A few days ago, I was asked to give an opinion on a question, which served as the basis of an article in a recent edition of the Harvard Business Review. The question: Should a businesses’ management team’s primary concern be the company’s shareholders, its customers or its employees?
The above referenced article focused on public companies, firms with multiple shareholders. It ultimately concluded that manager’s primary concerns should be the overall health of the company, and in doing so the shareholders would ultimately benefit.
But what about a company with a limited ownership group, of one to three individuals, which is typical in most entrepreneurial organizations or small businesses? What should these owners require of their management team, and does it differ from that of a public company with numerous shareholders?
Let’s first consider the three groups, and their importance and uniqueness to a business with limited ownership.
The customer is the entity that makes the company financially viable in the first place. Customers provide revenues, and without them, a company would cease to exist. Furthermore, many limited ownership companies will also have either a limited number of customers, serve a specific customer niche, or both. This would make every customer extremely valuable to that business.
Then there are the employees, who are necessary to deliver the services or create the products offered by the company. Employees also serve the customers in a manner that will determine if the company will survive and prosper. Just as with customers, limited ownership companies may also have a limited number of employees, many of whom will be trained specific to the company, thereby creating a specific workforce difficult to replace.
Finally, there is the ownership group, an entity often of just one or possibly a few more, who created the company, made the initial investment, continues to invest resources, and ultimately takes on all of the financial risk. In a significant difference from shareholders in a private firm, these owners are most likely fully dependent upon the company and its success for their livelihood, and are typically involved in the day-to-day operations of the business.
A strong argument can be made that any of the three should be the primary concern of a limited ownership business.
As someone who has owned companies as a single owner, and as part of a limited ownership group, experience has proven that strength in all three entities; ownership, customers and employees, are necessary to the health and life of a company. If there are weaknesses in any one of the three entities, the entire business will suffer, and ultimately fail.
The primary concern of a limited ownership business therefore should be the health of the business. Managers should focus on building a strong customer base, developing a team of quality employees, and utilizing the skills and abilities of the business owner(s).
When the health and viability of the business is placed as the priority, it will have the ability to best serve the customers and the employees, which in turn will best benefit the ownership.