Young and No Money? Never Mind: The Material Impact of Social Resources on New Venture Growth

Although growth is a desirable outcome for new ventures due to the many advantages of large size, most new firms fail to grow, largely because of their limited resources and adaptability. This paper addresses the question of how new ventures grow despite their limited financial resources. I explore the effect of two specific nonfinancial, social resources—legitimacy and status—on new venture growth. I propose that new firms can acquire legitimacy by mimicking the structures and ceremonial activities of established firms in their industry, and can acquire status by affiliating with high-status entities. Using a unique panel data set on a cohort of advertising agencies founded in New York and Chicago between 1977 and 1985, I show that legitimacy and status have favorable impacts on new firms' growth in revenues and number of employees. The paper makes important contributions to social embeddedness and institutional research by examining the strategic implications of firm-level social resources, and to the literature on entrepreneurship in general and new venture growth in particular.