Young and No Money? Never Mind: The Material Impact of Social Resources on New Venture Growth

Mukti V. Khaire

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Entrepreneurship Studies and Influences Innovation and Knowledge Management Management and Organizational Studies

Abstract

Although growth is a desirable outcome for new ventures due to the many advantages of large size, most new firms fail to grow, largely because of their limited resources and adaptability. This paper addresses the question of how new ventures grow despite their limited financial resources. I explore the effect of two specific nonfinancial, social resources—legitimacy and status—on new venture growth. I propose that new firms can acquire legitimacy by mimicking the structures and ceremonial activities of established firms in their industry, and can acquire status by affiliating with high-status entities. Using a unique panel data set on a cohort of advertising agencies founded in New York and Chicago between 1977 and 1985, I show that legitimacy and status have favorable impacts on new firms' growth in revenues and number of employees. The paper makes important contributions to social embeddedness and institutional research by examining the strategic implications of firm-level social resources, and to the literature on entrepreneurship in general and new venture growth in particular.

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References

1983The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields 1985Economic Action and Social Structure: The Problem of Embeddedness 1977Institutionalized Organizations: Formal Structure as Myth and Ceremony 2004The iron cage revisited institutional isomorphism and collective rationality in organizational fields 1995Managing Legitimacy: Strategic and Institutional Approaches 1998Social Capital, Intellectual Capital, and the Organizational Advantage 1987Handbook of Theory and Research for the Sociology of Education.2002The Forms of Capital

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2015Mind the gap: The interplay between external and internal actions in the case of corporate social responsibility 2016Legitimate to whom? The challenge of audience diversity and new venture legitimacy 2013Responsible Innovation Toward Sustainable Development in Small and Medium‐Sized Enterprises: a Resource Perspective 2010Studying Choice and Change: The Intersection of Institutional Theory and Entrepreneurship Research 2014Legitimation of New Ventures: A Review and Research Programme

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