Entrepreneurial Orientation, Legitimation, and New Venture Performance

Abstract

Research summary: We integrate research on entrepreneurial orientation and new venture legitimacy. To create value from an entrepreneurial orientation, firms need to possess necessary resources and capabilities, which new ventures often lack due to their liability of newness. We posit that legitimation helps overcome these constraints by enabling new ventures to acquire necessary resources and develop essential capabilities, and argue that entrepreneurial orientation and legitimation jointly enhance new venture performance. We analyzed data on 149 new ventures and found support for this argument. This study opens new research avenues by extending and incorporating explanations and predictions of entrepreneurial orientation and legitimation, two areas that largely have been considered as independent of each other.Managerial summary: In the absence of a clear connection between legitimacy and economic returns, entrepreneurs and managers may not give strategic priority to legitimation. We find that new ventures with an entrepreneurial orientation as demonstrated by innovative, proactive, and risk-taking decisions and behaviors can achieve superior performance if they also actively undertake legitimation efforts to meet stakeholders' cognitive, regulative, and normative expectations. This study suggests that neglecting legitimation as an important competitive tool may be a greater mistake than previously has been realized, especially for new ventures with an entrepreneurial orientation.

Some principles are more equal than others: Promotion‐ versus prevention‐focused effectuation principles and their disparate relationships with entrepreneurial orientation

“…Since our findings indicate that EO is rooted in leaders' promotion focus, reasoning in analogy to Baron () suggests that EO may exert a stronger effect on success when it is tempered by a firm‐level attribute that is rooted in leaders' prevention focus than when it occurs in isolation. Such research would respond to the calls to intensify the analysis of moderators of the EO‐performance relationship (Rauch et al, ; Wales, ; Wang et al, ).…”

“…Collecting primary data for this purpose offers the advantage that established survey instruments are available for both the effectuation and causation approaches and EO, whereas detailed secondary information on these issues is hard to get for a sufficiently large number of firms, especially for SMEs (Lyon, Lumpkin, & Dess, ; Perry, Chandler, & Markova, ). We focus on SMEs because entrepreneurs and their management teams typically exert an enormous influence on these firms and the firms' EO (Covin & Slevin, ; Miller, ; Wang, Thornhill, & De Castro, ). To evaluate the primary survey data with respect to our hypotheses, we use maximum likelihood SEM because SEM considers the convergent and discriminant validity of psychometric measures and accounts for potential biasing effects of random measurement error (Kline, ; Medsker, Williams, & Holahan, ).…”

Entrepreneurial orientation and performance in private family firms: A configurational model

“…In that sense, Rauch et al’s () meta‐analysis shows that the EO–performance link is less positive in small companies than in large firms. Other scholars report that new ventures encounter more difficulties in realizing the financial benefits of EO (Wang, Thornhill, & De Castro, ). Recently, Tang, Tang, and Cowden () find that the EO–performance relationship fluctuates depending on the level of state ownership.…”

The Impact of Entrepreneurial Orientation, Technological Capability, and Consumer Attitude on Firm Performance: A Multi‐Theory Perspective

“…Scholars have been arguing that for EO to create value for a firm, it needs to command necessary capabilities (cf. Stam and Elfring ; Wang, Thornhill, and De Castro ). Consistent with the competency perspective of the firm, our premise is that any strategic resource of a firm, including EO, must give rise to some type of core competence or firm capability for generating a sustained competitive advantage and overall performance for the firm, beyond the success or failure of any particular product or business unit of the firm (Prahalad and Hamel ).…”