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Founding a new venture is risky business under any conditions, but especially so when entrepreneurs have few precedents for the kinds of activities they want to found. Early ventures in the formative years of a new industry face a different set of challenges than those that simply carry on a tradition pioneered by thousands of predecessors in the same industry. Such foundings are risky, but are they also foolish? From an institutional and ecological perspective, founders of new ventures appear to be fools, for they are navigating, at best, in an institutional vacuum of indifferent munificence and, at worst, in a hostile environment impervious to individual action. In addition to the normal pressures facing any new organizations, they also must carve out a new market, raise capital from skeptical sources, recruit untrained employees, and cope with other difficulties stemming from their nascent status.
Among the many problems facing innovating entrepreneurs, their relative lack of legitimacy is especially critical, as both entrepreneurs and crucial stakeholders may not fully understand the nature of the new ventures, and their conformity to established institutional rules may still be in question. We capture these problems by using the term legitimacy in two related senses: (a) how taken for granted a new form is and (b) the extent to which a new form conforms to recognized principles or accepted rules and standards. The first form of legitimacy is labeled cognitive, and the second, sociopolitical.
In this article, we examine the social processes surrounding the emergence of new industries, from the early pioneering ventures through the early stages of growth, when the form proliferates as the industry becomes established. Legitimacy is not the only factor influencing whether an industry successfully moves beyond the stage of a few pioneers to fully realized growth. Clearly, many other factors are important to a new industry's success, such as the state of the economy, latent demand for the product or service, competitive pressures from related industries, and the skills of new venture owners and workers. Because only a few theorists have examined failed industries (e.g., Astley, 1985), and we have no systematic research in this are, our article is necessarily speculative. However, we believe that legitimacy is a more important issue than previously recognized, and so...