What is the social judgment theory of entrepreneurship?
The central concept in social judgment theory is legitimacy (Suchman, 1995), as the buyers and suppliers of any new venture must believe that the startup is legitimate in order to commit their scarce resources or risk capital. A startup must meet the regulatory, normative and cognitive institutional requirements of the markets where it competes.
A social judgment theory of entrepreneurship looks to the entrepreneurs stakeholders’ social judgment about their ventures. These judgments are important because of the way that stakeholders make decisions to support a burgeoning venture or not to.
Perhaps and interesting critique of the social judgment theory as stated above is that is may be descriptive rather than prescriptive. For example, if the theory is considered prescriptive (i.e., normative), then an entrepreneur might thus manages the impressions that stakeholders build about them in order to bring about favorable outcomes.
More than just impressions
Legitimacy has been variously described as the right to exist, social fitness, desirability, properness, appropriateness, endorsement, and acceptance (Bitektine, 2011).
Jones et al. (2008) present an interesting extension of this idea when they explain how firms get competitive advantage from engaging in just behaviors. Gaining a reputation for fair play may allow stakeholders to open up and give access to their tacit knowledge, which gives insight into true wants, needs and abilities. Entrepreneurs are therefore at a disadvantage because they do not have a reputation for fair play already established, and in environments with many benevolent incumbencies, new entry may be difficult. This also helps to explain why employee spinouts perform better than other types of startups. The spinout founders have special access to their parent firm networks because of their prior work experiences.
Some similarities with Google’s ranking algorithm
Google’s page rank algorithm works a bit like social judgement theory. It rewards pages that are linked to by authoritative pages. Authoritative pages are those that have many links from other pages with many links. Thus, any new web-page starts with the problem of needing to attract back-links from existing websites. Probably the reason that you found this page today is because someone with access to an authority page linked to me and gave me “link juice”. Otherwise, this page would be on Google’s page 5 somewhere.
It is interesting to see how users actually use Google. The first result gets about forty percent of the traffic, the second gets twenty percent, the third gets ten percent, and so on nearly halving all the way down, though with a relatively long tail. Why? Because Google is usually right? Because we are lazy? No. Because authoritative websites said (in html) that the result is the best and we seem to trust that.