Using historical research, this paper finds that new entrants established as nonprofits and mutuals hold advantages over investor-owned counterparts in establishing the social and political legitimacy of new products in the early stages of market development. We propose that the advantages of the nonprofit form arise in emerging product markets that lack socio-political legitimacy because the potential value of the new product or service is not compromised by customer and stakeholder concerns about the profit motives of investors. Nonprofits and mutuals can hence play an important role in establishing the legitimacy of new markets. However, as these markets become established and grow, advantages shift toward investor-owned firms. Joint-stock entities hold advantages in acquiring the capital and human resources needed for fast-growing and mature product markets. Nonprofits and cooperatives, in contrast, were more limited in their ability to scale their businesses.
Wadhwani, R. Daniel
"THE ENTREPRENEURIAL ADVANTAGES OF COOPERATIVE AND NONPROFIT FIRMS IN EMERGING PRODUCT MARKETS: EVIDENCE FROM THE PERSONAL FINANCE INDUSTRY ,"
Frontiers of Entrepreneurship Research: Vol. 31
, Article 2.
Available at: http://digitalknowledge.babson.edu/fer/vol31/iss15/2