The Road to Legitimacy: A Study of Startups and Their Established Competitors in the Australian Wine Industry Clay Dibrell, Oregon State University Aaron Johnson, Oregon State University Peter Davis, The University of Memphis Ken Moores, Bond University Justin Craig, Bond University

Motivation  High rate of failure by new firms. Liability of Newness (Suchman, 1995).  Possible role of legitimacy gaining strategies.  Changing stakeholder salience over time.

Research Question  What roles do external stakeholders (e.g., government) and internal stakeholders (e.g., human capital) play in enabling or constraining startups to attain and to maintain legitimacy?  To what extend does the salience of each stakeholder change prior to a startup gaining legitimacy and after a startup attains legitimacy?

Theory  Institutional Theory Legitimacy as “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman, 1995). Legitimacy enables the firm to conduct business more efficiently and effectively (Zimmerman & Zetiz, 2002).

Theory  Resource-Based View Intangible assets (e.g., managerial human capital, managerial social capital, and managerial social cognition) (Barney, 1991; Penrose, 1959). Intangible capabilities of coordination and adaptive practices can link to a firm competitive advantage (Dibrell & Craig, 2006).

Theory  Stakeholder Salience Stakeholders are broadly defined as any constituency that has a stake in the company, including a broad range of stakeholders from groups, communities, organizations, or institutions (Mitchell, Agle, & Wood 1997). Stakeholder salience is the “the degree to which managers give priority to competing stakeholder claims” ( Mitchell et al., 1997: 854)

Theory  Complementary Theoretical Perspectives Stakeholder salience, institutional theory, and resource-based view (Jones, Felps, & Bigley, 2007). The internal strategies to cope and to adapt to the changing salience of external and internal stakeholders are a capability that greatly enhances the startup venture’s propensity to attain venture legitimacy.

Methods  Qualitative research Sample  12 interviews with Owners or Managing Partners of Australian Wineries  Six different Australian States New South Wales (Hunter Valley) Queensland (Mount Tabmorine) South Australia (Barossa Valley & Adelaide Hills) Tasmania (Tamar Valley & Coal River Valley) Victoria (Dookie Region) Western Australia (Margaret River)  9 Startup Wineries  3 Established Wineries

Methods  Data Collection A single semi-structured interview which lasted approximately for one hour with a single owner or multiple owners which were later transcribed. Ranking of Stakeholders  Pre-legitimacy attainment  Post-legitimacy attainment A validation questionnaire capturing demographics.

Comments from Interviewees  Keys to Success from a Startup Perspective “You know, wineries reputations sort of ebb and flow. That if you know that ‘Fred Smith’ has moved from one winery to another, if that second winery was a “dog’s breakfast” and terrible, you’re perception of it will immediately change because he is there and you know that he is going to make it right. Okay? And when a good winemaker leaves a place and a poor one comes in, it is never very long before that starts to show through. Okay. So the reputation that John brought with him has been incredibly helpful.”

Comments from Interviewees  Keys to Success from an Established Perspective “Well as I said a few minutes ago, being a sort of a bit of a hard headed sort of person, you’ve got to have your finance right. You’ve got to have your cost of production right. You’ve got to have your margin right. You’ve got to have the right distributors. And as I said earlier too, having brand recognition is critically important. Otherwise you’re starting from square one and in this environment as I say, I wouldn’t try and do it. Just too bloody hard.”

Stakeholder Rankings Pre- Legitimacy 1.Family 2.Location 3.Winemaker 4.Cellar Room Sales 5.Staff 6.Financial Supporters 7.Awards for Wine Quality from Media and Professional Outlets

Stakeholder Rankings Pre- Legitimacy 8.Wine Distribution through Restaurants 9.Wine Distributors 10.Suppliers (Growers, Wine Bottles) 11.Government 12.Neighboring Winemakers 13.Trade Shows 14.Retail Outlets 15.Professional Trade Associations

Findings  Differences of Stakeholder Salience between Startup and Established Wineries Differences on stakeholder perceptions for period prior to startup legitimacy.  Established wineries ranked financial supporters higher than startup wineries (Z = -2.23; p <.05).  Established wineries placed a greater emphasis on wine distributors compared to startup wineries (Z = -1.67; p <.10).

Findings  Differences between of Salience between Startup and Established Wineries Differences on stakeholder perceptions for period post startup legitimacy.  Established wineries ranked financial supporters higher than startup wineries (Z = -1.96; p <.05).  Established wineries placed a greater emphasis on location compared to startup wineries (Z = -1.67; p <.10).

Propositions  Proposition 1: Startup ventures, in the process of attaining legitimacy, place lesser salience on financial supporters than established ventures.  Proposition 2: Startup ventures, in the process of attaining legitimacy, place lesser salience on wine distributors than established ventures.

Propositions  Proposition 3: Startup ventures, which have attained legitimacy, place a greater salience on location than established ventures.  Proposition 4: Startup ventures, which have attained legitimacy, place a lesser salience on financial supporters than established ventures.

Implications  A paradox of which resources come first for a startup (e.g., winemaker or financial resources).  Startups rely to a greater extent on internal more so than external sources. Both are used to gain legitimacy.  Salience of stakeholders by startups in attaining and maintaining legitimacy remains relatively stable over time.

Future Research  Family embeddedness and resource mobilization (Aldrich & Cliff, 2003).  Examination of the strategies associated with attaining legitimacy (Zimmerman & Zeitz, 2002).  Operationalize a legitimacy scale.  Conduct a broader survey of stakeholder salience and legitimacy gaining strategies.