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80 Seiten, Note: B
1.2 Research Question
1.3 Research Purpose
1.4 Outline of the Thesis
2. Theoretical Framework
2.1 Liabilities of Newness
2.2 Lack of Legitimacy
2.3 Legitimation Strategies
2.3.1 Previous Research on Strategy Categorization
2.3.2 Constructing a B2B Strategy Framework
2.3.3 Literature Review on Legitimation Strategies
2.3.4 Overview: Legitimation Strategy Framework
3.1 Research Approach
3.2 Research Design and Data Collection
3.3 Sample Selection
3.4 Data Analysis
3.5 Validity and Reliability
4. Findings and Analysis
4.1 Relevance of Lack of Legitimacy
4.2 Previous Research Congruent Strategies
4.2.1 Transference Strategies
4.2.2 Ability and Competency Strategies
4.3.3 Structural Assurance Strategies
4.2.4 Value and Goal Congruence Strategies
4.3 Newly Surfaced Strategies
4.4 Overview of Identified Strategies
Tab. 1: Model of Perceived Organizational Legitimacy (Murphy & Smart, 2000)
Tab. 2: Modified Model of Perceived Organizational Legitimacy
Tab. 3: Legitimation Strategy Framework based on Theoretical Codes
Tab. 4: Case-Ventures Overview
Tab. 5: Applied Strategies assigned to Theoretical & Empirical Codes
Fig. 1: Failure Rate Curve (Stinchcombe vs. Bruderl & Schussler)
Fig. 2: Example of Customer References
Fig. 3: Example of Communicated Business Lifetime
Fig. 4: Example of Product Demonstration Invitation
Fig. 5: Example of CTA-button for Product Demo
Fig. 6: Example of Thought Leadership on Social Media 44
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Research increasingly agrees on entrepreneurship representing a critical component for economic growth (Ahlstrom, 2010; Baumol & Strom, 2007; World Economic Forum, 2014). However, studies show especially high failure rates among startups. According to Timmons (1994), 66% of newly founded firms fail within their first six years of existence, while after ten years of existence, the average annual failure rate drops to 2.3% (Watson & Everett, 1996; Watson & Everett; 1999).
The reasons behind this discrepancy and the high startup failure rates have been discussed extensively in previous research. Researchers pinpointed undercapitalization, high fixed costs (Lussier, 1996) or limited access to finance (Franco & Haase, 2010) to be common failure reasons. According to Stinchcombe and March (1965), however, the underlying phenomena incorporating most failure reasons, are the liabilities of newness (LoN). Among a lack of efficiency, organizational roles, and structure, these liabilities contain the lack of stable relationships to stakeholders, including the most critical: customers to generate revenue with (Zimmermann & Zeitz, 2002; Suchmann, 1995). Respectively, Cantamessa, Gatteschi, Perboli and Rosano (2018) stated, how 59% of startups fail due to customer acquisition related reasons.
In order to acquire customers, the importance of building legitimacy within the customerproducer relation in a startup’s earliest stages, is found to be crucial to its chance of survival (Navis & Glynn, 2011; Stinchcombe & March, 1965). However, most new ventures are naturally confronted with an initial lack of legitimacy (LoL) towards stakeholders as a component of the LoN, hindering their customer acquisition (Aldrich & Fiol, 1994; Dobrev & Gotsopoulos, 2010). Due to a specifically high perceived buying risk through intangible products (Parry, Jones, Rowley & Kupiec-Teahan, 2012; Hargadon & Douglas, 2001), the level of legitimacy perceived by customers may be particularly important for software-as-a- service (SaaS) companies - firms, which base their product and business model on cloud computing, delivering an application through an internet browser using a multitenant architecture (Gruman & Knorr, 2008).
While the LoL as a factor of the LoN and the various legitimacy-building strategies have been thoroughly discussed, a framework of legitimation strategies applicable for new B2B ventures, particularly for SaaS businesses, has not yet been established by researchers. Therefore, this study is dedicated to the identified research gap, focusing on the constantly growing SaaS industry, which is particularly prone to an organizational LoL (Lai, Hsu & Joung, 2014; BetterCloud, 2017). Hereby, this paper seeks to explore, which specific measures are taken by B2B SaaS startups in practice and eventually introduces a framework of legitimation strategies. Subsequently, the study reveals specific insights on how to overcome LoN through legitimacy-building activities, and thus, increase a new ventures’ likelihood of survival. For this purpose, this study applies a retrospective case-based examination of the legitimation management implemented by four B2B SaaS startups from Skäne, Sweden.
This study aimed to explore, which legitimacy-building strategies can be applied by new B2B SaaS ventures in order to overcome the LoL within the customer-producer relation. In order to do so, this study examined, (1) how relevant the LoL is for new B2B SaaS ventures towards potential customers, (2) whether and how the strategies suggested in previous literature are being applied in practice and (3) whether any other strategies are applied, which have not previously been described in literature.
Addressing the research questions above, this study examined four startups in Skane, Sweden, which were active in their respective marketplace for at least three years. Thereby, this study contributes to the research on LoN, more specifically, to the research on managerially applicable legitimation strategies, drawing on the signaling theory (Connelly, Certo, Ireland & Reutzel, 2011).
LoN have previously been extensively researched, including their internal factors, such as a lack of internal knowledge or a lack of information structure, and its external factors, such as a lack of relationships with external stakeholders (Amason, Shrader & Tompson, 2006; Stinchcombe & March, 1965; Trevis Certo, 2003). Here, prior research suggests a variety of legitimation strategies towards customers as external stakeholders, fragmented in different contexts. Respectively, the described strategies vary in terms of their meta level from conceptual mechanisms, such as impression management (Überbacher, 2014), to implementable activities, such as storytelling on social media (Dimitrova, 2008), in terms of their communication channel, their communication manner, and in their applicable market.
In the context of legitimation strategies and customer acquisition, research has not established an aggregated framework of legitimacy-building strategies - especially in the field of B2B SaaS startups. By aggregating prior research on legitimation strategies and adding relevant empirical data, this study aimed to establish a framework of activities applicable for new B2B SaaS ventures in order to build legitimacy towards customers. The results provide an explorative insight on existing legitimacy-building strategies and based on this study’s research in Skane, whether they are applied by new B2B SaaS ventures in practice. Hereby, the fragmented elements of research were connected to provide an aggregated guide on legitimation strategies for B2B new Ventures (NVs) , contributing to venture management practice and future research on legitimation.
Following the introduction, the theoretical framework concerning LoN, LoL, and associated coping strategies lays the foundation of this study’s research and eventually introduces a legitimation strategy framework. The methodology section outlines the research design utilizing a case-based approach and introduces the sample companies. Subsequently, empirical results are presented and discussed in connection with prior research literature. Based on the analyzed data, the introduced framework is examined regarding its relevance and expanded by newly surfaced strategies. Lastly, a final conclusion and indications for NV managers, policymakers and indications for future research are drawn.
First introduced by Arthur Stinchcombe in 1965 (Stinchcombe & March, 1965), LoN represent reasons for the comparably high mortality rates within the earliest stages of an organization’s life cycle. Stinchcombe describes the failure rate of organizations as linearly declining along their life cycle and claims his explanations to be universally applicable in different contexts of organizations. Based on the proposed general rule “higher proportion of new organizations fail than old” (Stinchcombe & March, 1965, p.148), his elaborations focus on the workforce characteristics, deducing his argumentative framework. In this respect, four major sources of specific obstacles for new organizations were illustrated:
1. New roles and tasks are to be found and learned by the workforce.
2. New roles need to be created, constraining capital and creativity.
3. A communication structure has to be established, enabling the co-working “strangers” to socially and professionally interact.
4. Awareness and stable relationships with stakeholders such as customers have to be built and developed.
Facing these different challenges, new firms experience inefficiencies and uncertainty, leading to a significant competitive disadvantage (Stinchcombe & March, 1965). In the course of its research, LoN are generally divided into internal (item 1-3) and external factors (item 4) (Aldrich & Auster 1986) and were frequently paraphrased and expanded. Accordingly, Aldrich and Auster described the internal LoN as the challenge to acquire new employees, clarify new roles and find efficient working routines. By citing the higher interest rates and constraints concerning fundraising of new firms, Aldrich and Auster added to the spectrum of external liabilities. In principle, young organizations would generally lack experience in comparison to established ones.
Further research dealt with the lack of track record of new firms, preventing to convince external stakeholders (Singh, Tucker & House, 1986) and the LoL leading to difficulties establishing ties with external stakeholder (Dobrev & Gotsopoulos, 2010, Navis & Glynn, 2011). The present study focuses on these external factors of the LoN, specifically on the LoL necessary to acquire customers and thus to generate revenue.
Other organizational theorists explaining the “struggle for survival” (Darwin, 1859, p.65) of organizations also concentrated on the relation between societal outside and inside of a venture, but integrated new aspects into the concept of LoN. Bruderl and Schussler (1990) introduced the liabilities of adolescence in the research of LoN. By differentiating between an early stage, referred to as adolescence or “honeymoon” (Fichman & Levinthal, 1991), and a later stage, they argue that in the adolescence phase failure rate is low, since the management postpones the judgement about success or failure. Whereas, in the following phase, a venture’s mortality rate peaks. Compared to Stinchcombe suggesting a monotonic curve progression of venture failure along the life cycle, they propose a non-monotonic reversed U- shaped pattern of this curve (see Fig. 1). In support of this, Fichman and Levinthal (1991) stated the extent of the firm’s initial stock of assets such as trust, goodwill, financial resources and commitment would buffer from the early selection pressure and expand the lifespan of a venture before failure risk increases.
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Figure 1: Failure rate Curve (Stinchcombe vs Bruderl & Schussler)
Despite minor conceptual disagreement in research about the LoN, reviewing the research exposes an overall agreement on the factors of LoN and on the peak in mortality rates in early stages of a firm’s life cycle (Baldwin & Rafiquzzaman, 1995; Bannock & Stanworth, 1990; Gray & Stanworth, 1986).
Identified as a component of the LoN, the relative LoL faced by new firms is especially critical as it hinders to establish ties with external stakeholders, in particular customers (Aldrich & Fiol, 1994; Dobrev & Gotsopoulos, 2010). According to Zimmerman and Zeitz (2002), legitimacy is recognized as the motivating factor for external stakeholders to provide an organization with resources. Legitimation, therefore, is influenced by the organization itself, but is ultimately originated by the audience. In their work, Zimmerman and Zeitz (2002) argue, that established organizations utilize their track record to acquire legitimacy and consequently maintain resources, while new ventures with a lack of performance can not do so.
Arising from the foundational elaborations of Weber (1978) and Parsons (1960), many previous studies explored the term legitimacy and it in connection with organizations as organizational legitimacy. In consistence with DiMaggio and Powell (1991), legitimacy can be viewed as a judgement about acceptance, appropriateness or desirability of an organization. This definition is also in line with the perception of Zimmerman and Zeitz (2002), characterizing legitimacy as a beneficial property, which is provided by stakeholders recognizing a firm as competent and worthy.
In previous research, Aldrich and Fiol (1994) attempted to categorize legitimacy into different forms. By introducing the cognitive and sociopolitical form of legitimacy, they differentiated between the spread of knowledge about a venture - the degree to which it is well known and taken for granted - as the cognitive legitimation, on one hand. On the other hand, they introduced the acceptance of a venture by the general public and key stakeholders as sociopolitical legitimation.
Concerning the distinctive perspectives on legitimation in research, Suchman (1995) distinguished the organizational legitimation research into a strategic view, adopting legitimacy as a manageable and influenceable trait. Here, certain actions actively gain and manipulate the legitimacy received by an organization (Murphy & Blessinger, 2003; Überbacher, 2014). Whereas, studies relating to the institutional tradition view legitimacy as a detached, independent and inter-organizational construct. Drawing on isomorphism, organizations build legitimacy by conforming to common business practices and social expectations - by appearing like everybody else - in the institutional perspective (Deephouse, 1999; DiMaggio & Powell 1983; Murphy & Blessing, 2003).
In the present study, the definition of Zimmerman and Zeitz (2002), viewing legitimacy as a critical asset provided by external stakeholders recognizing a firm as competent and worthy, is adopted. Further, this work focuses on legitimation strategies applied by a venture’s management to acquire customers, therefore legitimation is interpreted in a sociopolitical context as supposed by Aldrich and Fidol (1994) and hereby seizes the strategic, manageable perspective on legitimacy (Suchman, 1995). By exploring and introducing strategies to actively gain legitimacy, this study regards legitimacy as a strategically influenceable trait of an organization.
In close proximity to the concepts of legitimacy remains the interpersonal construct of trust, exhibiting a broad common intersection (Moreno-Luzon, Chams-Anturi & Escorcia- Caballero, 2018). Consequently, research (Aldrich & Fiol, 1994; Gartner & Low, 1990; Moreno-Luzon, Chams-Anturi & Escorcia-Caballero, 2018) suggested the acknowledgement of the interpersonal process of building trust as a shaping factor for the achievement of organizational legitimacy. From a managerial point of view, trust functions as a method of achieving cooperation through the creation of familiarity and evidence (Bateson, 1988). According to McKnight and Chervany (2001), trust psychologically characterizes the willingness to believe in various attributes of another party. Further on, in settings of uncertainty such as perceived buying risk, trust is crucial for interpersonal and commercial interactions (Aldrich and Fiol, 1994). Following the similarity of the concepts of trust and legitimacy in an organizational context, this study treats both as congruent, particularly within the interface between an organization and its customers.
The high importance of legitimacy and trust for NVs is emphasized across research. As a critical ingredient for the audiences’ judgement about the NV, legitimacy is a prerequisite to acquire resources, such as revenue streams, and to overcome the LoN (Aldrich & Fiol, 1994; Starr & Macmillan, 1990; Überbacher, 2014). Without legitimacy the chance to overcome the external LoN is mitigated and thus the chances of survival of the NV (Navis & Glynn, 2011; Singh, Tucker & House, 1986, Stinchcombe & March, 1965). According to Zimmerman’s and Zeitz’s (2002) argumentation, especially growth in sales plays an essential role for NV, as the scale of operation is required economically to become profitable and competitive.
Besides its particular relevance for NVs from an organization’s life cycle perspective, the relevance of it also varies across different industries and communication channels (Gartner, 1986; Mitchell & Greatorex, 1993). Particularly in the software industry, containing SaaS companies, higher levels of legitimacy and trust may be important to reduce a comparably high perceived buying risk. As SaaS products are intangible, customers have to rely on a supplier’s promises (Hargadon & Douglas, 2001; Laroche et al. 2004; McKnight & Chervany, 2000). Parry et al. (2012) carry this finding forward emphasizing the relevance of legitimacy of software vendors in a B2B context, as products are of a “high value and high risk nature”. In this respect, Heart (2010) provides four reasons for the specifically high perceived buyer risk in the SaaS industry; organizational data is moved outside the buyers’ boundaries, buyers mostly lack knowledge and experience relating to the NV’s product, high transaction costs due to a costly implementation and risk mitigation measures; the long-term dependence from the software vendor.
In line with the strategic, managerial view on legitimacy, research explored strategies creating legitimacy for new firms. Following the arguments of Suchman (1995), legitimacy management relies on complex communication between an organization and its audience, including a variety of actions and nonverbal displays. Drawing on the signaling theory (Connelly et al. 2011), the management of a NV has to actively exercise these communication measures to construct consent and acceptance through persuasion, mitigating the skepticism towards the NV (Dees & Starr, 1992; Suchman, 1995).
In previous research, Murphy and Smart (2000) and Überbacher (2014) attempted to develop frameworks categorizing strategies to build legitimacy and also gathered different strategies filling these frameworks. While Überbacher’s strategy categories are too shallow for this study’s purpose and mostly exclude specific, workable strategies, Murphy and Smart’s model shows more specific strategies. However, their framework is adjusted to trust-building and legitimacy-building strategies applied in an e-commerce environment. Since the enhancing factors for gaining legitimacy and trust as well as criteria for e-commerce venture strategies and this study’s scope group are widely similar (Murphy & Blessinger, 2003) , Murphy and Smart’s (2000) model is adopted in Tab. 1 and adjusted to this study’s purpose in Tab. 2.
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Table1: Model of perceived Organizational Legitimacy (Murphy & Smart,2000)
In accordance with the two introduced perspectives on legitimacy, the illustrated framework of Murphy and Smart (2000) differentiates between strategies conforming with common standards and expectations referred to as isomorphism and strategies actively, manipulating the perceived legitimacy. Isomorphism supports the belief that the providing party follows general rules (McKnight, Cummings & Chervany, 1998). Within the other perspective of managerial manipulative strategies, Murphy and Blessinger (2003) subdivide the wide- ranging spectrum into strategic categories of Transference, Ability and Competence, Structural Assurance, Value and Goal Congruence and Fulfillment.
As described by Murphy and Smart (2000), Transference labels strategies utilizing names and brands of well-respected or perceived legitimate third parties. Competency and Ability incorporates the communication of a business’s capability to fulfill a certain task, while Structural Assurances guarantee more certainty, e.g. regarding product guarantees or payment, data and process security. Value and Goal Congruence embodies strategies on a rather personal level. Fulfillment is the simple completion of the contract and the resulting confidence in a provider’s reliability. All of these meta strategies framed by Murphy and Smart (2000) are supposed to gain legitimacy from customers.
In order to adjust the present model constructed by Murphy and Smart (2000) to this study’s purpose, the restricting criteria of this study’s scope are shortly aggregated:
- Perspective: In accordance with the strategic perspective on strategies (Suchmann, 1995), this study considers actively exercised strategies directly aiming to manipulate the perceived legitimacy.
- Stakeholder: Strategies aimed to gain legitimacy from business customers are considered.
- Stage and Sector: Strategies applicable in the early stages of a new venture in the SaaS sector.
- Medium: Strategies have to be communicated verbally or displayed either written in text or as a visualization on websites or other communication media
- Intention: Strategies to gain legitimacy in order to acquire customers, not maintain or regain legitimacy.
In line with the outlined criteria, the model of Murphy and Smart (2000) is modified in Table 2 by:
- Eliminating the isomorphism perspective as it does not contain strategically manipulative strategies
- Deleting of the “Fulfillment” category as it is not an actively manipulative strategy in the B2B SaaS sector to acquire first customers
- Broadening the “Payment and Information Security” to “Certification and Labels” strategy, the “Endorsements and Testimonials” to “Endorsements and Customer References” and “Technical Competency” to “Organizational Competency”
- Specifying the “Education” and “Business and Professional Experience” strategies as Founder related; “Founder Education” and “Founder Business and Professional Experience”
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Table 2: Modified Model of Legitimation Strategies
The application of terms for the different meta levels of strategies varies across research. Therefore, this study defines the terms category for the overriding manner how legitimacy is generated, strategy for the reasoning how legitimacy is generated and activity for a specific executable action carried out to gain legitimacy.
Reviewing the Literature on legitimation strategies fitting to this study’s criteria, 51 sources naming 31 distinctive activities corresponding to the outlined strategies in the introduced framework were identified.
Considered as Brand Identification strategy in the Transference category, Törmälä and Gyrd- Jones (2017) argue, the mere brand identity created through visual appearance, such as a logo, design and font, may be specifically instrumentalized to gain legitimacy from stakeholders. In a rather abstract context, Hargadon and Douglas (2001) describe the concept of “robust design” as the placement of an innovation within a familiar design setting. Here, the underlying assumption is, embedding a product or service in a too distinctive and unfamiliar design may increase perceived uncertainty and therefore hinder legitimation. Saying this, the distinction between Brand Identification as a proactive strategy in the strategic perspective and the imitation of industry norm brandings as isomorphism seem vague. However, the differentiating factor lies in either the orientation to common expectations, as the industry standard, or in the creation of an individual branding to foster legitimacy.
Another strategy within Transference are Endorsements and Customer References, which can be subdivided into endorsements, also referred to as testimonials, and customer references. Endorsements can be provided by customers, experts, celebrities, or others, such as supporters (Biswas, Biswas & Das, 2006; Reuber & Fischer, 2005). A legitimacy-building testimonial or endorsement can consist of positive feedback review, e.g. on the website, Google reviews or as a figure expressing the share of customers recommending a service (Murphy, 2003; Reuber & Fischer, 2005). While a customer testimonial demonstrates a track record of the signaling provider and creates a belief of commonality at the perceiving potential customer, expert endorsement of well-known entities are considered to particularly increase the perceived quality from a technical view (Biswas, Biswas & Das, 2006; Lim et al., 2006; Spry, Pappu & Cornwell, 2011).
Compared to customer testimonials embodying a comment advocating the provider, customer references as a marketing instrument contain the simple display of customers’ names or the description of the solution provided to the customer in a case study, e.g. on a website (Jalkala & Salminen, 2010; Murphy, 2003). In consistence with endorsements, references build the supplier’s legitimacy by demonstrating the product’s viability (Kumar, Petersen & Leone, 2013; Ruokolainen, 2008). According to Ruokolainen (2008), this strategy is particularly beneficial for technology start-ups entering a B2B market.
Exhibiting a functional intersection with references and endorsements, the promotional instrumentalization of Business Alliances with well-known or trustworthy institutions such as a multinational corporation (MNC), universities, business accelerators or public entities transfer reputation and thus legitimacy to the NV (David, Sine & Haveman, 2013; Hasche & Linton, 2016; Vapola, 2011;). Subsequently, the reputation of the alliance party is considered to be a crucial prerequisite for this legitimation strategy (Goldberg, Cohen & Fiegenbaum, 2003; Vapola, 2011). Business alliances can generally be divided by their main objective. According to Teng and Das (2008), on one hand, a primary objective of a business alliances with mostly vertical partners can consist of enhancing operations and improving R&D. In such strategic partnerships, the secondary objective or benefit of the collaboration might lie in the legitimacy transfer from the potentially more established party by displaying the collaboration. On the other hand, driving one partner’s legitimacy and reputation might also be the primary purpose of an alliance, in this case also referred to as affiliation with nonvertical partners. In this respect, Goldberg, Cohen and Fiegenbaum (2003) introduced the concept of a “pseudo-structure-link” as a solely displayed affiliation with a more established and reputable organization. They argue this affiliation might accomplish a similar legitimation effect such as an actual business alliance.
As founders actively communicate their educational background and thus apply the Education strategy as part of the category Ability & Competency, the implied knowledge, skill-set, and connected social capital may be positively associated with a firm’s perceived legitimacy (Cohen & Dean, 2005; Nagy et al. 2012). According to Cohen and Dean (2005), this is particularly true for advanced and more exclusive educational degrees, although this strategy is considered to create a rather small effect on legitimation. Regarding credentials as capital, Nagy et al. (2012) and Shepherd, Douglas and Shanley (2000) argue, Business Experience, especially industry experience, as a legitimation strategy mitigates the assumed risk of failure, therefore increasing the perceived credibility of suppliers towards customers.
In addition, displaying Organizational Competency such as applied high-quality technologies or the advanced capability of its staff constructs a NV’s legitimacy by connecting the company to respected standards (Goldberg, Cohen & Fiegenbaum, 2003; Murphy, 2003). Another symbolic instrument showcasing the Organizational Competency and managerial success are awards issued from third-parties, e.g. for innovativeness or growth potential (Du & Vieira, 2012; Gardberg & Fombrun, 2006).
The identified Certification and Labels activities within Structural Assurance commonly approve a certain standard of the companies’ processes, management styles or success in a certain discipline (Djupadal & Westhead, 2015; Sine, David & Mitsuhashi 2007). For example, B2B online companies frequently utilize labels certifying data privacy policies or payment security such as TRUSTe and VeriSign (McKnight & Chervany; 2001; Murphy & Smart, 2000). In addition, environmental certifications guaranteeing standards of sustainable management are conceptualized to signal service quality and management integrity, increasing the received legitimacy (Aerts & Cormier, 2009; Djupadal & Westhead, 2013). Sine, David and Mitsuhashi (2007) describe certifications as “tangible evidence”, helping NVs to accumulate legitimacy through issuing authorities. These issuing authorities transfer their legitimacy to NVs by providing a confirming label. However, as some of the labels and certifications become more common in certain industries, their categorization in either the managerial perspective or the isomorphism perspective depends on the level of frequency in a particular industry.
Another strategy proving Structural Assurance incorporates the provision of Product and Service Guarantees for the interaction with the offering supplier. This can reduce the level of perceived buying risk and thus function as cue of trustworthiness (Boulding & Kirmani, 1993; Warrington, Abgrab & Caldwell, 2000). Especially, when customers are uncertain about the quality due to intangibility, such as in the SaaS industry, specific guarantees relating to delivery, process or impact and unconditional guarantees for complete customer satisfaction may be issued (McDougall, Leveque & VanderPlaat, 1998; McKnight & Chervany, 2000). For example, SEOmoz - an online marketing agency - provides its customers with a specific impact guarantee by ensuring the ranking on the first page on any search engine after a specific time period (SEOmoz, 2019). Should this not be achieved, customers would be reimbursed. While Datantify as a database provider uses an unconditional satisfaction guarantee to reduce the buying risks for potential customers within the first 30 days after the purchase (Datantify, 2019).
The third strategy in this category is the open communication of internal processes and the interaction procedure with the supplying company, referred to as Fulfillment Process Clarity strategy. This could be implemented by displaying delivery milestones, implementation steps, information of the supply chain, explaining principles or answering frequently asked questions in a FAQ (Bhaduri & Ha-Brookshire, 2011; Murphy, 2003; Winch & Joyce, 2006).
In regards to the Value and Goal Congruence category, firms build legitimacy by visibly promoting their values and internal management. As part of the Clarifying Value Added strategy, three approaches to clarify added value by contracting with the venture were identified in research. Two of these approaches express the NV’s congruence with their customers’ societal goals and values. For instance, Ahlstrom and Bruton (2001) showed, communicated charity in the form of donating a share of revenues to local or educational projects fosters a favorable, legitimating view on the charitable company. Moreover, Provasnek, Sentic and Schmid (2017) argue, showcasing a NV’s innovation as more environmentally-friendly than existing solutions, can increase stakeholders’ engagement, since the organization seems more fair and thus trustworthy from a societal perspective. The other approach incorporates the congruence with customers’ actual business needs. Here, Murphy (2003) argues, the mere communication and thus, the expressed comprehension of the customer’s specific pains, might lead to legitimation through perceived understanding.
A rather emotion-based strategy to gain trust and legitimacy is Personalization, creating an approachable and personal corporate identity. Here, a number of previous studies discussed and affirmed the positive correlation of storytelling and legitimation (Aldrich & Fidol, 1994; Garud, Schildt & Lant, 2014; Lounsbury & Glynn, 2001; Wry, Lounsbury & Glynn, 2011). According to Navis and Glynn (2010) and Dimitrova (2008), storytelling represents a marketing instrument embedding a company in a narrative context, consisting of claims, which present the organization’s behaviour as corporate citizen and help audiences to mobilize a sense for its existence. By telling stories, for instance in a “who we are” and “why we do what we do” context, new firms may gain affective meaningful identities (Navis & Glynn, 2011; Wry, Lounsbury & Glynn, 2011).
In a similar context, according to Murphy (2003), the legitimacy perceived by customers, is affected by introducing an organization’s management or staff through photos or profiles. This might be performed on the website, in presentations, or with frequent posts on social media. Doing so, the receiving party may personalize the organization and develop personal impressions from this information. Regarding social media, defined by Habibi, Laroche and Richard (2014) as internet-based applications for the creation and exchange of content between users, companies may also gain perceived trust through personalization and affection, as they provide updates about their daily activity (Castello, Etter & Ärup Nielsen, 2016; Kaplan & Haenlein, 2009). For instance, this incorporates posts on Twitter, Facebook, or LinkedIn about the visit of a fair or a team event.
Assigned to the Information Sharing strategy with the basic intention to gain legitimacy by sharing valuable information and thus demonstrating transparency, four distinct activities were recognized in research: asking for feedback, appearances in news media, providing content through social media and an operation of a brand community.
According to Ratnasingham (1998) as well as Barlow and M0ller (1996), asking customers for feedback integrates them in a dialog, in which bonding takes place and customers as the responding party feel valued. Through this tie between both parties, the received risk of interaction may subjectively be mitigated and the legitimacy of the asking party may be influenced positively (Murphy, 2003). Likewise, endorsing articles or statements in news media issued by neutrally appearing experts may exhibit a powerful impact on legitimation (Deephouse & Carter; 2005; Etter et al. 2018). If the reporting about a NV is initiated by the NV’s management and is actively instrumentalized by showing the articles in a press review on the website, this holds as a manipulative and managerial strategy.
Signaling openness and transparency, firms increasingly communicate with customers through social media applications such as YouTube, Twitter, Facebook or hosted online communities (Culnan, McHugh & Zubillaga, 2010; Habibi, Laroche & Richard, 2014; Korschun & Du, 2013). According to Heath et al. (2013), a common approach to build legitimacy as a B2B company through social media is the concept of thought leadership, which implies posts intending to educate and influence the audience with practical content. As companies reduce control participating on such non-hierarchical and open platforms, social media-based communication may help to overcome customer’s initial skepticism, build credibility and gain legitimacy in a B2B context (Castello, Etter & Ärup Nielsen, 2016; Kaplan & Haenlein, 2009).
Overlapping with established social media, brand communities are company owned, non- geographical platforms for a user community, interacting around the hosting company’s brand and product. (Habibi, Laroche & Richard, 2014; Hakala, Niemi & Kohtamäki, 2017). According to Hakala, Niemi and Kohtamäki (2017), a crucial aspect of brand communities is to create meaning for the users. Doing so, users develop trust in the hosting brand. For example, Hubspot offers its users an interactive and self-organized community forum (HubSpot, 2019). In this forum, users exchange know-how about HubSpot’s solutions and HubSpot fosters the dialog about their product.
In table 3 below, the legitimation activities identified in research are aggregated and assigned according to the strategies in the introduced framework.
Table 3: Legitimation Strategy Framework based on Theoretical Codes
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As described, the interaction and gain of legitimacy rests upon raw communication in a direct and indirect manner. Therefore, the demonstrated strategies might be communicated and either actually executed or only simulated. Furthermore, the shown table is limited to the extent that the collective of strategies is not completely exhaustive and the strategy forms are not fully selective. Similar to the model introduced by Murphy and Smart (2000), the lines between the types of strategies in the presented modified model may be blurry as strategies can be executed in different styles.
Generally, this study sought to explore,
- how relevant the LoL is for new B2B SaaS ventures towards potential customers,
- whether and how the in previous literature suggested strategies are being used in practice,
- whether any other strategies are being applied, which have not previously been described in literature.
Thus, this study is split in two parts, in which it uses a theory-verification and a theory- creation approach. The theory-verification part examined, whether the strategies identified in prior research are practiced within this study’s sample group. Doing so, the conducted research aimed to verify prior theory’s findings. However, in order to create new theory and to add to prior research, the theory-creation part required to expose new strategies companies use, that have not been revealed in the theoretical research.
For both, theory-verification and theory-creation, this study uses a case-based empirical research. A theoretical research on LoL and legitimation strategies was conducted to gather a better understanding of which trust-building strategies exist and to be able to point out applied strategies in practice. After gaining basic theoretical knowledge in the form of the legitimation framework shown in Chapter 2.3.4, the two-part empirical case research was carried out. Looking for research congruent strategies (theory-verification part), a deductive exploration study (Welch, Piekkari, Plakoyiannaki and Paavilainen-Mäntymäki, 2011) aimed to verify the application of the framework’s legitimation strategies in practice. Furthermore, an inductive exploration approach (Yin, 2009) explored strategies that have not yet been described in theory, corresponding to the theory-creation part of the study.
The researchers compared the legitimacy-building activities of four new B2B SaaS ventures within Skane, Sweden. This qualitative approach incorporating a structured multiple and instrumental case design (Eisenhardt, 1989; Eisenhardt & Graebner, 2007; Stake, 1995) with semi-structured interviews and structured examination of different company material, supported the researchers to collect the required data (Creswell, 2018) and enabled a comparable cross-sectional overview of the results. By utilizing an interpretivist case-based empirical research, a generally more integrated picture of the studied case-ventures and deeper insights into each management strategy could be gained (Welch et al. 2011).
Following the creation of the introduced framework based on theoretical research, each case- study could be derived in six steps:
1. Examine publicly accessible data (e.g. website and social media channels) of each venture for applied legitimation strategies
2. Examine private company material and data (e.g. pitches, presentation and messages) supplied by each case-venture
3. Conduct first interview based on the legitimation strategy framework, publicly accessible data and private company material
4. Conduct second interview based on the legitimation strategy framework, publicly accessible data, private company material and first interview to get deeper insights into findings of first interview
5. Transcribe the interviews and cluster, categorize, and analyze all collected data, consult the introduced legitimation strategy framework
6. Verify data by member-checking transcripts and analyzed results with each interviewee.
For the mere data collection in the steps 1-4, the research’s aim was both to verify whether the strategies described in theory (theoretical codes) are applied in practice and additionally, to search for strategies not described in previous research (empirical codes). Hereby, as part of the theory-verification, the introduced framework was consulted in both the interviews and during the observation of company material, to check for theoretical codes. In the context of the the theory-creation part exploring new strategies, open questions and explorative observations were applied to reveal new strategies. Here, the introduced framework was only used to assign the newly surfaced strategies into a structure in the analysis.
While step 1 and 2 include the observation of company material such as websites and emails, step 3 and 4 represent two interviews with members of the venture’s founding team. In order to arrive at reliable results, this study only considered legitimation strategies and activities visibly delivered through text or visualizations or substantiated through interview statements.
For step 1 and 2, the researchers observed several public and private communication media and channels, searching for applied legitimation strategies. The following observation material was partly provided by the case-ventures and partly found online:
- Website (W)
- Pitches and Presentations (P)
- Emails and other customer-facing messages (M)
- Social media channels (S)
- Other channels such search engine results and third party review platforms (O)
For step 3 and 4, eight semi-structured interviews with four startups were conducted in March and April 2019. All interviews were performed face-to-face in the offices of the case-ventures with both researchers involved. In accordance with Blumer (1954), the research interview utilized a sensitizing concept, indicating a rough sense of what the researchers were looking for and then uncovering a broad variety of forms and factors in answers. In line with Bryman and Bell (2015), the interviews were semi-structured to allow for rich and detailed answers, exploring the practice of legitimation strategy holistically. This approach facilitated detailed follow-up questions on specific statements when necessary. The respective interview guidelines can be found in App. A. All interviews were recorded and transcribed qualitatively. For step 6, the findings from the observations and the interviews, as well as the transcripts were sent back to the interviewees for member-checking (App. B) the data collected, reassuring and substantiating the results.
Intending to explore the application of legitimation strategies of new ventures in the B2B SaaS business, four startups offering a SaaS solution were selected. In order to obtain comparable results, the region and the lifetime of the sample group were narrowed down to the Skäne region in Sweden and a lifetime of three to six years was chosen. By only considering firms with a lifetime of more than three years, one could assume the customer acquisition activities to have been successful to a certain degree. Selecting this study’s interview sample, the interviewees were required to be a member of the venture’s founding team and to be involved in the firm’s sales and marketing processes. Thereby, the strategical competency and relevant knowledge of the interviewees were ensured.
In the following, the anonymized case-ventures are briefly described. The details about the investigated firms are aggregated in Table 4.
- C1 is an online platform providing legal advice to small- and medium-sized companies, by selling spare capacities of accredited lawyers for flat fees.
- C2 is a software company providing a customer engagement solution for hotels, combining several communication channels in one dashboard.
- C3 provides a tool for HR managers to anonymously gather employee feedback and detailed insights about their well-being and commitment towards their employer.
- C4 is an international software company enabling multi-location business owners to manage their marketing relevant content across various channels.
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Table 4: Case-Ventures Overview
Coding and analyzing the collected data, the framework introduced in Chapter 2.3.4 functions as this study’s basis. For the theory-verifying part of the study, collected data matching definitions of theoretically identified strategies (theoretical codes) were assigned according to the framework. For the theory-creating part of the study, the researchers pointed out data, which could not be grouped within the existing strategies and activities of the framework. Similar to the approach described by Ian Dey (1993), newly surfaced findings were grouped and clustered together in order to create new categories, strategies, and activities. Doing this, an understanding of which strategies were applied in practice, but have not yet been described in previous research, was gained.
As a result, theoretical codes in the form of strategies within the category-set of the framework and empirical codes in the form of new strategies were established. Once the applied strategies were identified, details regarding exact implementation manner, communication channel, frequency of use, and the interviewee’s perception were grouped and compared in the manner of a comparative analysis described by Bryman and Bell (2011).
Drawing on Bryman and Bell (2015), in qualitative studies internal and external validity as well as internal reliability have to be considered and partly ensured. Subsequently, both researchers analyzed all transcripts and observation material independently before comparing, discussing and agreeing on results to ensure internal validity and reliability (Bryman & Bell, 2015). To further avoid misinterpretations during the analysis of the transcripts and observation material, the tables of coded data were returned to the interviewees for memberchecking. In order to further foster the internal and external validity of this study after member-checking, all results were compared across the four different ventures. Hereby, the study’s results were further triangulated (Stake, 1995) to ensure their validity. However, the external validity in terms of the interpretations’ generalizability is restricted due to the study’s qualitative nature, the sample group’s size and specific characteristics.
This study’s qualitative research is compromised by nature to a moderate representativeness and generalizability. Since the sampled companies are limited to the Skane region, exist for three to six years, and are operating in the SaaS industry, the transfer of the results onto other regions, company life cycle stages, and industries, is critical, as business culture and customer perception may vary heavily.
As some of the observed strategies were implemented years prior to our interviews, the lack of memory of some interviewees might have skewed the results through a hindsight bias. Furthermore, as the interviewee’s perception of legitimacy might vary and the researcher’s interpretation was subjective due to this study’s qualitative nature, the results bear a potential for misjudgment.
Another limitation arises from the restricted supply of company material, as some material was not available or provided due to confidentiality. Likewise, the completeness of the introduced theoretical strategy framework is questionable as some strategies might not be identified in the theoretical research. Thereby, this research can not claim to cover all applied strategies by the investigated companies. In addition, by only considering strategies that were visibly observable through different company material or that were mentioned by the founders in the interviews, activities communicated verbally (e.g. in a sales meeting or a face-to-face pitch) could not be incorporated in this study.
In this chapter, the results of the collected primary data are illustrated, analyzed, and discussed in accordance with the outline of the research question. At first, the relevance of the LoL for the investigated companies is evaluated briefly. Secondly, the in Chapter 2.3 described strategies are tested for their application and further described based on their individual implementation. With this, these strategies are assigned in accordance with the introduced framework of legitimation strategies in Chapter 2.3.4., allowing for the examination of the framework’s relevance and extensiveness. Lastly, surfaced, empirical codes in the form of novel strategies to build legitimacy, which have not been considered in the literature review, are pointed out and eventually assigned to the introduced framework.
Since prior research suggested a LoL to be a phenomenon, most new ventures (Zimmerman and Zeitz, 2002), especially new B2B SaaS ventures, struggle with (Lai et. al, 2014; Parry et al., 2012; Heart, 2010) this study aimed to verify these findings and their applicability for SaaS companies. For this, the researchers started their interviews by identifying, how relevant the examined B2B SaaS startups perceive a LoL to be towards potential customers.
Generally, all interviewees confirmed the profound relevance of a LoL for their business when trying to acquire customers. (“We struggled and still do” C2). C1, for example, mentioned to have recognized the LoL “to a large extent’. C3 stated here, how the LoL made customer- acquisition “really hard in the beginning’. In order to overcome the LoN and to build customer-perceived legitimacy, all interviewees acknowledged the need to actively implement specific strategies to manipulate customer perceptions. Hereby, this study’s interviews showed congruence in how researchers and entrepreneurs view legitimacy as a manageable and influenceable trait, adopting a strategic manipulative view on legitimation (Suchmann, 1995).
The crucial importance of legitimacy for starting up and acquiring customers, was emphasized throughout the interviews with the founders. In this respect, C2 pointed out, it was „all about trust and confidence “ to successfully enter the market. Furthermore, C1 stated, that perceived legitimacy towards customers was driving sales essentially, confirming Aldrich’s and Fiol’s (1994) view on legitimacy as a critical asset to establish ties with customers and acquire revenue streams. By mentioning trust as a prerequisite in the context of legitimation, C2 accords with the acknowledgement of research (Aldrich & Fiol, 1994; Moreno-Luzon, Chams-Anturi & Escorcia-Caballero, 2018) of building trust as a shaping factor for achieving organizational legitimacy.
Frequently mentioned in a causal link, the interviewees emphasized the lack of customers as a key cause for the struggle with the LoL. Related statements from C1 („Customers often want to check references to see the experience other customers had.“) and C2 ("Most legitimacy comes from who else you work with.'’") revealed a “chicken-egg problem” connected to the temporal sequence of legitimacy-building and customer acquisition. This finding is in line with the argumentation of Singh, Tucker and House (1986) and Zimmerman and Zeitz (2002), describing the lack of track record as a key aspect within the concept of LoL. Supporting this assertion, C4 pointed out to have significantly reduced their LoL through the acquisition of large and well-known clients in the early beginning.
In contrast to the other case-companies, C1 mentioned to have struggled with legitimation of their industry and their disruptive service delivery, rather than with the legitimation of their company itself („It’s less about a company in particular and more about a technology in general“ C1). Drawing on the differentiation of organizational and institutional legitimacy described by DiMaggio and Powell (1991), C1 further pointed out, “The challenge is not, whether they buy through us or an established competitor. The challenge is, whether they buy legal expertise online at all.”. This represents an additional legitimation detractor for innovative new ventures introducing a new product segment, as these have to build legitimacy for both a product and a firm.
Opposing the guiding view on the LoL vanishing in the course of the new ventures’ development in the interviews and previous research (Aldrich & Fiol, 1994; Dobrev & Gotsopoulos, 2010; Stinchcombe & March, 1965), C2 elaborated on how the LoL could never be fully overcome and would iteratively reoccur once new kinds of customers were approached (“It's also about moving up the food chain. So you will always experience liability of newness to the next larger customer segment.”). According to C1, however, legitimacybuilding would be accomplished „untilyou are at the point where customers come towards you“.
In conclusion, this study’s case companies generally confirmed the profound relevance of the LoL for their B2B SaaS business. Subsequently, the findings support the argumentation of previous research, stating a high applicability of the LoL in the B2B software industry, potentially due to high perceived buying risk of intangible products and thus, the customer’s need to rely on a supplier’s promises (Hargadon & Douglas, 2001; Laroche et al. 2004; McKnight & Chervany, 2000, Parry et al. 2012). However, the case companies revealed to efficiently mitigate the LoL through the display of acquired well-known customers, overcoming the “chicken-egg problem” of customer acquisition and legitimation. Furthermore, the empirical research revealed an iterative and steady perspective on the LoL.
In the following, the results of the observed material and the conducted interviews are presented and discussed along the introduced framework of legitimation strategies, starting with the Transference strategies.
Regarding an intentionally created Trustworthy Brand Identity, as part of the Brand Identification strategy, C1 and C4 pointed out to have chosen blue as color scheme for their CI to appear more reliable. With the same intention in mind, C1 selected an umbrella figure as their logo. However, both, C1 and C4, challenged the impact of this strategy, stating it would rather be “a hygiene factor ” (C1) and how they would not believe the design to be “as important [for them] as it would be for banks for example” C4).
In terms of Robust Design, C1 and C4 argued, they wanted their design to appear rather traditional and not too innovative, it should ”show, that we are down to earth.” (C1). At the same time, both C1 and C4 emphasized the need for NVs to retain a memorable and distinctive design. In contrast, C2 emphasized their focus on portraying innovativeness, consequently omitting a potential legitimation through familiar design. Drawing on Hargadon and Douglas (2001), the identified contradictory notions on design creation approaches between C1 and C4, on the one hand, and C2, on the other hand, demonstrate the conflict between familiarity and unfamiliarity of corporate design dealt with, in the concept of Robust Design.
All of the four researched companies illustrated Customer Testimonials of supposedly well- known clients on their respective landing pages, essentially making use of this framework’s Endorsements and Customer Testimonials strategy. C1, C3 and C4 displayed multiple testimonials in written text including their name and their position within the company, while C2 showed a so called “success video”” of a customer endorsing their product. Aside from their website, C1 regularly posted customer testimonials with specific use cases on Facebook. C4 further showed 17 testimonials on Google reviews. However, C4 stated, how these testimonial reviews occurred naturally and were not actively stimulated by the company. Therefore, these do not fit this study’s scope of deliberately implemented legitimation strategies.
C2 actively initiates reviews from industry insiders on Hotel Tech Report, an industry specific review platform for technology solutions. Aside from C2, no case-company applied Expert Endorsements as an activity. Referring to elaborations of Spry, Pappu and Cornwell (2011), as well as Biswas, Biswas and Das (2006) on the effects of different endorsements, the general preference for customer over expert endorsements in the case group might be due tothe interviewee’s strongly expressed need for demonstrating a track record instead of technical capability.
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Figure 2: Example of Customer References
The research further exhibits the utilization of Customer References on the landing page of all four companies’ websites. C2 and C3 demonstrated six of what they perceive to be their most prestigious customers, while C4 even displayed eleven (see Fig. 2). Additionally to the presentation on each website, C1, C2 and C4 made use of customer references in acquisition emails. C1 and C2 displayed their references on LinkedIn including each particular use case and C4 revealed to strategically leverage customer references in pitches and cold calls. A minor difference in the application of this strategy is the focus on either quality or quantity of displayed customer references. Here, in contrast with the other case-companies, C1 prefers to show a high volume of customers in order to demonstrate, how “a lot of customers have been through this”. In either way, throughout the cases, all interviewees particularly highlighted the high importance of this legitimation strategy. ("The most legitimacy you can gain, is from referrals of people you have been working with.” C2; “Best is to have brands, that everyone knows [...] if they buy from them, then they have to be trustworthy. ”C4).
The high managerial value of this strategy, especially in the beginning of a startup, is supported by C1’s and C4’s willingness to make up customer references of fictive customers (“It’s part of this fake-it-until-you-make-it philosophy" C1; “Its a little bit like fake-it-until- you-make-it” C4). Remarkably in this context, C3 only showed the mere brands of their customers on their website without mentioning whether they are actual customers, utilizing the mere affiliation with a well-known brand. Concluding, extensive application on multiple communication channels and positive statements regarding the impact of this activity stronglyreflect Ruokolainen’s assertions (2008), stating the display of customer references may be particularly beneficial for technology NVs entering a B2B market.
All of the investigated NVs established several Strategic Partnerships with the primary intention to either directly enhance sales (C1, C4) or product development (C2, C3). However, aside from C3, they all promoted at least some of these alliances purely with the objective to gain legitimacy (“It’s a good sales argument.” C4). While C3 announced a collaboration on LinkedIn, including the partner’s name, C4 displayed their three key partners, including their location in Russia or China, visibly on their website and in presentations. Instead of displaying the partnership, C1 benefits from one of its partners’s transferred legitimacy through its partner’s verbal promotion of their competency (“Our partner would tell its members, that this is a good deal for them, which means, that they we will have more trust in us and in our pricing.” C1). In line with the argumentation of Vapola (2011), David, Sine and Haveman (2013), C1 benefits from this alliance through legitimacy transference. However, the manner of creating this transference is different, as it is transferred through a direct recommendation, not through mere display of the partnership.
Commonly utilizing Affiliations to foster legitimacy, C1 communicates employer brands of certain individuals involved in the creation of their product on their website. C4 named globally known tech-companies and search engines to whose APIs they connected to on their website’s landing page and presentations. C2 makes use of the brand of “a very selective business accelerator program” on their website. Hereto, C3 opposed the positive effect of communicating to have participated in a business accelerator, as, in their opinion, this results in being “labeled as a start-up, not as a serious company” (C3). Moreover, C2 illustrated their origin from a well-known local university (“I’m working with an innovative [...] University Startup” C2) and mentioned, they regularly partner with “well-known companies to add body to what we do” on industry fairs. Most observed firms demonstrated actual affiliations with perceived well-known brands or institutions. This might be the reason, why the case- companies did not take advantage of brands without an actual affiliation to them, described by Goldberg, Cohen and Fiegenbaum (2003) as a “pseudo-structure-link”. Although Business Alliances were used to foster trust in all cases, the interviewees only moderately supported this activity’s impact on legitimacy, stating its dependency on the third party’s brand.
As part of the Ability and Competency category, the utilization of the Founder’s Education was not observed on any of the investigated media. Only the second interviewee of C2 conceded to have promoted their legitimacy with an Educational Degree “from one of the best universities’" (C2) in meetings and sales conversations. In this light, C4 argued, the founder’s degree in psychology would not help to gain legitimacy in respect of steering a NV Thus, they avoid to mention it. This opposes the notion of Cohen and Dean (2005), who found educational degrees to be legitimating in general, whereas C4 only considers relevant degrees to be legitimacy-fostering.
In contrast, the strategy of Founder’s Business and Professional Experience is frequently applied in all four cases. Subsequently, C1 mentioned one of the founder’s profession as a lawyer in the first line of acquisitions emails (“I am a qualified lawyer."" [transl.]1 C1) and described all of the founder’s relevant experience in business, technology, and law on their website. C2 communicated their CEO’s work experience in hotels on their website (“technology and hospitality experts"" C2), in presentations, and in sales conversations. As their solution is meant for hotels, they emphasized the legitimacy-building effect of showcasing the congruence of their professional and educational background and their client’s background with the principal message “from hoteliers for hoteliers"" (C2). Furthermore, C3 made use of their founder’s consulting experience at one of the globally largest accounting firms in presentations and sales calls. They perceived this to be especially credibility enhancing, when talking to HR professionals. Furthermore, C3 mentioned relevant professional experience of their founding team in a separate company section on its website (“Psychologists with a solid background in organizational psychology and experienced civil engineers"" [transl.] C3). C4 illustrated the founder’s experience within marketing agencies when pitching to customers. In general, the high relevance of this strategy is supported by its application frequency and by statements of C2 and C3 (“They need to think that you form a reasonable background."" C2; “Your background matters for customersl" C3). In consistence with Nagy et al. (2012), as well as Shepherd, Douglas and Shanley (2000), C2 highlighted the particular importance of relevant Industry Experience for technology businesses in 1 This quote was translated from Swedish.
conservative industries, as customers tend to assume, their specific needs are being met more accurately.
Referring to Organizational Competency, only C3 conveyed their use of well-known High- quality Technology, hosting and operating their platform on Amazon Web Services. However, C3 stated, the communication and usefulness of this strategy depends on the organizational function of the “'person you are talking to”. A display of Staff’s Capability was only observed in the case of C1. Here, the founders cited their lawyers’ quality and experience in a number of ways throughout different acquisition emails. In one email template, three particular lawyers were introduced with their name, previous employers, and their years of experience. While in another email template, C1 assured all lawyers had more than 10 years of work experience (“...connect you with carefully selected, quality-ensured lawyers.” [transl.] C1), attached their CVs and their selection process. C1 argued, how their use of experienced lawyers was the reason they could convince customers to use a new solution. The only firm, which advertised received Awards, was C4, presenting themselves as a “'finalist of 2018’s serendipity challenge” - a startup competition selecting the most innovative venture in the nordics - in a Twitter post.
Regarding Environmental Certifications, C1 and C4 neglected the relevance of such certifications for firms in the software industry (“A company like our ’s doesn’t have any sales arguments about being sustainable.” C4). C3, however, communicated the compliance to an AFS norm - a working environment regulation - and their approval by the Swedish social insurance agency both on their website and in customer pitches. As a vendor of HR software, this would gain credibility when communicated to customers.
In respect of Product and Service Guarantees, only C1 ensured the confidentiality of uploaded documents through an NDA template on their platform. As this is advertised as C1’s security promise towards customers and directly revolves around the service’s delivery, this study considers C1’s provision of an NDA template to be a Delivery Guarantee. As C1 identified their customers’ lack of trust in how the venture processes data and ensures confidentiality as a key detractor, they chose to provide an NDA template, guidelines and an explanatory video. Furthermore, C1’s FAQs on their landing page guarantee delivery within 72 hours after purchase, showcasing another Delivery Guarantee.
In contrast, Impact Guarantees were frequently used in all cases. C2, C3, and C4 communicated rather qualitative statements, guaranteeing the mere growth of certain KPIs, but not a measurable minimum in growth (“... saving you up to 28% of time at the front-desk.” C2; “... reduce stress levels to up to 50%.” C3, “ We can promise them growth, but we can not promise them an exact growth.” C4). Contrary to these firms, C1 guaranteed their customers to “save 60-70% by using us” in acquisitions emails. C4, however, indirectly advertised KPI performance of previous customers on their website (“ [Customer X] appeared on Google and Google Maps 201% more often than before ” C4). In most cases, the management considered KPI based impact guarantees as powerfully legitimizing and therefore strives to collect sufficient data in order to provide reliable guaranteed KPI growths. Responding to the question of introducing quantitative impact guarantees, which might not be reliable, C2 noted, this “would set expectations you could fail on and lose more conservative customers”.
While, the Impact Guarantee is frequently used and, according to the interviewees, a powerful legitimation method, Satisfaction Guarantees were only applied by C1. They provide such a guarantee by insuring, that “If you are not satisfied, you will get the money back.” visibly on their website and in acquisition emails. The implementation of this activity in this particular case might be connected to the high buying threshold for customers, according to C1. This reason for implementing a Satisfaction Guarantee is in consistence with its main function of reducing the level of perceived buying risk, described by McDougall, Levesque and VanderPlaat (1998), as well as McKnight and Chervany (2000).
With implementation in C1 and C4, the Fulfillment Process Clarity strategy was only infrequently applied and was generally considered to be important (“For such a digital service, there is a high need of clarity and expectations clarity” C1), but not explicitly legitimacy-building. C1 and C4 provided videos about Processes on their website, explaining the steps of delivery and implementation. In C1’s acquisition email a link to this video was included. In addition, C1 represents the only venture with a FAQ section, incorporating the “the six most common questions from customers” (C1). According to the founding team, this “considerably increased the conversion rate”.
Incorporated in the Clarifying Value Added strategy of the Value and Goal Congruence category, the researched NVs did not practice any form of communicated Charity or displayed their Environmental Footprint. This might be explained by software companies not causing a significant environmental footprint compared to other industries (Ahlstrom & Bruton, 2001; Provasnek et al., 2017) and, therefore, the societal attentiveness might be comparably low. In contrast, the Comprehension of their customer’s Pains is distinctly communicated by C1 in their acquisition emails (“Did you always want to have a personal lawyer but couldn’t afford one?” [transl.] C1). Likewise, C4 pinpointed their customers’ pains in a video about their value propositions on their website’s landing page ("If the information of these locations is wrong, 7 out of 10 consumers lose trust... ”C4).
In light of the idea creation, company development, and mission, C1 and C2 shared their company’s journey on their websites, C3 in customer pitches. C4, however, did not apply Storytelling as a legitimation activity as part of the Personalization strategy, but mentioned they were planning to do so in the future. By providing a story with statements like “To mark the new beginning, our founding team called the business [C2] - we aim to boost guest engagement”, the interviewees intended to provide a reasoning for their existence and, thus, engage with customers in a personal manner (“... customers know, why we are actually doing it” C3). Hereby, the firm’s objectives of storytelling are congruent with the effect of customers’ mobilizing sense for a firm’s existence, described by Wry et al. (2011) and Navi and Glynn (2011).
In respect of Photos of their Staff, C1 showed pictures of the founders on Facebook and in a sales pitch next to their names and functions. C1 displayed a picture of one founder on their website, offering customers to call in case of questions. In the case of the pictures on Facebook, the interviewees negated their strategic intention to gain legitimacy through Personalization. While C2 shows pictures of newly hired staff on Facebook and uploaded a video of the team at a company retreat, C4 regularly posts photos of staff members participating in fairs and events on both Facebook and LinkedIn. As an exception, C1 provided Profiles of the founding team members on their website, mentioning their background with the intention to “to show what kind of people we are” (C1).
In a similar context, all ventures engaged in Social Media Postings about company activities, visits of events, and reaching company milestones. C4, for example, posted their participation in large corporate fairs on Facebook. C1 followed a particularly personal approach, by posting photos of their founders’ beds in hostels and of the founders themselves on a private trip on Facebook. In addition, C1 moderated their firm’s development story through tweets on twitter. Asking the interviewees for their motives behind the social media postings, C2 pursue to personalize themselves through posting “daily things” and C4 aims “to let our visitors take part in our development.” (C4). Opposing the direct implication of social media activity for the business’s success, C4 expressed, it would rather be a hygiene factor and it would not “mean much in B2B in order to acquire customers.” (C4). However, based on the extensive implementation in the observed cases and the mentioned reasoning behind social media postings about daily activities and personalization activities in general, the relevance of this activity for legitimation might be considered as given. Subsequently, the findings regarding the intended effect of this strategy’s activities cover the cited motives by Kaplan and Haenlein (2009), Garud et al. (2014), as well as Wry et al. (2011) to gain trust by creating an approachable and meaningful corporate identity. In this context, C1 mentioned, they intended to provide more personal content in the future, creating webinars moderated by their staff.
Integrated in the Information Sharing strategy, in some way, all companies retrieved feedback from their customers. However, from a legitimation perspective, only C1 instrumentalized Asking for Feedback strategically, following up each purchase in order to achieve higher customer retention and strengthen customer relations.
While only C1 and C4 made use of News Articles about their venture, the strong impact on legitimacy of such articles was highly emphasized throughout the cases. C1 utilized an initiated article about their business model and ambitions in a Swedish online startup magazin in acquisition emails, including the article through a link and sales pitches (“You need to have some kind of hook at the beginning [...] like this is going to disrupt the world. And we then used that article in many emails.” C1).
Most interviewees strongly underpinned the trust-building effect of such articles (“articles are amazing as they build plenty of trust.” C1; “It’s good - it gives us credibility and it’s good for employer branding.” C4). C4, however, noted how they would perceive these articles rather as a legitimating reassurance for existing leads, searching on the internet for C4, than as a lead generator. As the only company with a critical attitude, C2 elaborated on the risks of such articles, as they would publish narratives about the venture, which could be harmful on the long-term. According to Etter et al. 2018 as well as Deephouse and Carter (2005), the high seized impact of news articles on legitimation observed from the interviewees might be explained by its issuing from neutrally appearing experts in the form of publishers.
Another frequently practiced activity is the concept of Thought Leadership on social media (see Fig. 3). All investigated companies applied this approach of providing value-addingknowledge, tips, and tricks related to their specific industry, such as HR management or online marketing techniques for their customer target group on LinkedIn. Besides LinkedIn, C3 and C4 also shared value-adding articles on their websites’ blogs. The mere objective behind these postings is to gain legitimacy by representing expertise and knowledge (“... show that you are expert in your area” C2; “... showing this is our position and that law is being simple” C1). While most companies use LinkedIn particularly for this reason, the interviewed founder of C4 stated, LinkedIn additionally functions as a lead generator through online target marketing.
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Figure 3: Example of Thought Leadership on Social Media
In contrast to the commonly applied Thought Leadership concept on social media, Brand Communities were not applied at all. Following the statements of C2 and C4, the operation of such an initiative represents an unattractive value/price ratio for a startup. Furthermore, the fostering of a software company’s brand might be less important in comparison to, for example, consumer goods (“I don’t think it provides added value in our case.” C2; “Thiswould be too costly and I doubt the impact of it, especially for software and B2B, is worth it." C4).
The table in App. C provides an overview of the applied legitimation strategies and activities, which were analyzed in this Chapter 4.2 and were firstly identified through theoretical research (see Chapter 2.3.4). The capital letters in the table represent the observation communication medium or channel, which made the applied strategy evident: Website (W), Social Media (S), Pitch/Presentations (P), Email/Message (M), Verbally - only investigated through interview (I), Other (O) such as internet search engines or industry specific platforms.
Responding to this study’s research aim to explore new strategies, that were not yet identified in the theoretical research, the following chapter introduces newly surfaced strategies revealed in the empirical data collection (empirical codes) and expands the strategy framework accordingly.
Both C1 and C2 communicated their country of origin, Sweden, to profit from the therewith connected legitimacy. C1 decided to use a more traditional Swedish company name to show quality, closeness to customers, and down-to-earthness. (“Most startups have different cool names and usually they say nothing. We wanted to really show, that we are down to earth. You get something good here and we are close to you as a customer. ” C1)
C2 intended to showcase the company was founded in Sweden to benefit from the perceived high quality of Swedish products („Customers definitely react positively, when we mention we are ,made in Sweden‘.“). Given the intention of transferring legitimacy to the venture in similar style as Murphy and Smart (2000) stated, when they considered the transference of credibility from perceived legitimate third parties, this legitimation activity is assigned to the category of Transference. Additionally, while this activity is aimed towards Brand Identification - an instrument to gain legitimacy through appearance - but specifically draws from the company’s country of origin, the framework is expanded by a new activity: Country of Origin.
C2 described their implementation of a referral program with the intention to gain customers by contractually binding new customers to make a certain amount of introductions to decision makers at other potential clients. (“The most legitimacy you can gain, is from referrals of people you have been working with. [...] Hotels look at their neighbors. We set up a program for that. So when we make a proposal, we include terms and conditions saying they need to make introductions to the management of other hotels.” C2)
This differs from customer references, endorsements, and testimonials, as the customers participating in such program directly reach out to other companies, while simultaneously allowing the program-owner to benefit from the transferred legitimacy of existing clients. Given the conceptual fit within the category of legitimacy Transference (Murphy and Smart, 2000) and the structural dissimilarity to testimonials, endorsements, and references (Biswas, Biswas & Das, 2006; Reuber & Fischer, 2005) due to the legal formulation as well as direct customer-to-customer contact, the framework is expanded by a new activity within the strategy-field of Endorsements and Customer References: Referral Management Program.
All four case-companies described their strategic showcasing of the venture’s business success and maturity in order to appear more credible and reliable. Three out of the four case- companies made use of showcasing their company's lifetime. Although C1 mentioned, they saw an automatic growth in customer interest once they had been on the market for one year, they did not use this information intentionally. ( “I have a strong feeling that, once we have been active on the market for a year, things started coming more without marketing. Customers realized ‘Oh these guys are still here’, [...] that was driving it.” C1)
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Figure 4: Example of Communicated Business Lifetime
C2 and C3, however, specifically stated “founded in 2016" (see Fig. 4) and „founded in 2014“ on their respective websites to build customer trust through appearing successful. As these activities draw on a company’s communication of business capability, similar to other strategies found within the category of Competency and Ability (Murphy and Smart, 2000), but neither fit into the definitions of Founder Education, Founder Business and Professional Experience nor into Organizational Capabilities, the framework was expanded by a new activity within a new strategy: Business Lifetime within Organizational Success.
While not stating the company’s lifetime, C4, was the only venture, which showcased its investors. The founder stated, how “you always appear more credible when you use your first VC investment.“, eventually utilizing their VC investments and an investment of a Swedish multinational clothing-retail company in sales discussions and through news-media outlets. Given the similar goal of portraying business success to appear more legitimate, but through a sign of business attractiveness, rather than through mere longitudinal survival, the framework is further expanded by a new activity within the strategy-field of Organizational Success: Investors.
Furthermore, C4 displayed four different globally distributed office locations on their website. The venture might have chosen to do so in order to appear more mature and legitimate. C3, on the other hand, showed a picture of their office in the highest building of Sweden and called their office „HQ” - potentially with the goal to showcase business success through a renowned prime-location and through the perception of operating multiple offices. Even though C3 negated to use these activities with the mere intention to appear more legitimate or successful, it might have been an unconscious decision to benefit from the radiant power of a well-known building. While the display of a company’s main location and the coverage of attached offices might both aim towards portraying a business more legitimate, the use of a specific location’s prominence and the stimulated appearance of a multinational company vary too greatly in order to condense them into one strategic activity. For this reason, the framework was further expanded by two legitimacy-building activities within the strategy- field of Organizational Success: Offices/ Coverage and Location.
Now, within this new strategy-field of Organizational Success, this study’s framework features new activities making a business appear especially successful: the display of the business’s lifetime (Business Lifetime), the display of multiple offices and multinational service coverage (Offices/ Coverage), the communication of attached investors and their investments (Investors) and the utilization of the company’s location (Location).
Furthermore, all four case-companies advertised either product demos, free trials, or explanatory videos. Reducing the perceived buying risk, the mere display of these options was supposed to make the venture appear more trustworthy and transparent. ( “Just like with our customer-videos, we want to show, that we have nothing to hide. With the option of a demonstration, we want to show customers, that they can trust us and that they know what they are getting into.” C2)
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Figure 5: Example of Product Demonstration Invitation
While a product demonstration (see Fig. 5) - usually via screencast - and an explanatory video help potential clients understand the product, its features, operation, and benefits, trials allow potential clients to test a product for a limited amount of time. Out of the sample group of this study, all companies used at least one of these activities. While C4 implemented an explanatory video to showcase their product with its main features and benefits, C1 recorded a clip of one of the founders guiding customers through the platform step-by-step, intersecting with the personalization strategy.
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Figure 6: Example of CTA-button for Product Demonstration
Additionally, C4 noticeably advertised product demonstrations on their landing page and throughout the rest of their website with multiple CTA-buttons „Book a Demo “ (see Fig. 6), further underlining the importance of this activity for the company. Lastly, C2 also provided a product demonstration, however, explicitly mentioned the limited time of fifteen minutes. C3 offered customer-trials, allowing potential clients to test the product with limited features for thirty days. According to the founder, „potential customers don’t always want to be committed to a sales-call or demo but, instead, just want to try a product in their own time and at their own convenience.“ C3 further mentioned: („By giving our customers this opportunity, we want to show transparency and build customer trust. In fact, closing deals is a lot easier, once the prospects believe they can just try our product and can see what it can do for them without any commitment“. C3).
While all these activities aim to foster transparency and, thus, fall under the category of Structural Assurances, they focus on the product with its main features and benefits. For this reason, the framework is expanded by a new strategy-field with three trust-building activities: Demo, Explanatory Video, and Trial within Trials and Visual Product Demonstration.
Subsequently, based on these newly surfaced strategies and activities, the expanded and updated framework is illustrated in App. C.
Table 5 summarizes all theoretical and empirical codes (green background) in terms of identified legitimation strategies and activities, including the displaying communication channel on which the measure was observed. The capital letters represent the observation communication medium or channel which made the applied strategy evident: Website (W),
Social Media (S), Pitch/Presentations (P), Email/Message (M), Verbally - only investigated through interview (I), Other (O), such as internet search engines or industry specific platforms.
Abbildung in dieser Leseprobe nicht enthalten
Table 5: Applied Strategies assigned to Theoretical & Empirical Codes
The results underpin, how the LoL were perceived to be a relevant hurdle for the examined B2B SaaS venture’s and how founders consequently implemented various strategies to build organizational legitimacy and customer-trust. Few activities prior research suggested, were not implemented by any of this study’s case companies. Additionally, the findings suggest various new legitimacy-building strategies, especially within the categories of Competency & Ability and Structural Assurances, which might be particularly relevant for SaaS businesses. The data shows, how the relevance of different strategies varies depending on the context of the associated sector, a venture’s life-cycle-stage, culture, and market newness.
This study’s objective was to understand, which legitimacy-building strategies can be applied by new B2B SaaS ventures to overcome the lack of legitimacy within the customer-producer relation. Legitimacy-building strategies were thereby defined as managerially implementable activities, new B2B SaaS ventures can leverage to aid customer acquisition initiatives.
Prior research implied a high significance of the lack of legitimacy NVs face in general (Aldrich & Fiol, 1994; Dobrev & Gotsopoulos, 2010) and, furthermore, emphasized a - due to high buying risks - particularly high need for customer trust for SaaS companies (Hargadon & Douglas, 2001; Parry, 2012). Additionally, prior studies have presented different frameworks featuring strategies, ventures can use to overcome a lack of legitimacy and, consequently, to build customer trust. However, these studies have not yet established a framework of legitimation strategies applicable for new B2B SaaS ventures, which might be related to the dynamic development in technology. Additionally, by introducing trust-building activities on different meta-levels, scholars, entrepreneurs, and policy makers were left with fragmented and disconnected bits of data and research.
Consequently, this empirical study first examined the relevance of a lack of legitimacy for new B2B SaaS ventures towards customers before exploring, which legitimacy-building strategies were applied for mitigation. Based on previous studies, the researchers developed a specific framework for legitimation strategies within a B2B SaaS context. Utilizing the empirical findings of four SaaS startups, the researchers further expanded their framework, in order to present guidance for new B2B SaaS ventures seeking to build legitimacy and customer trust.
The results within this study’s case-companies showed, how the lack of legitimacy represent a significant threat to a venture’s survival and how founders consequently address these shortcomings by implementing various legitimacy-building strategies. However, the research implied, that the choice and relevance of legitimation strategies varies depending on the context of associated sector, a venture’s life-cycle-stage, culture, and market newness.
While most of the strategies prior research suggested were applied on different communication channels and in different frequencies, few activities were not implemented by any of this study’s case companies. Initiatives like charity involvement, the display of a company’s environmental footprint, and the establishment of a brand community were neglected by founders due to an unattractive value/price ratio for new B2B SaaS ventures. Within this study’s framework, customer endorsements and references, product and service guarantees, personalization initiatives including social media activity, as well as strategic alliances were most frequently used by the case-companies. This study further revealed the application of strategies, which were not described in previous research, such as portraying their organizational success, including the display of office locations, the business’s service coverage or associated investors. Lastly, this study showed, how trials and visual product demonstrations were heavily implemented throughout all of the case-companies and how they seemed to be a common SaaS-specific tool to reduce perceived buying risk and to foster customer trust.
The implications of this study’s findings touch upon the threefold of venture management, policy making, and theory development in research. For founders and managers of new SaaS ventures in a B2B environment, the introduced and empirically tested framework, as well as the interviewed ventures’ opinions about the impact of certain strategies, constitute a supporting guide to overcome their respective lack of legitimacy. In this respect, SaaS venture’s need to address the lack of legitimacy in order to acquire customers by implementing legitimizing became evident.
As the results underpin the exposure of new ventures to a lack of legitimacy and thus the relevance of perceived legitimacy for a venture’s prosperous development, this study might inspire policy makers in various ways. As policy makers want to further stimulate innovation through new venture growth and, thus, have to work against early venture-failure, they need to help founders build customer trust and mitigate liabilities of newness. As a solution, policy makers might provide tools to strengthen the perceived legitimacy of actually legitimate new ventures. By providing an official evaluation of a venture’s management and business model through public institutions, venture managers could promote these certifications to their advantage. Furthermore, business accelerators, incubators, their managers, and public institutions, like the chamber of commerce, could specifically help founders improve their ventures’ customer trust. By pointing out the relevance of a NV’s lack of legitimacy and by offering guidance about the implementation of legitimacy-building strategies, policy makers could provide the tools to increase a startup’s chance of survival.
By confirming the relevance and application of previously described legitimation strategies in the B2B SaaS landscape and by extending the previously established strategy spectrum with newly identified legitimation activities, this study further contributes to the research on legitimation and its aiding strategies. Consequently - also due to aggregating previously fragmented elements of research - it contributes to closing the gap of legitimation strategies applied in and applicable for a B2B context, particularly in a B2B SaaS environment.
For future research, these findings might provide the groundwork for further studies regarding strategies applied in other industries or business fields and, thus, for a comparing crossanalysis of legitimation strategies in different contexts. This would contribute to the varying application of distinctive legitimation strategies across industries. Another entry point for future research would be to investigate the different levels and magnitude of different strategies’ impact on the perceived venture-legitimacy through customers. In contrast to this study’s focus, such research would require to look at the customer’s perceptions and would imply to identify the effects of different strategies on perceived legitimacy of customers towards the communicating venture. The investigation of the relationships between a venture’s overall culture, as well as strategy and the application of certain strategies provide a third starting point for further research. Since this study neglects the examination of such relationships and reasons for the omission of certain strategies, future research focusing on this specific context, would complement this study’s results and help to explain variations.
The specific characteristics of this study’s narrow sample group are limiting its generalizability and transferability. Furthermore, the completeness of the introduced strategy framework remains questionable, as some strategies might not have been successfully revealed. In order to mitigate potential for misjudgment, the researchers consulted a theoretical framework, a structured case design, and triangulation through member-checking. However, due to the interviewee’s subjective perception of legitimacy and the researcher’s interpretation of the results, the findings bear a potential for misinterpretation. In addition, the missing examination of perceptions on the customer-side prevents a substantiated explanation of the results’ validity in terms of the strategies’ impact and effect.
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Introduction: In theory and in practice, liabilities of newness seem to be a great issue for new ventures. The liabilities of newness comprise the lack of routines, roles, efficiency and also the lack of stable client relationships or clients at all.
1. In general, what was your biggest struggle in the beginning of starting up your company?
2. To which extend did you recognize the lack of legitimacy towards customers as a big issue?
3. Which actions have you taken in the very beginning to make your business seem more legitimate towards customers?
4. Have you applied one of the following strategies or activities? (Table below)
5. Is there any other strategy you have applied to gain legitimacy or trust?
6. Do you want to add anything to what has been discussed? Maybe regarding legitimation or strategies?
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Member checking table - C1
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Member-Checking Table - C2
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Member-Checking Table - C3
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Member-Checking Table - C4
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Applied Strategies based on Theoretical Codes
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Legitimation Strategy Framework based on Theoretical and Empirical Codes (in green)
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Masterarbeit, 198 Seiten
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