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Edited by Ayala Malach-Pines and Mustafa F. Özbilgin
Chapter 6: Is Your Firm Established? The Role of Recognition in Entrepreneurial Firm Transition
6 Is your firm established? The role of recognition in entrepreneurial firm transition Preeta M. Banerjee* Introduction There are two firm modalities that have been highlighted in the entrepreneurship literature: entrepreneurial firms and ‘established’ or managerial firms (Radner, 1992; Bhide, 2000; Shane, 2001). Entrepreneurial firms are primarily occupied with recognizing opportunity and creating a new venture using limited resources (Gartner, 1985; Aldrich, 1999; Arend, 1999). On the other hand, managerial firms are more occupied with how to align employees (Williamson, 1981; Radner, 1992) and administer and allocate resources (Wernerfelt, 1984). With each mode, the area of focus changes (Greiner, 1972). Thus, the distinction between modes is important for entrepreneurs to understand and embrace so as to evolve with their firm – and avoid being replaced by ‘experienced executives’ (ibid.). Investors can also benefit from understanding when their portfolio firms are in transition so as to pinpoint when these firms are potentially undervalued. However, the literature does not discuss how to identify this transition stage from the former to the latter. How do entrepreneurial firms come to be managerial firms? One aspect that investors and executives agree on is the role of recognition1 – in particular by analysts and the popular press – of the company’s routines.2 In this chapter, institutional theory and illustrative data from three entrepreneurial biotech companies are used in order to examine the relationship between environmental recognition of firm routines and the firm’s transition from entrepreneurial to managerial mode. By establishing the role of recognition in identifying firm transition, this...
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