Tuesday, November 29, 2005

"Great Oaks from Little Acorns Grow," Growing High-Impact Companies Around Major Anchors

Great Oaks from Little Acorns Grow: Strategies for New Venture Growth is a very interesting research study into why entrepreneurial firms grow. In an interview, its author concludes:
Although firms are economic entities, they are nevertheless affected by social variables such as legitimacy, status, and reputation because all economic transactions are embedded in a social supra-structure... New, unfamiliar activity or entity does not possess legitimacy because of its inherent novelty. A new firm, therefore, lacks legitimacy and may be looked upon with suspicion by stakeholders.
Maybe you have to have been there to really get what she is saying. I left KPMG, where I sold lots of consulting, and started Capital Insights, a company no one knew. I was stunned to find it so difficult to sell even to former KPMG clients. I underestimated how important KPMG, versus John Warner, was on the business card. I had a partner observe that our business had signifincalty more credibility three years after starting just because we were still around. Merely surviving that long meant to the outside world that we had to be doing something right, even if they weren't sure what that was.

The author goes on:
When a young, unknown firm has affiliations with high-status entities, stakeholders tend to impute the status of the latter onto the former, thus granting higher status to the young firm... While having a large prestigious client may seem like a double-edged sword because of the power such a client has over a young, struggling firm, the signal that the prestige of the client sends out is more valuable than any potential negative impact. Hence, entrepreneurs and managers should almost never shy away from stepping out of their comfort zone and taking on large jobs, since the payoff does arrive.
InnoVenture is focused on creating Communities of Innovation around major economic anchors in our region. We believe this is the best place to breed successful, high-impact companies, and to a large extent this is why.

1 comment:

Leighton Cubbage said...

John,
The average human being is so risk adverse that stepping outside of the box terrifies them. People are conditioned to think alike,dress alike , and do business with the "real" comapanies. Your partners comment about survival was sad but correct.
That's why the upside is so great with entrepreneurial efforts.
Leighton Cubbage