Stakeholders or Shareholders—Startup Purpose and Meaning

Stakeholders or Shareholders Startup Purpose and Meaning

graphic showing internal and external stakeholders

CC BY-SA 3.0

Stakeholders or Shareholders—Startup Purpose and Meaning: Entrepreneurs are making a significant contribution to the incoming wave of stakeholder capitalism sweeping through the economy to the benefit of those both directly and indirectly involved. Traditional shareholder capitalism is challenged more and more, given that it is based on the notion that owners come first, no matter the impact on society as a whole. Stakeholder theory is about organizational management and business ethics and why we should always consider the company in its wider social context.

Corporate governance has become dominated by the maximizing of profit for investors/shareholders and takes no account of the many stakeholders who are impacted by the company, and in many cases whose lives depend upon it. The disconnect between behavior and outcomes has happened almost without the change being noticed.

“We’ve lost track of our most human needs for connection and contribution. Now we often feel tempted to fill that void with counterfeit forms of mattering—chasing attention over connection, prestige over purpose, and money over meaning”, says Jennifer Breheny Wallace in her 2026 book, Mattering: The Secret to a Life of Connection and Purpose.

We need to focus on what matters. If we persist on keeping our focus on money and ownership, everyone loses. Purpose driven founders understand that what matters is the point of setting up a new venture and create meaning.

Stakeholders or Shareholders: Risk and Reward

The prevailing assumption is that the main responsibility of startups is to shareholders (founders and outside investors) rather than stakeholders—employees, customers and anyone impacted by the company’s business operations—including founders and outside investors. This is accompanied by the common belief that founders need to seek external equity investment to ensure the success of any startup. Except for a few major startups in technology or mass production, this is not axiomatic.

Over 50 years ago, Milton Friedman was the economist who declared that “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.” He argued against the notion that businesses should pursue social goals, stating that such actions divert from their primary responsibility to shareholders.

The Friedman philosophy was of profit maximization for business owners and that those who take financial risk. He considered that they should be the ones to receive rewards, but critics have increasingly argued that this can lead to management facing many ethical dilemmas, if such motives overshadow social responsibilities. Friedman argued that individuals, not businesses should take on social causes. Over the last few years, this Friedman doctrine has been increasingly challenged by those who believe a business is beholden to all its stakeholders upon whom ultimate business success depends. Stakeholders or Shareholders is not a choice—since the former includes the latter. If the focus is solely on shareholders, then consequences for many stakeholders are ignored.

Friedman Doctrine No Longer the Norm

Startups, small and private companies are significantly different to large corporations, quoted companies and indeed, most businesses that have external equity investment. Attitudes and expectations inside and outside both kinds of business are likely to very different. Socioeconomic attitudes and expectations have radically and cumulatively changed over the last decade. Startup purpose and meaning have become critical to founder aspirations.

For ten years or so, business vocabularies have evolved to strongly that belief in the Friedman Doctrine is no longer the norm. Terminology like CSR (Corporate Social Responsibility), ESG (Environment, Society and Governance) and DEI (Diversity, Equity and Inclusion) have evolved into current and applied usage in business and wider socioeconomic debate.

Martin Lipman¹ describes the evolving paradigm very well. He says, “The purpose of a corporation is to conduct a lawful, ethical, profitable and sustainable business in order to ensure its success and grow its value over the long term. This requires consideration of all the stakeholders that are critical to its success (shareholders, employees, customers, suppliers and communities), as determined by the corporation and its board of directors using their business judgment and with regular engagement with shareholders, who are essential partners in supporting the corporation’s pursuit of its purpose. Fulfilling this purpose in such manner is fully consistent with the fiduciary duties of the board of directors and the stewardship obligations of shareholders.” The last sentence is particularly significant, given the current political backlash towards the trend towards the Stakeholder Economy.

Stakeholders or Shareholders: Which Are We?

Stock in quoted companies can be held directly by individuals and/or indirectly through an intermediaries, such as trusts, IRAs or other retirement plans. When economists and other ‘experts’ talk about shareholders they seldom differentiate between those two kinds. Indeed, many of us with indirect shareholdings do not even consider ourselves as such. Thus when we watch stock market news reports, we give little thought about what’s happening that may impact us. In fact we most likely do not think of ourselves as shareholders, or express any interest in the stock market at all.

As a result companies can do as they like, so far as ‘we’ are concerned. We probably know nothing about pay ratios between CEOs who take home millions of dollars, and their lowest paid employees who earn less than a living wage. We may not know anything about corporations that suppress union activity, or pollute rivers, discriminate against particular groups in society using bogus arguments (or even being aware that their policies are discriminatory). Our buying habits may ignore such practices, of if asked may respond with comments like, “that’s none of my business.” In all probability. we don’t even know anything about the governance of those company in which our money is invested, let alone what the word governance means or how it impacts management actions or inaction.

Though dating from 2019, getting a sense of proportion about who actually owns US quoted companies research by the Tax Policy Center shows that foreign investors owned about 40 percent of US corporate equity in 2019, up substantially over the previous few decades. Retirement accounts of US households owned about 30 percent in 2019, and the taxable accounts of US investors owned about 25 percent, which is most of the rest. The Center also reported that “Virtually all (94 percent) of the wealthiest 10 percent of households owned stocks, while only about a third (31 percent) of the bottom 50 percent owned stock, either directly or indirectly (e.g., through mutual funds)”.

Money Doesn’t Grow on Trees

Dollar signs growing like leaves on a tree “The stock market is not the economy” and yet the news media often represent the state of the market under the heading of ‘Business’, as though it was. Wall Street is obviously impacted by business results and developments of quoted companies. However, much of the market reaction is based on speculation and events in society that give buyers and sellers the ‘heebie jeebies’ unrelated to business, or the economy. They then make buy or sell decisions for emotional or irrational reasons; the market goes up or down, but most of the population remains unaffected.

One comment on the 2026 book, The Madness of Markets by Alex Edmans², suggests that the market reflects the consensus of human beings, with all their strengths and frailties, and that the line between crowd wisdom and crowd madness is a fine one. Founders and new entrepreneurs should not fall into the same trap. Nor should they be lured into swallowing the frequent advice that startups must get external equity and grow fast. ‘Bootstrap Startup Finance‘ is nearer the norm for most startups.

Many misconceptions are common about financing a startup and maybe the biggest is about the speed with which the business can reach profitability. At the outset cash flow beats profits every time—take a look at Small Profits and Quick Returns if you don’t want to believe me, then at least you may avoid being one of the 20 percent of startups that fail in their first year. Ignorance of this boring but critical issue is one of the biggest contributors to early startup failures. The Bureau of Labor Statistics data on entrepreneurship and the US economy will curb your doubt, or you could also read Anila Lahiri’s article: Startup Survival in the U.S.: Why 90% of Startups Fail (And How to Beat the Odds), from EINsearch Research (2025). Another good read is Demystifying Startup Funding: Common Myths and Misconceptions, by Paul Svenson, the MD of Innovention Capital.

Business Case for Purpose—Beyond the Bottom Line

The business case for startup purpose and meaning is not just a ‘nice to’. More and more research is confirming the benefits. graphic to illustrate beyond the bottom line: person running to horizon along tellow line

Purpose-driven companies grow 3 times faster than their competitors (Deloitte Insights)
73 per cent of global consumers say they’ll defend a brand with purpose (Edelman Trust Barometer)
Companies with a strong sense of purpose see 40 per cent higher retention (The Cigna Group Study).

Such results would seem obvious to an entrepreneur, who is aware of her own emotions. If there was more honesty and expression of feelings, chances are high that the benefits, and business results, would likely increase. When values and behaviors coincide both within the enterprise and with its stakeholders, consequences are very positive.

The Alex Edmans book, The Madness of Markets, cited above aims to be a guide for anyone looking to make smarter investment decisions. In addition, anyone aiming at creating a smarter startup would be wise to read its revealing pages. The underlying message of Alex’s book is that human values, and the behavior that follow, are critical variables in business success—or failure. Sadly, the madness of stock markets also has a huge impact on Main Street—you and me—as well as Wall Street.

When we started our business in 1982 Britain, the London stack market was at a very low ebb following the previous year’s recession, and consequent attitudes in business and society were so negative that the economy was suffering. Inflation was at 10 percent, unemployment was high and there was a pervasive gloom in daily life. We were advised to delay any idea of a startup in prevailing conditions. We were undaunted and took the plunge. Naturally we had a business plan of how we were going to make the startup work, but our purpose was rooted in values rather than making pots of money.

Purpose and Meaning: Startup Founders’ Strategic Role

Image of brain in a head, with compass and other ideas in bubbles above looking like leaves of a tree with roots below roots to illustrate thinking about purpose

What’s the Purpose & Meaning?

If it is not only the money, important though that is, especially cash, what are the priorities for new entrepreneurs? The natural and vital things include the product itself and securing a market. Startup founders have a increasingly important strategic role and responsibility in all this—to set and implement relevant strategies for purpose and meaning. It’s surely not just about survival. It’s about holistic or big picture thinking.

When my cofounder and I were embarking on our startup journey, the ‘what’ was the easy part. Actually, our purpose and meaning strategies grew as we established the business, even though it was buried within us before we started, which in any event was about more than a new mousetrap.

One of my motivations was that I simply could not continue with the international consulting firm where I’d worked for 13 years. I was 43 and tried and failed starting before—now I felt ready. Another was three clients who were waiting to sign up. My partner was in relationship with me and had been in community services—a very different career, though it proved invaluable to our making a go of the venture.

It was not a typical startup scenario, except that our creation was risky and we had no capital. We contained risk, used creative ways to finance the venture, and all along believed that what we were doing was good for only for our client organizations, especially the people they employed and thus the community in general.