In any business there are only so many stakeholder groups. Here I will show you who those stakeholder groups are and why you must watch out for them if you want to stay in business. Ignoring stakeholders is a fundamental mistake and I will explain why.
First let me first define what a stakeholder is. It is unfortunate that many people actually don’t know.
My personal simplified definition: anyone who genuinely cares about what you’re doing is a stakeholder.
So if you’re in doubt as to whether a group is a stakeholder or not, ask the question: why should they care?
You can of course turn this question on its head and challenge it with: why should I care that they care?
The answer to that is simple: People care about your business when it affects them. If it affects them negatively and you ignore that, then they will use whatever resources they have to fight you and interrupt or shut you down.
So pay attention and make sure you know who is affected by your business. Fortunately most stakeholders fall into just a handful of stakeholder groups. Here they are:
- The owners. These are the people who have put up their money in the business. They could also be the people who have lent money to the business. Some will argue that these are two different sets, but I am looking at things at a high level. You could in fact drill down any stakeholder group into sub-groups. This group is the financing group, so as far as I am concerned they are one lot and have usually the same perspective: they want a return on their money and they don’t want to lose the money they put into the business.
- The workers. These are the people who do the work of the business. They run the factory or, in the case of services, are the factory. Their focus? They want to know their income is secure. There is of course more to it than just that, there is pensions, training, safety etc. Yes, all of those are important too and many other things that impact workers. Bottom line: they are a major stakeholder group in your business. Unions, if they exist also fall into this group. They are representatives of your workers.
- Your partners. These are all the vendors and suppliers that provide you with raw materials or other services to enable you to run your business. Your business is a source of income for them. You need them in order to run your business. If your business cannot pay, they lose money. If your business improves and requires more of their services, they make more money.
- The government. Many businesses think that unless they are in a heavily regulated industry like food or financial services, that they don’t need to worry about the government. Again, that is not accurate. First of all, the government is a stakeholder merely because you have to pay them their cut of your profits in income tax. If there is a sales tax in your jurisdiction, you are also their bag man, collecting money on their behalf. This is over and above things like permits, licenses, required health and safety regulations, disclosure regulations, export restrictions and many others. Always ensure the government stakeholder group is happy with you. If not, they could easily stop your business, just like that, even while they are checking whether you crossed them or not.
- Your customers. Needless to say, these are a pretty important stakeholder group. They pay your salary and everybody else’s. They also indirectly provide the money to pay the partner, owner and government stakeholder groups.
- The general public. Again, many businesses think, the rest of the world beyond the stakeholder groups that I already mentioned, really has nothing to do with their business. That would be a grave mistake. And it isn’t just about companies that dump chemical waste in the river. I know a small business that opened an in-home music tuition service. The neighbours got very annoyed. Not because of the loud music. But because of all the parents that would park and block the road outside when dropping off or picking up their kids. The neighbours got so annoyed they called the city authorities and attempted to shut down the business. Fortunately the small business owner realized what was happening and asked the parents to park a little further away in a nearby school parking lot.
- Your competitors. Many people leave this group out. I mean after all, competitors are really the enemy, right? Why should you care about them? Actually, competitors are a prime stakeholder group. When you expand or enter the business, they know you may take business away from them and they will do everything they can to make it difficult for you to do that. You must be aware of them and their activities.
So how should you deal with stakeholders now that you know who they are?
That will be the subject of another post. Stay tuned.
Until then, let me know what you think about this article. Leave me a comment.
Thanks for reading.