Business owners have to consider a lot of factors before making any kind of decision, including their profits and losses, their available capital, the broader market, and more. But besides these economic concerns, business owners must also think about the human element.
Specifically, they need to consider their stakeholders, including their stakeholders, how a decision may affect them, and more.
Not sure where to begin? This page explains stakeholders and the role they play in your business.
Stakeholders in a Nutshell
Put simply, a stakeholder is any party that has an interest in a company or organization that either will affect or can be affected by that organization. For example, a stakeholder can be:
- An employee who directly affects and is affected by the company they work for
- A customer, who is affected by the company and who affects them in turn by making a purchase or deciding to spend their money elsewhere
- An investor, whose cash flow is similarly important for the business’s survival and who expects dividends based on the company’s performance
As a result, stakeholders are incredibly important to any organization regardless of their industry or focus.
Originally, stakeholders were normally only considered to be directly affected by a business’s activities. That includes the investors mentioned above and employees as well as customers.
But because of a recent increase in pressure on corporations to practice good social responsibility, more people than ever before are considering other groups or individuals to be stakeholders as well, including communities or governments.
Bottom line: stakeholders are a classification of people affected by or who affect a business. Thus, they’re groups or individuals that businesses must carefully consider when making any economic decision.
Types of Stakeholders
There are many different types of stakeholders as defined by the modern understanding of the concept. Let’s take a look at the different types of stakeholders you may need to consider before making a big business decision in detail.
Customers are some of the most obvious stakeholders to consider. They affect the company when they spend money or decide to spend money at a rival organization, particularly if the rival is in your same niche or industry.
At the same time, your company affects customers by providing them with products or services and affecting their quality of life or abilities.
For example, a person who buys a car is a stakeholder for the car’s manufacturer as well as the dealership. The car manufacturer provided them with a vehicle, and the customer provided them with money.
Employees are the next most important type of stakeholder. They ensure that a company can continue to run and make a profit. In addition, they take money from their employers as salaries or checks. In this way, they are affected by the company’s prosperity or generosity but also directly impact the company’s potential profits/bottom line.
Suppliers and vendors can also play a major role in the performance of a company. They give organizations the raw materials or the finished products they need to make sales or to provide services to their customers or clients.
Similarly, companies affect suppliers and vendors by entering trade contracts with them and paying them for their goods or services.
In this way, retail companies and B2B or business-to-business suppliers and vendors are symbiotic organizations; they both need one another to succeed with their respective business models.
Investors are clear examples of major stakeholders for most businesses, as most company owners do not have the capital necessary to both start and grow their companies without an outside cash injection. They often provide a clear source of funding for new businesses.
An investor can provide either a startup or a well-established company with cash to continue running their business, making a big expansion, or pivot to a new business model. In exchange, the investor may join the board of directors to get a say in how the company is run and what decisions are made.
Most importantly, investors also get dividends or shares of the profits from the company on a quarterly or yearly basis.
As you can imagine, investors directly affect companies since they provide them with money. But they are also affected by the company’s performance. If the company does better, they make more of a profit, and if the company does worse, they lose money because of their investment.
More recently, many people have started treating governments as stakeholders in private companies. That’s because many large companies, such as Facebook, Amazon, and even Twitter, play a direct role in how governments operate.
One easy example is the recent presidential election. Social media companies like Facebook and Twitter both played major roles in:
- The spread of misinformation
- What people learned about each candidate
- How both major candidates communicated with their supporters and opponents
Because of this, it’s no stretch to say that social media corporate giants directly impacted the US presidential election in a way that many other companies have never been able to. Therefore, it follows that the US government is a stakeholder in both the actions and the performance of major social media companies.
Sometimes, the government can be a stakeholder in companies by providing subsidies or cash injections. For example, many student loans are given out by the federal government to universities, including grants.
In these ways, governments, and the nations that they represent, are direct and indirect stakeholders for many businesses that grow to be large enough to affect the broader national or worldwide economy.
Lastly, local communities can also be stakeholders in business actions and relations. Imagine the quintessential American coal town from the mid 20th century. In this time, such towns revolved around the factories or coal mines that employed the majority of working-class individuals for decades.
Because of this reliance, the communities of the towns were also stakeholders in the performance of those coal mines or manufacturing plants. As manufacturing plants have decreased in importance in America, communities that once relied on them for employment and benefits have suffered as a result.
But communities can also be stakeholders to companies for other reasons. For example, a company that cuts down a local forest or removes a local park for new development or retail centers directly impacts the community’s access to natural beauty and recreational areas.
Interval vs External Stakeholders
While all of the above stakeholders count as distinct types, they can largely be broken down into two subtypes: internal and external.
The company’s performance significantly impacts internal stakeholders or any stakeholders. For example, a venture capital firm that invests in a tech startup is an internal stakeholder. The company’s financial performance directly impacts the venture-capital firm since they expect a return on their investment.
In contrast, an external stakeholder is not directly related to the company in question but may still be affected by the company’s actions or decisions. For instance, a person who loves going to a local park, which is torn down to build a new retail center, is an external stakeholder since they were indirectly affected by the company’s decision to expand.
Understanding the roles of internal and external stakeholders and how much attention you should pity each group will impact whether a business decision is wise in the long run.
Are Stakeholders the Same as Shareholders?
Not necessarily, but they can be. In fact, all shareholders are stakeholders, but not all stakeholders are shareholders.
Shareholders have financial interests in the company, typically by having one or more shares of stock in the company on the stock market. In this way, shareholders are directly impacted by the company’s performance, so they have a vested interest in helping it succeed or advocating for it.
However, it’s easy to see that some stakeholders are not shareholders at all. For example, suppliers and vendors are not shareholders of a company even though they have a financial interest in its performance and directly impact its ability to turn a profit.
They don’t own any part of the company in any capacity. So they are not shareholders even though they are still stakeholders.
Ultimately, stakeholders are hugely important things to consider as you grow your business and develop a long-term business plan. Some stakeholders are certainly more important than others, but which ones you should prioritize when making your decisions or alleviating concerns will depend on how much they impact your business, as well as your company’s moral focuses and standards.
Need to learn more about running your small business successfully, or need to secure capital from a stakeholder so you can expand? Contact Seek Capital today!