Liability of newness as a Challenge

As we note throughout this textbook, new ventures have a high propensity to fail. The high failure rate is due in part to what is known as the liability of newness, which refers to the fact that companies often falter because the people who start them aren’t able to adjust quickly enough to their new roles and because the firm lacks a “track record” with outside buyers and suppliers.2

Assembling a talented and experienced new-venture team is one path firms can take to overcome these limitations. Indeed, experienced management teams that get up to speed quickly are much less likely to make a novice’s mistakes. In addition, firms able to persuade high-quality individuals to join them as directors or advisers quickly gain legitimacy with a variety of people, such as some of those working inside the venture as well as some outside the venture (e.g., suppliers, customers, and investors). In turn, legitimacy opens doors that otherwise would be closed.

Another way entrepreneurs overcome the liability of newness is by at- tending entrepreneurship-focused workshops and events, such as Startup Weekend, hackathons, boot camps, and so on. These types of activities are sponsored by local universities, small business development centers, and eco- nomic development commissions. Another route to overcoming the liabilities of newness is joining one of the growing number of start-up accelerators that are popping up across the country. Start-up accelerators provide entrepre- neurs access to mentors, investors, subject matter experts (such as attorneys and accountants), and other entrepreneurs. More information about start-up accelerators and the benefits they provide new businesses is explored in the “Partnering for Success” boxed feature. Entrepreneurs should remember that, at the end of the day, the faster they can overcome the liabilities associated with launching a new venture, the greater the likelihood they will achieve suc- cess with their firm.

Source: Barringer Bruce R, Ireland R Duane (2015), Entrepreneurship: successfully launching new ventures, Pearson; 5th edition.