Resource management can be a difficult and extremely important consideration for a young startup. Many startups function on a limited budget. And, on top of that, they need to balance investor, employee, and sometimes even community expectations. Many startups are created from brilliant ideas and the perfect niche in the market, but they are liable to flounder and self-destruct when it comes to organizational management.
Organizational management thrives off of communication, goal-development, and strategic planning. Taking the step to plan and strategize presumes that you already have a managerial direction that you intend to take. Meaning that you have already evaluated the components of your decisions, and that you are ready to start taking actions toward your goals. For those who could use a little more direction when it comes to planning and organizing business goals, an overarching theory of business ethics could help to get you on track.
One such theory of business ethics is stakeholder theory. Stakeholder theory has undergone development throughout the past thirty years, and is commonly used by large businesses and startups undergoing significant growth. Corporate growth, including globalization, runs the risk of putting a company in controversial positions, and stakeholder theory helps to provide the framework for responsible business practices.
Stakeholder theory aids businesses in developing goals that give the most value to everyone involved in the company policy. This theory operates under the belief that business decisions don’t just effect management, executives, and shareholders, but they also affect employees, consumers, suppliers, community members, and even the government.
Who Does It Effect? And How?
Stakeholder theory emphasizes the competitive advantage of appealing to multiple stakeholders in the corporate decision-making process. Consumers tend to make up a large part of a company’s stakeholders.
Company policy doesn’t just give consumers monetary value. It can also represent values that its consumer stakeholders might feel passionate about. In some cases, this could be environmental sustainability, while in other cases it could be equal wages for workers, or localized supply chains. While consumer considerations can be pricey for the average startup, it can cause big problems to ignore them. The less consumer support you have, the less likely it is that your startup will make it off the ground level.
A startup’s employees are its most important resource. Employees generate ideas, problem-solve their ways across bumps in the road, and provide the backbone for good company culture.
Startups ask a lot of the people they employ. They ask employees to take a leap of faith on an untried or relatively new brand, and they ask for big talent and strong commitment while doing it.
In general, employees want fair compensation and treatment, and they want to work reasonable hours. Ignoring these factors could lead to negative company culture and high turnover rates.
A company’s community can refer to the neighborhoods it operates in, the marketplace it sells in, as well as the part it plays in development and other environmental concerns. For some businesses, this will bring in neighbors, local government, and even competing businesses. Other businesses might consider future generations and long-term communities to be their stakeholders. Community stakeholder groups also shine a light on global business, global supply chains, and sustainability ethics.
These may seem like far-reaching considerations for an early startup, but in many cases community stakeholders can help dictate a startup’s success by offering much-needed support.
How Can Stakeholders Help Direct Your Business?
For businesses angling to grow quickly, stakeholder theory can help you define your stance on complex points before they come up. A company’s ethical policy, in part, determines who will work with them, who will work for them, and who will help them by investing or consuming.
We live and work in an age where socio-political concerns for many people play a large part in investment strategies. Meaning that your policies sustainability goals, because of the value that it places in the local community and future will often attract stakeholders who believe in or agree with your policies. For instance, stakeholder theory has been especially effective in helping businesses achieve environmental and social generations as potential stakeholders, as well as individual consumers who prioritize environmental concerns in their purchasing patterns.
Stakeholder theory therefore recommends that you figure out what your values are, what your context is, and what the consequences of your actions are, so that then you can begin to understand who your stakeholders are. This strategy gives you the opportunity to plan responsible action into your business model. This planning may include increased budgeting and planning for sustainability considerations, not being blindsided by the effects of offering competitive employee wages, and finding the positive in helping with community events.
In other words, stakeholder theory puts a business at the center of an ecosystem. This ecosystem includes anyone who is invested in, involved in, or affected by the actions of the company, such that all stakeholders are interdependent. Stakeholders help a company to survive either by offering it business, services, or a viable marketplace, and a heathy company never loses sight of those involved in its success. If a company’s stakeholders feel dissatisfied or let down, they will not see the point in helping that company survive.
How to get started
Begin by determining the primary values of your company. Sometimes it is easiest to do this outright and abstractly. At other times, it can be easier to take a look at the marketplace, who your company affects, and your primary client or consumer demographic, along with other considerations. Keep in mind that your company values will in part determine your company ecosystem.
The next step is to make a list of all the stakeholders who go into making your business successful. When applicable, include governing bodies, manufacturers and suppliers, local communities as well as national or international marketplaces that you affect, customers and clients, your own employees and operations staff, and don’t forget shareholders and investors.
Note down what value your company has for these groups and individuals. Do you have healthy reciprocal relationships with your stakeholders? Do your plans alienate a stakeholder group that you need to be successful? And if so, what negotiations can help to increase value for them?
Companies that base their operations on stakeholder value put stakeholders’ needs at the forefront of every action. This makes the company responsible for providing value to everyone involved in it, and it allows for responsible long-term planning and powerful growth prospects.
Using stakeholder theory, many businesses try to align their goals with practices that will give the most value for everyone involved in the company policy. Stakeholder theory attempts to balance the interests of customers, suppliers, communities, and shareholders, and can often be aligned with a business’s social and environmental sustainability goals.
Many startups struggle with business ethics, because of balancing costs, labor, and resources on a very limited budget, and an ethical theory such as stakeholder theory could provide the framework for developing workable goals.
This article was first published in May 2018 but has been updated and expanded