Stakeholder theory of entrepreneurship

The stakeholder theory of entrepreneurship is being developed by this blog's authors and associates  (e.g., Laplume, Walker, Zhang & Yu, 2020), but has roots in a debate that had occurred between professors Ron Mitchell and S. Venkataraman in 2002, over the connections between stakeholder theory (Freeman, 1984) and entrepreneurship. 

 

Stakeholder theory had largely been born out of studies of large corporations managing their stakeholders to improve firm performance (i.e., between incumbent competitors), and had not been fully applied to the entrepreneurship area to explain entrepreneurial behaviors, processes, or outcomes.

 

They were discussing how entrepreneurship and strategy research tends to be about how new wealth is created, whereas stakeholder theory is more about how that wealth should be distributed. For the latter author, the value creation and distribution issues were separate problems, complementary perhaps, but requiring different logics.

The stakeholder theory of entrepreneurship seeks to integrate the wealth creation and redistribution problem. In particular, developed economies feature some degree of competition among among incumbents of for innovations that can become valuable. Many of the best (read: most profitable) business opportunities are being vigorously explored.

 

Let us adopt the premise that from the entrepreneurial new entrant's perspective, entrepreneurial opportunities emerge from the appearance of a marginalized stakeholder. The cause of this stakeholder's marginalization is the set of strategic choices that incumbent firm managers have made to balance stakeholder interests optimally. Entrepreneurial opportunities are born out of stakeholder imbalances, as entrepreneurs discover business models for marginalized stakeholders.

There are often strategic reasons behind investments in stakeholders, such as focusing on the set of stakeholders that contribute resources to the firm that combine into a self-reinforcing bundle that is valuable, rare and hard to imitated (Barney, 2018). Therefore, entrepreneurial opportunities are a natural part of economic processes involving the pursuit of competitive advantage. 

 

The stakeholder theory of entrepreneurship has interesting implications for entrepreneurship practice because it suggest broadening the customer discovery process into a stakeholder discovery process. The shift is important because the theory recognizes the sources of entrepreneurial opportunities as catering to under-served stakeholders in the current incumbent regime. Customers are just one of several key stakeholders that entrepreneurs should pay attention to.

Source of ideas:

Barney, J. B. (2018). Why resource‐based theory's model of profit appropriation must incorporate a stakeholder perspective. Strategic Management Journal, 39(13), 3305-3325.

 

Laplume, A., Walker, K., Zhang, Z., & Yu, X. (2020). Incumbent Stakeholder Management Performance and New Entry. Journal of Business Ethics, 1-16.

Mitchell, R. K. (2002). Entrepreneurship and Stakeholder Theory: Comment On Ruffin Lecture# 2—Delivered by Professor S. Venkataraman. The Ruffin Series of the Society for Business Ethics, 3, 175-195.

Venkataraman, S., 2002. Stakeholder value equilibration and the entrepreneurial process. The Ruffin Series of the Society for Business Ethics, 3, pp.45-57.

What is Stakeholder Theory?