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Fish out of water

New study co-authored by Professor Paul Tracey of Cambridge Judge Business School says new ventures obtain ‘legitimacy’ not through one-off activity but through a gradated process in which acceptance ebbs and flows along with shifting expectations.

blue fish scales

Professor Paul Tracey

Professor Paul Tracey

What makes a new venture “legitimate”? Conventional wisdom and some academic studies say there is a threshold or set of thresholds that firms must cross in order to win legitimacy – the way Starbucks won acceptance in the US by successfully translating the Italian specialty coffee retailer concept.

A new study co-authored by Professor Paul Tracey of Cambridge Judge Business School concludes that this benchmark is too simplistic, that legitimisation instead is a continuous process in which ventures become more or less legitimate – because the expectations of various stakeholders of an entrepreneurial firm can shift very rapidly.

“The concept of a clear and discernible threshold of legitimacy is difficult to sustain either empirically or theoretically,” concludes the study recently published in the Academy of Management Journal. The study thus moves “away from a binary conception of legitimation where ventures are either legitimate or not legitimate”, to a “gradated” conception where the degree of legitimation ebbs and flows “as the expectations and relative salience of different stakeholders evolve over time”.

In other words: legitimacy for a new venture is an “iterative, dynamic and ongoing accomplishment” rather than a “one-off” activity with clearly defined beginning and end points.

The study is based on a detailed study of H-Farm, founded in 2005 as an incubator of digital startups in Italy’s northeastern Veneto region. The study looks at how H-Farm replicated some of the characteristics of Silicon Valley while carving out a unique identity as an Italian venture, and how it navigated the conflicting demands of local authenticity and winning more global recognition en route to considerable success as a “platform” for digital innovation, a listing on the Milan Stock Exchange, and construction of a 160,000-square-foot headquarters in two converted farm buildings.

The study – entitled “Fish out of Water: Translation, Legitimation, and New Venture Creation” – is co-authored by Paul Tracey of Cambridge Judge Business School, Elena Dalpiaz of Imperial College Business School, and Nelson Phillips of Imperial College Business School.

Paul Tracey, Professor of Innovation & Organisation and Co-Director of the Cambridge Centre for Social Innovation at Cambridge Judge Business School, discusses some of the study’s findings:

There are four different types of venture “translation” that we identified, of varying complexity. There is translation of an existing organisational form into a new context that’s closely aligned to the original context, like Uber moving its ride-sharing from California to Canada. Then there’s moving an existing firm into a more misaligned context, like Uber going to India because local-level legitimacy is more difficult in such a different culture. The third type is a brand new venture moving into a similar culture, and the most complex is when a new venture gets translated into a context that hasn’t seen that sort of organisation before.

Our study focuses on the fourth type of translation, which we term “new venture creation through misaligned translation”. H-Farm really was a unique Italian venture when it was first founded 13 years ago, so early Italian media coverage often didn’t use terms like “incubator” or “accelerator” but instead a phrase like “mother hen company”. The challenge facing H-Farm was to establish and then maintain three types of legitimacy: local-level, category-level, and then distinctiveness given that many similar companies sprung up later.

There was no real culture of tech entrepreneurship in Veneto or even in Italy when H-Farm began. So the venture had to cultivate local entrepreneurs and prospective entrepreneurs, as well as local investors and policymakers. This led to some practices that were very different from its American counterparts, such as equity stakes of 90 per cent in many of the incubated startups. It also sparked some true local ingenuity, such as drawing on the Humanism movement that emerged in Italy during the Renaissance – which celebrated creativity and non-conformity. The name H-Farm reflects the “H” in Humanism.

H-Farm began around 2010 to adopt some of the practices of Silicon Valley, such as separating its accelerator and venture arms, but this policy had its limits. As the incubator space became more crowded in Italy and around the world, H-Farm realised that it needed to make yet another transition – to optimise its distinct identify within the broad “category” of incubator firm. This in effect meant a return to roots of sort, including an enhanced focus on sectors dealing with Italian design and heritage, because H-Farm realised that otherwise it risked being a pale imitation of some of the Silicon Valley giants in the broader space.

This pivoting by H-Farm supports the study’s conclusion of gradation rather than one-off translation to legitimacy. While H-Farm was a first mover within the Italian incubator space, within a short time its model was very different from where it began, and it continued to evolve. As we say in the conclusion, translation is a highly uncertain process which favours experimentation and even deviation – like Humanism does.