directors,
employees,
associates, affiliates, partnerships working with your business,
suppliers,
customers,
market influencers,
people in the locality of your business premises or affected by it,
or the government and local authorities, legal systems in your jurisdiction.
It is surprising how broad you can take that definition but given a moment’s thought it is obvious that your business affects many people in many ways and they all need to be kept happy for you to succeed.
biz-wisdom: Having a holistic approach to management is key to your success. Understanding how your team’s actions and decisions affect all stakeholders will serve you well. Often your employees, customers and suppliers will not understand your actions as you do. As your business grows, you will need to make many decisions on a daily basis and each will be a compromise - that’s the essence of sound management. Diplomacy and communication are key skills here. Many leaders fail on this point and don’t even know why. More on this on our website for subscription members under ‘Managing your Business’.
To understand how the various stakeholders affect your particular business it is helpful to draw a simple relationship diagram outlining the key relationships with your business. For example, if you are a plumber then you might have a direct customer and sometimes provide services via another contractor or subcontractor and so on. You will have suppliers and subcontractors that deliver services or goods to you that enable you to provide your service in turn.
This helps you identify the relative importance of the various stakeholders. You should consider the following. Who are the key stakeholders in your case? - understand key players and the relationships between them. What are their relative strengths and weaknesses? Are you in the ‘sweet spot’ of control (read profit)? When chips are down who owns the customer relationship (read profit)?
Who are the key stakeholders?
Consider your business were a play. Who would you need to hire to produce the play? Which actors play the key roles in day to day business? They are your key stakeholders. What are the relative strengths and weaknesses per actor? Which of the actors commands the highest fee? Who wields all the power? Who gets the red carpet?
Are you in the ‘sweet spot’?
The way your business interacts with the actors you have just identified determines how much power and control you can exercise over the other parties but more importantly how much they might control you and your business. It also determines therefore, how much profit you can make. Remember your business must be sustainable.
By example, imagine the plumbing business that is beholden to a master contractor for all it’s revenues. What happens if there is a falling out with the master contractor? One might say the master contractor was very much in the ‘sweet spot’. They get to negotiate hard on your price and control the amount of work that you will get. In this scenario your business is at risk of survival if it cannot source its own work.
Sometimes suppliers may ‘hold you to ransom’, sometimes it is a single large customer that provides all your income. Sometimes it is a key employee or an agent. The list is endless so you must do your homework before you start trading to ensure you are maximising your business chances of being as close as possible to the sweet spot.
When chips are down who owns the customer relationship (read profit)?
In many businesses the sales team has control over the relationship with ‘their’ customers - that’s how they see it. Be mindful that the customers should be loyal to your brand, your business, not individuals, not even you.
This is an important lesson for many people. The solution is to model your business correctly. Manage all stakeholders well to ensure that your business is always in control. Your business must earn and maintain customer loyalty. If you cannot achieve this you are beholden to the stakeholder that is in the sweet spot or worse a particular sales person or employee could hold your entire business asset to ransom.
This is an iterative and creative process. You need to consider changing your proposed business model to optimise your chances of success. Remember you can change anything. This is your business and it hasn’t started trading yet - you can re-model it as much as you want. Fun isn’t it?
If your business model looks depressingly in the ‘sour spot’ then you need to go back to Step One. Don’t fear this. It has probably saved you from a failed business.
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