The liability of newness can be seen as the root problem new ventures need to address in order to survive and prosper. The development of an appropriate alliance network at founding may enable a start-up to enjoy relationships and resources typical for a more established firm, hence, overcoming liability of newness. This study has used a longitudinal action research complemented with a multi-case study. It investigates how alliances influence liability of newness experienced by start-ups, what effect trust can have, and how it can be built in an alliance formation process.
The reviewed literature and the findings in this study link the alliance formation, overcoming the liability of newness and trust building processes. In order to successfully form an alliance, entrepreneurs can choose to combine “borrowed” legitimacy with trust-building behavior, which includes maintaining communication and gaining inter-personal legitimacy.
Although trust as a governance mechanism can be beneficial because it tends to lower transactional costs, this study suggests not to rely on trust as the only type of governance mechanism.
(Key words: Liability of Newness; Alliances; Alliance Formation Process; Trust; Action Research)