Cool Companies

Profit-driven is a must;
Mission-driven is a higher goal

Cool Companies magazine 2007 Vol.2 Issue 1

Content by Jill Bamberg, MBA program director at Bainbridge Graduate Institute in Seattle, Washington where she heads curriculum development for a cutting-edge MBA program in environmentally and socially responsible business.
Edited by Claudia Sammer, founder and editor of Cool Companies.

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It has become a meaningless cliché, but it has never been more relevant. So what exactly is a socially responsible company? It is more than one that recycles its garbage! Jill Bamburg has researched 30 companies that describe themselves as socially responsible and finds that profit is only part of the mix for them. They are mission-driven. They have a triple bottom line – people, profit and planet. As she explains in her book, Getting to Scale, there are 9 characteristics of mission-driven companies that make them different from profit-driven companies.

Why are mission-driven companies important?

The business world’s conventional wisdom today is that the primary responsibility of a company’s management is to deliver a satisfactory return to its shareholders. Most entrepreneurs know this is simplistic, because there are so many factors that have to be right before any silver falls to the bottom line. But where do you draw the line between the altruism that many associate with “socially responsible” and the enlightened self-interest that ensures long-term profitability?

Jill Bamburg has concluded that the companies she has studied do it by giving themselves a mission that extends beyond profit to a triple bottom line – people (employees, customers, community), profits and planet. Through their mission, these companies strive to improve the world in their own way, and to do so by developing – and clinging ferociously to – their own set of ethics and ideals. This mental framework of their mission helps them create significant innovative competitive advantages such as product differentiation and marketing cleverness. Mission-driven companies offer proof that looking beyond profit to the big picture makes their businesses better and more profitable.

Ben & Jerry’s Ice Cream has been one famous socially responsible company in the US, although it was sold by force in 2000. Sixteen years earlier Ben Cohen and Jerry Greenfield had sold some shares to their customers to raise money and as the shares appreciated they fell into the hands of institutional investors who thought $43.60 a share without Ben and Jerry was more attractive than $38 with them.

There is a lot to learn from mission-driven companies and exploring how they do business will be a repeat theme in Cool Companies magazine. Very often mission-driven companies use business strategies and techniques that are more enlightened than profit-driven companies. We will strive to help our readers with mission-driven companies find new implementation strategies to execute on their missions. And as we do in the next article in this issue, we will help other entrepreneurs find ways to help them go further down this enlightened direction.

Other names for mission-driven companies are socially responsible businesses, values-driven companies or triple bottom line companies, and social entrepreneurs (more for non-profits than for-profits). Socially responsible is not just for companies doing organic food or renewable energy. All companies can participate. It’s about making your company more human and building a strong competitive advantage at the same time.

Mission-driven vs. Profit-driven companies

This article is based on a new book by Jill Bamburg called Getting to Scale: Growing Your Business Without Selling Out (Berrett-Koehler Publishers Inc., www.bkconnection.com, ISBN: 1576754162, Published Aug 2006, $14.95).

In her book, Jill Bamburg interviewed 30 mission-driven companies who were succeeding at growing their companies to scale and are run by their founding entrepreneurs. She wanted to find what they had in common and what made them different from profit-driven companies. She interviewed mostly American companies which included American Apparel Inc, Eileen Fisher Inc, Give Something Back Business Products, Great Harvest Bread Company, and Naturally Advanced Technologies (based in Vancouver).

Based on her interviews, Jill tried to answer the question, “Can socially responsible companies grow to scale?” She believes they can. Part of her answer is based on the following 9 characteristics of mission-driven companies she found that we present here as excerpts from her book. Her book also contains excellent first-person content from the entrepreneurs of the companies she interviewed that tell their stories in their own words, and provide more depth behind the characteristics and how she formulated them.

“The people who are profiled in this book have found a way to conduct their businesses to serve people and planet, and to put profit in its proper place: as the fuel for further service. Let them be a lesson to all of us!”
– Jill Bamburg, Getting to Scale: Growing Your Business Without Selling Out

1. Mission comes first

In a financially-driven organization, all decisions are rationalized to align with the bottom line. In a mission-driven organization, focus is on the mission and all decisions are made to align with the mission. Here profit is not the purpose of business – or even a byproduct or measure of success. Rather, it is a means to an end.

There is a kind of magic at work [in these mission-driven companies]. It is a magic that happens when mission is placed at the center of the business, and the triple bottom line objectives of people, planet, and profit become mutually reinforcing. In more traditional business thinking, people and planet are seen as nice-to-haves, but profit comes first. There is a tension among the three objectives, and the challenge of managing to a triple bottom line of people, planet and profit is the challenge of managing the trade-offs among them. Not so with mission-driven firms that have found – or, more precisely, created – a sweet spot in the market where the values of the triple bottom line intersect and reinforce each other.

2. Any business can do it

When I started this book, one of my questions was whether a mission-driven approach could work in any industry – or would be successful only in a handful of industries with very particular characteristics. At the conclusion of my research, I can’t say for certain that a values-based approach will work in every industry, but I can say that there are values-based companies in every segment I investigated and I’ve investigated a broad range of industries. The most striking thing to me about this collection of examples is their variety: different industries, different strategies, different value propositions, different capital requirements, and different organizational structures.

But in all cases, I think it’s safe to say that mission came first and business came second. The purpose of each business was to allow its founders to live their values at work. This is very different from the founding stories of most businesses, which tend to focus on seeing an underdeveloped opportunity in the marketplace – and building a business to make money by addressing that opportunity. The mission statements of most companies focus on service to customers as the highest organizational value; the companies profiled in this book tended to have a broader social mission, at least part of which was to create a new business model as an example to others.

The second thing that struck me was the importance each of these entrepreneurs placed on treating employees well. This might seem to be a no-brainer for a mission-driven firm, but it is far from obvious – and is quite distinct from the pattern of many conventional start-ups, mission-driven nonprofits, and an earlier generation of mission-driven businesses. It has not been uncommon for organizations in those categories to exploit their labor forces by offering lower wages or benefits or requiring longer hours in exchange for the satisfaction of more meaningful work. The companies profiled in this chapter [on any business can do it] have not done that. They’ve stressed the importance of compensation, job security, employee ownership, profit sharing, and open-book management. In all cases, they’ve reaped the benefits of employee loyalty – higher quality, lower turnaround – but that has not appeared to be their motivation. Doing the right thing – and walking the talk – have been the more important drivers.

No business is easy, but some businesses are harder than others. The same is true of mission-driven businesses: some businesses – and ways of doing business – make it easier to maintain a commitment to mission. But any business – or at least many businesses – can do it even as they go to scale. And that is a vision worth hanging on to.

3. Organic is the way to grow

Mission-driven businesses tend to grow more slowly, and need to grow more slowly.

When it comes to thinking about how to grow a business, I have a double learning disability: an MBA from Stanford and about 10 years of working in the computer software industry. Both of those experiences give me a distorted view of reality: too much emphasis on outside investors; too much concern about first-mover advantages and early market share; too much pressure to “get big fast”….To some extent, we are still suffering from a collective dot-com hangover…A handful of the companies I interviewed for this book grew really rapidly (and made the Inc 500) – but only a handful. The predominant growth story was slow and “organic” – a natural unfolding of the business, a one-thing-leads-to-another approach.

This approach does scale. It just scales a little more slowly than the venture capital model that has created such high expectations in the public imagination. But in fact most businesses of all sorts – mission-driven or not – grow more slowly than that. And just because a business grows more slowly and organically [organic growth means growing from scratch instead of getting a venture capital injection or acquiring other companies] does not mean it cannot eventually become quite large.

My take-away from the stories I heard was that a slower, more organic growth pattern has tremendous advantages for mission-driven firms. It reduces their reliance upon outside investors and thereby enables them to maintain their commitment to mission. Its pace allows people – including the founder-CEOs – to grow into their jobs and pursue their visions over time. Its pace better allows employees to maintain their health and well-being, and the company is better able to maintain its corporate culture.

It is not, however, slow.

It is simply slower. The three businesses profiled here [in the chapter of Getting to Scale on organic is the way to grow] share several attributes that made their organic growth possible. First they let someone else do their manufacturing. As a consequence, they didn’t have to make a huge capital investment and then drive their growth to fill the plant. They left that problem to their manufacturing partners.

Second, they essentially followed market demand, rather than making huge investments to create it. They tapped into an underlying market trend and rode that wave to success.

Third, each business developed a unique value proposition that kept competitors at bay long enough for them to establish the premiere position within their segment. All three now have significant competition, but each was able to firmly establish its brand within its niche before it attracted strong competitors. As their niches broadened and went mainstream, each of these companies enjoyed the position of being the flagship brand within its category.

If those are some of the advantages of organic growth, what are the disadvantages – and when is organic not the way to grow? The answers are related. When a market is growing rapidly and attracting significant competition in terms of either numbers or clout, organic growth may not be fast enough to maintain a presence in the emerging market. You need to either meet the challenge by expanding more rapidly, or plan to settle into a niche or a series of niches. Organic growth is also problematic in situations involving classic economics of scale, where you are required to make significant investments – in either marketing or manufacturing – ahead of demand.

4. Finance your independence

Financing is a critical issue for all entrepreneurs, but it is doubly difficult and important for entrepreneurs who chose to pursue both mission and money.

For mission-driven entrepreneurs, it is critical to finance your independence – not just your business. Contrary to the illusion created during the dot-com era, most businesses finance their start-up requirements through some form of bootstrapping – that is, using cleverness and cash-conservation strategies to get to the point where sales begin to cover expenses and support modest growth. This gives them the freedom to make their own business decisions (and mistakes) without having to worry about the financial requirements of outside investors. Bootstrapping has the further advantage of fostering the kinds of business discipline – frugality, hard work, focus, accountability – required to successfully create something out of nothing.

Mission-driven firms use debt rather than equity to meet their needs for outside capital. All of the strategies suggested in this chapter [on finance your independence] and elsewhere in this book – from bootstrapping to organic growth to seeking values based investors to using debt rather than equity – are designed to minimize the control that outside investors can exert.

Very few mission-driven enterprises fit the venture capital model. While some investors shop for “social returns”, the vast majority shop for financial results, which they evaluate in terms of risk, reward, and liquidity, and the ability to get their money out of the business. My advice is simple: when it comes to taking in Other People’s Money, begin with the end in mind – that is, have a clear strategy for satisfying their need for an exit that doesn’t jeopardize the mission of the business.

5. Build the values of the mission into the brand

Despite the diversity of the businesses I interviewed, the vast majority shared one important competitive strategy: differentiation.

As mission-driven entrepreneurs attempt to build their values into the brand, it is important to understand what customers truly value and are willing to pay for. It is a truism among green marketers that customers will not pay a premium for green products. On the other hand, all other things being equal (like the cardinal virtues of price, quality, and convenience), customers will choose values-based products over their competitors. And while customers won’t pay a premium for green products, they will pay a premium for products perceived to be of higher quality along other dimensions. And that premium price frequently translates into bigger margins, which can be used to further the mission.

Another lesson I took from these stories was the desirability of building the values of the company into the fabric of the business (core operation and cost structure) and, whenever possible, into the value of the brand. If the values of the business are an afterthought, or a nice-to-have, or a pet project of the founder’s, they are too easily set aside when times get tough or the business is sold. It is interesting to see the variety of ways in which values are embedded into the core businesses of these firms.

6. Match Manufacturing to Mission

One of the major lessons learned in this area is that there is no one right way to approach manufacturing. There is a continuum from complete outsourcing to total integration, and any point along those lines is at least theoretically possible. The question is, how is one to choose?

In a financially driven firm, the answer is to choose the point that maximizes profit, recognizing that this point will vary from industry to industry and company to company. In a mission-driven firm, the first question to address is the relationship between mission and manufacturing.

If the mission requires manufacturing – a determination that is not always easy to make – than you need to do manufacturing, and the challenge is to figure out how to build manufacturing capacity slowly, cheaply, or in modular units. You don’t want to jeopardize the mission by creating excess capacity, excess costs, or excessive requirements for outside capital.

If the mission does not require you to own your own manufacturing facilities, outsourcing may offer significant advantages without jeopardizing your social and / or environmental commitments. You simply need to make sure that those commitments are reflected in your outsourcing requirements.

In all four cases studied in this chapter [on match manufacturing to mission] of Getting to Scale, the commitment to mission came first, the need to limit capital investment came second, and a healthy dose of creativity – sparked by each company’s mission commitment – came third.

7. Morph early and often

A business plan, while theoretically a blueprint of the business, is essentially a form of fiction. Reality is almost always different. Successful social entrepreneurs hold the mission constant but allow the market to determine the course of the business.

Faster learning beats better planning. This is not so much a case against planning as it is a case for improvisation. There are lessons to be learned from mixing it up in the marketplace that simply cannot be gleaned from market research and spreadsheet modeling.

Three principles can help mission-driven firms to strike the right balance between sticking to the plan and pursuing unexpected opportunities as they present themselves:

a. An unwavering commitment to mission
This provides a coherent theme for the organization’s activities, the stable base upon which to improvise. This is an area in which mission-driven firms have an advantage over their financially driven counterparts. When the mission is simply to make money, all things are possible, and it’s very easy to get distracted.

b. Periodic reviews of the plan
The idea of regular reviews is important. It keeps the organization on track in the short term, while providing formal opportunities to reexamine core assumptions in the light of experience. This is particularly important as an organization attempts to go to scale. Reality is always different than plan – the question is WHY?

c. The ability to manage small experiments
This enables the organization to innovate and learn from experience without making wholesale adjustments every time a new idea comes into view. If the experiments are successful, they can be rolled out in the rest of the organization. If they are unsuccessful, they won’t sink the whole ship. And if they are somewhere in between, they afford the organization a great opportunity to do some significant “faster learning.”

8. Form follows function

Any corporate form (public, private, franchise, cooperative, nonprofit) can support a mission focus – even the much-maligned public corporation.

9. The soft stuff is the hardest

The “soft stuff” in business – the people side of things – is almost invariably both the most difficult and the most important part of the equation. This is true regardless of whether the firm is driven by money or by mission.

The people side of things is a two-edged sword in a mission-driven business. On the one hand, values-based businesses are, by definition, engaged in work that has a larger purpose, and thus they are able to tap into a level of employee energy and commitment that their profit-driven counterparts cannot fully access. Their commitment frequently translates into financial benefits for the organization, including lower labor costs, reduced turnover, easier recruiting, high attendance, and better morale and performance.

On the other hand, mission-driven businesses tend to be held to a higher standard than their financially driven counterparts. This can create employee expectations that are difficult to fulfill in light of business realities, and many employees – especially those who are younger and less experienced – feel betrayed when the mission-driven firm doesn’t live up to its espoused values. In a close-knit, values-based firm, it can be especially hard to fire people who share the firm’s values but fail to meet its performance requirements. There is an ongoing challenge of walking the talk on issues around work-life balanced, “sustainable” hours and compensation, participatory management, organizational transparency, and a host of other internal commitments that tend to parallel the mission-driven firm’s commitments to the outside world.

Although each of the cultures was different – and each of the organizations took a different approach to maintaining the culture – there were definitely some common elements to mission-driven companies:

• The importance of hiring well from a cultural standpoint as well as a skills standpoint, particularly given the difficulty of firing.

• The need to continually reinforce the culture through as many mechanisms as possible, to walk the talk both formally and informally, and to include cultural elements in performance evaluations.

• The extent to which the founder and executive team spent time thinking about, working on, and transmitting the culture – in general, recognizing its importance in supporting the organization, its people, and its mission.

To purchase a copy of Getting to Scale by Jill Bamburg

Profit-driven is a must; Mission-driven is a higher goal