Chapter 9: Only the Good Die Young? A Review of Liability of Newness and Related New Venture Mortality Research
Brian Nagy and Franz Lohrke INTRODUCTION New ventures often face discouraging odds in terms of their potential long-term survival. For example, both organizational studies and entrepreneurship textbooks frequently cite new venture failure statistics that suggest over half of all new ventures will fail within their first four years of existence. Although these high rates may result, in part, from how ‘failure’ is defined (e.g. selling a successful new venture would be classified as having ‘failed’ in some governmental surveys, see Headd, 2003), organizational researchers have frequently suggested these high mortality rates occur because most new ventures face a ‘liability of newness’. This liability results from a new venture’s lack of an established track record, which, in turn, makes it difficult for its managers to convince potential resource providers (e.g. investors, suppliers, and customers) to conduct business with the firm (Singh et al., 1986). Without these resources (e.g. capital, raw materials, and continuing sales), however, a new venture often faces dim survival chances. In addition, a new venture can initially lack internal efficiencies (e.g. established organizational routines), which can also create significant operational (e.g. cost) disadvantages relative to its more established competitors (Stinchcombe, 1965). Given these high mortality rates among new ventures, numerous organizational studies have examined liability of newness (LoN) issues. Stinchcombe (1965) introduced the construct, and researchers have since examined it in several conceptual (e.g. Shepherd et al., 2000) and empirical (e.g. Singh et al., 1986) studies. Many of these works have framed LoN as a legitimacy issue; that...
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