Countervailing the liability of newness by bringing in active initial investors: the case of Facebook

Creating new businesses poses, especially in today’s hypercompetitive business environment, the same main dilemma for new and experienced CEOs and their strategic teams. What actions may countervail the risk of being “selected-out” from the competitive environment when trying to enter it? The struggle for survival in the first stages of the firm’s life cycle may be bloody – also for high-growth companies such as “unicorns” – and knowing the right actions to implement to reduce this so-called “liability of newness” (Stinchcombe, 1965) is fundamental for realizing a firm’s strategic direction. Therefore, investigation into how organizations may overcome the risk of exclusion within the first three years of life has reached a shared conclusion: an initial stock of assets that includes trust among strategic team members, financial resources, or psychological commitment, forms a buffering from the pressures of the competitive environment, allowing firms’ survival (Abatecola et al., 2012). How Facebook overcame its liability of newness period is presented here, helping the interpretation of the same initial financial and organizational troubles faced by current unicorns.

Purpose: This paper aims to present how Facebook overcame its liability of newness period, helping the interpretation of the same initial financial and organizational troubles faced by current unicorns. Design/methodology/approach: In this study, the case study method has been used. Findings: This story shows how the inclusion of active initial investors in the strategic team is pivotal for a firm’s survival. This case study depicts in depth the first years of life of the social network Facebook, focusing on the initial investors’ role for the survival of the firm. Originality/value: This paper shows how an initial strategic team (especially the inexperienced) may benefit from the inclusion of active initial investors in terms of financed capital, and of further financing and refocusing of the strategic direction.