RM of for-profit and non-profit startups – Same, different, or both? | By Daniel Mirovsky
A recent study analysed the relationship management practices of for-profit and non-profit startups. Interestingly, researchers found that respondents’ perceptions of their stakeholder environment varied greatly and that startups’ relationship management practices diverged accordingly.
In the realm of a current research project, entrepreneurs were questioned with respect to their perceptions of their organisation’s stakeholder environment and their approaches to manage stakeholder relations. The resulting descriptions were transformed into graphical representations – stakeholder mind maps – with the aim of reproducing respondents’ perceptions as closely as possible while maintaining clarity. (The underlying legend is described at the bottom of the article)
As the following four mind maps illustrate, entrepreneurs differed greatly with regards to their perceptions of the stakeholder environment and their relationship management practices. Some managers emphasised few stakeholders, while others attended to manifold groups. Startups’ relationship management practices differed accordingly.
Developing and marketing Apps is simple?!
The first figure reproduces the very simple stakeholder environment of a for-profit startup developing and marketing Apps (and therefore imaginatively referred to as “Apps” from hereon). Only five groups were included as stakeholders: customers (paying for the development of the apps), potential customers, end customers (using or at least downloading the apps of the customers), employees (building the apps, acquiring customers, and maintaining ongoing customer relations), and the founder himself (providing capital and managing). The venture relates to four of these stakeholders directly, while customers deal with end customers, and also relate to potential customers through referrals or word-of-mouth. Overall, Apps is very self-reliant emphasizing two internal stakeholder groups (employees and the founder) and only one external stakeholder category: customers.
Suitably, Apps’ relationship management practices were found to aim at establishing ties with customers and employees. Relations to individual customers are designed by means of classic CRM tools provided by Salesforce such as a database including addresses and contact persons, and a customer contact history. Thereby, the startup follows the “delivering happiness” philosophy of Zappos’ founder Tony Hsieh trying to exceed expectations of the interaction partner to deliver happiness and to create a positive differentiation from competitors.
E-Commerce is more complex…
The second stakeholder mind map depicts the more complex perceptions of an entrepreneur running a coffee selling e-commerce startup (“Espresso”). Nine different stakeholder groups belonging to five different stakeholder categories -investors, customers, employees, suppliers, and partners- were identified. Espresso is still very self-reliant emphasising employees and the parent company as resource provider, but involving more external stakeholders than Apps. The higher number of stakeholders also translates into more firm-stakeholder and inter stakeholder ties.
With regards to relationship management, Espresso aims at establishing long-term oriented relations with individual consumers and suppliers not only on a transaction oriented, but also on a social level. For example, customers are addressed on a first name basis and extensive information is provided in the realm of customer support even if it is not directly related to the organization’s immediate interest.
…even more, if it involves an innovative approach
While the previous figure already attained a high degree of complexity, perceptions still get more ramified. The following figure portrays the stakeholder surrounding of “Coffee”, another e-commerce shop providing high quality coffee. However, differently than purely for-profit oriented Espresso, Coffee mixes non-profit elements into its for-profit business model giving back to the coffee farmers by means of development projects financed through a fixed part of profits and supplemental donations. 15 stakeholder groups belonging to ten stakeholder categories were identified in Coffee’s stakeholder environment involving the media and the public, as well as three non-profit related stakeholder classes -beneciaries, donors, and the third sector- besides the stakeholder classes included by Apps and Espresso. While Coffee displays more direct ties to stakeholders than the previously presented two startups, the venture also exhibits many more links among stakeholders.
Besides managing interactions with individual stakeholders in ways comparable to Apps’ and Espresso’s approaches, Coffee aims at linking customers and suppliers through a transparent circle. In this context, customers can retrace the origins of their coffee, decide which development project is supported by means of their contribution, and see the results in a transparent manner increasing trust and commitment in the startups cause. Conversely, suppliers get to see the final product and participate in sales proceedings, which for example leads to preferred offering of the highest quality coffee beans.
But what about the complexity of true non-profits?
The fourth example of Transition -a mentoring program helping teenagers with the transition from school to an apprenticeship or job- is still more complex. This non-profit startup’s stakeholder mind map displays an interconnected network in which the two most important relations are not firm-stakeholder ties, but inter stakeholder links between mentors and teenagers, and among teenagers and companies.
Accordingly, Transition emphasised the importance of understanding and managing stakeholder relations as embedded in interconnected networks. Following, a xRM system is used to capture relations among mentors, teenagers, companies, partners, and employees in order to develop integrated approaches in dealing with the stakeholder environment and supporting the effectiveness of teenager-mentor and teenager-company ties.
Let’s wrap it up
Overall, more for-profit oriented ventures exhibited simpler stakeholder mind maps than their more non-profit oriented counterparts. Following, for profit startups mostly employed transactional and interactional approaches to relationship management, while young non-profit organisations emphasised network oriented practices. A refutation of arguments stating that social entrepreneurship is easy. How would a for-profit entrepreneur deal with the complexity of a non-profit startup?
Coding of stakeholder mind maps
In the stakeholder mind maps, rectangles constitute stakeholders, while circles represent entities belonging to the organisation such as headquarters, locations, subsidiaries, franchises, or boards. Stakeholder prioritization is highlighted by differentiating between thinly dotted (low to medium stakeholder importance) and thickly dashed rectangles (high stakeholder prioritization). The lines depict (relational) ties among stakeholders and organisational bodies. Continuous lines represent ties between organisation’s headquarters and stakeholders or other organizational parts, dashed lines depict links between organisational locations, subsidiaries, franchises, or boards and stakeholders or other organizational parts, dotted lines reproduce connections among different stakeholder groups, and dashed-dotted lines express indirect effects of stakeholder groups on all or most other stakeholders. The ties to internal stakeholders such as employees or the founders themselves are not depicted in the graphical representations, but form another category of firm-stakeholder links. Highly emphasized ties are highlighted by thickening the corresponding line.