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From distinctiveness to optimal distinctiveness: External endorsements, innovativeness and new venture funding

  • We examine how external endorsements help new ventures with varying degrees of innovativeness to attract funding. According to optimal distinctiveness theory, new ventures should be as different from competitors as legitimately possible. However, initial research suggests that new ventures can also buffer their legitimacy through external endorsements. We clarify that effects of such legitimacy buffers depend critically on an audience's unique legitimacy-distinctiveness relationship. Specifically, external endorsements lead to different predictions about shifts in optimal distinctiveness for return-seeking audiences compared to novelty-seeking audiences as relevant new venture funders. For return-seeking audiences, new ventures are perceived as less legitimate when they are non-innovative or radically innovative so that incrementally innovative new ventures are most attractive without endorsements. External endorsements can thus buffer the legitimacy of non-innovative and radically innovative new ventures, but they lead to differentWe examine how external endorsements help new ventures with varying degrees of innovativeness to attract funding. According to optimal distinctiveness theory, new ventures should be as different from competitors as legitimately possible. However, initial research suggests that new ventures can also buffer their legitimacy through external endorsements. We clarify that effects of such legitimacy buffers depend critically on an audience's unique legitimacy-distinctiveness relationship. Specifically, external endorsements lead to different predictions about shifts in optimal distinctiveness for return-seeking audiences compared to novelty-seeking audiences as relevant new venture funders. For return-seeking audiences, new ventures are perceived as less legitimate when they are non-innovative or radically innovative so that incrementally innovative new ventures are most attractive without endorsements. External endorsements can thus buffer the legitimacy of non-innovative and radically innovative new ventures, but they lead to different performance implications for a return-seeking audience. While non-innovative new ventures increase their attractiveness, only radically innovative new ventures can become optimally distinctive and outperform other distinctiveness configurations. In contrast, novelty-seeking audiences already have a higher tolerance for radically innovative new ventures, so the effects of external endorsements are less pronounced. Four empirical studies, using observational data and experiments in equity and reward-based crowdfunding, provide strong support for this theory and account for alternative explanations such as risk perceptions. In turn, we shed new light on the crucial, audience-specific function of external endorsements, namely, as a means to alter optimal distinctiveness levels.show moreshow less

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Metadaten
Author: Kazem Mochkabadi, Simon KleinertORCiD, Diemo UrbigORCiD, Christine Volkmann
DOI:https://doi.org/10.1016/j.jbusvent.2023.106340
ISSN:0883-9026
Title of the source (English):Journal of Business Venturing
Document Type:Scientific journal article peer-reviewed
Language:English
Year of publication:2024
Tag:Crowdfunding; Entreprenuership; Legitimacy; Optimal distinctiveness; innnovation; radical innovation
Volume/Year:39
Issue number:1
Article number:106340
Way of publication:Open Access
Faculty/Chair:Fakultät 5 Wirtschaft, Recht und Gesellschaft / FG ABWL, insbesondere empirische Unternehmensforschung und Transformation
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