Best Practices - 9 #Startups #SMEs

In the last one decade of my active engagement with Startups and SMEs, there is one practice that I have witnessed that is very detrimental to the future of the Company. This practice is the tendency of the Company Founders to mix the Roles of the Stakeholders in the Company.

Stakeholder Management has never been easy especially with Startups and SMEs. This is primarily due to the lack of Resources and also due to short term thinking. Sometimes, the Founders come under the pressure of the Key Stakeholders to dilute the roles.

The typical Stakeholders of a Company fall under the following different categories :

1. Entrepreneur (Core Founder) - This is typically the main person behind the core idea of the company foundation. His role should be the CEO of the formative company.
2. Co-Founder - This is typically the person who buys into the vision of the Core Founder. His role should be to be a CXO so as to supplement and complement the skillsets of the Core Founder.
3. Advisor - This is typically a senior person with years of experience in the Consulting / Industry / Functional domain. His role should be to be a Mentor, Coach, Guide, Consultant to the Founders of the Company.
4. Investor - This is typically a person who invests into the Company. His role should be to check whether the company utilises the investment in a judicious manner so as to generate Revenues and Profits. An investor has the right to audit the Company and also question the utilisation of funds.
5. Customer - This is typically a key person who is involved in the decision making of purchase from the Company. His role should be to ensure that he evaluates the Company's offering that meets his own company's requirements.
6. Partner - This is typically a key person who has an alliance partnership with the Company. His role should be to ensure that his offering matches with the partnership expectations of the Company in terms of being a channel for the Company's offering to be presented to the target market.
7. Vendor - This is typically a key person who is involved in the selling of his offering to the Company. His role should be to ensure that his offering matches with the expectations and requirements of the Company.
8. Employee - This is typically a person who is on the rolls of the Company and draws a monthly salary. His role should be to cater to the function for which the Company has hired him.

In most cases of Startups/SMEs, the Founders (Core Founder, Co-Founders) might make initial investments into the Company at the time of Company formation. However, it is not advisable to bring in a Co-Founder who has the money to invest into the Company but with no complementary or supplementary skills. This can result in conflicts especially incases of utilisation of funds.

An Advisor is someone who will have a "Third Eye" towards the working of the Company and shares his experience, expertise and wisdom. He cannot be a Co-Founder or an Investor in the Company. Some Startups/SMEs tend to expect investment and business development from Advisors which is not a right approach because Advisor cannot be an Investor or be involved in the day to day sales operations of the company.

Most Startups/SMEs tend to expect the Investor to leverage their relationships for getting new Customers. This can be a fruitful idea as long as the investor has a good rapport with those prospective Customer base. However, letting the Investor intervene in the day-to-day operations of the Company can be detrimental for the company in the long run.

Some Startups/SMEs tend to get their Customer/Partner/Vendor to take on the Role of Investor/Advisor in the Company. This can be unethical and also be detrimental due to conflict of interests.

The first 4 Stakeholders can be part of the Board of Directors. It is generally not advisable to take on the last 4 Stakeholders into the Board, due to the likelihood of possibility of conflicts of interests.

Moreover, it is important for the Founders to understand the expectations of the Stakeholders. Similarly, the Stakeholders need to be clarified on the expectations from them by the Company.

All the 8 Stakeholders categorised above perform distinct roles in the Company. At all costs, the Founders should never mix the Roles of the Stakeholders in the best interests of the Company.