Updated: Jan 29, 2021
How can start-ups countervail the liability of newness?
Numerous stats in the US and Europe point to the stark reality that the overwhelming majority of start-ups still die young. As also explained in a related post on this blog (Why Start-Ups Suffer the Liability of Newness), these stats demonstrate that the American sociologist Arthur Stinchcombe’s assumption posed, back in the 1960s, is still correct (at least from many aspects) today: failure rates occur at the earliest stage of start-ups’ life.
What can we learn from those outlier new ventures that survive and thrive? Through a study conducted with Vincenzo Uli, Frankfurt University of Applied Sciences, we attempted to provide the addressing of this question with a case-based contribution. Here are three takeaways which may merit further discussion.
1. Routines are required
In the post on this blog entitled Why Start-Ups Suffer the Liability of Newness, I outlined how new companies often fail because they lack trust at different levels. At internal level, this lack is often caused by the absence of established routines among the employees. This, of course, translates into (at least) temporary inefficiency, and ultimately low performance.
2. Adolescence matters
Three decades ago, Fichman and Levinthal proposed the “liability of adolescence”. In principle, this means a start-up, after initial success called honeymoon, can become complacent, with consequences that can be ultimately deadly. Conversely, trust, and associated infant survival chances, can dramatically increase when the entrepreneur, or entrepreneurial team, adopts a long-term posture. In other words, s/he is able to accurately predict future market trends, and especially social needs, better than competitors.
3. Learn to fail
We could have a particular perception of entrepreneurial success, on average: young individuals quitting school to launch innovative technology companies. The well-publicized stories of a young Mark Zuckerberg leaving Harvard to launch Facebook and Bill Gates dropping out of school to start Microsoft feed into this narrative. Indeed, these individuals are outliers; research shows that the ideal age to launch a company is 45. By this time in life, the individual has seemingly acquired the necessary skills and built the type of network that can serve as a foundation for long-term entrepreneurial success.
Indeed, the capacity of learning (and growing) from (and through) previous failures is even more important than age.
What do you think about the 3 highlights introduced above? For example, can routines also be counterproductive, in terms of alienation, if we consider the human side of the coin? What role can intution have in fostering vision? And what role can experience have in fostering intuition itself?
I would love to hear your thoughts.
Relatedly, if interested, you can also read the full research article Entrepreneurial Competences, Liability of Newness and Infant Survival: Evidence from the Service Industry, published in the Journal of Management Development.