Theorizing piratical innovation: Regulatory illegitimacy and firm growth

Abstract

ABSTRACT This article examines the growing phenomenon of firms in “winner takes all” markets who adopt business models that prioritize exceptional levels of growth over other financial metrics. Often this growth results in firms breaking with regulatory norms, despite regulatory legitimacy being theorized as essential for resource acquisition in small firms. The article explores this apparent paradox. We propose piratical innovation as a firm-level process built upon disrupting regulatory norms in a way that avoids negative legitimacy judgments. Extending labeling theory, we develop a conceptual model where piratical innovation blends a range of symbolic and substantive actions to enable these firms to maintain legitimacy amongst stakeholders, even when growth is underpinned by illegitimate acts. We conclude by considering the wider applicability of piratical innovation as a model for small firm growth, and the consequences for other firms which must compete against such innovations.