Importance of Stakeholders

The Importance of Stakeholders
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By: Devra Gartenstein
Reviewed by: Michelle Seidel, B.Sc., LL.B., MBA
Updated December 10, 2018
Stakeholders give your business practical and financial support. Stakeholders are people interested
in your company, ranging from employees to loyal customers and investors. They broaden the
pool of people who care about the well-being of your company, making you less alone in your
entrepreneurial work. At its best, the relationship between a business and its stakeholders is
symbiotic and healthy. At its worst, this relationship hinges on conflicting demands and interests
and makes decision-making stressful and slow.
Community
A successful relationship between a business and its stakeholders is built on working together
towards common goals. Employees depend on your business for their livelihoods. And if you treat
them well, they'll be engaged as a team and a family to go above and beyond their job
requirements to further the best interests of your company. If your business provides a product or
service that genuinely improves the quality of your customers' lives, they're likely to go to bat for
you as well, spreading the word about your offerings because they genuinely want your business
to do well. Investors have a financial stake in your company and they certainly want a financial
return, but if your interests are aligned and they genuinely care about the work you do, their
relationship with your business can go far beyond the desire to make money.
Financial Benefits
A business with an engaged community of stakeholders will reap financial benefits from these
relationships. Employees who care about their work and see it as more than a job will give their
best and act as ambassadors for your brand. Customers who believe in your company and your
offerings will support you with their long-term business. Vendors who see your business as more
than just a sales opportunity will go the extra mile to make sure you have the materials you need
to make sales and generate revenue, and they may even extend flexible terms if they know you're
struggling financially. Engaged stakeholder investors will help you out with working capital and
funds for expansion projects.
Successful Stakeholder Relationships

Successful relationships with stakeholders are essential to your company's success. However, it
takes hard work and vision to build these strong liaisons. Whenever possible, work on aligning the
interests of your business with those of your stakeholders. Treat your employees well and pay
them fairly, so they'll work towards your mutual success. Create the highest quality products you
can, so your customers will go the extra mile to help you keep providing them. Cultivate
relationships with investors who are more interested in long-term viability than short-term
dividends.
References
About the Author

Related Articles
What Is an External Stakeholder?
The Financial & Non-Financial Theories of Motivation
How to Spark Passion in Your Employees
How to Get People to Invest in Your Company
Risk & Reward in Business
The Effect of Goodwill on a Stockholder's Equity
How to Write a Business Prospectus
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Updated October 25, 2018
Every business has a community of people invested in its well-being. Stakeholders in business are
these diverse parties who benefit from the company's products and services and are affected by its
policies and practices. Internal stakeholders such as owners, investors and employees actively
participate in business operations or have skin in the game by owning equity. External
stakeholders such as customers, vendors and banks participate in business activities more as
collaborative partners than as owners. They are connected to the company, but as outsiders with
common interests rather than as family with a weightier investment.
and suppliers are external stakeholders as well. When they sell their products or services to your
company, their livelihood comes to depend on your success and on your ongoing need for what
they provide. Banks who lend to your business are external stakeholders because their operations
benefit from your capacity to pay back the money you owe.
Internal Stakeholders Definition

Internal stakeholders are people and organizations who are directly connected to your business and
materially benefit or suffer as a result of its successes or failures. Owners put their assets at risk
and often have a strong emotional investment as well. The interests of your employees are
similarly closely aligned with those of your business. Even if these employees are mostly
disengaged and only work for the sake of a paycheck, their survival depends on your company's
ability to earn enough to pay them for their time and work. Like owners, investors have a financial
stake in your profit, loss and ongoing growth.
Levels of Engagement
A commonly used distinction between internal and external stakeholders of a company suggests
that internal stakeholders are intrinsically connected to a business while external stakeholders
participate in more leisurely ways. While this is often the case, it is hardly true across the board.
An investor who owns a couple of shares of stock and doesn't bother to vote in board elections is
an internal shareholder but may be less engaged than a regular long-term customer. Crowdfunding
campaigns such as Kickstarter give your customers and community an opportunity to financially
participate in your business in ways that go beyond purchasing products and services. Although
these contributors are still external stakeholders, their interest and commitment can resemble that
of internal stakeholders.
References
About the Author

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The Importance of Stakeholders
HRAUN/E+/GettyImages
writer bio picture
Updated December 10, 2018
Stakeholders give your business practical and financial support. Stakeholders are people interested
in your company, ranging from employees to loyal customers and investors. They broaden the
pool of people who care about the well-being of your company, making you less alone in your
entrepreneurial work. At its best, the relationship between a business and its stakeholders is
symbiotic and healthy. At its worst, this relationship hinges on conflicting demands and interests
and makes decision-making stressful and slow.
Community
A successful relationship between a business and its stakeholders is built on working together
towards common goals. Employees depend on your business for their livelihoods. And if you treat
them well, they'll be engaged as a team and a family to go above and beyond their job
requirements to further the best interests of your company. If your business provides a product or
service that genuinely improves the quality of your customers' lives, they're likely to go to bat for
you as well, spreading the word about your offerings because they genuinely want your business
to do well. Investors have a financial stake in your company and they certainly want a financial
return, but if your interests are aligned and they genuinely care about the work you do, their
relationship with your business can go far beyond the desire to make money.
Financial Benefits
A business with an engaged community of stakeholders will reap financial benefits from these
relationships. Employees who care about their work and see it as more than a job will give their
best and act as ambassadors for your brand. Customers who believe in your company and your
offerings will support you with their long-term business. Vendors who see your business as more
than just a sales opportunity will go the extra mile to make sure you have the materials you need
to make sales and generate revenue, and they may even extend flexible terms if they know you're
struggling financially. Engaged stakeholder investors will help you out with working capital and
funds for expansion projects.
Successful Stakeholder Relationships

Successful relationships with stakeholders are essential to your company's success. However, it
takes hard work and vision to build these strong liaisons. Whenever possible, work on aligning the
interests of your business with those of your stakeholders. Treat your employees well and pay
them fairly, so they'll work towards your mutual success. Create the highest quality products you
can, so your customers will go the extra mile to help you keep providing them. Cultivate
relationships with investors who are more interested in long-term viability than short-term
dividends.
References
About the Author

Related Articles
Did you find this page helpful?
👍
👎
writer bio picture
Updated October 25, 2018
Every business has a community of people invested in its well-being. Stakeholders in business are
these diverse parties who benefit from the company's products and services and are affected by its
policies and practices. Internal stakeholders such as owners, investors and employees actively
participate in business operations or have skin in the game by owning equity. External
stakeholders such as customers, vendors and banks participate in business activities more as
collaborative partners than as owners. They are connected to the company, but as outsiders with
common interests rather than as family with a weightier investment.
TL;DR (Too Long; Didn't Read)

External stakeholders are individuals, businesses or organizations who hold common interests
with your business. They can include customers, vendors and suppliers.
External Stakeholders Definition

External stakeholders are individuals, businesses or organizations who hold common interests
with your business. Customers benefit from the goods and services your business provides, and
value these offerings enough to pay for them. Despite their external status, customers can become
deeply engaged with a business, especially if that company provides something invaluable such as
a life-saving medical device or a life-changing piece of artwork. Vendors and suppliers are
external stakeholders as well. When they sell their products or services to your company, their
livelihood comes to depend on your success and on your ongoing need for what they provide.
Banks who lend to your business are external stakeholders because their operations benefit from
your capacity to pay back the money you owe.
Internal Stakeholders Definition

Internal stakeholders are people and organizations who are directly connected to your business and
materially benefit or suffer as a result of its successes or failures. Owners put their assets at risk
and often have a strong emotional investment as well. The interests of your employees are
similarly closely aligned with those of your business. Even if these employees are mostly
disengaged and only work for the sake of a paycheck, their survival depends on your company's
ability to earn enough to pay them for their time and work. Like owners, investors have a financial
stake in your profit, loss and ongoing growth.
Levels of Engagement
A commonly used distinction between internal and external stakeholders of a company suggests
that internal stakeholders are intrinsically connected to a business while external stakeholders
participate in more leisurely ways. While this is often the case, it is hardly true across the board.
An investor who owns a couple of shares of stock and doesn't bother to vote in board elections is
an internal shareholder but may be less engaged than a regular long-term customer. Crowdfunding
campaigns such as Kickstarter give your customers and community an opportunity to financially
participate in your business in ways that go beyond purchasing products and services. Although
these contributors are still external stakeholders, their interest and commitment can resemble that
of internal stakeholders.
References
About the Author

Related Articles
motivation - gold image by michanolimit from Fotolia.com
writer bio picture
Updated May 08, 2019
Money is certainly a powerful motivator, but it's hardly the only incentive that will inspire your
staff to do good work. Financial rewards may be an obvious important way to attract and keep
workers, but if their work is grueling and meaningless, they can end up hating their jobs and
staying only for the money.
TL;DR (Too Long; Didn't Read)
Financial and nonfinancial motivation theories explore the effectiveness of different types of
reward systems for encouraging employee retention and quality work.
Financial Rewards to Motivate Employees

Pay scale. Working for a paycheck is a well-worn cliche, but it's also entirely true that many
people would rather be sitting on the beach, sleeping, visiting with their families or doing just
about anything rather than working. Wages and salaries are what get people to come to work.
Paying people fairly isn't just a practical necessity, it's also a sign of respect, especially if it's
obvious that your company is making plenty of money.
Benefits. As with monetary pay, employees need benefits such as health care and sick time for
practical reasons. In addition, your business is more likely to thrive if its workers are healthy and
don't expose customers to communicable diseases. Providing benefits also communicates to your
employees that they are valued and that your business cares about them as human beings.
Commissions and bonuses. This financial reward strategy links compensation above a base
amount to performance. Employees may earn a percentage of sales or may receive a flat amount
once a milestone is achieved. Financial motivation theory assumes that the promise of greater
financial return will encourage staff to work harder.
Profit sharing and stock options. These approaches give employees a real stake in contributing to a
more successful company. Unlike commissions and bonuses, which may be tied to individual
performance or metrics that reflect output but not necessarily the company's bottom line, profit
sharing and stock options motivate your employees to work together as a team.
Nonfinancial Workplace Motivators
Company culture. Full-time employees spend a significant portion of their waking hours at work.
If your business has a strong and inclusive culture along with an enjoyable work environment,
many will choose to stay even if they could earn more money elsewhere. It takes genuine
engagement and authenticity to build the kind of company culture that inspires this kind of loyalty.
Learning opportunities. Ongoing learning makes work interesting. It makes the day go by faster,
and it helps employees to feel that they are growing personally during the hours that they are also
earning a living.
Advancement opportunities. A job with a clear path forward toward career investment is more
likely to motivate an employee than a dead-end job with endless repetitive work. Your employees
will be more engaged if they see opportunities to move up within the company than if they see you
always recruiting outside managers.
Job security. Whether or not your employees plan to stay with your business for their entire
working lives, they appreciate knowing that their positions are stable, and you're unlikely to fire
them frivolously or lay them off as soon as cash flow gets tight.
Financial vs Nonfinancial Motivation
The American psychologist Abraham Maslow developed a theory of human motivation that
effectively explains the difference between financial and nonfinancial rewards. Maslow developed
a pyramid explanation of human needs, with basic physical needs such as food and shelter at the
top and needing to be met first and higher-level needs such as creativity and self-actualization
coming later once the primal needs are met.
There is no question that financial incentives motivate workers at the most basic level of coming
to work and earning enough to support themselves and their families. However, when it comes to
financial perks, one job is essentially the same as any other as long as they offer the same pay and
benefits. Nonfinancial rewards are what distinguish one job from another, inspiring a higher level
of loyalty and creativity.
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By: Ashley Miller
Updated July 21, 2017
In a 2007-2008 Towers Perin Global Workforce study, only 21% out of 90,000 respondents
reported being engaged in their work and willing to go the extra mile. It's an unfortunate fact, but
many employees feel that their employers don't care about them and that their managers are only
operating out of self-interest. If you want to spark passion in your employees, your motivation
should come from a genuine desire to improve the morale and well-being of your entire
workplace, not only from a desire for financial or organizational success.
Make it Worthwhile
Employees need to feel that their contributions are meaningful and that there's something in it for
them. Employees won't be engaged or passionate about their work if they feel it's only going to
benefit stockholders or upper management. Let your employees know that their work counts and
will be rewarded. If your company makes a good profit for the year, share your success with
employees through year-end bonuses. Engage them in the process of building future success.
Listen to their feedback and take suggestions for improving morale and the overall work
environment. If your employees feel they have some level of input, they will have more passion
for their jobs.
Focus on Employee Strengths

Gallup surveys have found that employees who are allowed to demonstrate their strengths
experience a greater sense of passion for their work. This is largely because recognizing employee
strengths can give them a chance to do the work and jobs they like best. It's important to give your
employees the opportunity to shine in the areas in which they excel because they will feel
passionate about their work and a desire to perform their best.
Be Flexible
Supporting your employees' needs outside of work can be another effective way of sparking
passion in your employees at the workplace, Jill Morin, executive officer at Kahler Slater, said in
an article for CBS News MoneyWatch. Morin points out that employees who are preoccupied with
external concerns such as family issues, and aren't allowed to attend to those needs, aren't going to
feel very passionate about their work. Consider allowing your employees to work from home a
few times a month or allow for a more flexible schedule. If your employees believe you care about
their lives outside of work, they are more likely to feel passionate about their jobs.
Praise Accomplishments
Everyone likes to receive acknowledgment for a job well done. If you don't acknowledge your
employees' contributions, they aren't going to feel like going the extra mile for the company and
they certainly won't feel passion for their work. A well-timed compliment for stellar work on a
recently completed project can go a long way toward improving morale. Your employees will
appreciate your attention and feel inspired to continue to achieve. Praising employee
accomplishments is one of the most effective methods for sparking passion in them, according to
the Ivy Sea Online Leadership and Community Center.
Risks of Entrepreneurship
Personal investment. It takes money to start and run a business, and most likely, at least part of
these funds will come from your personal savings. Even if you don't directly spend your own
money, you'll no doubt have to put your own assets on the line as collateral for business loans.
Uncertain return. No matter how good your business idea, there is no guarantee it will succeed.
Market conditions change, and you may encounter unforeseen expenses that deplete your bottom
line even if your sales are strong. If you need a steady weekly income, then the risks of
entrepreneurship may not be for you.
Ultimate responsibility. When you run your own business, you are personally responsible for
everything from making sure the bills get paid to seeing that the dishes are done. This can result in
long hours and ongoing stress.
Rewards of Entrepreneurship
Autonomy. As your own boss, you get to make your own decisions. If a customer is difficult to
deal with, you have the option of cutting off service and then finding your own solution to make
up for the lost sales. You can steer your ship any way that makes sense for you as long as it's legal,
and you can develop a business model that's reasonably profitable.
Creativity. Although on the surface business seems to be a dry pursuit geared primarily toward
making money, it can actually be a profoundly creative endeavor that gives you space to express
your individuality and pursue activities related to your personal values. Because you are the leader
and the prime decision maker, you can innovate to your heart's content as long as you can make
things work financially.
Financial rewards. When you work for someone else, your potential for compensation is limited
even if you are paid well. You get paid a designated salary and, if you're lucky, added benefits and
bonuses. When you work for yourself, the profits you earn are entirely your own after you pay
your taxes, of course. Most small business owners don't make it big, but the potential for doing so
is a powerful motivator.
Risk Aversion and Financial Need
Although many people would love to make their own decisions about their work lives and have
the potential for unlimited compensation, it may not make sense for them to give up the
consistency and predictability of a regular paycheck.
Your reward definition for business will naturally depend on your personal values and individual
circumstances. Even if you have the personality and willingness to be a business owner, if you are
the sole financial provider for a large family, you may not be able to make the investment of
money and time.
Business savvy also plays a role as well in the risks and rewards of business and the viability of
any individual's foray into the world of entrepreneurship. You may have the necessary financial
resources and tolerance for risk, but if you can't read financial statements or manage your money
effectively, the risks will be greater and the rewards will be fewe
affect earning activities, it does not become a retained earning and cannot be distributed to
stockholders.
Goodwill
Goodwill is an intangible asset that is determined based on the reputation and income potential of
a business. It is subjective based on the perceived value of the business. For example, if a
prospective buyer is considering purchasing a retail store that generates considerable traffic based
on historical sales as well as perceived popularity, he or she would be willing to offer a price
higher than the fair market value of the assets. Goodwill is equal to the purchase price less the
total assets.
Stockholder's Equity
The owners of a business have a financial investment or interest in the company. Contributions
made by owners or partners plus retained earnings make up stockholder equity. The contributions,
or owner investment, are also referred to as common stock. Retained earnings equal income less
expenses for a given period and are usually a closing accounting entry that occurs at the end of a
fiscal or calendar year. Since retained earnings are essentially the net income of the company, it is
up to the stockholders to determine if these earnings will be distributed or reinvested into the
business.
Direct Impact of Goodwill on Stockholder’s Equity

Tangible assets plus goodwill are equal to the total of liabilities and equity. Since goodwill is not
an asset that is created from income activities, it does not become part of retained earnings. As a
result, it cannot be distributed among stockholders. Goodwill does not directly affect stockholder
equity.
Financial Statements and Goodwill

Financial statements of all business entities are represented through the accounting equation that
defines the relationship between the assets, liabilities and equity of the entity. Assets are equal to
liabilities plus equity. Liabilities are amounts owed by the business in the form of loans, lines of
credit or accounts payable. Equity is the stakeholders' financial interest in the company, based on
contributions and retained earnings.The balance sheet is the financial statement that shows this
relationship clearly. Assets include cash, accounts receivable, property or equipment owned by the
business, and goodwill. Of these, goodwill is considered intangible as it does not have an objective
fair market value.

business plan 1 50409 image by pablo from Fotolia.com
writer bio picture
By: Melissa Cooper
Updated September 26, 2017
Any new venture for which you are seeking funding requires a clear and well-thought-out
prospectus that states your goals and demonstrates how you will go about achieving them. Your
prospectus will include information about what you and your business will sell or promote, your
background and all of the possible outcomes for the venture. Few areas of business attract as much
attention as new ventures, and few aspects of new-venture creation attract as much attention as the
business plan.
State your purpose immediately. Don't refrain or be coy about your objective. Be clear, concise
and honest about what your business goals are, and how you will provide a return of investment.
Introduce your partners and describe their background and function within your organization.
Describe how they will help you achieve your goals and mission. This list should include the
names of your accountants, lawyers, distributors and suppliers.
State the potential risks as well as the potential rewards of your venture. Describe your market,
your competition, the socio-economic health of your location and of the business you are in and
include all variables that may impair or benefit your company.
Describe in detail how any money that the lender gives you will be used. Draw from any graphs,
charts or spreadsheets you have made and turn it into easy to read prose for the lenders. Remain
brief but give them the bottom line.
Provide a marketing strategy. Explain who your target market it is and how you plan to obtain
clients, and if you already have some clients waiting in the wings for your company's funding to
come through. Having a stable of clients awaiting your services or products can be impressive to
the lender.
Explain how you will personally assure the company's success. Let the lenders know that you
have a stake in the company and will fight for the company's health and prosperity.
Offer verifiable references of your work and credit history. Being forthright about your past
successes and failures gives the lender a full, realistic picture of your prospects. It also makes
good sense since the lenders will invariably do this research themselves if they consider funding
your organization.
Tell your lender when they will be repaid. Show them that you have made plans and projections to
pay them back.
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Why Is It Important for a Firm to Gain Competitive Advantage in a Marketplace?

altrendo images/Stockbyte/Getty Images
writer bio picture
By: Neil Kokemuller
Updated September 26, 2017
A competitive advantage in a marketplace is a distinguishing factor that drives a company's profit.
Building and maintaining competitive advantages attracts customers, contributes to fair prices and
generates loyalty.

Importance of Stakeholders

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Importance of Stakeholders

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The Importance of Stakeholders

Successful Stakeholder Relationships

About the Author

Internal Stakeholders Definition

About the Author

Help Us and Take Our Healthy Reader Survey!

Successful Stakeholder Relationships

About the Author

TL;DR (Too Long; Didn't Read)

External Stakeholders Definition

Internal Stakeholders Definition

About the Author

Financial Rewards to Motivate Employees

About the Author

Focus on Employee Strengths

Direct Impact of Goodwill on Stockholder’s Equity

Financial Statements and Goodwill

How to Write a Business Prospectus

About the Author

Why Is It Important for a Firm to Gain Competitive Advantage in a Marketplace?

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