Secrets of start-up success

2005

With nine out of 10 new ventures doomed to failure, what is it that enables the remaining one in 10 to succeed?

Harvard Assistant professor Mukti Khaire, interviewed on HBS Working Knowledge, says the key may be in acquiring intangible resources such as legitimacy, status, and reputation.

An entity is considered to have legitimacy when its actions are considered proper, acceptable, or desirable under a widely accepted set of beliefs and norms. A new, unfamiliar activity or entity does not possess legitimacy because of its inherent novelty. A new firm, therefore, lacks legitimacy and may be looked upon with suspicion by stakeholders.

Significantly, she also agues that "mimicry of existing organizations' structures and activities to a certain extent is essential if new ventures wish to gain legitimacy."

A new venture with legitimacy acquired in this manner is more likely to succeed because it then can channel its resources and energy towards its core activity, rather than towards establishing its propriety. By doing so, it can improve performance and grow faster than an organization that does not conform to industry norms. As one founder I interviewed put it, "Customers are used to doing things in a certain way [with established organizations], and if a new agency is too far and out, it will not do well."

While this is probably true in many cases, there are many other examples of new ventures that have succeeded precisely because they didn't mimic the way that existing businesses do things – remember how different low-cost airlines first seemed, with their internet-only booking and no-frills service?

HBS Working Knowledge | How Can Start Ups Grow?

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