Entrepreneurial stories and legitimacy
Michael Lounsbury and Mary Ann Glynn
One of the most important problems for entre preneurs involves gaining legitimacy among entrepreneurial stories and legitimacy 117 potential funders, suppliers, employees, and customers, as well as the general public. This problem is more acute to the extent that the entrepreneurial enterprise is novel and unique. Legitimacy, which flows from the widespread sociocultural support for a new venture, is cru cial because it enables resource acquisition, the very development of a new entrepreneurial or ganization, and value creation. At the heart of attaining legitimacy is the ability to craft and tell a compelling story (Lounsbury and Glynn, 2001). Given that most start ups lack proven track records, obvious asset value, and profitabil ity, stories can provide needed accounts that explain, rationalize, and promote a new venture to reduce the uncertainty typically associated with entrepreneurship.
Despite the obvious importance of processes related to the attainment of legitimacy, attention to the dynamics of culture and symbolic activ ities such as storytelling has been limited in the entrepreneurship and strategy literatures (Thornton, 1999). This is partly because culture has been historically conceptualized as an all determining normative force, allowing little the oretical space for agency. Over the past couple of decades, however, cultural sociologists have reconceptualized culture as a flexible set of tools that can be actively and strategically created and deployed by actors in their efforts to make sense of the world (e.g., Swidler, 1986). Reflecting this shift from a normative to a more cognitive approach to culture, Rao (1994: 41) argues that, in order to be successful, ‘‘entrepre neurs become skilled users of cultural tool kits rather than cultural dopes.’’ Building on this more active conceptualization of culture, a focus on storytelling provides a useful direction for entrepreneurship researchers interested in the micro mechanisms underlying new venture formation and establishment.
Stories make sense of an equivocal situation for both internal and external constituencies be cause they ‘‘selectively distill a complex jumble of otherwise ambiguous and contradictory activ ities, pronouncements, and impressions into a simplified and relatively coherent portrait’’ (Ashforth and Humphrey, 1997: 53). They are conventionally organized in three time based structural components – beginning, middle, and end – with transitions and event sequences propelled by plot lines and twists and shaped by defining characters (Bruner, 1990). In addition, any story consists of three basic elements: ‘‘a narrative subject in search of an object, a desti nator (an extratextual force, the source of the subject’s ideology), and a set of forces that either help or hinder the subject in acquiring the de sired object’’ (Fiol, 1989: 279). Following this pattern, an entrepreneurial story might be struc tured accordingly: the narrative subject as the individual entrepreneur or the new venture; the ultimate object or goal of the narrative as a success ful new enterprise, profitability, VC funding, or a positive reputation with potential stakeholders; and the destinator as the corporate and societal environment in which the narrative subject op erates.
Entrepreneurial stories provide key data for venture capitalists and other institutional actors (such as investment banks, foundations, innova tive organizations, etc.) who need to direct their attention to only the highest potential opportun ities in environments that are ambiguous and cognitively complex (Ocasio, 1997) to make future venture funding decisions (Camp and Sexton, 1992). Because many entrepreneurial ventures are unknown to external audiences, the creation of an appealing and coherent story may be one of the most crucial assets for a nascent enterprise. On this point, Aldrich and Fiol (1994: 652) contend: ‘‘Given the lack of externally validated arguments, [entrepreneurs] must draw on alternative forms of communica tion, such as narratives, to make a case that their ventures are compatible with more widely estab lished sets of activities . . . narration works by suggestion and identification . . . express[ing] reasons to believe.’’ Entrepreneurial stories, therefore, strive to make the unfamiliar familiar by framing the new venture (often through metaphor and analogy) in broader cultural terms that enable various actors to understand and assess the potential for a new venture to succeed.
More generally, stories, like other cultural artifacts, function to align an entrepreneur’s underlying cultural mission, identity, and re sources with that of key external constituents (Schein, 1992). A well crafted story about entre preneurial resources encapsulates the strategic goals and management of the new venture 118 entrepreneurial stories and legitimacy (Ireland and Hitt, 1997) and indicates why a new venture merits investment and support. Once articulated, understood, and repeated, entrepreneurial stories become institutionalized accounts that provide both explanations of, and rationales for, entrepreneurial activity; in turn, such comprehensibility (or understandability) is the basis for legitimacy (Suchman, 1995).
Lounsbury and Glynn (2001) proposed two ways in which the content of entrepreneurial stories shapes and legitimates an entrepreneurial enterprise: (1) by emphasizing the distinctive ness of the new venture through a focus on identifying its unique characteristics, and (2) by stressing the normative appropriateness of the new venture by identifying its symbolic congru ence with similar organizational forms and ideologies. The first type of story emphasizes the key attributes that are claimed to be central, distinctive, and enduring organizational charac teristics (e.g., Albert and Whetten, 1985). This attribute based approach to identity is perhaps most consistent with resource based perspec tives in the strategy literature, which exhort organizations to identify and exploit inimitable resources that can provide the basis for sustain able competitive advantage (Barney, 1991).
A second type of entrepreneurial story em phasizes relational aspects, or how a new venture can be located within already legitimated and distinct membership groups, defined by categor ies such as industry or sector (e.g., Elsbach and Kramer, 1996). This type of story shifts the locus of identity from the organizational level of the entrepreneurial venture to that of the inter organizational, industry, or field level in which the new venture seeks to be perceived (e.g., Czarniawska and Wolff, 1998). Thus, the purpose is to cultivate an entrepreneurial iden tity that can align a new venture appropriately with extant institutionalized beliefs and prac tices from which legitimacy flows. These entre preneurial stories often stress the positive features of the particular industry or product market segment to which they belong, rather than the novelty of their own enterprise.
While there has been very little research on entrepreneurial stories, legitimacy, and other cultural processes to date, attention to such issues will enable a deeper understanding of how resource acquisition and value creation ac tually occur as a result of entrepreneurship. One fruitful avenue for future research on entrepren eurial stories and legitimacy is to analyze how entrepreneurs balance the need for strategic dis tinctiveness against that of normative appropri ateness (Glynn and Abzug, 1998) and other industry level structural factors that may cause organizations to become more homogeneous. Do entrepreneurs and top managers seeking to shape the identity of their organizations strive for optimal distinctiveness by astutely assessing the degree to which an emphasis on sameness or distinctiveness will lead to the acquisition of resources and wealth creation? If so, under what conditions do entrepreneurial stories em phasize distinctiveness? Lounsbury and Glynn (2001) proposed that this will be more likely to occur in more mature industries that are already established as opposed to newly emerging prod uct markets, but empirical research is needed. In general, the study of entrepreneurial stories and legitimacy is an exciting new area of research that has been relatively untapped and presents a munificent opportunity for scholars interested in the cultural drivers of economic action, as well as linkages between micro and macro processes.
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