Who are your key startup stakeholders and how to engage with them to make your startup a success? In this guide, you’ll find a list of all relevant startup stakeholders as well as a brief description of how you should effectively and productively engage with them.
In the last few decades, as the movement of environmental and social consciousness and responsibility are gathering strength, all startup stakeholders slowly but surely become more prominently discussed in the field of business.
There are even people who’d argue that the world is shifting from the current system that could be called shareholder capitalism into stakeholder capitalism. The basic premise is that the business should concern itself with generating value for all stakeholders, rather than just its shareholders.
Whether this is the correct way to think about business is an ongoing debate, but no matter your position on the issue, as a business owner you should have a conscious strategy to engage with your stakeholders productively.
This is just as important for startups as it is for established businesses, even though the approach for engaging with some stakeholders is fundamentally different for startups. As a startup founder, you should keep in mind that some stakeholders might provide you with key opportunities to grow your business exponentially and to make your startup successful.
- . Startup Customers
- . Startup Employees
- . Startup Investors
- . Startup Creditors
- . Startup Partners
- . Startup Competitors
- . Startup Stakeholders: The Local Community and Startups
- . Startup Stakeholders: The Environment and Startups
- . Startup Stakeholders: The Government and Startups
- . Startup Stakeholders: Founders and Owners
1. Startup Customers
The customers of a new business are by far the most important stakeholders.
This statement holds true even if you agree with the classical understanding that the business is responsible only for the interests of its shareholders. The simple reason is that successfully engaging with your customers is the only way your startup idea would become a real business.
For big businesses, thinking about customers as distinct stakeholders usually means walking the extra mile to delight them better than your competitors with the goal of retaining them or up-selling them. While this is not a wrong thing to do, for startups it’s a luxury.
The key difference is that normal businesses are certain that people want what they are producing. An innovative startup isn’t. Because of this, as a startup founder, your main concern wouldn’t be how to delight your customers, but rather how to make sure your product or service solves a real problem that people have. The only way to be sure is to attract and interact with your first customers and to listen to their feedback religiously.
Listening to what your customers are telling you and seeing what they are showing you with their behavior is the key to the success of your startup in the early stages. Exactly because of this reason, in our step-by-step startup guide, the first two stages (the Discovery Stage and the Validation Stage) are concerned entirely with validating your idea and product or service as quickly and efficiently as possible.
Engaging with any other stakeholders before you are certain your customers are happy with what you are offering (or in other words: before you have product-market fit) wouldn’t make a big difference towards the success of your venture, so take care of your customers first!
Having the attitude that you need to validate your offering (creating real value in the lives of your customers) before you concern yourself with delighting your customers will lead you to other conclusions about key aspects of your business – product, pricing, etc.
Your first customers would be early adopters. This means that they would be happy to forgive the occasional technical issue, WIP design, or not-ideal pricing if your product is solving a real problem they have. As Reid Hoffman said:
“If you’re not embarrassed by the first version of your product, you’ve launched too late.”
2. Startup Employees
Your early team is absolutely fundamental to the success of your venture. Having people who are driven, motivated, competent, and efficient is critical for building a good product (or providing a good service) while operating with limited resources.
Since the team is small, each member has a significant and noticeable contribution. A single employee who does the bare minimum (deadweight) or creates unnecessary conflict within the team (drama) could easily sink the ship. Internal team problems are the third most common reason for startup failure (the first being lack of product-market fit, which we covered above in the startup customers section).
To avoid this, you need to attract the right kind of people (i.e. to avoid common startup hiring mistakes), and you need to understand the fundamentals for building a startup team.
Its common practice in the startup world to make sure the early team is heavily invested in the venture. This is usually done with equity options, shares, or other kinds of variable pay that are correlated with the growth of the business.
Making your early employees into small shareholders allows you to attract high-quality people, and it allows you to motivate them to join despite a lower-than-average fixed pay. This is very useful for early-stage startups who haven’t gone through successful funding rounds yet and need to spend what cash they have very carefully, while at the same time attracting top-tier talent.
Attracting the right people from the start will let you create a productive startup culture, which in turn would propagate in your later-stage hires and will make your business a success in the long run.
3. Startup Investors
The fundamental difference between startup investors and big-business (especially public company) investors is in the risk profile.
Institutional investors who put money into established businesses are usually risk-averse (e.g. pension funds), and they are happy with earning market-level returns while knowing their capital is relatively safe and wouldn’t be lost or wouldn’t even decrease or fluctuate too much.
Startup investors are well aware startups are extremely risky. They invest in multiple startups and are happy to lose most of their investments entirely as long as a few companies are a huge success.
This means that startup investors aren’t happy with market-level growth rates. They want your business to scale extremely fast so that it has a realistic chance of becoming a unicorn (a billion-dollar business) in less than a decade.
This means that the safe, slow-and-steady sustainable growth strategy wouldn’t be an option if you attract startup investors. The investors would be happy to run your small $100k business into the ground for a 10% chance to make it a $100M business. This is not necessarily a bad thing, it’s just important to know in advance if aligns with your expectations.
Because of this, it’s key to decide if your risk tolerance fits the high-risk high-reward profile of startup investors. If running a small but successful lifestyle business is a good outcome in your eyes, it might be better to explore other options for acquiring the needed funding. Keep in mind that most new businesses are bootstrapped and don’t attract outside investors, so this might be an option for you as well.
4. Startup Creditors
When talking about alternative sources of funding, the most common one is business loans.
That said, this option is extremely risky for new innovative businesses and could be a huge mistake. When giving loans to startups, creditors usually require collateral (something valuable that the entrepreneur owns, usually property). This means that even if your venture fails (which is very likely if it’s a true startup) you’ll still have to pay back the business loan.
Because of this, it’s prudent to consider business loans only once your startup has reached steady, predictable cash flows. Once it has, loans are a good source of finance because they allow you to grow your startup without diluting your share in it (i.e. you achieve higher leverage).
5. Startup Partners
The reality of the world of big businesses is that a lot of partner relationships are predatory. For example, big manufacturers or retailers have enough market power to pressure their suppliers or distributors into unfavorable terms.
While this might be a rational behavior for big monopolistic or monopsonistic businesses, it is a very bad strategy for startups.
When you are a new, small company, you don’t have any market power. This means that your only chance to create a productive partnership is to rely on a win-win situation.
While delighting your customers is a luxury in the early startup stages, delighting your partners might be crucial. Very few big businesses would be willing to enter into a one-on-one relationship with you because it’s usually risky – you might fail and exit the market, which would render the relationship useless. If you can find business partners, it’s crucial to make sure the relationship creates a lot of value for them, otherwise, they might decide because of your small scale that the trouble to work with you isn’t worthwhile.
You need to keep in mind that most big businesses think about small startups either as customers or as potential acquisition targets. An equal-term partnership in which each company is invested in the success of the relationship (and the other company) is much more likely to happen between companies of similar size.
6. Startup Competitors
While competitors are the bane of the existence of most big businesses, this is not necessarily the case for startups.
The existence of at least a few successful competitors could even be a good indicator for your startup idea because it shows that the consumer problem and the market you are targeting actually exist.
Startups rarely fail because of direct competition in the early stages. This is due to their nature – they are innovative, which means bigger companies aren’t offering the exact same product or service. The small startups thrive by differentiating themselves significantly and by creating and dominating their own market niche.
Moreover, innovative startups expand as their market grows. If the effort of one company increases the overall market size, this creates a tide that lifts all boats. For example, Gumroad and Patreon are competitors in creator monetization, but they are allies in growing the creator economy – the market in which they exist.
In an innovative, growing market, competition is not a zero-sum game.
Because of this, you shouldn’t have an antagonistic relationship with companies in your market, especially if they are not offering the exact product or service that you are. Use them as a benchmark for differentiation and a source of ideas.
7. Startup Stakeholders: The Local Community and Startups
Almost all brick and mortar businesses live in the ecosystem that is their local (physical) community. Since the success of the businesses is correlated with the health of the ecosystem, it makes sense for the business to engage the local community and to try to be a constructive force.
Even though tech startups are usually digital, multinational businesses, this stakeholder category can still be important.
First, you are a member of your local startup ecosystem. Being involved in it is a great way to find co-founders, employees, partners, mentors, investors, etc. The more bustling and vibrant your community is, the more worthwhile it would be to be an active participator in it. Because of this, if you have the opportunity, it makes a lot of sense to give back to the local community even just from a point of self-interest, rather than pure altruism.
Second, if you have a digital business, then you are indirectly influencing at least a few online communities. For example, these could be the online startup communities, the developer communities, the design communities, and most importantly – the communities in which your customers are likely to hang out in.
These online communities exist in social media groups, subreddits, etc. Because of this, it pays dividends, in the long run, to stay active in these communities. For example, you could create free, valuable content and share it in those communities and interact with the people there. This is a win-win situation because in return for the value you’re providing, you are getting brand exposure (and hopefully inbound marketing) among people who have the potential to become your customers, employees, or partners.
8. Startup Stakeholders: The Environment and Startups
The environment (think green this time) is also one of the biggest topics of our generation and one of the biggest problems facing the business world and the world economy.
The modern wave of concern for the environment creates conditions in which green startups (sustainable economy, green energy, etc.) have a great opportunity to get funding, media coverage, and traction. If your business (idea) is related to the environment, don’t be shy – let the world know that the environment is a major stakeholder and a driver in your business. Ideally, make sure this is not just green-washing, but that you have a real positive impact.
That said, if your startup has nothing to do with the sustainable economy, don’t feel too bad. The small scale of startups as a whole means that your impact (even if it’s not positive) wouldn’t be meaningful. Don’t let your concern for a global issue lead you to put the environment as a more important stakeholder than your customers, employees, etc., because this could decrease the chance of your business succeeding. You can always put more care into a sustainable business model once you start growing in earnest and having a real impact.
9. Startup Stakeholders: The Government and Startups
Thanks to the success of Silicon Valley startups, a lot of governments around the world are putting a lot of effort into supporting and growing their local startup community (with varying degrees of success).
If you are in a place where there are programs that support innovative businesses (with grants, investments, tax breaks, education, etc.), make sure to find a knowledgeable consultant and see if your business (or idea) fits well into any government programs.
That said, don’t let the possibility of profiting from some government programs warp your startup if it’s already working. You need to go in the direction that your customers are pointing you into, rather than the direction of some government policy.
Remember that in the long run the (free) market, rather than governments, shapes the economy.
10. Startup Stakeholders: Founders and Owners
And finally, the last stakeholder is you – the startup founder and owner. In a way, you are the most important of all stakeholders, because the business that you are building will shape your life the most. Building a startup requires sacrifice, yet you shouldn’t let the business take your life in a direction that you don’t want it to go.
At the same time, you shouldn’t let your own ego and rigid assumptions push the startup in the opposite direction of what the market (represented by your customers) is indicating.
In summary, understanding all stakeholders and balancing their wants and needs is a hard job, but if you manage to engage with them productively, this would pay huge dividends in the long run. That said, try to keep your feet on the ground and to rank-order the importance of your stakeholder interests. For most startups, the customers should be priority number one. Without their support, your startup would never become a real business.