Network Progeny? Pre-Founding Social Ties and the Success of New Entrants

By Peter RobertsAdina Sterling
Management Science
February102012 Vol. 58 Issue 7 Pages 1292-1304.

Entrepreneurs that were employed by successful industry incumbents prior to founding tend to confer advantages on their new organizations. We propose and then demonstrate a similar “network progeny” effect rooted in the social relationships that form among entrepreneurs. Our analysis of new entrants into the Ontario wine industry shows that pre-founding friendship ties of the founders of one especially prominent entrepreneurial firm led to significantly higher ice wine prices. This attests to the promise of a network progeny extension of the parent–progeny account of new firm success. Follow-on analysis indicates that this effect is not attributable to an entrant’s ability to make ice wines of superior quality or to it having access to better distribution knowledge. We therefore conclude that having a social tie to this prominent entrepreneurial firm generated reflected prominence that enhanced the valuations and therefore prices of wines made by connected market entrants.