them in subsequent career decisions. I analyze this question in the context of organizational founding, which requires the gathering of people and resources to create a new legal entity. Originally blank slates, the early identities of these start-up firms are molded by their founders' decisions and abilities to acquire resources. What resources organizations gather--and how quickly they obtain them--will depend in part on the combined characteristics of their founding teams' industry status, entrepreneurially relevant demographic features, and social capital.
Inherent to these relationships is the degree to which path dependence impinges on firms. Some researchers argue that founders have an imprinting effect on their firms, setting them on trajectories from which it is difficult to depart (Boeker, 1988), while others suggest that founders have no enduring influence on their firms because organizations are malleable, sensing and reacting to changes in the environment (Teece, Pisano, & Shuen, 1997). Rather than pose the question as either/or, I consider the extent to which founders may have lasting effects on their firms. To be sure, there are always charismatic leaders who have the ability to change the course of a firm (Ensley, Pearce, & Hmieleski, 2006), but who the entrepreneurial team is and the decisions that they make in the early years of an organization may both shape its subsequent characteristics and constrain its range of future options (Kimberly, 1980; Miles & Randolph, 1980). As Boeker (1988, p. 34, italics in original) stresses, "while organizations undergo modifications and display varying degrees of flexibility, they are cast at birth into a mold that is discernible in all subsequent stages of their life cycle."
I also aim to augment our current understanding of the ways in which founding teams can use their pasts to gain legitimacy for their firms. Legitimacy--that is, being seen as desirable and appropriate (Berger & Luckmann, 1966)--is "often a critical ingredient for new venture success" (Starr & MacMillan, 1990, p. 83). Organizations deemed legitimate are better able to attract the resources that they need (Stinchcombe, 1965). Yet where does an organization's initial legitimacy come from? Are all organizations judged to be legitimate based on the same criteria? I argue that initial legitimacy is transferred to the organization from the founding team. Moreover, I suggest that which features of the founding team's biography are used to determine an organization's legitimacy will depend primarily on the industry status of the founding team.
In sum, I formulate a framework that considers how an organization's initial legitimacy, and thus ability to obtain resources, is derived from the interaction between three main facets of its founders' backgrounds: industry status, entrepreneurially relevant demographic features, and social capital. As the arguments and illustrations suggest, the presence of one type of capital may reduce the dependence on or need for others. The framework has applicability to a variety of industries with uncertain outcomes resulting from high risk and/or long product cycles (e.g., nanotechnology, software, or hardware) or subjective quality (e.g., restaurants or movies).
The Challenge: Making the Best Bet on a Highly Uncertain Future
High-growth new ventures, particularly those based on novel unproven technologies, face significant hurdles in getting started (Aldrich & Fiol, 1994). These teams of individuals--and most are teams (Kamm, Shuman, Seeger, & Nurick, 1990)--must overcome the skepticism of outside resource providers in order to gain legitimacy and thus access to resources that are essential to building and growing a corporation (Singh, Tucker, & House, 1986). Of those attempting to found organizations, approximately half succeed in getting their companies started, and fewer than one in 10 grow their organizations (Reynolds & White, 1997). Companies founded on the commercialization of early stage technology are among those high-risk, high-reward firms most dependent on external sources for resources, such as employees, strategic alliances, and financial investments necessary for growth.
Unfortunately, nascent ventures usually lack track records providing evidence that their products and/or services are marketable and/or that they have the right management experience for their companies (Ostgaard & Birley, 1996). Thus, absent established predictors of success, outsiders must depend on "symbolic signals of competence" when deciding whether to invest in new organizations (Sine, Mitsuhashi, & Kirsch, 2006, p. 123). Often included in their evaluations are characteristics of the external environment, the market and industry, the technology, the type of business, and founding team (Muzyka, Birley, & Leleux, 1996). Of these, "venture capitalists' strongest belief is that it is the founding entrepreneur who determines much (though not all) of a venture's prospects for success" (Sandberg & Hofer, 1987, p. 25, italics in original). As such, the remainder of this article focuses on the role of the founding team in securing resources, with the caveat that any empirical test of the proposed framework should include controls for the other variables.
[FIGURE 1 OMITTED]
The Framework: Experience Leads to Opportunities
Why do some organizational founding teams receive resources when others do not? To answer this question, I develop a framework that teases apart the relationships between three facets of the founding team's prior experience--namely, industry status, entrepreneurially relevant demographic features, and social capital--and its organization's ability to gain legitimacy and thus resources. As demonstrated in propositions 1, 2a, and 3a in Figure 1, I follow previous studies and suggest that each of these factors is positively related to organizational legitimacy and thus resource obtainment. In the framework, initial organizational legitimacy, which cannot be tested directly, fully mediates the relationship between the characteristics of the founding team and the initial obtainment of organizational resources.
My framework differs from prior research, however, in two important ways. First, I consider industry status, entrepreneurially relevant demographic features, and social capital in conjunction with one another, whereas researchers in the past have primarily studied these factors in isolation or in pairs. Second, and more importantly, I argue that it is the combination of the three main factors that is critical. My focus on different types of factors as partial substitutes for one another differs from prior work that, with few exceptions (e.g., Boxman, de Graaf, & Flap, 1991), presumes different factors are additive. These key interaction effects are highlighted as propositions 2b, 3b, and 3c in Figure 1. Interactions 2b and 3b indicate that the strength of the positive relationships between the entrepreneurially relevant demographic features or social capital of the founding team and legitimacy is moderated by the team's level of industry status. Proposition 3c indicates that the strength of the positive relationship between social capital and organizational legitimacy is also moderated by the team's entrepreneurially relevant demographic features.
Legitimacy
Legitimacy is a somewhat elusive, but widely used, concept in organizational research. Organizations that are legitimate are considered to have established their competency and the value of their business and its offerings, thus having an easier time securing needed resources (Meyer & Rowan, 1977; Pfeffer & Salancik, 1978). This relationship is highlighted in Figure 1 by the arrow and positive sign between organizational legitimacy and organizational resources. The box surrounding legitimacy is dashed to indicate that legitimacy cannot be tested directly and instead is most easily inferred through resource acquisition. The greater the initial resources obtained, the greater the initial legitimacy of the organization.
Building on Suchman (1995), Zimmerman and Zeitz (2002) focus specifically on the role of legitimacy in entrepreneurial firms. They identify four strategies--conformance, selection, manipulation, and creation--that organizations can use to build their regulatory, normative, and cognitive legitimacy. Among these, they identify conformity, with a focus on developing cognitive legitimacy, as the strategy that may be most beneficial to the newest of organizations. An organization can gain cognitive legitimacy by putting "forward the impression that its identity is such that it provides what is needed... |
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