Warby Parker, Toms, and several other well-known consumer facing companies have emerged with purpose at the core of their missions and cultures. Meanwhile, the common objective of business is to maximize profit and shareholder interest. Does an intersection between the two exist? This was one of many questions raised at a recent group lunch on purposeful business. It was a fascinating conversation with much more left to discuss, so I wanted to share a few of the interesting areas that we explored:
One person made the point, which I agree with, that industry structure and profitability define a company’s ability to “give back.” In a competitive industry with thin margins, companies cannot afford to give anything away. Conversely, companies in industries with monopolistic characteristics (e.g. eyewear) and/or high margins (e.g. branded apparel) can redirect dollars to a purposeful cause.
But what does "giving back" even mean? Companies in highly competitive industries can still pursue purposeful missions if consumers preference such behavior. Purpose, therefore, would not come at the expense of a company’s bottom line. If this is true, then ‘purpose’ is a sound business decision and 'giving back' is a smarter, more profitable strategy. Purpose provides differentiation in an otherwise commoditized industry.
To what extent do the monetization of and strategy behind ‘purpose’ blur the distinction between profit and purpose? It is hard to think of companies that have not benefited from adopting a social mission. Though difficult to measure, the purpose initiatives of Warby Parker and Toms surely have helped them grow. Relatedly, how should we understand the difference between a B-Corp and a C-Corp? Is it that they have different objectives or that the source of their differentiation and strategy are of a different nature?
How does the monetization of purpose affect our understanding of what is authentic and what is not? Does the distinction between authentic or inauthentic purpose matter? Warby Parker and Toms are paragons of the B-Corporation. They are viewed as authentic brands, in part, because there are so few examples of companies that do this. I think their authenticity emerges because profit is not the sole driver of their purpose. They certainly have monetized purpose, but it seems to go beyond pure profit. I have defined authenticity as not the opposition of making money, but rather as the motives underlying purpose. Disaggregating motives behind corporate initiatives is hardly a science, which is why branding and communications will have heightened importance in the profit-purpose world. For better or worse, customers have an innate distrust of big companies, even if their startup counterparts have the same motives.
If consumer behavior shifts to favor socially-conscious companies, companies will accordingly adopt social missions at scale. How does ubiquity change our understanding of authenticity?
How do we measure the impact of a social purpose driven strategy on a company’s bottom line? By how much did it increase sales? How did it improve employee retention?
Should 'purpose' driven companies receive preferential tax treatment? How do we define purpose? Is it relative? That which may have been purposeful a decade ago may be mundane today.
What role does regulation play in nudging consumer behavior?