Stakeholder theory and entrepreneurship

A stakeholder approach to entrepreneurship has roots in a debate that occurred between professors Ron Mitchell and S. Venkataraman in 2002, regarding the connections between stakeholder theory (Freeman, 1984) and entrepreneurship.

Historically, stakeholder theory was born out of studies of large corporations managing their stakeholders to improve incumbent firm performance. It had not been fully applied to the entrepreneurship area to explain entrepreneurial behaviors, processes, or outcomes.

The Tension: Creation vs. Distribution

Entrepreneurship and strategy research tends to focus on how new wealth is created, whereas stakeholder theory historically focused on how that wealth should be distributed. For some, value creation and distribution are separate problems requiring different logics.

However, a Stakeholder Theory of Entrepreneurship seeks to integrate the wealth creation and redistribution problems.

The Core Mechanism: Marginalized Stakeholders

Developed economies feature intense competition among incumbents for innovations that can become valuable. Most profitable business opportunities are already being vigorously explored. So, where do new opportunities come from?

From the new entrant's perspective, entrepreneurial opportunities emerge from the appearance of marginalized stakeholder groups.

  • The Cause: Incumbent firm managers make strategic choices to balance the interests of their current stakeholders. They often focus only on stakeholders that contribute resources to a "valuable, rare, and hard to imitate" bundle (Barney, 2018).
  • The Result: By focusing on their core stakeholders, incumbents naturally ignore or marginalize others.
  • The Opportunity: Entrepreneurial opportunities are born out of these imbalances as entrepreneurs discover business models to serve these marginalized stakeholders (Laplume, Walker, Zhang & Yu, 2020).

Implications for Practice

This theory has interesting implications for practice because it suggests broadening the "customer discovery" process into a "stakeholder discovery" process.

This shift is vital because the theory recognizes that sources of entrepreneurial opportunities come from catering to underserved stakeholders in the current regime. Customers are just one of several key stakeholders that entrepreneurs should pay attention to.

What is Stakeholder Theory? (Video Overview)