INTERNAL LEGITIMACY --- AN ALTERNATIVE PERSPECTIVE TO LEGITIMACY AND SURVIVAL STRATEGIES FOR STARTUPS: AN INDUCTIVE CASE STUDY

Abstract

At the core of our research, we view legitimacy as a focal point in which new businesses have to attain en route to survival. Existing studies of legitimacy have focused more on issues of consumer recognition, social acceptance of the firm’s business, and its role in gaining investor funding. In other words, these studies are geared more towards understanding the legitimacy phenomenon outside the company. Few studies have addressed the internal dimension legitimacy, which we defined as “a phenomenon within a company which stems from the acceptance and validity of that company’s business and future direction in the eyes of the internal stakeholders of the firm.” This phenomenon might usually be created by the partners of the business via motivating their employees, through verbal methods in creating a sense of future value in the company that might be worth the tough initial stages. Thus, this study aims to explore the role of internal legitimacy via the case study investigation method. Research questions asked pertained mainly towards the existence of internal legitimacy, how it can be measured, and how it plays a part in a startup’s performance. In addition, our case study featured a startup company in the young music industry in Singapore where weak local market conditions (consumers were unwilling to pay for local music), led to banks reluctant to extend credit to the company. Thus, with weak legitimacy in the local context, we were curious to find out how the company was able to bypass local inabilities and the lack of funding from banks? Our findings revealed the validity of internal legitimacy, built through story telling. More importantly, we were able to substantiate the link between internal legitimacy, productivity and survival/performance. In addition to these core findings, our inductive study also revealed the possibility of story-telling as a double-edged sword that could negatively discredit the company and its owners when promising stories eventually disintegrate. The prominence of internal legitimacy and inward story telling when a company eventually departs from its survival stage is also a discussion point featured at the end of our study. Hence, while the music industry is relatively young in Singapore, with few prominent players till date, we view this as a business with some good potential for upcoming entrepreneurs. As such, since researchers generally have less access to research data from such aesthetic industries, we are optimistic that our study can serve to provide entrepreneurs with some degree of understanding of this relatively “grey” industry, and how they can apply the internal legitimacy theories in enabling the new company’s survival in this business.