How can you create a business that's good for the world as well as your pocket?
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For many years it has been assumed that purpose-driven businesses or businesses that have a social or environmental emphasis will be less profitable than traditional businesses driven only by the profit motive.
In this article, and in my recent book, Forces for Good, I put the opposite argument: it is purpose-driven businesses that will be the more profitable over the coming years compared to those businesses and corporations that care only about profit.
I believe there is a tidal wave about to break over the business world within the UK and beyond. Consumers are sick and tired of repeated stories of companies treating their staff as commodities to be used to make more profit.
They have had enough of companies who pay their directors more than 250 times the average salary of other employees. And they are frustrated by large companies’ slowness in changing their practices and policies to benefit rather than harm the environment.
Some might argue that this wave has already started to break. The B Corporation movement is a group of purpose-driven businesses that have chosen to be certified on how good they are for the world.
Extensive data is required to prove how good they are for the community, their people and the environment. Whilst it is still early days for the B Corp movement in the UK, there are some early signs that these types of companies are showing dramatically more growth than average.
In an article in The Grocer in early 2018 we learned that:
Businesses certified as B Corps grew 28 times faster than UK GDP in the past 12 months, according to research from the non-profit organisation.
Average year-on-year growth across the 150 UK businesses signed up to B Corp, a global network of sustainable companies, was 14% in the past year compared with 0.5% growth in GDP at the start of 2018.
Now despite my own company’s growth during that period contributing to the figure, I should caution that the data is based on the information from a relatively small number of UK companies re-certifying as B Corps at the time the article was written.
It will be interesting to see how these figures develop as more purpose-driven businesses’ revenue figures are added as the B Corporation movement continues to grow within UK. There are already nearly 200 companies within the UK who have certified and over 2,500 worldwide.
The growth is very impressive, and brands such as Ella’s Kitchen, JoJo Maman Bébé and Ben & Jerry’s all have a loyal consumer following due to their ethical causes.
How can it be that businesses that do have some higher costs due to being innovative in the areas of people and planet end up growing more quickly and making more profit than businesses that are purely focused on profit?
A number of reasons. Firstly, companies that are centred around a purpose will engender higher employee engagement and commitment, particularly from the younger end of the work-force. They will also attract the best people to come and work for them.
Secondly, giving more away to employees in profit distribution, extra time off and flexible working has a similar effect creating huge commitment from the team. They are connected to the profit-figure of the company and know that their employers’ value them trust them and are not just using them as commodities to line their own pockets.
Purpose-driven businesses that have an element of employee ownership seemingly are even more successful.
Many purpose-driven businesses are also far more likely to be giving employees a larger financial stake in their organisations, otherwise known as ‘shared capitalism’, which leads to better financial performance. Helen Wright from Great Place to Work wrote in December 2015:
Research on Great Place to Work data shows that not only does it increase engagement and performance it is also a key leading indicator of employees’ intention to stay. Research by HM Treasury also found that shared capitalism increased productivity by an average of 2.5% over the long term. The more varied an organisation’s shared capitalism initiatives, the greater the impact on performance.
Thirdly, those companies that are radically pursuing environmental policies will also generate more profit in the long-term. It is down to our generation to reverse the climate change that previous generations have been responsible for causing.
Those businesses who are making a positive difference to the planet will be the ones that are producing the products and delivering the services that consumers choose to buy above those products and services from companies less committed to the environment.
It is not difficult to see that consumers increasingly voting with their feet over the coming years will result in more turnover and profitability from these purpose-driven-businesses. Yes, there is a cost to offsetting carbon or going completely carbon neutral, but these costs will be more than covered by the incremental growth.
Finally, sustainable purpose-driven businesses are the type of companies that investors looking for long-term growth are starting to invest in. Previously businesses that had other aims in addition to profit were not taken seriously by investors and were viewed as too ‘on the edge’ to be worthy of investment.
These types of businesses were viewed through the same lens as social enterprises and charities, and their founders and leaders were assumed to be hippies or do-gooders without a true idea of what real business was all about.
This attitude has changed, or should I say, is changing, for investors. They now realise that purpose-driven businesses can be better investments as theirs are the brands to which consumers are flocking in their tens of thousands.
This will ensure that these purpose-driven businesses will have the money to fund their future growth.
A word of warning, do not think that profit-led businesses can add in a little CSR, chuck in a few environmental policies and gain all the advantages of a true purpose-driven business. No, consumers very easily see through this ‘greenwash’.
A true purpose-driven business that generates the growth and profitability we have discussed here will have fundamentally changed their business DNA and will look, smell and act in a completely different way to traditional businesses.