New Firm Emergence: The Significance of Social Embeddedness and Resource Bootstrapping to the Process of Nascent Firm Emergence

Firm founding is an evolutionary process. Part of this process involves undertaking a series of gestation activities. Start-ups undertaking these activities are referred to as firms in gestation and the process is termed nascent entrepreneurship. Empirical evidence shows that more than half of firms in gestation do not survive the first eighteen months. One of the reasons given for this high failure rate is that firms in gestation are subject to what Stinchcombe (1965) called liability of newness because, as new creations, they lack evaluative performance history. One of the consequences of this liability of newness is that new firms are faced with institutional barriers to the human, social, and financial capital resources necessary to progress to emergence. This study proposed that in the face of these barriers, successful emergence will be identified with (a) social embeddedness, i.e., efforts to endear the new venture in its organizational field to those who will determine the ventures socio-political legitimacy and with that legitimacy comes resources and markets and/or (b) creative resource bootstrapping, i.e., creativity in locating resources where there are none. The sample for the study was taken from a bank of volunteer panelists maintained by SurveyResponse, a project at Syracuse University that serves as a medium for facilitating academic online research. The data collection instrument was a web based questionnaire.The study found that both social embeddedness and resource bootstrapping are significant predictors of gestation activities performance which, in turn, mediates the relationship of these variables with progress to emergence. The study recommends that more attention needs to be given to the importance of social embeddedness in entrepreneurial idea exploitation models. Past research has focused more on resource bootstrapping at the expense of social relations.