The Road to Legitimacy: A Study of Startups and Their Established Competitors in the Australian Wine

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The Road to Legitimacy A Study of Startups and
Their Established Competitors in the Australian
Wine Industry

• Clay Dibrell, Oregon State University
• Aaron Johnson, Oregon State University
• Peter Davis, The University of Memphis
• Ken Moores, Bond University
• Justin Craig, Bond University

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Motivation

• High rate of failure by new firms.
• Liability of Newness (Suchman, 1995).
• Possible role of legitimacy gaining strategies.
• Changing stakeholder salience over time.

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Research Question

• What roles do external stakeholders (e.g.,
  government) and internal stakeholders (e.g.,
  human capital) play in enabling or constraining
  startups to attain and to maintain legitimacy?
• To what extend does the salience of each
  stakeholder change prior to a startup gaining
  legitimacy and after a startup attains
  legitimacy?

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Theory

• Institutional Theory
• Legitimacy as a generalized perception or
  assumption that the actions of an entity are
  desirable, proper, or appropriate within some
  socially constructed system of norms, values,
  beliefs, and definitions (Suchman, 1995).
• Legitimacy enables the firm to conduct business
  more efficiently and effectively (Zimmerman
  Zetiz, 2002).

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Theory

• Resource-Based View
• Intangible assets (e.g., managerial human
  capital, managerial social capital, and
  managerial social cognition) (Barney, 1991
  Penrose, 1959).
• Intangible capabilities of coordination and
  adaptive practices can link to a firm competitive
  advantage (Dibrell Craig, 2006).

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Theory

• Stakeholder Salience
• Stakeholders are broadly defined as any
  constituency that has a stake in the company,
  including a broad range of stakeholders from
  groups, communities, organizations, or
  institutions (Mitchell, Agle, Wood 1997).
• Stakeholder salience is the the degree to which
  managers give priority to competing stakeholder
  claims ( Mitchell et al., 1997 854)

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Theory

• Complementary Theoretical Perspectives
• Stakeholder salience, institutional theory, and
  resource-based view (Jones, Felps, Bigley,
  2007).
• The internal strategies to cope and to adapt to
  the changing salience of external and internal
  stakeholders are a capability that greatly
  enhances the startup ventures propensity to
  attain venture legitimacy.

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Methods

• Qualitative research
• Sample
• 12 interviews with Owners or Managing Partners of
  Australian Wineries
• Six different Australian States
• New South Wales (Hunter Valley)
• Queensland (Mount Tabmorine)
• South Australia (Barossa Valley Adelaide Hills)
• Tasmania (Tamar Valley Coal River Valley)
• Victoria (Dookie Region)
• Western Australia (Margaret River)
• 9 Startup Wineries
• 3 Established Wineries

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Methods

• Data Collection
• A single semi-structured interview which lasted
  approximately for one hour with a single owner or
  multiple owners which were later transcribed.
• Ranking of Stakeholders
• Pre-legitimacy attainment
• Post-legitimacy attainment
• A validation questionnaire capturing
  demographics.

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Comments from Interviewees

• Keys to Success from a Startup Perspective
• You know, wineries reputations sort of ebb and
  flow. That if you know that Fred Smith has
  moved from one winery to another, if that second
  winery was a dogs breakfast and terrible,
  youre perception of it will immediately change
  because he is there and you know that he is going
  to make it right. Okay? And when a good
  winemaker leaves a place and a poor one comes in,
  it is never very long before that starts to show
  through. Okay. So the reputation that John
  brought with him has been incredibly helpful.

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Comments from Interviewees

• Keys to Success from an Established Perspective
• Well as I said a few minutes ago, being a sort
  of a bit of a hard headed sort of person, youve
  got to have your finance right. Youve got to
  have your cost of production right. Youve got
  to have your margin right. Youve got to have
  the right distributors. And as I said earlier
  too, having brand recognition is critically
  important. Otherwise youre starting from square
  one and in this environment as I say, I wouldnt
  try and do it. Just too bloody hard.

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Stakeholder Rankings Pre-Legitimacy

• Family
• Location
• Winemaker
• Cellar Room Sales
• Staff
• Financial Supporters
• Awards for Wine Quality from Media and
  Professional Outlets

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Stakeholder Rankings Pre-Legitimacy

• Wine Distribution through Restaurants
• Wine Distributors
• Suppliers (Growers, Wine Bottles)
• Government
• Neighboring Winemakers
• Trade Shows
• Retail Outlets
• Professional Trade Associations

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Findings

• Differences of Stakeholder Salience between
  Startup and Established Wineries
• Differences on stakeholder perceptions for period
  prior to startup legitimacy.
• Established wineries ranked financial supporters
  higher than startup wineries (Z -2.23 p lt
  .05).
• Established wineries placed a greater emphasis on
  wine distributors compared to startup wineries (Z
  -1.67 p lt .10).

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Findings

• Differences between of Salience between Startup
  and Established Wineries
• Differences on stakeholder perceptions for period
  post startup legitimacy.
• Established wineries ranked financial supporters
  higher than startup wineries (Z -1.96 p lt
  .05).
• Established wineries placed a greater emphasis on
  location compared to startup wineries (Z -1.67
  p lt .10).

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Propositions

• Proposition 1 Startup ventures, in the process
  of attaining legitimacy, place lesser salience on
  financial supporters than established ventures.
• Proposition 2 Startup ventures, in the process
  of attaining legitimacy, place lesser salience on
  wine distributors than established ventures.

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Propositions

• Proposition 3 Startup ventures, which have
  attained legitimacy, place a greater salience on
  location than established ventures.
• Proposition 4 Startup ventures, which have
  attained legitimacy, place a lesser salience on
  financial supporters than established ventures.

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Implications

• A paradox of which resources come first for a
  startup (e.g., winemaker or financial resources).
• Startups rely to a greater extent on internal
  more so than external sources.
• Both are used to gain legitimacy.
• Salience of stakeholders by startups in attaining
  and maintaining legitimacy remains relatively
  stable over time.

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Future Research

• Family embeddedness and resource mobilization
  (Aldrich Cliff, 2003).
• Examination of the strategies associated with
  attaining legitimacy (Zimmerman Zeitz, 2002).
• Operationalize a legitimacy scale.
• Conduct a broader survey of stakeholder salience
  and legitimacy gaining strategies.