SiMiXVF BEST PAPER AWARD RECIPIENT 2002 National Entrepreneurship and Small Business Educators Conference STAKEHOLDER INFLUENCE STRATEGIES AND VALUE CREATION BY NEW VENTURES Radha Chaganti Rider University Chag anti@rider. edu Candida G. Brush Boston University cg brush@bu. edu Cengiz Haksever Rider University Haksever@rider. edu Ronald G. Cook Rider University Cookr@rider. edu ABSTRACT New ventures bring the founders'isions to fruition, creating positive benefits for entrepreneurs and stakeholder groups. Simultaneously, these efforts may disrupt and destroy existing means of production, distribution, and consumption thus imposing- costs, or even creating negative values for stakeholders. This paper describes the types of value that are likely to be created and destroyed, and examines the value-related interactions between stakeholders and new ventures. Ne draw upon entrepreneurship literature, stakeholder theory, and the resource dependence perspective to develop a framework illustrating these i nteractions, then we explore the effects of stakeholder salience and dependence on influence strategies that new ventures may employ under conditions of low agreement of value goals, and suggest propositions for differentinfluence strategies and value outcomes. INTRODUCTION New ventures bring the founders'mbitious visions to fruition and create significant benefits or positive values for entrepreneurs and other diverse groups such as investors, customers, employees, suppliers, and communities (Cooper & Gimeno-Gascon, 1992; Acs & Audretsch, 1992; Kirchoff & Phillips, 1989; Shane & Venkataraman, 2000). New ventures may simultaneously disrupt and destroy existing ways of production, distribution, and consumption (Christensen, 1997; Schumpeter, 1934), thus imposing costs, "destroying" value or even 1 Journal nf Srruill Biisiiiess Sirniegv Vol. /J, Na. 2 Fall/IVinier 2002 creating negative values. Therefore, groups facing negative value consequences may attempt to influence the fimi's strategic choices to create positive value for their groups (Freeman, 1984). In turn, the entrepreneurs may attempt to influence these groups so that positive values arc maximized for the venture, while at the same tmie the interests of key stakeholders are met. Thus the new venture seeks to "manage" its relations with key stakeholders in order to maximize the positive values created for itself. Historically, research focused on the creation and destniction of ccmiomic value (Chrisman, Bauerschmidt & Hofer, 1998; Schulz & Hofer, 1999; Stevenson & lariflo, 1990). However, value consequences reach beyond the economic, and encompass a variety of non-economic dimensions (Bird, 1989; Shane & Venkataraman, 2000). The degree to which new ventures satisfy the interests of diverse parties can vary widely, although research examining value consequences other than economic is limited. Similarly, there is substantial literature exploring product/market and competitive strategies of new ventures (McDougall & Robinson, 1988; Carter, Steams, Reynolds & Miller, 1994), but there is less examining broader objectives and consequences of new venture strategies. This paper examines the value-related interactions between stakeholders and new ventures, and explores the influence strategies adopted by the new venture to manage stakeholder dcntands. We begin with a description of the different types of value likely to be created and/or destroyed for the key stakeholders of new ventures, then develop a framework illustrating these relationships by drawing upon entrepreneurship literature, stakeholder theory, and the resource dependence perspective. We explore the effects of stakeholder salience and dependence on the influence strategies that new ventures may employ and explore their value outcomes. Here we adopt the widely accepted definition of stakeholder as an& group or individunl ilini can nffect nr is iiffected by the new venture's actions (Freeman, 1984; Thompson, 1967). BACKGROUND Value creation occurs through the different functional strategies adopted by the new venture. For example, competitive strategies produce superior customer value and assure market leadership (Porter, 1980; Shepherd Ei Shanley, 1998), efficient operational strategies lead to high profitability for investors (Timmons & Sapienza, 1992) and effective human resource strategies provide the benefits that attract scarce personnel (Aldrich, 1999). Ideally the new venture prefers functional strategies that emphasize positive values for itself, and would like to use influence strategies to persuade stakeholder groups to accept its value goals as their own. If this proves difficult and powerful stakeholders pressure the firm to cater to their value objectives, the new venture's influence strategies aim at minimizing "value destruction" to its own goals while meeting these external demands. Then the entrepreneurial venture readjusts the functional strategies as needed. This inquiry is a useful contribution to literature since research hitherto has emphasized influence strategies of the large, mature, established corporation (Frooman, 1999). The next section explores the types of value created and destroyed by new ventures. Types of Value Created and Destroyed In creating a new venture, entrepreneurs seek multiple types of values for themselves, their firms, employees and other groups (Cooper & Gimeno-Gascon, 1992; Schulz & Hofer, 1999). However, first we need to define the term value (Sewafl, 1901; Young, 1978). Philosophers and ethicists define it normatively to separate the rights from wrongs. Economists, in contrast, are interested in the value of things, and distinguish between "value in exchange" and "value in use" (Sewafl, 1901). Baier defines value broadly along the same lines as a "thing' 2 Journo/ ofSma// Business Strategy Vol. /3, //o. 2 Fall/H'inter 2002 capacity to confer a benefit on someone, and to make a favorable difference to his life. The magnitude of its value is the measure of that capacity" (1969:40). Drawing on this, we define value as "the capacity of a good, or service, or activity (les) to satisfy a need, or provide a benefit to a person or entity". This definition is broader than the traditional economic concept of value, because it not only covers market-based value, but also non-market value benefits like quality of life, safety, prestige, etc. (Haksever, Chaganti & Cook, 1999). Further, we recognize negative values as comprising of economic and non-economic costs and risks imposed by an activity, good, or service, and we emphasize the value consequences to owners/investors, customers, employees, suppliers, and the society at large. The term "society at large" encompasses both the general public and members of surrounding communities (Aldrich, 1999). Hence, the new venture creates value for a stakeholder group every time it satisfies a need or provides a benefit to that group. Similarly it "destroys" value or creates negative value whenever its actions-however unwittingly —reduce the satisfaction of, or impose costs on a group in some way. Examples of these different types of value, considered across three perspectives, /. Econorn/c, 2. Non-econom/c, ant/3.Time, are illustrated in Tables 1-2. Time dimension has been included because some benefits/ rewards as well as costs/ risks can be short-lived while others extend into the long-term (Eisenhardt, 1989; Slevin & Covin, 1997; West & Meyer, 1997). Some of the value consequences that accrue to each of the five stakeholders are laid out in Tables 1 and 2. Table 1:Value Creation for Oivners/Investors, Customers and Employees Table lat Owners/1nvestors Value Value Created (Benelits/Rewards) Value Destroyed (Costs/Risks) Dimension Profits, dividends, wealth appreciation Loss of investment, low rate of return, Economic through stock price increases etc. bankruptcy, etc. Stress from uncertainty about firm's Non- Sense of well-being and security, pride future, sense of embarrassment from Economic and autonomy, etc. firm's missieps and scandals Long-term wealth and income increases, Uncertainty about the long-term viability Time investment in new technologies, and of firm enhancement of economic prosperity Table lbt Value Creation for Customers Superior use-benefits, reliability and Price, cost of defective good, repair and Economic durability of goods, lower cost. disruption costs, maintenance costs ctc. Non- Ease of use, support services, Difficulty in getting product knowledge, convenience, sense of security, product Economic harmful effects, loss of prestige, etc. image and prestige Time saved in product use, durability of Learning time, delays in repair andTime benefits, etc. replacement etc. Table let Value Creation for Employees Wages, monetary benefits like pension, Opportunity costs of jobs foregone, costs Economic insurance, profit sharing, etc. of working like commute, child care, etc. Sense of well-being, job security career Stress, monotony, lack of challenge, loss Non- advancement, pride and empowerment, of personal time, harmful effects of work, Economic recognition etc. hurt from unethical behavior of firm Long-term wealth and income mcreases, Risk of loss of marketability, lack of skill Time career advancement, long-term pride in development, long-term loss of personal firm, and increased self-esteem well-being, etc. 3 Jnurnul nf Small Bn»i hc»» Strrurgy Virl. IL No. 2 Fall/IVinter 2002 Table 2: Value Creation for Suppliers and Society at Large Value Value Created (Benefits/Rewards) Value Destroyed (Costs/Risks)Dimension Tahle 2ar Value Crearion for Supplit,rs Price and other concessions extracted by firm, slow payments, loss ofRcvenuc, profit, stable business financialEconomic rcvcnue from failure of customer firm,assistance from customer firm, etc. cost of meeting other customer firm demands, etc. Stability of business relationship, greater Uncertainty of relationship withN 0 li- innovation, tcchnical and managerial customer, damage from customer firm'sEconoinic assistance, prcstigc, ctc. from customer firm unethical behaviors, etc. Risk to long term viability of supplierLong-term business stability, high rate of from loss of contract, learning andTinic growth and profltability, innovativencss, other costs in long-term adaptations tocontribution to economy, ctc. customer Tahle 2hr Value Creation for Society at Large Tax abatements, costs of pollutionJob creation, mx revenues, more functionalEconomic od f ', h . bl 'd reduction, costs of infrastructureproducts, firm's charitable donations, etc. facilities, increased cost of living, etc. Non- Stable healthier economy, non-monetary Pollution, congestion, social problems Fconomic contributions of firm, community pride, etc. like increased crime, etc. Risks of long-term loss to economyGreater economic prosperity long-term,Time from downsizing of firm, reducedsocial benefits of long-term growth quality of life, etc. FACTORS INFLUENCING VALUE-RELATED INTERACTIONS The entrepreneurial team is cognizant of value impacts resulting front stakeholder interactions, and hence seeks to maximize the positive values and minimize the negative values. Accordingly, entrepreneurs try to influence the stakeholder value demands to ntaximize net positive values to the new venture, and at the same time, each external stakeholder also makes demands on the venture. However, because not all stakeholders have equal power, those that have highest power or control over the new venture's actions would shape the entrepreneurs'ecisions, capturing the greatest positive values for themselves. Hence the power or»alienee of a stakeholder determines the degree to which the entrepreneurs yield to its demands. Further, the stakeholders also depend on the new venture to produce desired value outcomes, and this stakeholder dependence varies among stakeholders. The interplay between stakeholder salience and dependence of the stakeholder on the venture determines the types of influence strategies adopted by the entrepreneurial venture and the resulting value outcomes. New Venture Perspective Stakeliolder Salience. The term stakeholder "salience" signifies that the entrepreneurial venture perceives the importance, approval or cooperation from a particular group as essential for its well being. However, the entrepreneurial team may not always be cognizant of the total spectrum of value consequences from its actions and there could be several unintended consequences (Mintzberg & Waters, 1982). Still, in the majority of cases the entrepreneurs do perceive the importance of a stakeholder accurately, and will strive to cater to its value demands. Research points to several factors that influence stakeholder salience (Agle, Mitchell & Sonnenfeld, 1999; Frooman, 1999; Mitchell, Agle, & Wood; 1997; Pfelfer & 4 Journal of Stnall Business Strategy Vol. /3, No. 2 FaflflVinter 2002 Salancik, 1978). This paper will focus on two factors, namely, resource dependence of the new venture and its value goals. Resource Dependence of tlie New Venture. Resources and capabilities are critical to organizational success because these enable a firm to establish sustainable competitive advantages relative to its key rivals, and generate above-normal returns (Barney, 1991; Conner, 1991;Mahoney & Pandian, 1992; Oliver, 1997; Peteraf, 1993; Wernerfelt, 1984). As Stevenson and Jarillo (1990) point out, the impetus for creation of a new venture is the innovative idea that embodies hitherto undiscovered opportunities and can be transformed into a potentially successful enterprise. While the new venture may have the edge in its unique and superior idea, it often lacks the many complementary resources necessary for bringing these ideas into fruition (Mosakowski, 1993). Thus the new venture is in continual pursuit of diverse inputs, and is highly dependent on the resources and commitments from several stakeholders (Bruno & Tyebjee, 1982), For instance, it must attract investors and creditors'ommitments for its capital needs (Brophy, 1992). It needs suppliers for its material and physical capital, talented employees for managerial and technical expertise, and it needs to win the loyalty of growing numbers of customers to ensure the success of its products and services (Cooper & Gimeno-Gascon, 1992; Greene & Brown, 1997). Therefore, those stakeholders that provide the most vital resources gain the most power over the venture and this makes them the most salient/influential players (Agle, et al., 1999; Freeman, 1984; Frooman, 1999;Mitchell, Agle, & Wood, 1997; Pfeffer & Salancik, 1978). Value Goals of the New Venture. The new venture is a product of the entrepreneur(s)'oals, effort and values, and, therefore, these have a substantial role in shaping the firm's strategies and success (Begley & Boyd, 1987; Stewart, Watson, Carland, & Carland, 1999). The entrepreneurs'alues and perceptions often determine perceived salience of stakeholders. Agle and colleagues (1999) confirm that the leader's values on self-interest versus other- regarding interest influence the firm's interest in catering to non-investor stakeholders. 1'he entrepreneur of this venture is pre-occupied with achieving rapid growth, competitive superiority, economic success, and preparing for the anticipated future of the fiim (Lumpkin & Dess, 1996). Her attention is wholly centered on the players that contribute to the venture's growth success. Hence, unless the entrepreneur has strong altruistic motivations to begin with, or is obliged to address these issues, attention to the non-economic value outcomes tends to be minimal. The entrepreneur may consciously or unintentionally defer value enhancement for the less salient stakeholders. Only paying attention to the "stakeholders that matter" seems to make good business sense (Freeman, 1984; Jones, 1995). Stakeholder Perspective S(akeholder Dependence. Dependence occurs when the new venture provides essential value outcomes to the stakeholder group and few others can satisfy this stakeholder's value needs. Rephrasing in terms of power, "power is defined in relative terms - that is, A has power over B if B is more dependent on A relative to A's dependence on B" (Frooman, 1999: 196; Lawler & Yoon, 1996). Hence, the venture has greater power and the stakeholder may yield more to the venture under these conditions compared to those where the dependence is more balanced. An example would be a biotech new venture that holds a'patent for a new medical formulation for say lung cancer. Assuming that FDA has approved this new drug, the new venture is in a position of advantage when it is negotiating with another firm, say a pharmaceutical company, for assistance in manufacturing and marketing. Stakeholder Value Gools. Stakeholder literature (Freeman, 1989; Frooman, 1999; Jones, 1995) analyzed the value goals and their priorities for different constituents of the new 5 Ji&u ma/ Rf.Cut u// Bnsiaess Snit/erat Vo/. /3, No. 2 / 0//11'imei 2002 venture like investors, customers, employees, suppliers communities, and competitors. Agrcemcnts and disagreements occur between each constituent's value goals iis a vis the cntrcprencurs'oals on the one hand and between the goals of the disparate stakeholders on the other. Prior research on large corporations has shown much interest on how low compatibility in goals between a stakeholder and the organization affects their interactions (Freeman, 1984; Frooman, 1999; Oliver, 1991; Pfeffer & Salancik, 1978). Figure I presents a general framework that graphically summarizes this papers'iew of the possible interactions between the new vennire and its stakeholders. Figure I: Interactions between Neiv venture and Stakeholders Stakeholder's STAKEHOLDER lnfluence NEW VENTUREStrategies Dependence on New Stakeholder Salience Venture Resource Dependence Value Goals Value Goals Venture's Influence Strategies Value Functional/ Outcomes Value Creation Strategies Within this general scheme, the new venture adopts influence strategies that enable it to pursue those value creation strategies that meet its own value goals. Under certain conditions, the new venture may be obliged to completely concede to the stakeholder demands, and resign itself to receiving a lower share of positive values than the stakeholder receives. But, in the long run the new venture seeks to increase its autonomy from stakeholders with incompatible value interests. As Pfeffer and Salancik (1978) note, "firms do not merely respond ...through compliance to environmental demands. Rather, a variety of strategies may be undertaken to somehow alter the situation....and make compliance less necessary" (pp. 197). Next we elaborate the concept of agreement between stakeholder and new ventures on value goals. Agreement on Value Goals Prior research points that the level of compatibility of interests between the organization and its stakeholders strongly intluences their interactions (Freeman, 1984; Frooman, 1999; Jones, 1995; Oliver, 1991; Pfeffer & Salancik, 1978). Hence the presence of high versus low agreement regarding the value goals (or the desired value outcomes) between the two parties is an important moderator of stakeholder-and-entrepreneur interactions. For the stakeholders and the entrepreneurs, value goals would match value outcomes when the venture's value creation strategies succeed in achieving the desired values of each group. Here we posit that for the entrepreneurs, the economic value goals of survival, growth and continued profitability 6 Jnttrnal of Sniall Business Strateg)'ok l3, Na. 2 Eall/IVinter 2002 (Shane & Venkataraman, 2000) are primary, along with the non-economic value goal of personal satisfaction (Cooper & Artz, 1995). STAKEHOLDER INFLUENCE STRATEGIES AND VALUE OUTCOMES New venture's stakeholder management consists of actions or steps taken by the venture to influence its relations with key stakeholders. As mentioned earlier the underlying purpose of these influence or management strategies is the creation of maximum possible amounts of positive values and minimum amounts of negative values for the firm under the given circumstances. Oliver (1991)identified influence strategies in the context of an organization responding to external hostile pressures. She posits the five strategies of acquiescence, compromise, avoidance, defiance, and manipulation. Similarly, PfelTer and Salancik (1978) point out that organizations seek to minimize dependence and manage the environment through strategies such as avoidance, compliance, managing by controlling access, and managing and avoiding dependency by actions such as buffering, and diversification. Drawing from this research, we identify five types of influence strategies that a new venture may adopt to manage stakeholder demands for value creation: I) compliance, 2) negotiation/compromise, 3) alliances, 4) replacement, and 5) defiance. We intetpret these strategies for the purposes of this study as follows: 1. Cotnpliance strategy signifies that the new venture consents to fully implement strategies conforming to stakeholder demands. Thus the new venture gives priority to meeting this group's value goals over its own. 2. Negotiation/ campraniise strategy involves the entrepreneurs bargaining with the stakeholder to persuade it to be less demanding and modify the terms of its value demands. The negotiation may result in a contractual agreement. 3. Alliance strategy refers to entering into formal or informal joint ventures, equity stakes, shared purchasing or other types of cooperative arrangements. 4. Replacement strategy is adopted when the new venture seeks to procure from others the inputs provided by the pressuring stakeholder to avoid transactions with this gr'up. 5. Defiance strategy is adopted when the new venture ignores the stakeholder's value goals and pursues its own. These strategies can be differentiated on a scale of activism, where activism refers to the extent to which the new venture can exercise its strategic choices autonomously or without concern for stakeholder demands. Compliance would be the least active strategy, while defiance would be the most active. A new venture may adopt one or more of these strategies and also reinforce them with other complementary strategies such as communications aimed at concealing dependence, or for exaggerating the appearance of compliance, or building buITers to reduce dependence on the particular resource provider (Pfeffer & Salancik, 1978). The entrepreneurial venture deals with several stakeholders at any given time and hence tailors the influence strategies to suit the different constituents. In this mix of influence strategies, the new venture will on the whole pursue strategies that minimize its dependence on those stakeholders whose value goals are incompatible with its own. To illustrate, a new venture may agree with one group of stakeholders, namely, investors'emand for more elTicient operations and thus takes steps to reduce new product testing costs. 13ut other stakeholders like the new venture's consumers may view this as being harmfuL And this group could experience some value decrease, even if the new product adds value in other ways. Thus the new venture's actions simultaneously atTect some groups positively and others negatively. In fact, the same group might receive both positive and negative values. In the case of the new venture mentioned above, employees may receive several job related benefits 7 Jonrnnl of Stnnii Business Srrategv I'oi. /3, No. 2 FnhylYinter 2002 like better wages and career advancement, when the new venture achieves profitable growth with the new product. However, these employees may at the same time be dissatisfied that the fimi is skimping on new product testing. Overall, the new venture employs different strategies with dif1'erent stakeholders with the aim of maximizing the positive values created for the firm while minimizing any unavoidable negative consequences. For example, it might comply with the investor group's demands for economy, and also issue communications to customers stressing product's superiority and the venture's concern for product safety. If this communication strategy suffices, economic and non-economic value outcomes could be quite positive for the venture. However, if customers arc not satisfied with these moves, they may pressure the venture over time to reverse the cuts, and this could eventually adversely affect the value received by the firm, and another of its stakeholder groups, namely its investors. The following sections explore some of these stakeholder influence strategies in greater detail. We focus on the scenano where the new venture's management and its stakeholders in question have a low level of agreement on the types of values that should be created by the firm. New Venture Influence Strategies under Conditions of Low Agreement on Value Goals Situations of low agreement on value goals are clearly less desirable, and scenarios where the flmi is highly dependent are particularly problematic and unstable. When stakeholder influcnce is high, compliance may be unavoidable in the short run, and this imposes substantial costs on the new venture. In the long run, the venture may be able to actions that produce more autonomy from the hostile but dominant stakeholder. Empirical research shows tliat organizations resist external pressures (Covaleski & Dirsmith, 1988; Powell, 1988) when agreement is low, and resistance is more successful when the dependence is mutual between the organizations so that the power of each is roughly in balance. Ideally, the new firm would like to move to a situation of low dependence. While attempting to reduce its dependence, the firm still needs to pursue strategies that accommodate the interests of a powerful stakeholder. Overall, the new venture's value goals are constrained by the necessity to interact with powerful and incompatible stakeholders. A new venture in this predicament works hard to change this situation, and tries different solutions. It might disguise its dependence, when it complies, it may pretend to be more compliant than it actually is, build internal buffers to decrease its vulnerability to stakeholder threats, look for powerful and supportive allies, develop substitutes, or seek alternative providers of the specific resources. The following sections describe in more detail the influence strategies attempted by the firm in the four types of low agreement scenarios. Figure 2 summarizes these four situations. Cell A: Dominant Stakeholder. Strategies. Cotnplinnce though reluctantly olTered is the most feasible option for the firm faced with a hostile and powerful stakeholder. The latter threatens to, or actually withholds valuable financial, material or other resources like legitimacy if the focal firm fails to meet its demands (Frooman, 1999; Meyer & Scott, 1983; Oliver, 1991). The new venture, finding itself vulnerable, complies. For instance, a new software venture that is planning to introduce a promising PC-based computer game will have to abide by the conditions imposed by a dominant producer of operating software for PCs. Compliance may remain 100 percent even in the long run if the applications software venture has few alternatives to this [stakeholder] dominant producer of operating systems. This situation would be particularly unattractive if the dominant company can easily monitor the new venture's actions and punish instances of low compliance. This situation was perhaps similar to that experienced by ISV [independent software vendors] ventures in their relations with Microsofl in the early 1990s when they were trying to bring out new and popular 8 Zaunial ofStiiall Business Strategy Val. /3, No. 2 Foll/Winter 2002 software applications for the PC. But where the stakeholder's control is not complete, the new venture. Figure 2: Stakeholder Influence Strategies of New Venture Under Conditions of Low Agreement Dependence of Stakeholder on iyew Venture Low High Cell iti Dominant and Cell Bi High Interdependence Incompatible Stakeholder wiih Incompatibility Strategies; V complies in short run, uses Strategies; V and SH negotiate and also buffering and concealment. Long run compromise in short run. Also use V seeks replacement of this SH and also concealment. Long run SH and V seek High alliances with other SHs. alliances with other SH, and replacement. Value Outcomes: Higher negatwe values Value Outcomes: Positive and negative for V and higher positive value for SH m values high for V and SH. Long run Salience of short run. In long run, positive values may negative values may decrease for both Stakeholder decrease for SH when SH is replaced. with replacement. Io New Cell D Low Interdependence Cell Ci Dominant Venture Venture with Incompatibility with Incompatible Stakeholder Strategies: Defiance and minimal Strategies: SH accommodates in short exchange in short run..Long run, SH and run, seeks alliances in long run. V defies V seek replacement. SH. Low Value Outcomes. Some negative value Value Outcomes: Limited negative values impacts for SH and V. Long run, net for V, but negative value high for SH. In positwe values increase for V and SH with long run, SH's alliances may increase replacement. negative values for V. NOTE: V = New venture SH = Stakeholder may go along with the dominant stakeholder's conditions, but may simultaneously make attempts to reduce its dependence. To begin with, it may make exaggerated statements regarding its compliance with the dominant company's conditions and also "engage in window dressing, ritualism, ceremonial pretense or symbolic acceptance" (Oliver, 1991: 155). Further, the new firm might manipulate communications to minimize the hostile stakeholder's knowledge of its dependence, and where possible it may build buffer stocks. Trust is clearly absent and opportunism is common (Jones, 1995) in such cases. Then the stakeholder may find it necessary to institute monitoring mechanisms to verify compliance by the new venture. This might increase transaction costs for both the stakeholder and the firm (Williamson, 1975). Thus this imposes some negative values for the dominant stakeholder too. In the long run, the new venture will pursue Replacement of interactions with the hostile stakeholder. For instance it could seek out other market segments to sell to, invest in internal supply sources, search for alternative suppliers, or develop substitutes to the inputs through its own research and development efforts (Pfeffer & Salancik, 1978). The new venture's attempts may be aided or impaired by the state of interrelations among the various stakeholders (Rowley, 1997) the firm deals. If the venture is dealing with a hostile, powerful and close knit network of stakeholders, then few options to compliance exist either in the short or long run. In fact, as the experience of music industry newcomer Napster suggests, an entrepreneurial venture can jeopardize its very existence if it fails to recognize the potential negative values feared by key stakeholders. 9 Jaumutl of.'imall Sucl ncl;I Stratcgv Val. IS, Niz 2 PallttVinmr 2002 Value Oittcutnec. The dominant and hostile stakeholder is the primary beneticiary in the interactions with the new venture, and receives significant positive values, though some negative values are incurred in monitoring costs. The entrepreneurial venture's positive values are severely reduced, and in fact, large negative values may accrue. Revenue growth and profitability of the firm may be severely jeopardized by the added costs of compliance. If the flrm cannot reduce its dependence on the low agreement dominant stakeholders and if it has few supportive stakeholders, sometimes the firm's survival is jeopardized. Therefore, propositioti I: Umler conditions of low agreement on values, the dotninant stakeholder rrtracts significant concessions and compliance from the new venture in the sliort run. In the Irmg run, the nehv vernnre will pursue negotiationl cotnprodnise with this stakclioltler, aml also look to replncemeiu strategies. Relative to tire new i'enture, the hostile stakehohlcr receives a signifdcmitly greater slntre vf the positive value ourconics, but sotne negntt've values may accrue to the sntkcliolder in nionirortng costs. CHIIHHid~hl d d . d dl . H h dl«khld equally dependent on each other for satisfying their value goals, but their value goals differ significantly. In this case, in the short nin, negotiation and cotnpromise are appropriate for both. Because the stakeholder needs the flrm to add important positive values, it will exert only moderate pressure. As Frooman (1999) states, this type of stakeholder is likely to provide resources but impose usage conditions - instead of withholding inputs. A hypothetical example would be the case of a new biotech venture that holds a patent on a proven new fomiulation for breast cancer that has been approved by the FDA for full-scale manufacture and marketing. This drug also promises to be a blockbuster in sales and profit production, 'fhis young biotech venture would prefer to go it alone to maximize the returns to itsell; but can not pursue this option since it lacks the requisite resources and expertise. Then it would seek the assistance of an established pharmaceutical firm to make and market the new drug. Assume that the mature pharmaceutical firm needs the new drug desperately to replenish its depleting pipeline of lucrative products. Though this company also would have prel'erred to go it alone with the product introduction, that is not feasible, and hence the two parties need each other in significant ways. These two parties are thus reluctant partners that are mutually dependent in important ways. Then in the short term at least, the two firms may be willing to compromise (Oliver, l991) and partially accommodate each other's interests. They may enter into a variety of agreements to collaborate, but each would also impose restrictions on the other, fearing opportunistic behavior by the other. They may concurrently use concealment strategies as well. If such arrangements prove unproductive to either of the partners, in the long run they would move towards replacement strategy, seeking other avenues for profits and growth and terminating agreements with the incompatible partner as soon as other options become viable. In cases where it is practical, each party may simultaneously try and build alliances with other stakeholders in the indusuy to build support to their demands and pit these influential and more supportive stakeholders against the less friendly party. That is, in such cases the entrepreneurial venture and its incompatible stakeholder would attempt to alter the nature of interactions over the long term. In the event the interactions can not be transformed, the uneasy alliance may continue. Value Outconies. In cell 8, positive and negative values accrue to both venture and the salient unfriendly stakeholder in roughly balanced proportions. In a situation of mutual dependence, neither can extract an unduly high price in value share. If the firm and the stakeholder reach a stable compromise in the long run and each gives up some values for the sake of a sustainable relationship, then the decreases in negative values may offset the decreases in positive values. Hence, 10 Journal of Sinall Business Straiegi'ol. 13, No. 2 Fall/Winter 2002 Proposition 2. Under comlitions of low ngreement, negotiation and comproniise strntegv is appropriate for tlie highly inrerdependent new venture and stakehohler, but in the long min the venture and its stakeholtler would opt for the replacement strategy. The sluires of positive and negntive values will be relatively balanced to each player. Cell C: Dominant Venture. Strategies. Defiance is the preferred choice for the venture provided the weak and hostile stakeholder cannot build support from other groups that also interact with the new venture. This is an anractive situation for the new venture because it can act wholly autonomously of this unfriendly stakeholder. But, the stakeholder's predicament resembles that of the dependent new venture in cell A. Hence, stakeholder coinpliance would be in evidence. That is, this stakeholder group accepts the value goals of the new venture, but at the same time it may try to conceal its high dependence on the firm. In the long run the dependent stakeholder tries to increase its autonomy and or increase its clout over the dominant new venture by coopting other powerful stakeholders (Freeman, 1984; Frooman, 1999) through replacement and alhances. Success for this stakeholder depends on the density of links in the network of stakeholders and the degree of compatibility between the different stakeholders. An example could be a growing and profitable e- commerce company in a slow economy such as in the second half of 2001 - such as Amazon.corn when dealing with its technical professional employees. Relative to past, these employees enjoy fewer attractive employment options, and hence while they may not be pleased with the terms offered by the venture's management, they may nevertheless accept them. These professionals would no doubt continue to look for emerging opportunities, and should the environment turn in their favor over time, they would either renegotiate the job conditions or leave this employer. Value Outcomes. As long as the conditions remain stable, the entrepreneurial venture is clearly in a position to seek and enjoy high positive values, and it is quite likely that it would receive a greater proportion of the total positive values created. In the long run the shares may become more balanced if the stakeholder can alter the situation in its favor. Accordingly, Proposition 3: Under conditions of low agreement, the dominant new venture may pursue a definnce strategy and refuse to meet the demands of the weak aml incompanble stakeholder. ln the near term, stakeholder compliance may be in evidence, but in the long run, it may seek replocenient of the venture, or increase its salience through alliances with others. Share of the positive value outcomes received by the new venture is signijicantly higlier for the new venture and lou er for tlie stakeholder. Cell D: Low Interde endence. Strategies. The new venture and this stakeholder have limited need for each other, and given dissimilar value goals, both would prefer to exit the relationship. The firm would use defiance strategy, as would the stakeholder. If replacement strategy were possible, entrepreneurs managing the venture would terminate the relationship in the long run. If not, the transaction may remain a simple exchange. Value Outcomes. Both would receive slightly negative values on a net basis from the interaction, but the impacts on total values added may be minimal. Thus, Proposition 4. Under conditions of low agreement, in a low interdependence situation the new venture as well as the stakeholder will pursue defiance strategy in the short run and replacement strategy in the long run. Value outcomes are not significantly impacted for either the venture or the stakeholder. 11 Jonrninl ofSinn// Htixine.,'iroregy I'ol. /3, /t/o. 2 /'ollltginier 2002 CONCLUSIOiV AND Ii11PLICATIONS l,iterature often addresses product/market strategies of entrepreneurial ventures, but seldom considers strategies required to "manage" stakeholders. Research regarding stakeholders is established in the context of large organizations, yet less studied in the new venture context. While the potential positive and negative effects of stakeholder management may be relatively more visible and consequential when the company is large and well established, such as StarKist (Frooman, 1999), the current growth of technology suggests that a better understanding of influence strategies might enhance new venture survival. Because new ventures face crises of legitimacy and resource scarcity if they choose to grow rapidly, obtaining capital, gaining customer acceptance, and accessing distribution mandates intei actions with multiple stakeholders (Bhide, 2000). I lence, a better understanding of the range of alternatives that a new venture might pursue is of practical, theoretical and empirical interest. Our purpose was to contribute to this gap in literature by outlining various scenarios that posited influence strategies and value outcomes. Further, we sought to go beyond economic value and broaden our understanding of all value outcomes. We began with the premise that new ventures may nt once create and destroy value as founder's bring their ideas to fruition. We argued that the positive and negative values resulting from the new venture creation process varied for different stakeholder groups and over time. Propositions put forth in this paper could be explored in greater depth to analyze the variations in interactions and influence strategies that occur for different types of entrepreneurial ventures. For example, when a start-up entrepreneurial venture enters the rapid growth phase, conditions may shift significantly. In particular, as a new venture gains market share, it becomes more visible in the investment community, in the eyes of competitors and of course, suppliers and customers. This enhanced visibility may lead to greater expectations for returns to investors. cmplnyce salaries, supplier contracts or to givebacks to society. Impacts of diverse and growing expectations on the new venture may be influenced by the foresight and proactiveness shown by the entrepreneurs in terms of the time or speed with which they identify and respond to the anticipated value demands of stakeholders. Relatedly, the activities associated with stakeholder influence strategies may take place in arenas other than the marketplace; e.g. legislative, political, or social. With this in mind, it is reasonable to suggest that a variety of capabilities, skills and competencies may be more or less appropriate for these arenas. Resource-based theory and empirical investigations of this perspective show tliat there are relationships between resource capabilities, expectations of the manager I'or growth, and strategies (Penrose, 1959; Barney, 1991; Wemerfelt, 1984). Hence, an articulation of stakeholder influence strategies and the associated competencies or resources would be a welcome extension of the current work. 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Her current research interests include entrepreneurship and strategy, gender and entrepreneurship, and ethnic entrepreneurship, She has published in Journal of Business Veniuring, Entrepreneurship Theory aml Practice, Journal of Small Business Strategy, and Journal of Small Business Management: Candida Brush is an Associate Professor of Strategy and Policy, Director of the Council for Woinen's Entrepreneursliip and Leadership (CWEL), and Research Director for the Entrepreneurial Manngement Institute at Boston University. Her current research interests are resource acquisition and growth strategies in nascent ventures. With four other researchers, she investigates growth and financing strategies of women-led ventures, referred io as the Diana Project which is sponsored by the Kaujfman Foundation and ESBRI (Sweden). Prentice Hall-Financial Times will publish their forthcoming book, Women and Wealth Creation: Uncovering the Myths (2003). Cengiz Haksever is a professor of management sciences at the College of Business Administration of Rider University. He received his Ph.D. in operations research Pom The University of Texas in Austin. His research interests are in quality and coniinuous improvement, service management, data envelopment analysis, and supply chain management. His work has appeared in European Journal of Operational Research, Journal of ihe Operational Research Society, Computers & OR, Computers & Industrial Engineering, Journal of Small Business Strategy, Education Economics, and Business Horizons. 'onald G. Cook is a Professor of Entrepreneurship and Director of Small Business Institute at Rider University. His current research interests are managerial training and prospective entrepreneurship, and entrepreneurship and public policy. He has consulted extensively with small businesses, and also supervises student proj ects in consulting with small businesses. Several student projects have won national awards for excellence. He has published in Business and Society, Journal of Small Business Management, and Journal of Small Business Strategy. 15