Startup Purpose Benefit All Stakeholders
Startup Purpose—benefit all stakeholders. Selfish startups don’t survive. Join the growing numbers of entrepreneurs who embrace stakeholder capitalism, rather than shareholder capitalism. Many businesses declare that they are committed to balancing the needs and expectations of all stakeholders. But, if their leaders are making statements in favor, but without deep personal motivation, it is likely that the stated strategic intent will not be translated into daily operations.
Two Concepts to Guide Entrepreneurs: Reciprocity and Interbeing
Two concepts frequently missing in management practice those of Reciprocity and Interbeing, even among those who claim commitment to all stakeholders. The concepts of Reciprocity and Interbeing may sound far from any discussion of business purpose—perhaps because they hold such small a place in any discussion of strategy.
Two and half thousand years ago, the sage Confucius stressed the importance of Reciprocity, and encouraged people to follow the ‘Golden Rule’ of “Do not unto others what you do not want done to yourself”. Reciprocity implies interdependence. The Cambridge Dictionary defines Reciprocity as behavior in which two people or groups of people give each other help and advantages.
The philosopher-monk Thich Nhat Hanh coined the word Interbeing in the twentieth century to define the state of connectedness and interdependence of all phenomena. He said that we inter-are with one another and with all life. Most management practice in the West, particularly in the twenty-first century, has managed to ignore this self evident truth.
Implications for Startup Strategies
We should not consider that either process involves the expectation of reward. If the motivation for socially responsible behavior is based on the idea that it will improve customer perception of the brand, it amounts good management practice, since it will likely improve financial results. That is a good outcome, but not sufficient to exemplify Reciprocity. In a marketing context for example, giving a customer a coupon to encourage a future purchase is not what it’s about. That kind of behavior is transactional, not relational.
Similarly, from my own experience, I recently received an offer of a free $100 gift card. At first glance I thought it came from one of my utility suppliers. On closer inspection I learned that it came from a competitor whom I’d never heard of and who had obtained my supplier’s customer list. The mailing gave me a personal PIN for the card and invited me to let them know the number, and ‘they’ would send me the card. This questionable sales ploy showed no respect for any kind of relationship, but only the transaction.
Four Kinds of Stakeholder Capitalism
“Espousing a commitment to all stakeholders without clarity about what that actually entails puts directors and executives on a collision course with one another when decisions requiring difficult trade-offs among stakeholders’ interests arise—as they inevitably do”. This quote is from an article by Lynn S. Paine (Professor of Corporate Governance at HBS in the Sep-Oct 2023 issue of Harvard Business Review. She is also co-author of the 2020 book, Capitalism at Risk: How Business Can Lead (HBR Press, 2020)
The author describes four kinds of stakeholder capitalism:
- instrumental—producing better shareholder returns;
- classic—showing stakeholder respect;
- beneficial—producing better outcomes for stakeholders;
- structural—increasing stakeholder power.
The third and fourth kinds will inevitably involve a relational rather than a transactional process being deeply embedded in both intent and behavior.
Startups are more likely to exemplify the third, rather than the fourth kind, in that it is within the power of the founder to mandate, though once the new venture has grown significantly, it will likely need to involve the fourth kind, through becoming a certified B Corporation, maybe initially, and later a registered Benefit Corporation, where it is structurally/legally committed to all stakeholders.
Startup Purpose from the Soul
“There’s an essential, intangible something in start-ups—an energy, a soul,” says Ranjay Gulati, the author of Deep Purpose: The Heart and Soul of High Performance Companies (Harper Collins, 2022) and HBS Professor. He also freely admits, “So often entrepreneurs, consultants, and scholars like myself emphasize the need to implement structure and systems as a business grows, missing the importance of preserving its spirit.” He also considers that, “most founders, by contrast, believe that their start-ups are about “something more than their missions, business models, and talent”, even if those founders can’t articulate it precisely.
So, how do founders ensure that they keep their spirit alive in the growing business? With difficulty, and yet there are several ways to ensure both thrive and maintain integrity of purpose. Here are seven key ways to achieve just that:
- Decide why and how you want your startup to make a difference; look into your soul and think about others before yourself; ask how you can continue to be an exemplar of purpose driven entrepreneurship;Work out who your stakeholders are—not an easy task before you’re up and rolling, so may be engage others in the task;
- Make sure that from the very first person recruited, and the first service used (including external capital sources), that there is a clear articulation of the new venture’s purposeful spirit;
- Take time in an organized way to frame a language for that spirit that resonates among all staff members, and can serve as the soul of the business, in both intent and behavior–once the venture has reached a dozen or so employees; give everybody the strength not only to be curious, but also vulnerable;
- Share that spirit repeatedly with all stakeholders on a regular basis and demonstrate it through operations;
- Create the means whereby there is an ongoing repetitive way to assess behavior and consequences in relation to the spirit embodied in the business purpose;
- Establish an independent means of evaluation outside the business which can make an assessment of outcomes for each of the stakeholders.
Define and Manifest Purpose
There are many ways to define and manifest purpose. So, if the foregoing has not been helpful or inspirational, here are some other Insights that may help you: