Sponsorship and the Survival of New Organizations

Recently, state and local agencies have attempted to encourage, either directly or indirectly, increased economic activity. Often, these agencies focus on incentives to help new business formation, because of their dominance in new job generation and their contribution to the gross national product (U.S. Small Business Administration 1990). This attempt to create a richer, more nurturing environment can be defined as the process of sponsorship (Flynn and Falbe 1985). Sponsorship includes the intervention by government agencies, business firms, and/or universities to create an environment conducive to the birth and survival of organizations (Flynn 1988). Some notable examples of sponsorship are: * Efforts by state and local government, university, and private organizations, including special tax rates, subsidized mortgages, and endowed university chairs, to attract the Microelectronics and Computer Technology Corporation (MCC) and SEMATECH, two computer research consortia, to Austin, Texas; * A program entitled the Business Intelligence Access System (BIAS) based at the University of Pennsylvania was funded by a $200,000 grant from the National Institute of Standards and Technology and the U.S. Small Business Administration enabling small firms to access a plethora of databases from public and private sources; * Forty states have venture capital funds for seed support of new businesses (Livingston 1989); * The university and private industry sponsored business incubators at Georgia Tech and Rensselaer Polytechnic Institute; * The National Science Foundation (NSF) funds engineering research centers at selected universities; and * Small Business Development Centers (SBDCs) at universities that provide free comprehensive managerial planning to small businesses. Although the phenomenon of sponsorship is apparently quite visible, very little has been written on the topic. There are however, a number of different ways that the effects of sponsorship on the survival of a new organization can be studied. More dominant among these are theories that consider the level of control that organizations have on their environments. Prominent among these perspectives are population ecology and resource dependence which provide insights relevant to the critical issues facing new organizations. We will discuss each of these theoretical perspectives and attempt to integrate these for a better understanding of the somewhat unique phenomenon of sponsorship. SPONSORSHIP AND INFRASTRUCTURE: AN OVERVIEW Organizations' survival is contingent upon available resources in the environment (Lawrence and Lorsch 1967). These resources, termed infrastructure, may exist in the local environment (e.g. city or county,) as a composite of land, labor, capital, and existing organizations. Also, resources may be provided by public and private organizations through the sponsorship process. These two primary sources of resources have been shown to be important contributors to the emergence and survival of new organizations (Flynn 1990, 1988). At its initiation, sponsorship increases the amount of resources available to an entrepreneur, providing the opportunity for organizational formation. Without sponsorship, the existing infrastructure primarily contributes to organizational birth through the existence of compatible resources, such as the ecology of human resources, location costs, quality of life factors, and populations of existing firms. Resources are considered important in helping a firm survive when they provide a sustained competitive advantage (SCA). This is achieved if other firms cannot duplicate a value-creating strategy (Barney 1991). In order for a firm to have an SCA, its resource must have the following attributes: 1) it must be valuable, i.e., allows a firm to implement strategies that improve its effectiveness and efficiency; 2) it must be rare among a firm's current and potential competitors; 3) it must be imperfectly imitable, effected by unique historical conditions, ambiguous causality of the link between the SCA and the resource, and complex social phenomena among the firm's stakeholders; and 4) there cannot exist strategically equivalent substitutes (Barney 1991). …