Working Paper | HBS Working Paper Series | 2013

The Downside of Legitimacy Building for a New Firm in a Nascent Industry

by Tiona Zuzul and Amy C. Edmondson

Abstract

This paper explores how entrepreneurs' efforts to legitimate a firm and a nascent industry at the same time affect the internal development of the firm. We analyze qualitative data from a three-year study of a new firm in the nascent smart cities industry, and find that firm leaders engaged in a set of legitimation activities intended to help external stakeholders understand and appreciate the firm and its industry. Our analysis uncovers three unintended cognitive consequences of legitimation activities for firm employees—constrained attention, overconfidence, and identity commitments—that affected the firm's ability to learn: that is, to attend to, reflect on, and dynamically respond to information and changes in its environment. Our longitudinal research thus reveals a downside of legitimacy building, contributes to the literature on behavioral strategy, and highlights unique challenges of starting a new firm in a nascent industry. Further, by identifying the mechanisms through which legitimation activities affect learning, we develop actionable propositions to help leaders and entrepreneurs manage the tension between the two sets of activities.

Keywords: nascent industries; legitimacy; cognition; entrepreneurship; organizational learning; Business Model; Business Startups; Decision Making; Entrepreneurship; Innovation and Invention; Goals and Objectives; Environmental Sustainability; Social and Collaborative Networks; Strategy; Green Technology Industry; Real Estate Industry;

Citation:

Zuzul, Tiona, and Amy C. Edmondson. "The Downside of Legitimacy Building for a New Firm in a Nascent Industry." Harvard Business School Working Paper, No. 11-099, March 2011. (Revised October 2013.)