Resource mobilization in entrepreneurial firms

Journal of Business Venturing 27 (2012) 19–30

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Journal of Business Venturing

Resource mobilization in entrepreneurial firms☆ Jaume Villanueva a,⁎, Andrew H. Van de Ven b, Harry J. Sapienza b a b

Santa Clara University, Leavey School of Business, 500 El Camino Real, Santa Clara, CA 95050, United States University of Minnesota, Carlson School of Management, 321 - 19th Avenue South, Minneapolis, MN 55455, United States

a r t i c l e

i n f o

Article history: Received 11 August 2008 Received in revised form 15 September 2010 Accepted 16 September 2010 Available online 5 November 2010 Field Editor: S. Venkataraman Keywords: New ventures Resource mobilization Power Resource dependence Interorganizational relations Social embeddedness

a b s t r a c t We test the relative influence of power and social embeddedness in mobilizing resources between newly-formed businesses and other organizations by re-examining longitudinal data from the Van de Ven and Walker (1984) study of interorganizational relations. We find that resource flows to entrepreneurial ventures are predicted by the total dependence between parties engaged in the creation of value; they are not predicted by dependence advantage (or disadvantage) between the parties. We discuss the implications and propose that a theory of joint resource mobilization may be more useful than a theory of unilateral resource acquisition for understanding how new ventures access external resources. © 2010 Elsevier Inc. All rights reserved.

1. Executive summary The fact that the resources needed by new organizations are often controlled by large, powerful parties poses a dilemma for new firms. On the one hand, new ventures need to engage in relationships with these firms to gain access to resources. On the other hand, engaging in these relationships exposes new ventures to the possibility of opportunistic behavior by these powerful parties. Thus, these relationships have often been seen as a necessary evil— a dangerous activity that entrepreneurs must carefully consider beforehand and one that they must delicately manage afterwards. In this article, we aim to shed some light on the question of how new ventures should manage their relationships with such powerful actors. Building on the recent resurgence of studies based on resource dependence views, we examine whether access to resources by entrepreneurial firms is better achieved through attending to the dynamics of power advantage or the dynamics of mutual dependence. In order to shed empirical light on these seemingly contradictory views, we test the two alternative theoretical perspectives. In particular, we examine whether resource flows to entrepreneurial firms follow patterns consistent with the power advantage assumptions, the mutual (or joint) dependence assumptions, or neither. To accomplish this aim, we re-analyze Van de Ven and Walker's (1984) longitudinal, matched-pair set of data on the dyadic interorganizational relationships between newly created early childhood development organizations in Texas and the established organizations upon whom they depended for many resources. We find that the joint dependence in the dyad is positively related to flows of resources to the new ventures. Conversely, dependence advantage (i.e., the power perspective) does not predict resource flows to the new organization. These results suggest that gaining access to external resources depends more on total interdependence than it does on achieving a superior dependence position vis-à-vis the exchange partner. Our results do not imply that power in interorganizational relationships is unimportant or irrelevant. Rather, they suggest that the analysis of power in relationships may be more productively shifted to a broader, collective level, rather than one in which power is conceptualized as a zero-sum game of dependencies. ☆ We wish to thank Martin Ganco, Suresh Kotha, Phillip Phan and the anonymous reviewers of the Journal of Business Venturing for their insightful comments. ⁎ Corresponding author. Tel.: + 1 408 554 2785. E-mail address: [email protected] (J. Villanueva). 0883-9026/$ – see front matter © 2010 Elsevier Inc. All rights reserved. doi:10.1016/j.jbusvent.2010.09.001

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These findings have consequences for both theory and practice. Rather than seeking to obtain a short-run power advantage to appropriate as much value as possible from their relationships with resource providers, new ventures may be better advised to pursue longer-term mutually beneficial relationships. In short, new ventures interested in obtaining sustained access to external resources would be well-served by establishing complementary, symbiotic relations with resource providers. We found no support for the idea that value would be extracted from them at an increasing rate as their dependence on powerful partners grows. It may be that new ventures can more effectively gain and sustain access to resources by “growing the pie” and building the amount of total dependence in the dyad, than they can by gaining a power advantage over their exchange partners. From a theoretical point of view, our findings suggest that researchers would be well-served by adopting a broad, nuanced view of the concepts of power and dependence. Understanding more fully the dynamics of dependence and interdependence may lead to better theorizing and to better tests of interorganizational relationships among firms. 2. Introduction Obtaining adequate financial, physical, and human capital from external sources is a vital and challenging entrepreneurial task, especially for startups (Martens et al., 2007). The resources that new business entrepreneurs need are typically controlled by large, established and powerful parties (Katila et al., 2008). As a consequence, entrepreneurs face the dilemma of engaging in relationships with potential resource providers who are more powerful and may behave opportunistically (Yli-Renko et al., 2001; Katila et al., 2008). Until recently, the literature painted a picture of entrepreneurs as being vulnerable to outside resource providers (Pfeffer and Salancik, 1978) and emphasized how this vulnerability constrains the way in which new ventures make their choices and manage their relations. Establishing interorganizational relationships was often portrayed as a necessary evil; a risky activity that new ventures need to carefully consider and manage. A recent resurgence of studies of resource dependence theory questions these classical assumptions (e.g. Gulati and Sytch, 2007; Casciaro and Piskorski, 2005) and provides a more nuanced view of the power relationship between new ventures and established resource providers. This paper empirically examines the question of How should new ventures manage their relationships with powerful actors that control external resources? Until recently, the literature addressed this question in two ways that were seemingly unconnected and even contradictory. One (the power perspective) suggests that new ventures should attend to and minimize their dependence disadvantage in order to manage their relationships. The second (the social embeddedness perspective) suggests that new ventures should maximize the joint (total) dependence of the two parties to realize the greatest benefits from their relationships. The power perspective is based on resource dependence theory and focuses on how the balance of power between two parties influences the outcomes of the relationship (Pfeffer and Salancik, 1978). It derives from classic resource dependence theory, and is based on the idea that power is a function of the dependence of one party on another (Emerson, 1962). Because it follows a ‘logic of power’ (Gulati and Sytch, 2007), this tradition focuses on the relative dependence advantages or disadvantages of the parties in a given relationship. It suggests that each party in the relationship should seek to minimize its dependence on the other party and to maximize the dependence of the other party. Therefore, new ventures seeking external resources from other, more powerful parties are expected to try to counteract the power advantage of these potential resource providers with strategies to increase their power and to reduce the power of others (Katila et al., 2008). The social embeddedness perspective is based on theories of socialization and group formation and focuses on how interactions among exchange parties create awareness, affiliation and interdependence among parties, and shared norms and goals (Homans, 1961; Poole and Van de Ven, 2004). It is based on the idea that exchange relationships are embedded in a broader set of social relations (Granovetter, 1985). Because it follows a logic of embeddedness (Gulati and Sytch, 2007), this tradition focuses on the effects of the joint (or total) dependence of the parties in a given relationship. It suggests that two parties involved in a highly interdependent relationship will have a richer and deeper level of interaction that has beneficial outcomes for both parties (Larson, 1992). Therefore, new ventures seeking external resources from other, more powerful parties are advised to engage in rich and interdependent relations with these potential resource providers. The power and social embeddedness perspectives offer different predictions about the effects of dependence on the outcomes of an exchange relationship. From the perspective of a new venture seeking resources from larger and more established actors, these two views offer different prescriptions about establishing and managing relationships with potential resource providers and about resolving the tension between the need to access external resources and the risk of becoming vulnerable to powerful outside parties. Following recent developments in resource dependence theory (Gulati and Sytch, 2007; Casciaro and Piskorski, 2005), in this paper we examine the impact of both dependence asymmetries and joint dependence on entrepreneurial resource acquisition. We contribute to the literature in several ways. First, we articulate the theoretical arguments for each perspective, clarifying how either the power logic or the social embeddedness logic could make sense for entrepreneurs seeking external resources. Second, by directly comparing the effects of both dependence asymmetries and joint dependence on the resource acquisition efforts of entrepreneurial firms, we shed empirical light on the debate. This examination of the resource acquisition outcomes of entrepreneurial firms (once they have made the decision to enter into such relationships), provides a lens through which it is possible to reflect on when new ventures' fears of becoming vulnerable to more powerful parties is more or less justified. Empirical evidence has shown that the fear of opportunistic behavior does indeed play a role in the way new ventures form and manage their relations with resource providers (Yli-Renko et al., 2001; Katila et al., 2008). However, it is less clear whether this fear is justified by what actually happens to entrepreneurial firms that enter these types of relationship.

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Finally, we contribute to advancing resource dependence theory by attempting to reconcile the claims of these two disparate classic perspectives. We recognize that these two views may in fact address two fundamentally different types of problems operating at different levels of analysis. The power logic looks at the issue from one party's perspective and focuses on the focal firm's acquisition of resources to pursue its objectives; the social embeddedness logic works from a multilateral view that focuses on the mobilization of resources by both parties to achieve “collective” outcomes that would not have been possible by going it alone. While both perspectives are true to their respective foci, we propose that for new ventures seeking external resources, a logic of value creation makes more sense than a logic of value extraction and that for entrepreneurial firms a theory of resource mobilization may make more sense than a theory of resource acquisition. To empirically test the resource dependence and social embeddedness perspectives we re-examined data from Van de Ven and Walker's (1984) longitudinal pair-wise study of 101 dyadic relationships between new childhood development organizations in Texas and related external organizations. The advantages of these data include that they are longitudinal, that they include direct measures of dependence and, most significantly, they utilize matched measures obtained from both sides of the dyadic relationships to capture the key variables. The paper proceeds as follows: We provide a brief overview of resource dependency and social embeddedness perspectives and use these to develop hypotheses regarding the effects of exchange partners' power advantage and joint dependence on resource flows to entrepreneurial ventures. We then describe the methods, including sampling, measurement, and data analysis strategy. We then present the results from our statistical analysis. Finally, in the Discussion we reflect on the potential contributions of this study and offer ideas for subsequent studies. 3. Theory 3.1. Literature review Resource dependence theory rests on a ‘logic of power’ that focuses on the costs associated with having exchange partners; in it, exchange relationships are seen as necessary but sometimes dangerous alternatives. Its goal is to achieve either freedom from the relationship or the upper hand in terms of power. It warns new venture entrepreneurs to minimize their dependence on any single party, lest the new venture becomes captive to, and is taken advantage of by this party's power (Pfeffer and Salancik, 1978). Empirical evidence suggests that this fear sometimes plays a role in the way new ventures engage in and manage relationships. Katila et al. (2008), focusing on the tension between cooperation and competition at the time of relationship formation, examined the decision of new technology ventures of whether to establish relationships with more powerful partners and found that new ventures only do so when the new venture has defense mechanisms at its disposal (i.e., when the risk can be mitigated) or when the resources provided by the more established firm are unique and essential (i.e., when the risk appears unavoidable) These findings are consistent with Eisenhardt and Schoonhoven (1996), who found that strategic alliances for entrepreneurial firms are driven by strategic needs and by social opportunities, and suggest that new ventures are indeed reluctant to engage in relationships with more powerful parties. Yli-Renko et al. (2001) found that fear and misgivings about becoming too dependent on more powerful exchange partners also play a role in the way new ventures manage these relationships after the decision of entering into a relationship has been made. They found that the more dependent new technology ventures were in their relations with key customers the more they tended to rely on formal contractual agreements. Yli-Renko et al. (2001) examined the dependence of entrepreneurial ventures on key customers, but not their joint dependence. They also assumed that key customers were more powerful than the new ventures, but did not measure the relative power of the parties in the relationship. In sum, studies based on resource dependence theory offer valuable insights about how new ventures establish and manage relationships with more powerful partners in order gain access to their resources (e.g., Katila et al., 2008; Yli-Renko et al., 2001). They demonstrate that new ventures are indeed fearful of entering these relationships and that this fear affects their behavior once they are in these relationships. However, while these works imply that such fears are justified, they offer new ventures few solutions to their dilemma. One conclusion that might be derived is that new firms should try to minimize the extent to which they are dependent on any single outside resource provider. Yet, because it is difficult to establish these relationships in the first place and because maintaining them involves the consumption of time and resources, entrepreneurial ventures often are forced to deal with a small number of (potentially unfavorable) relationships. Thus, many entrepreneurial ventures are forced to be involved in imbalanced relationships until they can find alternative means to reduce or eliminate these asymmetric dependencies. Until this occurs, this view suggests, they can expect to achieve substandard outcomes as they contend with the opportunistic behavior of resource controllers. In a recent study, Santos and Eisenhardt (2009) embrace a more nuanced logic of power and propose that entrepreneurs initially use “soft power” strategies based on subtle persuasion to gain the power and dominance that will put them in a position to later establish and use “hard power” strategies based on coercion. Empirical evidence that new ventures should fear becoming too dependent on other organizations is mixed, especially once the relationship is formed. Yli-Renko et al. (2001) found that at higher levels of dependence the new ventures in their sample would have benefited by relying more on relational (embedded) governance flexibility and less on protective contracts. Evidence from other contexts also suggests that power asymmetries need not necessarily lead to the opportunistic outcomes expected from a pure logic of power. Gulati and Sytch (2007) found that the procurement performance of an automotive manufacturer was unaffected by its suppliers' power disadvantage, and, in fact, that it was negatively affected by its own power advantage. Similarly, Piskorski and Casciaro (2006) found that, in high dependence dyads, an actor's relative power does not increase its rewards from the exchange relationship. Taken together, these studies question whether new ventures should be fearful of entering

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relationships with more powerful partners, and if actions taken to decrease the relative power of the exchange partner will lead to positive results. The social embeddedness perspective provides an alternative view of the dynamics of relationships with more powerful parties. Its logic suggests that new ventures should not try to minimize their dependence on outside resource providers, but rather should strive to create collective goals and interdependencies among parties in achieving these goals (Ring and Van de Ven, 1994). In a study of how relationships developed between small and large firms, Larson (1992) suggested that “relational governance” (i.e., norms of reciprocity and forbearance) allows entrepreneurial firms to engage in mutually beneficial relationships with established firms despite any power imbalances that might exist. Yli-Renko et al. (2001) showed that new ventures' relations with powerful partners had more positive outcomes when they were managed in a contractually flexible or relational manner, especially when the new venture highly depended on the other party. Because it shows that avoiding the “protection” of formal covenants is beneficial, the latter finding is particularly counter to the notion that the powerful party in a relationship will necessarily engage in opportunistic behavior. In the broader context of a recent renaissance of resource dependence theory in the management literature (Katila et al., 2008), a more nuanced conceptualization of power and dependence (e.g. Gulati and Sytch, 2007; Casciaro and Piskorski, 2005) provides more support for the social embeddedness view. Gulati and Sytch (2007) concluded that a given partner in an exchange relationship may not always benefit from having a dependence advantage over the other partner. They suggest instead that both partners may benefit from having a high level of joint dependence. Gulati and Sytch (2007) examined the exchange relationships of a large automobile manufacturer with its suppliers; they separately examined the effects of the manufacturer's dependence advantage over its suppliers on its own performance and the effects of joint dependence (i.e. the sum of dependencies between both parties in the relationship) on performance. They found that the manufacturer's performance was positively related to the levels of joint dependence between the parties but negatively related to the manufacturer's power advantage. Thus, they concluded that the logic of power may not be well-suited to uniformly explain the outcome of exchange relationships. They suggested that a logic of embeddedness may better explain the outcome of some relationships. They speculated that while a logic of power may be useful to explain processes of ‘value extraction’ (in which the powerful party extracts value from the exchange relationship at the expense of future interactions), a logic of embeddedness may better explain processes of ‘value creation’ (in which both parties engage in a collective process of value creation). The social embeddedness approach focuses less on the risks of engaging in a one-time exchange, but more on the potential benefits of a recurrent and extended relationship among parties over time. It suggests that engaging in relationships with powerful resource providers is not a necessary evil, but rather represents an opportunity to engage in a process of value creation. The two perspectives thus provide disparate views of how new ventures should manage their relationships with outside resource providers and offer apparently conflicting prescriptions to entrepreneurs seeking external resources. Recent developments in the resource dependence literature have helped clarify, but only to a limited degree, the relationship between these two views (Katila et al., 2008). In the remainder of this paper, we articulate the theoretical arguments underlying each perspective, compare them empirically, and integrate their conflicting prescriptions. 3.2. Partner's dependence advantage and resource flows to the entrepreneurial firm The power perspective in resource dependence theory suggests that powerful actors will extract more value from a given relationship than weaker actors. Furthermore, it suggests that the performance benefits for the power-advantaged actors will come at the expense of the power-disadvantaged actors. This is because power is based on two fundamental assumptions. First, it assumes that the source of power of a given actor in an exchange relationship is solely derived from its position of dependence visà-vis the other actor. Emerson (1962) argues that power emanates from dependence asymmetries between parties was interpreted as representing a zero-sum game, where an increase in dependence on another meant a loss of power relative to that party. In other words, if one party in an exchange relationship is powerful, it means that the other party is necessarily weak in relation to it. A balanced relationship is one in which neither of the parties has a dependence advantage over the other. Second, the ‘logic of power’ assumes that a powerful party will exploit a dependence advantage to appropriate value from the relationship. Thus, this perspective predicts that when a given party enjoys a dependence advantage, it will exercise its power to coerce the weaker party to accept a smaller portion of the value that would otherwise obtain under conditions of balanced dependence. Given that the benefits accrued to a partner in an exchange relationship will be affected by its dependence advantage or disadvantage vis-à-vis the other party, it makes sense that both parties in the relationship will seek to lessen their own dependence and to increase the dependence of the other party, or both. It is not surprising then, that the focus of the resource dependence literature has traditionally been the study of how organizations develop strategies to increase their relative power advantages in order to appropriate more value from their exchange relationships (e.g., Pfeffer and Salancik, 1978). When value appropriation is expressed in terms of profits, as often is the case, the powerful party in the relationship will seek to increase the gap between its revenues and costs by applying pressure to extract more favorable terms from the exchange relationship (e.g. pricing, delivery terms, etc.). In a new venture creation context, the appropriation of value by a new venture can also be expressed as acquiring more resources (money, equipment, human resources, client referrals, technical resources, etc.) for less. The implication of the ‘logic of power’ perspective, in terms of resource acquisition outcomes for new ventures, is that resource flows will be influenced by dependence asymmetries between the new venture and its resource provider. The greater the dependence advantage (or the smaller the dependence disadvantage) of the new venture vis-à-vis the other party, the more

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resources it will be able to obtain, holding its own contributions constant. It can thus be expected that there will be a positive relationship between the dependence advantage that a new venture holds over another party in an exchange relationship and the resources it gets from it, above and beyond what could be expected from a balanced exchange relationship. So also, it is expected that there will be a negative relationship between the dependence advantage that another party holds over the new venture and the resources that the new venture gets from the other party, above and beyond what could be expected from a balanced exchange relationship. Formally, we hypothesize the following relationship: Hypothesis 1. Resource flows to the entrepreneurial venture are negatively related to the dependence advantage held by its exchange partner. 3.3. Joint dependence and resource flows to the entrepreneurial firm The ‘logic of embeddedness’ suggests that the sum of dependencies among parties to a collective goal promotes a relational orientation to an ongoing exchange (Ring and Van de Ven, 1994). It suggests that two mutually dependent parties will have a qualitatively deeper relationship, which in turn allows them to generate more value from the relationship. This is because the ‘logic of embeddedness’ is based on the idea that exchange relationships are embedded in a longer and broader context of social relations (Granovetter, 1985) and that social relations are driven both by economic imperatives and by social norms of fairness, trust and reciprocity (Larson, 1992). The existence of these social norms about what constitutes a fair and reciprocal relationship is conducive to the creation of value because the norms provide a framework that promotes collaboration and mutual concern (Gulati and Sytch, 2007). This perspective assumes that the duration and quality of an exchange relationship ameliorate concerns arising from power asymmetries. It suggests that when a given party accepts resources from another, it takes on obligations to reciprocate in the future. This is consistent with the sociological meaning of indebtedness (i.e., disproportional initial exchanges between parties result in social norms of obligation among parties for future exchanges) (Knoke, 1990). Through repeated interactions and reciprocations over time, parties develop norms of trust, fairness and equity that enable them to increase their cooperation in the creation of value that could not otherwise be achieved (Ring and Van de Ven, 1994). It is important to clarify that the concept of equity does not imply equality; instead reciprocity is sufficient and equivalence in quid pro quo is not necessary (Gouldner, 1959). This view assumes that opportunism in relationships is bounded by norms of fairness, because people generally reward others whose actions are deemed fair and punish those whose actions are deemed unfair (Bosse et al., 2009). The ‘logic of embeddedness’ also suggests that two parties highly dependent on one another are likely to experience high levels of empathy and identification. The existence of empathy and identification of two parties with each other facilitates the convergence of their attitudes and goals, reduces the level of conflict in the relationship, and dissuades them against the use of coercive strategies with each other (Gulati and Sytch, 2007). Empathy and identification of two parties in an exchange relationship with each other is thus expected to increase the cooperation of the parties in the creation of value. Furthermore, this view suggests that value is likely to be created when patterns of reciprocation and identification are reinforced over time. The pattern of value creation that is generated via repeated exchanges may be self-reinforcing and geometric. The logic is that increased exchange increases trust and identification, which provides incentives for future exchanges, which in turn will generate yet more trust and identification. The foregoing idea is consistent with the notion that achievements are generally collective endeavors, and that individual actors are better off ‘running in packs’ than trying to achieve their objectives by going at it alone (Van de Ven, 1993). The ‘logic of embeddedness’ also suggests that, in addition to creating more economically efficient relationships, embedded relationships create intrinsic value to the exchange partners as the social interaction deepens (Lawler and Yoon, 1993). In other words, norms of fairness and reciprocity are not only developed and maintained to achieve individual and collective goals, but also to maintain the relationship itself. This idea is consistent with the notion that a given economic actor may have multiple reasons for entering and maintaining an economic exchange relationship (Van de Ven et al., 2007). The foregoing arguments for the embeddedness perspective suggest that the quality and depth of an exchange relationship (1) will be determined by the level of mutual (or joint) dependence between the parties in the relationship, and (2) will affect the ability of the parties in the relationship to generate value. For entrepreneurs, the acquisition of valuable resources that allow the entrepreneurial venture to pursue new opportunities is paramount. This is achieved by increasing the awareness, consensus and dependence among parties to a collective venture, which increase the willingness of parties to exert effort on behalf of one's exchange partner. The effect is to create increasing value or resources through the relationship. In other words, it should be expected that the greater the level of joint dependence between the new venture and its exchange partner, the more resources that the new venture will be able to obtain, holding its own contribution constant. Formally, we hypothesize the following relationship: Hypothesis 2. Resource flows to the entrepreneurial venture are positively related to the joint dependence in the entrepreneurial venture-exchange partner dyad. 4. Methods To test our hypotheses, we re-analyzed a longitudinal, matched-pair set of data on dyadic interorganizational relationships between newly created early childhood development organizations and other, more established and powerful, organizations. The data were collected in March 1974 and in January 1975 (Van de Ven and Walker, 1984). This data set is particularly appropriate to

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test our hypotheses because (1) it measures constructs from the perspective of both sides of the dyad, something rare in extant interorganizational literature, (2) it measures the relevant variables at two different points in time, and (3) the instruments used to measure the constructs of interests have been rigorously evaluated and validated in a prior publication (Van de Ven and Walker, 1984). Because our independent variables were collected separately and in advance of the collection of dependent measures, reverse causality explanations are mitigated. In addition to the survey data, we had access to qualitative data (i.e., interviews and site visits to the entrepreneurial ventures that were conducted at the time of the survey data collection). These qualitative data provided additional insights that were useful in developing the original models and in interpreting our results. 4.1. Sample and data collection The original sample consisted of 101 dyadic interorganizational relationships between 14 new Early Childhood Development Centers formed in Texas (what we refer to as the entrepreneurial ventures) and other, external organizations (what we refer to as the other organizations) including the Office of the Early Childhood Development Centers in Austin, the Department of Public Welfare, the Department of Public Health, the local Independent School District, and other organizations in their communities, such as local churches and other private local organizations. The average number of dyadic relationships per entrepreneurial venture in our sample of 14 Childhood care organizations was about 7.2. We tested our hypotheses on 76 of these 101 interorganizational dyads. In 54 of the 101 cases all data for both parties were present; no statistical differences were found in terms of our key variables between the 54 in this study and the other 57 included in Van de Ven and Walker's (1984) original set. To increase the power of our analysis, we used a single covariate regression imputation strategy (Roth, 1994) to impute missing values to our independent variables in cases where the highest correlated control value was available and where the dependent value was not missing, which allowed us to increase the number of cases to 76. The data were collected via questionnaire: directors of each of the 14 entrepreneurial ventures answered questions about their relationship with other organizations. Then, after contact persons in the other organizations were identified by the entrepreneurial ventures, each of the other organizations answered an almost identical set of questions about their relationship with the entrepreneurial venture (slight differences existed in resources provided by each side). 4.2. Measures The original questionnaire surveys were quite comprehensive in their scope (see Van de Ven and Walker, 1984), providing a wealth of data on relationships between the entrepreneurial ventures and the other organizations. For this study, we focused on a narrow portion of these data. Specifically, we examined two main types of variables: those relating to patterns of dependence between the entrepreneurial ventures and the other organizations and those relating to resource flows between the entrepreneurial ventures and the other organizations. The data collection was performed at two different points in time; the time lag between these two data collection periods was 10 months. 4.2.1. Independent variables The leaders of both the entrepreneurial venture and the other organization provided two ratings of dependence. One rating indicated, on a scale of 1 = no to 5 = very high, the level of dependence of their own organization on the other to pursue or achieve its goals. Using the same scale, the other assessed the dependence of the other organization on them for these same purposes. We averaged the entrepreneurial venture's ratings of its dependence on the other organization and the other organization's ratings of the entrepreneurial venture's dependence on it to create a pair-wise measure of the dependence of the entrepreneurial venture on the other organization in the six month period prior to the time 1 data collection. Similarly, we averaged the other organization's ratings (on a 1 to 5 scale) of its dependence on the entrepreneurial venture and the entrepreneurial venture's ratings of the other organization's dependence on the entrepreneurial venture to create a pair-wise measure of the dependence of the other organization on the entrepreneurial venture in the six month period prior to the time 1 data collection. We then created our dependence advantage and joint dependence variable measures from these unilateral dependence measures, as described below. 4.2.1.1. Dependence advantage of the other organization at time 1. Dependence advantage, which is based on the notion of dependence asymmetry, indicates the extent to which the other firm has a power advantage over the entrepreneurial firm (Emerson, 1962). We frame it as the dependence advantage of the other organization because Hypothesis 1 predicts the effect of the relative power of the other organizations' on flows to the entrepreneurial organization. Still, it was fully possible that the entrepreneurial venture enjoyed a power advantage over the other organization. Indeed, the data shows that in 24.1% of the dyadic relationships, the entrepreneurial ventures were deemed to have a dependence advantage, 20.4% were balanced, and 55.5% showed an advantage for the other organization. Conceptually, the measurement of the relative dependence on each other of both parties in a dyad can be expressed as a ratio, which captures the notion of dependence asymmetry as the source of power imbalance in a dyad (Emerson, 1962). This focus on the dependence asymmetry dimension between two parties in a relationship is what has characterized most of the research on interorganizational interdependence adopting a ‘logic of power’ perspective (Gulati and Sytch, 2007). We calculated the dependence advantage variable as a ratio of the dependence of the entrepreneurial firm relative to the dependence of the other organization: (the unilateral dependence of entrepreneurial venture at t1)/(the unilateral dependence of the other organization at t1). Because untransformed ratio variables using numerators and denominators between 1 and 5 do not

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form simple linear relationships (i.e., values range from .2 to 5, in a nonlinear fashion), we carried out a log transformation to examine the relationships linearly. Once this transformation is executed, the relationship among values is linear; the larger the number, the greater the power of the outside organization. If the logged ratio = 0, dependence is balanced between the entrepreneurial firm and the other organization. The farther the number is from zero in the negative direction, the more powerful is the entrepreneurial venture; the farther above zero, the greater the relative power of the other organization. The observed mean in our sample was .04 suggesting that, on average, the other organizations had a slight dependence advantage over the entrepreneurial ventures, as assumed by most of the literature. 4.2.1.2. Joint dependence, time 1. Joint dependence is the sum of each party's dependence on the other in the dyadic relationship. In order to compute this, we summed and then averaged the perceived dependencies of each party on the other. Since survey questions were answered on 1–5 point scales, the range of possible values was 1 to 5; the observed mean was 3.8. In order to check the validity of our dependence measures we correlated them with a parallel but distinct measure, in the same original Van de Ven and Walker (1984) data set, of the perceived influence that each party had on each other during this six month period prior to the first data collection. Provan (1980) argued that influence represents the enacted power of one side with regard to the other. We used these influence measures as validity checks for our unilateral dependence measures (we had these measures for most of the dyads in the sample). The bivariate correlation between the influence of the entrepreneurial venture and the dependence of the outside organization on the entrepreneurial venture was 0.43 (p b .01), and the correlation between the influence of the outside organization and the dependence of the entrepreneurial venture on the outside organization was 0.50 (p b .01). These parallel measures increased our confidence in the construct validity and the convergent validity of our dependence measures. 4.2.2. Dependent variable Resource flows to the entrepreneurial ventures were measured at times 1 and 2 with about a year between survey waves. This temporal lag provided strong protection against response and consistency bias, and, it increased our confidence that reverse causality was not driving predicted associations. To create this measure, we used entrepreneurs' perceptions of resource flows, collected via questionnaire. The extent to which entrepreneurial ventures obtained resources from the other organizations was constructed as a composite measure of the sum of seven different types of resource flows: money, equipment, use of staff, client referrals, technical assistance, public visibility and “other” resources. Each item could take on a value from 1 to 5 (1 = to no extent, 5 = to great extent), which implies that the resource flows to the entrepreneurial venture variable could have a minimum value of 7 and a maximum value of 35; observed mean = 16.99. Our use of ratings from both sides of the relationship dyads for the independent measures increases confidence in the validity of the measures and reduces issues of common source and consistency bias that may occur when a single subject alone provides assessments for both the dependent and independent measures. 4.2.3. Control variables We sampled sets of relationships for each entrepreneurial venture with several different types of outside organizations. Because relationships of power, dependence, and the flows of resources between the entrepreneurial ventures and the other organizations might vary depending on the type of resource exchanged (e.g., money, equipment, staff, or referrals), we first ran analyses with type of other organization as a control variable. However, type of other organization was not significant in any of our models and had no effect on the results, so we removed them as controls in order to gain degrees of freedom in our final analyses. To provide a strong test of the hypotheses regarding resource flows to the entrepreneurial venture at time 2, we had to control for flows during time 1 which might represent lingering reciprocal obligations. Furthermore, in order to examine resource flows to the entrepreneurial venture over and above current exchange obligations, we also controlled for resource flows to the other organization during time 2. Thus, we used three control variables as discussed below. Resource flows to the entrepreneurial venture at time 1 was measured in exactly the same manner as was our criterion variable (i.e., flows to the entrepreneurial venture at time 2); but this control measure was collected at time 1 and covered the six months prior to initial data collection. Resource flows to the other organization at time 1 and time 2 were measured on the same 1 to 5 scales as the flows to the entrepreneurial venture; however, because we expected the entrepreneurial ventures to provide slightly

Table 1 Descriptive statistics and correlations. Variable

n

Mean

S.D.

1

2

3

4

5

1 Resource flows to entrepreneurial venture at t2 2 Log of power advantage at t1 3 Joint dependence at t1 4 Resource flows to entrepreneurial venture at t1 5 Resource flows to outside organization at t1 6 Resource flows to outside organization at t2 Valid n (list wise)

76 76 76 76 76 76 76

16.99 0.04 3.83 15.01 16.01 15.88

5.50 0.16 0.85 5.86 5.94 5.64

1 0.11 0.63 0.58 0.48 0.63

1 − 0.20 − 0.08 − 0.11 − 0.02

1 0.69 0.52 0.46

1 0.68 0.49

1 0.65

Correlations above the absolute value of .40 are significant at p b .01 for two-tailed tests.

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Table 2 Hypothesis tests. Dependent variable

Resource flows to entrepreneurial venture t2 Model1 Stand beta

Model2 Sig

Independent variables Log power advantage t1 Joint resource dependence t1 Controls Resource flows to entrepreneurial venture t1 Resource flows to outside organization t1 Resource flows to outside organization t2 Model F R2 R2 adjusted n a

Stand beta

Sig

VIF

0.047 0.339

.564 .004 a

1.0 2.0

2.7 2.4 1.8

0.436 − 0.138 0.495

.000 a .296 .000 a

0.220 − 0.122 0.437

.097 .332 .000 a

23.583 0.496 0.475 76

.000 a

17.332 0.553 0.521 76

.000 a

Significant at 0.05 level (two-tailed).

different resources to the other organization than they received from them, the composite items themselves were slightly different. In this case the flows measured were money, staff, client referrals, information, public visibility, contributions to the other organization's goals, and “other” resources. Each item could take on a value from 1 to 5; thus, the possible range of values was from 7 to 35. These assessments were made via surveys at time 1 and time 2. Descriptive statistics are presented in Table 1. 4.3. Analysis In testing the hypotheses, we controlled for the lagged dependent variable in the regression equations so that we can determine how much the independent variables explain variations in the dependent variables over and above the level of level of the dependent variable in the prior time period. To test our hypotheses we regressed resource flows to the entrepreneurial venture at time 2 against our predictors, controlling for resource flows to both parties at time 1 and to the other organization at time 2. In order to support Hypothesis 1, the dependence advantage of the other organization at time 1 should be significantly negatively related to the resource flows to the entrepreneurial venture at time 2 and joint dependence would be non-significant. In order to support Hypothesis 2, the dependence advantage variable would be non-significant and the joint dependence variable would be significantly positively related to resource flows to the entrepreneurial venture. The remaining possibilities (i.e., that both are significant or that neither are significant) would suggest that (1) neither dependence imbalance nor joint dependence impact resource flows, or that (2) both exert an effect. We built our empirical model in two steps. First we tested a model with only the control variables, and then we added the two independent variables to a second model. Although we are not directly testing a comparison between the strength of the control model and the predictor-laden model, we present the results in these two steps to help illustrate the additional variance added by our independent variables. As a supplementary analysis, we ran the regressions using a parallel measure of power advantage based on the influence (i.e. the enacted power) of both the entrepreneurial venture and the other organization. We also conducted a spline transformation (see, e.g., Gulati and Sytch, 2007) as an alternative treatment of our ratio variables; the results using these approaches were identical, further demonstrating the validity of our measures and the robustness of our results. 5. Results Results from the analysis are presented in Table 2. The results indicate that resource flows to the entrepreneurial venture at time 2 are not statistically predicted by the dependence advantage of the other organization in the prior period (standardized beta = 0.047, n.s.); thus, Hypothesis 1, which predicted that the relative power of the other organization would negatively affect the resource flows to the entrepreneurial venture (the power logic), is not supported. Results for our test of Hypothesis 2 are also presented in Table 2. This hypothesis predicted that the resource flows to the entrepreneurial venture at time 2 would be positively related to the level of joint dependence between both parties in the dyad at time 1. The results presented in Table 2 indicate that resource flows to the entrepreneurial venture at time 2 are significantly predicted by the joint dependence of the two parties in the prior period (standardized beta = 0.339, p b .05), thus supporting Hypothesis 2. In terms of controls, only the resource flows to the other organization at time 2 are significant in the full model, whereas the resource flows to the entrepreneurial venture in the prior period are marginally significant. As would be expected in reciprocal exchanges, resource flows to other organizations at a given time are positively related to the resource flows to the entrepreneurial

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venture and previous flows to a given party are, to a certain extent, related to current flows. Note that the significance of resource flows to the entrepreneurial venture at time 1 in the first model does not fully disappear but is greatly reduced once we introduce the independent variables in the second model; this suggests that the hypothesized effects are above and beyond what could be expected from previous exchanges. Thus, conducting the analysis in two steps helps us see not only that the variance explained by our independent variables is significant, but also that our independent variables affect resource mobilization. A variance inflation analysis showed that although our independent variables are correlated with one another, multicollinearity does not pose a problem in interpreting our results (the highest VIF value was 2.7). In summary, the results indicate a positive effect of joint dependence on resource flows to the entrepreneurial venture, but no relationship between power imbalances and resource flows. 6. Discussion This study set out to empirically test two alternative theoretical perspectives on how newly founded organizations engage in relationships with powerful parties to access external resources as they launch their activities. In particular, we examined the effects of dependence asymmetry (power imbalance) and joint dependence (total dependence, regardless of dependence asymmetry) on resource flows to newly-formed childcare organizations. In order to shed empirical light on the efficacy of these two competing views, field interviews and questionnaire data were collected at two different points in time over the first two years of the entrepreneurial ventures' existence. Our statistical tests revealed that the model based on having a power advantage was not supported. The relative dependence of an organization did not predict subsequent resource flows to the entrepreneurial venture.1 Conversely, the model based on social embeddedness was supported: the total joint dependence of the dyadic pair predicted subsequent resource flows to the entrepreneurial venture. In short, total dependence predicted resource flows to the entrepreneurial venture, whereas dependence asymmetries did not. Our results indicate that resource mobilization may be better explained by the mutual or joint dependence between two parties than by the power imbalance in the relationship. However, we must make clear that our results do not imply that power in interorganizational relationships is unimportant. Rather, our results may suggest that the analysis of power in relationships may need to be shifted to a broader, collective level, rather than one in which power is conceptualized as a zero-sum game of dependencies. This view is not inconsistent with Emerson's original power-dependence framework (1962); in it, Emerson made clear that interdependence can vary across both relative and absolute dimensions, or what he identified as the “power advantage” and the “cohesion” dimensions, respectively. Despite this distinction in Emerson's original power-dependence framework, subsequent literature has mainly focused on the relative power of actors and has traditionally neglected the absolute dimension of interdependence (Gulati and Sytch, 2007; Casciaro and Piskorski, 2005). In this paper, we contribute to the recent wave of work that has attempted to update resource dependence theory by taking into consideration the nuances of Emerson's original powerdependence framework and by going beyond the effect of power asymmetries in a dyadic relationship (Gulati and Sytch, 2007; Casciaro and Piskorski, 2005). In addition to power imbalances, we also consider the notion of joint power-dependence and we find that the total level of dependence in a dyad matters more for the outcome of an exchange relationship than does dependence asymmetry among the parties in the dyad. An area of thought not directly addressed by the resource dependence literature is that of separating out structural components of exchange relationships from their individual-level sources. So, for example, a possible explanation for our results could be that certain individuals or firms drive effective resource exchanges in a way that corresponds with what we observed in terms of mutual versus asymmetric dependence. If this were the case, we might observe that resource flows are driven by individual factors such as reputation or human capital rather than by patterns of dependence. While we did not have complete data on founders to fully examine this possibility, we did run some additional analyses to examine whether individual-level effects would provide a more complete explanation of our results. Our supplementary tests used a proxy for entrepreneurial firm reputation and provided results consistent with those of our hypothesis tests. The reputation proxy was significantly related to resource flows, but this relationship was in addition to the effect of joint dependence.2 Our results are consonant with the view that obtaining necessary resources is a collective rather than an individual achievement; they emphasize the limits of exchange dominance and the potential advantages of cooperation. Mutual dependence in an embedded relationship motivates parties to appeal to complementary or collective interests and to grow their joint “pie” rather than to engage in individualistic attempts to appropriate a larger slice of a fixed-size “pie.” In the individualistic view, parties compete to divide the “pie” in a competitive relationship of value appropriation; the mutual dependence perspective suggests that parties cooperate to expand the “pie” in a symbiotic relationship. The former emphasizes self-interested behavior at the expense of exchange partners, while the latter considers the possibility that both self- and other-regarding interests may be at play (Van de Ven et al., 2007). Classic resource dependence theory takes a unilateral view and focuses on the acquisition of 1 Strictly speaking, based on Emerson's theory, our ‘other organization’ power measure is a ratio that is directly and inversely related to the power of the entrepreneurial venture; thus, a negative effect on resource flows of the other's power would mean a positive effect on resource flows to the entrepreneurial venture. Following Gulati and Sytch (2007), we also conducted a spline transformation of this measure to allow for two separate measures of power (i.e., not fully inversely related to one another). This analysis yielded the same result. Power asymmetry was not significant. 2 The additional analysis including the variable awareness of entrepreneurial firm's project by the external organization at time 2 yielded similar results: the dependence advantage of the other organization in the prior period did not predict resource flows (standardized beta = 0.026, n.s.), whereas the joint dependence of the parties in the prior period did (standardized beta = 0.279, p b .05).

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resources by one party to pursue its objectives. The logic of mutual dependence, stemming from a relational view and from recent developments in resource dependence theory, takes instead a multilateral view and focuses on the mobilization of resources by both parties to achieve outcomes that would not be possible by going it alone. In the domain of entrepreneurship, a theory of resource mobilization may be more relevant than a theory of resource acquisition, because mobilization emphasizes access to needed resources, not on the allocation of resources among different parties. The resource mobilization metaphor hinges thus on working with external parties that control resources, not working for them. Our results suggest that an excessive fear of new ventures being “eaten by sharks” as expressed by Katila et al. (2008) may not be warranted in some situations. Eisenhardt and Schoonhoven (1996) noted that entrepreneurial firms are impelled by necessity or the pursuit of opportunity to establish relationships with large, powerful partners. Our results indicate that these smaller firms may be able to sustain and survive imbalanced relationships by building mutual dependencies and resource flows with other larger organizations in achieving mutual goals. Ring and Van de Ven (1994) spoke of relational governance as the “glue” that allowed apparently unequal partners to harmoniously continue to interact. Our results suggest that, even when power is unequal, growing mutual dependence promotes rather than impedes the flow of resources to the new venture. Entrepreneurial firms shy away from becoming highly dependent on one or a few customers or suppliers (Yli-Renko et al., 2001; Katila et al., 2008). Our results suggest, however, that the dangers may lie in exactly the opposite direction. Ventures that fail to reinforce and build mutual dependencies with other organizations may become expendable and may fail to create the new value and innovations they might otherwise reap from these relationships (Fischer and Reuber, 2004). Failure to commit may lead to irrelevance. Our study suggests that organizations with a (real or perceived) power disadvantage vis-à-vis other parties may err by avoiding or minimizing the level of dependence on their partners. Our study is not alone in suggesting that a high level of interdependence can be beneficial for both parties in a dyadic exchange relationship, regardless of relative power advantage. Previous studies that examined relationships in competitive environments focusing on unilateral performance measures also found similar results. In a study examining the procurement relationships of two major auto manufacturers, Gulati and Sytch (2007) found that high joint dependence with suppliers enhances the performance of the manufacturer, whereas a power advantage diminishes it. They speculate that joint dependence between parties increases their appreciation of mutual interests; this, in turn, decreases the costs of maintaining recurrent relationships. Similarly, a study that examined the relationships of high-technology startups with their key customers (Yli-Renko et al., 2001) found that in situations of high dependence new high-technology firms can benefit from becoming even closer to, and arguably creating even more joint dependence on, their key customers. Benefits included greater savings in costs and greater product innovation, a conclusion consistent with Fischer and Reuber's (2004) claim that resource dependence and relational governance ideas can and should be combined in practice and in theory. Our study complements and expands on these previous findings in a context of entrepreneurial resource mobilization. We suggest that mutual dependence facilitates the maintenance of and returns to interorganizational relationships; it also stimulates collaborative value creation. We show that a focus on building mutual dependence may be more productive than a focus on eliminating dependence imbalance. In short, individual goals may be better achieved when the exchange parties adopt a mutualistic orientation rather than a self-protection one. 6.1. Limitations A strength of our longitudinal data is that it provides a period of time long enough to observe the development of resource mobilization and acquisition in the interorganizational relationships among child care organizations. Of course the data also have limitations. First, our sample involves a variety of interactions including commercial, governmental, and government-supported entities that may only partially generalize to strictly business-to-business interactions. The resource acquisition process may be somewhat different between for-profit and not-for-profit startup ventures. However, as we noted, similar results have been observed in other studies conducted in the context of highly competitive environments such as the automotive industry (Gulati and Sytch, 2007), high-technology hardware (Yli-Renko et al., 2001), and educational software (Van de Ven et al., 1984). These studies indicate that joint dependence pays off in other industrial settings as well. They suggest that the processes of resource mobilization and acquisition that we observed are not unique to our sample. Finally, like any study, the boundary conditions of our findings are limited to the data sample, time, and context. Our findings are based on a re-analysis of Van de Ven and Walker's (1984) longitudinal study of interorganizational relationships among notfor-profit early childhood organizations in Texas during the 1970s. We believe that the basic concepts of power and dependence are fundamentally comparable across time and place, but we acknowledge that some aspects of the nonprofit sector may have changed. Consequently, changes in general business and social norms could have shaped interactions in ways that only partially translate to today's businesses. For example, some argue that the nonprofit sector has increased its “marketization” (Eikenberry and Kluver, 2004), by moving away from civil society goals and mimicking the public sector, which may impact how patterns of dependence develop between the firms and external agencies. However, the purpose of this research was to generalize to theories of resource mobilization, and not to draw inferences to a population of organizations. 6.2. Directions for future research Several fruitful directions for future research are suggested by our study and its limitations. For example, it would be useful to see whether different strategies for building and sustaining mutual dependencies are equally effective. Traditional views of power

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and dependency are not without merit. Is it true, as suggested by Larson (1992) and Yli-Renko et al. (2001) that the very act of making the firm more fully dependent or committed to an exchange partner actually reduces the propensity of the exchange partner to act opportunistically? The significant effects in our supplementary analyses using a proxy for entrepreneurial firm reputation suggest that a fruitful research avenue might also be to examine how individual-level or firm-level factors influence how the parties in the dyad develop patterns of power and dependence. It is possible that certain individual-level factors influence the patterns of power and mutual dependence in a systematic way. If so, future research should identify what individual-level factors may influence patterns of dependence in the relationship. Additionally, given that founder effects have been shown to influence the financing outcomes of new ventures (Nelson, 2003), it would be interesting to examine whether entrepreneurs who are also founders differ in how they develop patterns of power and joint dependence with external parties. Another fruitful avenue to explore would be to look at how institutional and structural components of the industry and geographic region moderate the dependence-value creation process and its outcomes. For example, it is possible that certain policies or technological regimes might enhance or mute the value of collaboration and mutual dependencies; it would be also be worth examining the role of entrepreneurial agency, capabilities and activities in moderating the effects of dependence on resource flows. For entrepreneurs, the task of acquiring and deploying resources is but the first in a series of necessary but insufficient conditions for survival and growth. If the entrepreneurial resource acquisition process can be conceptualized as a process of value creation among interdependent parties, it would be useful to understand this process of joint value creation in more detail. Process studies would shed light on how interacting parties can mutually create value, socially construct a new identity, and envision the possibilities for achieving a vision of the future that does not yet exist. 7. Conclusion We began by identifying the apparent tension that entrepreneurs face between the need to engage in relationships with more powerful parties to get resources, and the fear of doing so to avoid becoming too vulnerable to the whims of these powerful parties. We identified two alternative models of organizational exchange relations that provide different views of how new ventures should deal with this dilemma in the process of gaining access to needed resources. To test the power advantage perspective, we identified a model of interorganizational relations based on dependence asymmetries. This model portrays interorganizational relationships as competitive, zero-sum, survival-of-the-fittest contests between organizations in need or resources, across all contexts and situations. In essence, if followed to its logical conclusion, this model would encourage entrepreneurs to build self-sufficient new organizations that are minimally dependent on interactions with other organizations. More specifically, this perspective cautions new ventures against engaging in relationships with more powerful parties unless they are able to counteract the balance of power in some way (Katila et al., 2008). To test the social embeddedness perspective, we identified a model of interorganizational relations based on joint dependence. This model portrays interorganizational relationships as cooperative efforts based on mutual understanding, trust and commitment. This model encourages entrepreneurs to engage in interorganizational relationships with other actors regardless of their relative power and to strive to achieve deep and interdependent interactions. We found support for the model that calls for a higher level of dependence and involvement with external parties. This finding is consistent with some empirical observations that organizations grow and prosper through close collaboration with other organizations; it has profound implications for both theory and practice in entrepreneurship. At a minimum, our findings draw attention to the importance of cooperation and mutual dependence between exchange partners to resource access for the creation of value. In the domain of entrepreneurship, researchers and practitioners should attend to understanding the effects of the relationship-building efforts of the joint dependence approach. Perhaps conceiving of the task as multilateral resource mobilization rather than resource acquisition may provide insights both to entrepreneurs and to entrepreneurship researchers. Finally, this study can be situated in the context of recent work that has taken a nuanced view of the resource dependence framework. By conceiving power as a function of dependence asymmetry in a context of value extraction and allocation and simultaneously eschewing the idea of power as an ability to influence and aid exchange partners in the process of value creation, much of the literature has focused on the constraining rather than on the enabling nature of power (Giddens, 1984). We suggest that researchers could productively adopt a broad, nuanced view of the concepts of power and dependence: research may be advanced if future theorists deeply considered the dual nature of power— its capacity to coerce, and its capacity to guide effort to renewed value creation (Giddens, 1984). 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