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Posted on Feb 25, 2016

9 Reasons Purpose Trumps Profit

9 Reasons Purpose Trumps Profit

We live in an interesting time, where some view purpose and profit as being quite congruent while others feel they don’t mix well at all.

On the one hand, we see the rise of such concepts as Conscious Capitalism, B Corporations, World’s Most Ethical Companies, and Triple Bottom Line. There is lots of data suggesting the number of business leaders who want to use their businesses as a force for good is growing.

On the other hand, we have those like Kevin O’Leary, one of the financial “sharks” on the popular TV show Shark Tank, that believe profit is the only thing that matters.

Beware of Sharks

Kevin-O'LearyIn a recent article on about this topic of purpose vs. profit, writer Bill Saporito highlights a quote from O’Leary:

“Running a business is hard… You have to be willing to fire your mother. When you are the leader of a business, your responsibility is to the success of the whole organization, not any one individual, including yourself. Successful CEOs know their allegiance must always remain with customers and shareholders, 100 percent of the time.”

To old-school sharks like O’Leary, profit is the only thing that matters. This was also confirmed by a story in the National Observer, asking the question: Did Kevin O’Leary once wipe out an entire industry?

According to the article, in the early 1980s O’Leary started a software company called SoftKey. Over the years he acquired more than 20 companies in the educational software industry, including The Learning Company (TLC), Mindscape, and Brøderbund. By the late 1990s, and after adopting the TLC name, O’Leary had built the second largest consumer software company in the world.

Based on O’Leary’s persona, it doesn’t come as a surprise to learn that he managed to sell TLC to Mattel in 1999, at the height of the dot-com era, for (US) $3.6-billion. This is the deal that made he him very rich, but left Mattel with a mess.

After only six months as president of Mattel’s TLC division, O’Leary was fired when it was discovered that TLC was a house of cards. It was losing so much money that Mattel’s bottom line blew up, causing their stock to lose (US) $2-billion in value in one day when the truth was finally revealed. Mattel’s CEO, Jill Barad, was removed and TLC was sold off for just (US) $27-million in late 2000.

In addition to the loss of money, think of the loss of potential, talent and jobs, not to mention the impact on families (this had a personal impact on my family, as our kids grew up playing ‘Read Rabbit’ and ‘Where in the World is Carmen Sandiego’).

Bernard Stolar, who was hired by Mattel to try and rescue TLC, states that TLC basically “killed the educational software industry… because there was so much product out there and all of the product was crap.” This sounds like the result of a purely profit-driven motive, and a very sad ending to a once promising industry.

But thankfully, this is not the norm.

9 Reasons Purpose Trumps Profit

In a Fortune article, H. Fisk Johnson, CEO of S.C. Johnson & Son and fifth generation of his family to run the company, is quoted as saying, “the good will of the people is the only enduring thing in any business.”

In other words, purpose is about creating goodwill with people.

So, in contrast to O’Leary’s behavior and statement above, here are nine reasons why a clear and well-articulated purpose trumps a profit-only focus.

  1. Customers care about your purpose. When customers have a choice, and price and quality are viewed as fairly even, they will generally choose from the company that has a clearly stated purpose. There is also evidence of customers choosing the slightly more expensive option when it is linked to a clear and meaningful purpose. In other words, making a difference becomes part of the overall value proposition.
  2. Employees are inspired by your purpose. People want to work for more than just a paycheck. Knowing they are contributing to something greater – something of significance – stimulates greater loyalty which in turn lowers turnover. This not only makes for happier employees, it also lowers costs.
  3. Shareholders will back your purpose. Knowing there is something significant beyond creating shareholder value makes investors feel good. They will then be proud to talk about it, as it makes them look good as they are doing good through the actions of the company.
  4. Suppliers will support your purpose. Those companies you buy from appreciate your business and will be happy to contribute to and support your purpose. It not only makes good business sense, but also creates stronger bonds in your supply chain.
  5. The community will appreciate your purpose. Your company will be viewed as a pillar in the community, beyond simply generating jobs or paying taxes. In addition, your purpose creates goodwill that opens opportunities to engage the community to make an even greater impact.
  6. The media will promote your purpose. We know that the media love a good story that garners attention. So yes, if you screw up, the media will be quick to profile your mistakes. But the media will also highlight the good you are doing, if you’ll just help them tell the story in such a way that it attracts readers. In spite of what the critics say, people still love a positive story as it produces hope.
  7. Governments will endorse your purpose. Every level of government is strained beyond capacity. So the more that social and societal needs are being met through non-governmental efforts, the less demand for governments. This is music politicians love to play.
  8. Competitors will respect your purpose. By making your purpose an integral part of your business model, it puts pressure on your competitors to identify and fulfill their purpose. In the end, this raises the bar of the entire industry, expanding the overall size of the market, which is good for everyone.
  9. Lastly, lest we forget, profit is derived from your purpose. All of the above benefits help drive a solid bottom line for your business, which allows it to continue adding value to others. In addition, something called “Goodwill” begins building over time, which sits as an asset on your balance sheet. In essence, this becomes the value of your brand, a powerful intangible part of the business over and above all the fixed assets.

To me, real business leaders build businesses with a purpose beyond just profit.