Research

How startups can disrupt responsibly

A four-step framework helps startups mitigate political and societal risks, research finds.

2025-02-03

In the world of startups and seed investment, being disruptive is a mark of relevance and value. It means you're not just going to compete for market share but change market models, and that means money. If you change the market, you have a good chance of leading it. Being disruptive is also a badge of cool because you're not just accepting the status quo, you're defining it.

But disruption can also be, well, disruptive in ways that are not cool at all. "Consider the rise of ride-sharing apps like Uber," says Chris Neck, professor of management and entrepreneurship. "While these services disrupted traditional taxi industries, they also raised questions about labor rights and regulation."

This hurt the Uber brand, which perhaps they could have avoided if they had thought more about how they would impact society. Companies usually consider their broader social agenda through a corporate social responsibility (CSR) strategy. CSR plans are typically adopted by established companies with the resources and influence to make them meaningful, or at least to appear so. But startups traditionally have not embraced CSR because they have not been considered ready. The problem is that by the time the brand has sufficiently matured to merit a CSR, the damage may already be done. This was the case with Uber.

Looking ahead while forming the future

To help bridge this gap in social impact and accountability for startups, Neck and his co-authors recently outlined a new strategic approach they titled, Entrepreneurial Innovation Responsibility (EIR): Mitigating the Political Risks of Disruptive Innovation.

"The idea for entrepreneurial innovation responsibility (EIR) came from observing the challenges that startups face when their innovations disrupt society," says Neck. "Many entrepreneurs focus solely on bringing new ideas to life, often overlooking how these ideas might affect communities, governments, and the broader societal fabric. So, we developed a framework that could guide startups in thinking ahead about potential societal and political risks."

Thinking ahead may not come that easily for startups, which are regularly engaged with quarter-to-quarter and even month-to-month financial survival. So how can they take the time to think about their potential impact down the road?

"EIR isn't about slowing down," says Neck. "It's about ensuring survival by avoiding risks that could derail progress. Addressing potential political or societal pushback early helps startups secure stakeholder trust, which is critical for funding."

The scooter rollout gone wrong

Consider the example of electric scooter startups that began operating in cities around the world. They were supposed to disrupt urban transportation, and they did, but not always in good ways. Problems with e-scooters range from unsafe use on city sidewalks to cluttering public spaces, to tying up traffic. As a result, cities from Paris to Melbourne and New York to Honolulu have banned them. That can't be good for business.

Could some or even all these concerns have been avoided through the foresight of EIR? Possibly, and it certainly couldn't have hurt. Instead, the new conditions and challenges created by scooters simply materialized almost overnight leaving municipalities unprepared and scrambling to respond. To many cities, banning the scooters appeared to be the best option.

"EIR is an investment in longevity," says Neck. "By addressing societal concerns early, startups can avoid costly disruptions later. Think of it as building a foundation that supports sustainable growth."

Making it doable for small companies

But just what does EIR entail and how practical is it for the startups that are often already maxed out on time and talent? To make this pragmatic for startups, Neck and his co-authors have identified a repeatable four-step process to follow.

1. Step 1 is identifying the political risks of an entrepreneurial innovation. Businesses are used to considering competitive risks — what are competitors doing that could hurt your market share? But in this step, startups reflect on how their offering might spark political/social responses. As the study states: "To mitigate risk, the disruptor needs to have an awareness of the threats and dangers they face."

2. Step 2 is to understand the political risks of an entrepreneurial innovation. Startups tend to be optimistic, sometimes obsessively so. This is by necessity since they must suspend doubt to make a real go of it. But Step 2 also encourages entrepreneurs to take the time to consider how problematic issues might arise. This can include conferring with "key members of the management team, employees closest to the issue, and outside experts or partners who can provide insight into the issue."

3. Step 3 is the toughest, according to Neck, because it's hard for entrepreneurs to see and understand risks — stakeholder management of political risks. "Engaging with diverse groups often reveals conflicting interests, requiring entrepreneurs to balance competing demands while maintaining their innovation's vision."

If that sounds like a bit of a balancing act, it's because it is. For example, Neck notes how Facebook has struggled between user privacy and business interests to show how failing in stakeholder management can lead to long-term reputational damage.

Step 4 is creating an economic social contract for entrepreneurial innovation. This is a "mutually beneficial agreement between the company and its stakeholders" that outlines positions acceptable to all the stakeholders. This aligns the business model to specific needs and concerns across the entire stakeholder group so that the business can operate with full force while protecting the interests of various groups impacted by it.

Protecting the core model

How critical is EIR to startup success? After all, it can be argued that Facebook has taken some hits by disregarding user concerns, but with annual revenues of $55 billion, over 35,000 employees, and a $508 billion market cap, business is just fine. At least for now.

"The long-term consequences of such an approach are not fully realized yet," says Neck. "The reputational damage Facebook has faced due to privacy scandals, misinformation, and societal harm has led to increased regulatory scrutiny, declining user trust, and even challenges to its business model. Imagine if a major regulatory overhaul significantly restricted Facebook's data practices — its core revenue model would be at risk."

Would the growth gained by Facebook because of its carelessness be worth that risk? Certainly not, especially if that might have been mitigated through EIR.

While enterprise corporations have an enormous influence on our lives, startups have an enormous influence on our futures. Consider the advent of artificial intelligence, the disruptor of all disruptors, and the startup OpenAI. If OpenAI isn't thinking ahead to the impact it will have on society, it certainly should be.

"Startups shape the future," says Neck. "Their innovations often set the stage for broader societal changes. Addressing societal impacts early not only builds public trust but also prevents backlash that could hinder growth."