The Stakeholder Theory of Entrepreneurship: Beyond Shareholders

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.

Background: What is Stakeholder Theory?

Proposed by R. Edward Freeman in 1984, Stakeholder Theory challenged the "Shareholder Primacy" view (the idea that a company’s only purpose is to make money for owners). Freeman argued that a firm’s survival depends on any group or individual who can affect or is affected by the achievement of the organization's objectives. In an entrepreneurial context, this means a founder's job isn't just to build a product, but to manage a complex web of relationships from day one.

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. 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 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, incumbents naturally ignore or marginalize others (e.g., underserved communities, eco-conscious consumers).
• The Opportunity: Opportunities are born when entrepreneurs discover business models to serve these marginalized stakeholders (Laplume et al., 2020).

Stakeholder Acquisition Over the Startup Lifecycle

A startup does not gain all stakeholders at once. As the venture grows, the "stakeholder set" expands, increasing complexity:

Stage	Key Stakeholders Added	Primary Strategic Goal
Seed/Idea	Founders, "Fools/Family," Co-founders	Identity and Commitment
Early Stage	Beta Customers, Angel Investors, Key Employees	Product-Market Fit & Legitimacy
Growth	VCs, Major Suppliers, Scaling Workforce	Resource Acquisition & Standardization
Mature/Exit	Regulators, Local Community, Shareholders, Public	Social Responsibility & Governance

Connections to other theories

The Stakeholder Theory of Entrepreneurship is a "relational" framework that connects deeply to several other theories in our sitemap:

• Resource-Based View (RBV): Stakeholder theory acts as a critique of RBV. While RBV says you should focus on "rare" resources, Stakeholder Theory suggests that focusing only on rare resources leads to marginalizing others—which is exactly where the next entrepreneur will find their opportunity.
• Effectuation Theory: Effectuation is stakeholder theory in action. The "Crazy Quilt" principle in effectuation is about building a network of self-selected stakeholders (partners) who commit to the venture before the goals are even fully defined.
• Institutional Theory: Startups gain "legitimacy" by satisfying the expectations of powerful stakeholders within their environment (like banks or regulators).
• Social Entrepreneurship Theory: This is perhaps the most direct connection. Social entrepreneurs specifically target the "marginalized stakeholders" that traditional incumbents ignore, proving that value distribution is a viable business strategy.
• Human Capital Theory: Employees are stakeholders. This theory highlights that the "knowledge" held by employees is a primary asset that must be managed to ensure the firm's long-term survival.