Now organizations are always vulnerable to the liabilities of newness, but such pressures are especially severe when an industry is in its formative years. We focus on one set of constraints facing entrepreneurs in emerging industries-their relative lack of cognitive and sociopolitical legitimacy. We examine the strategies that founders can pursue, suggesting how their successful pursuit of legitimacy may evolve from innovative ventures to broader contexts, collectively reshaping industry and institutional environments.

https://www.jstor.org/stable/pdf/258740.pdf

Fools Rush in? The Institutional Context of Industry Creation

The development of an infrastructure for entrepreneurship

Many social relationships face a liability of adolescence; the hazard rate of the relationship ending increases for an initial period and then declines. The pervasiveness of this phenomenon suggests that there may be a common set of underlying factors. We believe that many relationships start with an initial stock of assets, which can take a variety of forms (depending on the context), including favorable prior beliefs, trust, goodwill, financial resources, or psychological commitment. We hypothesize that these assets reduce the risk of the relationship dissolving when the initial outcomes of the relationship are unfavorable, resulting in a honeymoon period. The duration of this honeymoon period is a function of the magnitude of these assets. We survey earlier results and report new analyses. For organizational theory, this model of duration dependence raises problems for Stinchcombe's (1965) liability of newness hypothesis, which is central to much theorizing on the population ecology of organizations. W...

https://www.jstor.org/stable/pdfplus/258870

Honeymoons and the Liability of Adolescence: A New Perspective on Duration Dependence in Social and Organizational Relationships

Although scholars have long recognized the increased mortality risk that new
ventures face in terms of a "liability of newness," most of the discussion
around this risk has been in terms of the contextual constraints that new ventures
face and the difficulties that managers have in overcoming them. This
emphasis is in part a reflection of the perils of newness but also stems from
the retrospective and aggregate perspective taken by researchers. Although
the macro-level perspective of new venture mortality has made a significant contribution to our knowledge of mortality risk patterns, there has been little interest in identifying how venture managers can address the risks that all new organizations face.

We argue that in order to make progress in explaining new venture survival, a theoretical model is required that uses a more micro-level perspective to explain new venture failure (and the flip side, new venture survival). In this paper we develop such a model. We establish a definition of mortality risk and argue that the liability of newness is largely dependent on the degree of novelty (ignorance) associated with a new venture. Novelty is viewed in three different dimensions, viz.: to the market, to the technology of production and to management. Novelty to the market concerns the degree to which the customers are uncertain about the new venture. Novelty in production concerns the extent to which the production technology used by the new venture is similar to the technologies in which the production team has experience and knowledge. Novelty to management concerns the entrepreneurial team’s lack of business skills, industry specific information and start-up experience. We argue that mortality risk increases
with the degree of novelty in each dimension and with the number of dimensions in which the new venture is novel.
We propose that the decline in mortality risk occurs as the venture’s novelty in each of the three dimensions is eroded by information search and dissemination processes. This allows the new firm to become an established business and explains what we term the "evolutionary" path of mortality—novelty and risk decline monotonically, after a period of adolescence, as ignorance decays over time due to ‘passive learning’. We also propose that there is a "strategic" mortality risk path that reflects the impact of positive and negative shocks (shocks are exogenous events that alter the overall degree of novelty at a point in time— positive shocks decrease overall novelty, while negative shocks increase overall novelty) and reversals (endogenous actions that increase the overall novelty of the new venture at a point in time) on the mortality risk of a new venture.
If the incidence and effects of these disruptions can be managed, then venture managers may be able to mitigate the mortality risk for their venture. We argue that risk reduction strategies can be employed, most of which impact on one or more of the dimensions of mortality risk in order to increase the firm’s chances of survival. A series of risk reduction strategies are proposed and their impact on the determinants of mortality risk is considered.

New Venture Survival: Ignorance, External Shocks, and Risk Reduction Strategies

Although public sector organizations have long been seen as driving the institutionalization of business firms and nonprofit organizations, government agencies themselves have only occasionally been studied as subjects of institutional pressures. This research examines whether public sector organizations, when compared to organizations in the business and nonprofit sectors, are more or less as susceptible to mimetic, normative, and coercive pressures. Using data from the National Organizations Study (Kalleberg, et al., 1996), we discover that governmental organizations are in fact more vulnerable to all three types of institutional forces than other organizations, while the effect of institutional variables on for-profits and nonprofits is more sporadic. The susceptibility of public sector organizations to institutional pressures raises important questions for the field of public administration and has consequences for nonprofits and business firms, which are funded and regulated by government. Institutional Isomorphism and Public Sector Organizations Though it has not penetrated deeply into the public administration literature to date, the new institutionalism in organizational analysis has made significant contributions to our understanding of the dynamics of organizations. It has moved research away from overly rationalistic explanations of organizational behavior toward explanations that recognize that organizations are embedded in larger cultural and political contexts. It has shifted the focus of research from explaining why organizations are so heterogeneous to why organizations are so similar. Over the past decade, as its reach has extended across different topics, institutional theory has focused often on nonprofit organizations, such as art museums (DiMaggio 1991), colleges and universities (Kraatz 1998; Brint and Karabel 1991), humanitarian groups (Christiansen and Molin 1995), associations (Halliday 1993), and drug abuse units (D'Aunno, Sutton, and Price 1991). A number of studies has demonstrated the relevance of the institutional approach to for-profit organizations, including large corporations (Haunschild and Miner 1997; Davis and Greve 1997; Galaskiewicz and Wasserman 1989; Holm 1995), railroads (Dobbin 1995), law firms (Tolbert 1988), and high-tech companies (Suchman 1995; Powell 1998). Some research has also looked at public sector organizations (Tolbert and Zucker 1983; Meyer, Scott, and Strang 1987; Meyer et al. 1988.).

Institutional Isomorphism and Public Sector Organizations

This paper uses national data on the growth of state bar associations to develop organizational theory in three respects. First it refines the theory of organizational vital events through a distinction between minimalist and nonminimalist organizations. Second, it develops conceptually and empirically the interplay of time (age, cohort, and period) and size in explanations of the founding and failure of associations. Third, it tests various population and economic theories of vital events in the national population of state bar associations from 1870-1920. We find that minimalist organizations differ systematically from most organizations in the literature by (1) having distinctive rates of failure but not of founding, (2) displaying a liability of newness for the population of associations, but none for individual associations, and (3) having a liability of smallness but not a liability of newness for individual associations. We obtain significant results for environmental models of founding and for time and size models offailure. The empirical analysis suggests the heuristic value of discriminating between minimalist and other organizations in population and resource theories of organizations.

Minimalist Organizations: Vital Events in State Bar Associations, 1870-1930

Compared to conventional approaches, we conceptualize transformations in populations of organizations in terms of shifts in their relative embeddedness in markets and states. As organizations expand beyond minimalist conditions of existence, states and markets offer alternative solutions to the core problems of persistence: obtaining resources, managing competition, and constructing legitimacy. By analyzing the movers and stayers in a population of state bar associations that split into two co-existing forms of organization one primarily reliant on the market and the other primarily dependent on the state we demonstrate that a two-stage transition to a new form can be explained by the complementary interplay of resource dependency and neo-institutional theories. Organizations are more likely to move from reliance on the market to reliance on the state if (1) their market performance has been unsuccessful, (2) states are willing and able to solve organizational problems, (3) organizations are younger and less established, and (4) compelling alternative models have been propagated by moral entrepreneurs and adopted by influential states.

Michael J. Powell

Papers

Minimalist Organizations: Vital Events in State Bar Associations, 1870-1930

After Minimalism: Transformations of State Bar Associations from Market Dependence to State Reliance, 1918 to 1950