Can my business be purpose-driven and profitable?
Business owners are waking up to the fact that purpose plays an essential role in building a successful business. But how vital is it and does prioritizing purpose come at the sacrifice of profit?
To answer the question, let’s start by digging deeper into what it means to be a purpose-driven business…
What does it mean to be a purpose-driven business?
Purpose answers the all-important question, “Why does my company exist?”
Founders of purpose-driven companies are typically inspired to be a part of something much larger than themselves. And to succeed, they attract likeminded people to serve a cause that has a positive effect on other people’s lives.
I’ll hazard a guess that when you started your business you had a clear purpose, even if not explicitly stated. Perhaps you saw that remote working would bring security challenges for corporate data and felt passionate about protecting customer information. You, or someone you know, may even have fallen victim to a data breach. So, you decided to start a company to solve the problem and your cause attracted like-minded people to help you (your first employees).
Your company came into existence to solve a problem: to secure and protect people’s data.
Initially, all your focus was on solving the problem. However, over time the challenges of running a business shift your priorities. Growth and profit become your primary focus, and revenue drives your strategy. Then, things begin to slip. Revenue stalls, profit drops, employee turnover is high, and you find yourself busier than ever just trying to stay afloat.
Growth and profit replaced purpose.
In contrast, a purpose or values-driven business prioritizes purpose and people over profit and growth. Sure, these businesses are interested in growth and profit, but not at the sacrifice of their culture or purpose.
In an authentic purpose-driven business, owners and leaders insist that purpose drives strategy. The core purpose of the business permeates every aspect of the company: the organizational structure, the recruitment process, employee development and customer interactions. Simply put, purpose is coded into the DNA of the business. And, like a North Star, guides all decision making.
When confronted with situations in which financial performance conflicts with the company values, owners of purpose-driven businesses boldly defend and adhere to purpose and core values. People are put first and foremost and investing in them is seen as driving growth and innovation.
Okay, but are purpose-driven businesses profitable?
When Jim Stengel conducted a ten-year-growth-study of more than 50,000 brands around the world, he discovered something remarkable. Having a brand ideal, a shared goal of improving people's lives, helped the world’s best businesses achieve growth three times or more that of the competition in their categories.
And when he looked at the Stengel 50, the top 50 businesses in his ten-year-growth study, he saw they generated a return on investment 400 percent better than the Standard & Poor’s 500.
As Jim puts it:
“Doing the right thing in your business is doing the right thing for your business.” – Jim Stengel
And Jim is not alone, there are numerous studies to support the fact that purpose and profit tend to go together. A recent Harvard Business report found that: companies with high levels of purpose outperform the market by 5%–7% per year, on par with companies with best-in-class governance and innovative capabilities. They also grow faster and have higher profitability.
I can almost hear you saying: “Sure Jean, but those are big businesses with massive resources. How is my small business with limited resources going to survive by pursuing a purpose-driven strategy?”.
Well, they weren't always big...
Patagonia was once the size of your business—a small privately held company with a small group of visionaries at its centre. For years, Patagonia soldiered on, serving its core customers, regardless of the whims of the moment.
However, like any brand, Patagonia has had its ups and downs. After a period of rapid growth in the ‘80s, the company found itself overextended. Bankruptcy loomed. And founder Yvon Chouinard’s accountants even took him to the Mafia for a loan at an interest rate of 18 percent!
In the end, he borrowed money from some friends and had to lay off 20% of the workforce. But the business survived and Chouinard learnt an important lesson.
In Chouinard's words:
“It was hard, I realized we were just growing for the sake of growing, which is bullshit.”
Bigger isn't always better...
Patagonia vowed to think small from then on, remaining privately held, purpose-driven and focusing on its core consumer. As of 2018, Patagonia is worth $1 billion!
And Patagonia is just one example, of thousands of businesses who have chosen to put purpose and people before growth and profit. Read Bo Burlingham's book, Small Giants: Companies That Choose to be Great Instead of Big.
At its core, your company's purpose should answer the question, “Why do we exist?”. To find the answer, you need to dig deeper and deeper until you get to the heart of why your business exists.
Here's an equation from the Small Giants Community eBook on Purpose, Values, Vision on uncovering your companies (original) purpose.
Purpose = (Our Unique Values) x (The Pain We Are Solving).
If you’re committed to creating a purpose-driven business, you must take the time to uncover and define your authentic purpose.
You must uncover and share individual values and stories, then define your values as a team, and finally, think about how this impacts your purpose as an organization.
How does your company’s reason for existence connect with your team’s unique core values?
Your purpose should clearly state what you’re built for and how your company will make the world a better place. Don’t get hung up on inspirational words and wordsmithing. And remember, your purpose should communicate what you stand for, not what you make or sell.
Your purpose is your North Star...
While what you make or sell might change, your company purpose should remain a constant. Protecting your company purpose protects the core of your company. Look to it to guide your growth, picking and choosing how you expand and grow into new markets. Have a big business decision? Measure it against your company purpose. Attract and recruit talent by it, hire and fire by it. Infuse your purpose into company culture in an authentic way, sharing employee triumphs and creating energy around the work you’re doing to deliver on your shared goal.
At its simplest and most powerful, your company purpose is a beacon that attracts the people you are meant to work with and repels the rest. This saves you resources, keeps employee turnover low and client retention high, and not surprisingly delivers exceptional growth and profitability.
For more insight into how to build a purpose-driven business that drives a profit, don't miss:
- My entrepreneurial story: Lessons from my business exits
- The 9 changes that increased the value of my business the most
- Why increasing revenue doesn’t always make your business more valuable (and what you should focus on instead)
- Enter the Conversation Taking Place in Your Customer's Mind
- The 6 types of business exit (and which is right for you)
And find out how you can work with me if you're after my hands-on help building a valuable business.
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