What Is an External Stakeholder?

Every business has a community of people invested in its well-being. Stakeholders in business are these diverse parties who benefit from the company's products and services and are affected by its policies and practices. Internal stakeholders such as owners, investors and employees actively participate in business operations or have skin in the game by owning equity. External stakeholders such as customers, vendors and banks participate in business activities more as collaborative partners than as owners. They are connected to the company, but as outsiders with common interests rather than as family with a weightier investment.

TL;DR (Too Long; Didn't Read)

External stakeholders are individuals, businesses or organizations who hold common interests with your business. They can include customers, vendors and suppliers.

External Stakeholders Definition

External stakeholders are individuals, businesses or organizations who hold common interests with your business. Customers benefit from the goods and services your business provides, and value these offerings enough to pay for them. Despite their external status, customers can become deeply engaged with a business, especially if that company provides something invaluable such as a life-saving medical device or a life-changing piece of artwork. Vendors and suppliers are external stakeholders as well. When they sell their products or services to your company, their livelihood comes to depend on your success and on your ongoing need for what they provide. Banks who lend to your business are external stakeholders because their operations benefit from your capacity to pay back the money you owe.

Internal Stakeholders Definition

Internal stakeholders are people and organizations who are directly connected to your business and materially benefit or suffer as a result of its successes or failures. Owners put their assets at risk and often have a strong emotional investment as well. The interests of your employees are similarly closely aligned with those of your business. Even if these employees are mostly disengaged and only work for the sake of a paycheck, their survival depends on your company's ability to earn enough to pay them for their time and work. Like owners, investors have a financial stake in your profit, loss and ongoing growth.

Levels of Engagement

A commonly used distinction between internal and external stakeholders of a company suggests that internal stakeholders are intrinsically connected to a business while external stakeholders participate in more leisurely ways. While this is often the case, it is hardly true across the board. An investor who owns a couple of shares of stock and doesn't bother to vote in board elections is an internal shareholder but may be less engaged than a regular long-term customer. Crowdfunding campaigns such as Kickstarter give your customers and community an opportunity to financially participate in your business in ways that go beyond purchasing products and services. Although these contributors are still external stakeholders, their interest and commitment can resemble that of internal stakeholders.

References

About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.