When Purpose Turns a Profit
When Purpose Turns a Profit
Building bigger—and better—bottom lines, today’s new breed of caring capitalists blur the lines between “for-profit” and “nonprofit.”
Twenty-five years ago, Andrew Kassoy followed a path all too common among bright, young business-minded graduates of his era. Burning with drive and ambition, the Boulder, Colorado, native left Stanford bent on mastering the world of private equity investing. He did, eventually becoming partner at an affiliate of MSD Capital, the $12 billion investment vehicle for Michael Dell. But after a decade and a half, Kassoy found that his “sense of purpose had faded away,” he says. “Most of the financial services world at the highest level is about money and power. That became increasingly hard to square with my values. I wanted to find something that would give me a greater sense of meaning when I went to work in the morning.”
Kassoy had done well—very well. Now he wanted to do good. Instead of addressing a particular social issue—hunger, say, or homelessness—through traditional philanthropic means, Kassoy wanted to take an entrepreneurial, problem-solving approach. He still loved business, but he was disillusioned with the “old and tired view of capitalism,” which measured success solely in terms of profits. So were his two former Stanford roommates, both successful entrepreneurs. The three friends noticed the emergence of a new kind of for-profit corporation—Whole Foods, Zappos, TOMS, to name a few—driven by a more holistic, mission-centered view of success. The leaders of these companies saw profitability as a path toward a more meaningful end for employees, consumers, suppliers, investors and even the planet. Kassoy wanted to use his particular skill set—raising capital—to drive more investment money to this new sector.
“We bumped up against two main problems,” says the 45-year-old Kassoy. “First, there was no real way to distinguish authentically good companies from companies with good marketing campaigns. There were no standards.” No way to measure social and environmental impact or how companies treated employees. Second, by law corporate leaders had the fiduciary responsibility to maximize investor profits, which is how Kassoy and his partners found themselves chasing a far more ambitious goal: reinventing capitalism.
In 2006, the trio founded the Philadelphia-based B Lab; the B is short for “B the change,” inspired by Gandhi’s famous invocation that we must be the change we seek in the world. They also created B Corporation certification, a voluntary program requiring companies to meet rigorous standards based on social and environmental performance, accountability and transparency. “Other certification programs address specific products,” Kassoy says. Think Fair Trade coffee, USDA organic milk, LEED-certified buildings. “We wanted to certify businesses as a whole.”
The response has been overwhelming: Today more than 1,200 certified B Corps from dozens of countries and more than 60 industries are working to redefine business success and by extension make the world a better place. The list includes unknown start-ups as well as household names, such as Ben & Jerry’s, Cabot Creamery, Etsy and the cleaning-products company Method.
Each company competes for profits in its particular corner of the market, but B Corp certification also lets them showcase the positive impact they’re making on their workers, community and environment. For companies like Patagonia that are already engaged in doing good, the certification is welcome recognition. Others might adopt B Corp practices as a way to distinguish themselves in a cluttered marketplace or improve employee morale. For Kassoy, it’s simple. “People want a sense of purpose and dignity in their lives and work,” he says. If all else is equal, he says, they’ll choose the company with a moral mission every time.
Business is the most powerful man-made force on the planet. Why not use capitalism to do good?- Katie Kerr, B Lab’s communications director
BEING THE BEST AT BEING GOOD
“So much about business is a race to the bottom,” says Neil Blumenthal, co-CEO of Warby Parker, an innovative eyeglass company and top-scoring B Corp. “How do you acquire things for less and get customers to pay for them? How do you employ fewer people to gain efficiencies? I love the B Lab assessment because it creates a race to the top.” Like most business leaders, Blumenthal is fiercely competitive. The B Corp ranking, he says, “lets Warby Parker compete against other companies we respect to see who can do the most good.”
The folks at B Lab will be the first to admit that companies that benefit humanity are nothing new. Just think of the lives saved by profit-driven medical innovations, from pacemakers to cancer-killing pharmaceuticals. But those benefits come in spite of corporate culture and laws. Along with providing companies with a new measure of success, Kassoy and his colleagues at B Lab, which now employs 50 people, are chipping away at the profits-at-all-costs governance structure. To date, they’ve helped change corporate laws in 27 states. “I’m surprised by how quickly the movement is growing,” Kassoy admits. “It speaks to people’s desire to see business used for a good.”
B Lab is not alone in wanting to harness the power of profits for good. With a nod to the revenue-rich Fortune 500, a group called GameChangers 500 now ranks the world’s top 500 “for-benefit” organizations according to nine socially conscious categories, including mission, depth and scale of impact, work environment and ecological practices. Conscious Capitalism, a membership group for purpose-driven CEOs, hosts local chapters and an annual summit to further the message. Richard Branson and Arianna Huffington are among another group of global business leaders coming together as the “B Team” under the tagline: “People, Planet, Profits: We are developing a Plan B for business.”
They are also practical. These capitalists-who-care want to move beyond charity and philanthropy and “giving until it hurts.” Sacrifice isn’t sustainable, they say, but purpose-driven profit-making is. “Why ghettoize doing good to nonprofits?” asks former journalist Katie Kerr, B Lab’s communications director. “Business is the most powerful man-made force on the planet. Why not use capitalism to do good?”
Sean Malone, president and CEO of the Frank Lloyd Wright Foundation, founded by Wright himself in 1940, had an epiphany several years ago during a conversation with Whole Foods co-CEO Walter Robb. “We realized how much our organizations have in common,” Malone says. That may sound strange considering that one is a nonprofit cultural steward and the other is a profit-churning chain of organic grocery stores. Viewed another way, however, both are purpose-driven for the good of society. And both seek out revenue models intended to sustain their efforts for decades to come. “Whole Foods doesn’t exist solely to make a profit any more than we exist not to make a profit,” says Malone. “Just like Whole Foods, everything we do is driven by our mission. When we think about growth or the possibility of a new program, we look at it through the lens of purpose.”
GETTING IN A “FLOW” STATE OF MIND
Purpose boosts the financial bottom line, study after study shows. One way is through increased employee engagement. Giving workers a clear and positive sense of meaning boosts engagement, which leads to lower turnover and absenteeism rates. Gallup’s 2013 State of the American Workplace report, the most recent available, found that organizations with the largest percentage of engaged employees experienced 147 percent higher earnings per share (EPS) compared with their competition during the same period. In contrast, those with the smallest percentage of engaged employees experienced 2 percent lower EPS. On the flip side, Gallup estimated, disengaged workers cost the U.S. economy $350 billion in lost productivity in a single year.
Researchers at McKinsey & Company credit this engagement bump to the “flow” state of mind, a concept developed by Hungarian-born psychologist Mihàly Csìkszentmihàlyi based on data from thousands of workers. Csìkszentmihàlyi asked everyone from sculptors to factory laborers to record their feelings at intervals throughout the day. He found when workers are engaged—when they fully employ their core capabilities to meet a goal or challenge—they become happier, more focused and more productive. Entering this state of flow lets them tap into a seemingly limitless well of energy. In its own corporate surveys, McKinsey found that senior-level executives were on average five times more productive in their peak, or flow, state.
Corporate culture also affects sense of purpose. A Forbes study that looked at 230 workplaces with more than 100,000 employees found that employees grow more engaged the more a company actively pursues worthy environmental and social efforts. “When I got out of college, a job in the private sector was about making money. You checked your values at the door and made up for it by donating to charity and volunteering on nights and weekends,” says Kassoy. “Today, there are fewer and fewer barriers between private life and work life.” Many people, especially millennials, those born between 1980 and 2000, don’t separate their values from their work.
“In this increasingly connected and transparent world, lack of authenticity smells more,” says Malone. “It’s hard to be one company and pretend to be another.” Purpose, he notes, should be baked into a company’s culture. Take Zappos. “That company is completely purpose-driven. They’re not training call-center workers to upsell as much as they can. Instead, the goal is to build a community of incredibly happy customers by offering free shipping and returns. Zappos doesn’t have to run an ad campaign announcing they care about making people happy. They just do it.” And loyal Zappos customers return time and time again for the online shopping experience they love.
So much about business is a race to the bottom. I love the B Lab because it creates a race to the top.- Neil Blumenthal, co-CEO of Warby Parker
AWAKENING TO PURPOSE
Nearly a decade ago, Michael Gatto recognized his own purpose deficit during a two-month sabbatical from his engineering job at Advanced Micro Devices, a manufacturer of computer chips for video games in Austin, Texas. Despite earning a big paycheck in the hottest, hippest innovation hub east of Silicon Valley, Gatto felt unfulfilled. Ironically, the paid sabbatical was meant as a perk to keep employees grateful and creatively fresh. Instead, the reflective pause became Gatto’s catalyst for change. “I woke up during my sabbatical,” says Gatto, now 55. “I felt called to be more of a contributor to people and planet.”
After a disruptive period of soul-searching—Gatto joined a Native American vision quest—the longtime engineer decided the best match of his talents and interests was green building. He earned an architecture degree and founded a firm, the Austin Community Design and Development Center, which designs sustainable, energy-efficient homes for low-income clients. “I feel a strong sense of urgency because of the challenges we face as a civilization, in particular with respect to the environment and social equity,” he says. Now that his purpose and job are in alignment, Gatto feels like he’s working toward a solution.
Former tech executive Anne Patterson, 63, made her purpose-driven leap at the end of a long, successful career. In 2014, after stints at Hewlett-Packard, NeXT (the company Steve Jobs started during his 1980s Apple hiatus) and 3Com, Patterson was working for an Ireland-based tech company when she saw an opportunity to revive a failed mom-and-pop charity by transforming it into a purpose-driven, for-profit company. The end goal would remain the same—providing solar ovens to women in developing countries as a clean, healthy alternative to the widespread problem of open-fire cooking—but she hoped to build a sustainable, scalable business by leveraging her business savvy, vast network of contacts and technological innovation. “This is my chance to create something from nothing, to use what I’ve learned over the years to market a sustainable product,” she told her boss while negotiating an early retirement package. “It’s a small project, but it will be my baby.”
“Everything we do is driven by our mission. When we think about growth, we look at it through the lens of purpose.” – Sean Malone, CEO of the Frank Lloyd Wright Foundation
RAISING THE BEST PRACTICES BAR
Warby Parker proves that profits can serve a higher purpose—and vice versa. In addition to selling stylish, high-quality eyeglasses for a reasonable price ($95 versus the standard $400 or more), the company, which was founded in 2010, has also given away more than a million pairs of eyeglasses to needy recipients. But its “buy a pair, give a pair” sales model is only one aspect of a comprehensive purpose-focused culture. Co-CEO Blumenthal says he and his three co-founders, all former classmates at the Wharton School of Business, base every business decision on what’s good for employees, customers, the human community and the environment. “We’re as thoughtful about our social mission as our profit mission,” he says. Their approach appears to be working: Though Blumenthal won’t reveal company financial details, investment funds hoping to buy a stake recently valued the company at $1 billion.
Blumenthal and his partners chose their path based on intuition about human nature: People like to do good, and they want to be treated well. While developing the Warby Parker business model, Blumenthal says they asked a central question: How do we build a company that makes us want to come to work every day, where we don’t want to roll over and hit snooze button? Their answer: Make it a mission-driven company.
“While we love eyewear and love selling a high-quality product for $95, what really drove us was the idea of building a company that was scalable, profitable and could do good in the world without charging a premium,” he says. “If more companies started putting stakeholders first—customers, employees, community and the environment—and started putting doing-good at the top of their agenda, now that would have a massive impact.”
By Emilio Pardo and Logan Ward, Life Reimagined Institute