Last year, Patagonia launched a “Don’t Buy This Jacket” campaign, encouraging people to buy their products used instead of new. Yvonne Choiunard, the founder of Patagonia, was a climber, and realized the natural resources it took to produce new products would limit the potential of his business in the long run, which relies on preserving the outdoors as a place for people to play. The company changed their materials and started building durable, longer lasting products, only encouraging sales if used pieces couldn’t be found. Aligning customers’ values with their own will prove much more important in the long run than the bottom-line sale of coats.
Patagonia is just one of many companies recognizing the shift in how companies evaluate success. Still, most businesses stick to a single measurement: how much profit they make. While making money has been the single biggest motivator for companies in the last century, in the current one, that won’t be enough. If we want to have a future better than our past, companies need to stand for something by solving social and environmental challenges while also making money.
The world is changing at a pace and scale never experienced by humans. We have the impacts of climate change, diminishing natural resources (water, fish, soil, forests, etc.), income inequalities, unprecedented species loss, growing government debt (international, national, state, and local), aging infrastructure, increasing costs of crises with reduced ability to respond, and a population topping 7 billion. That’s a lot of problems that need solving, and that means a lot of opportunity for creative entrepreneurs and new companies.
These challenges are too big for governments and NGOs to solve without the leadership of businesses. Without radical change to campaign finance laws, governments will remain entrenched in the status quo, and NGOs just don’t have the global networks and resources to act as leaders. Smart businesses, however, see the pace and scale at which the world is changing. They realize their competitive advantage will come in the form of solving real problems, while their competition is stuck trying to protect an old paradigm.
There are four market forces that will cause businesses to either stand for something or eventually shutter:
- Corporate morality: Increasing peer pressure from industries and the race to attract talent will favor values-based businesses. Companies are getting pickier about who they do business with and talented professionals understand they can both find a good paying job and be proud of the company they work for.
- Cost structure/strategy: As the prices of inputs (raw materials, commodities, carbon based energy) and the cost of waste continues to increase, businesses must find ways to make that into a competitive advantage. Costs are only going to go up.
- Governance/risk: It is not only industry peers and employees that will cause organizations to make better choices--companies will face increasing government regulations and litigation risks if they sacrifice societal and environmental well-being for profit.
- Customers: People are slowly coming around to the fact that we don’t have infinite resources, and we have a lot of big challenges that need solving. We have seen this, for example, with the rise of collaborative consumption.
Big businesses can take all these market forces into account as they innovate. But there are several ways a startup or early-stage company can improve the odds that their business models can both make money and stand for something:
- Challenge yourself or your business: The most important thing in my mind is that the entrepreneur and founding team need to really think about the problem they are solving. Is it a real problem whose solution will positively impact the long-term human experience?
- Embed it in company DNA: No organization can be successful if it is selling a “cause marketing” solution. The problem is the opportunity, so don’t solve the symptoms, solve the problem. It’s not about making money helping fat kids get healthy, it’s about keeping them healthy in the first place. If you’re building a business in the food industry, have a by-product to help solve malnutrition. If you’re in the construction industry, a by-product could help solve homelessness.
- It’s a competitive advantage, not a tradeoff: To build a business that really stands for something, it can’t be about taking a percentage of the profits and donating (although that is nice) to a cause. For example, carpet company Interface uses its competitors’ second-hand carpet as its raw material. Its input cost to make new carpet goes to zero, and they might even get paid to take this resource off the hands of waste companies.
- Follow your passions: No matter what problems you end up solving with your business, you have to love it. If you’re solving a social problem to make money, you will be out-competed if you don’t truly love the industry you are working to improve. Ask yourself: what do you see as real problems in the world that impact you directly? Local solutions can have global implications.
Whether you’re a big business or a budding new one, the market forces are clear: Standing for something does not need to be a corporate trade-off or marketing ploy. It’s a way to create solutions, attract top talent and ideally, grow wealth that is healthy for our economy, our environment and, most importantly, our standard of living. Just consider Patagonia: Their customers were willing to pay higher prices for higher value--rising raw material costs actually made it more competitive. Standing for something is built into its DNA. It reduces the company’s compliance costs and keeps their customers loyal. If new companies start to measure their success with a longer ruler, just imagine the long-term innovation it can spur.