Why purpose-led businesses are winning

Many people question whether it is possible to run a business that both makes money and makes the world a better place. Traditionalists may take the view that the purpose of a business is to make money, and that the means and the motive are of little consequence.

But that view is shifting.

Not only are we starting to believe that we have a moral and societal obligation to think about how we run our businesses and generate income, but we’re also starting to see a mounting pile of evidence that ‘doing good’ through your business is also a sound strategy- one that leads to sustainable, profitable growth.

Join me and James West from the Onle Network as we explore why businesses who are led by a greater purpose than just making money are not only winning, but are also making the world a better place at the same time.

Watch the podcast here, or keep on scrolling to read my answers to James’ nine big questions.

Katie and James discuss why purpose-led businesses are winning

James- Q1: What is a purpose-led business?

Katie: A purpose-led business is one that understands why it exists, and that reason for existing is bigger than just making a profit. It’s a business that exists to create positive change, a business that wants to make a difference, a business that intends to have a positive impact.

You know you’re purpose-led when what you stand for becomes more important than what you sell. So it’s more than CSR- instead of making money to do good, they focus on making money by doing good.

And it’s worth noting that these are still profitable businesses- they’re sole traders, limited company or CICs. What they’re not is charities.

Also, there’s lots of them, this is not an exclusive club. Our last good data source was in 2016 when a government review found that there were 123,000 UK businesses who identified as being purpose-led with a combined turnover of £165 billion, employing more than 1.4million people. So this is not some small niche club. Since this report was commissioned, the movement around purpose in business has only grown and many household names that you’d recognise would count themselves amongst this movement…Timpsons, Unilever, Patagonia, The Body Shop, Propercorn, Ben and Jerrys.

James- Q2: Are the goals of making money and doing good in the world mutually exclusive?

Katie: Absolutely not. One of the common misconceptions is that purpose led businesses don’t care about profit. This is absolutely not true. They do care, and care a lot because profit is their fuel. It is the enabler of their purpose.

We’re not talking about charities here which rely on donations, we’re talking about commercially sound, sustainable businesses that meet consumer needs. And they need profit, to enable them to grow as businesses so they can keep increasing their positive impact. But the key difference between purpose-led companies and standard companies is that they do not exist purely to generate profit. They exist to create positive change, profit just fuels their work.

James- Q3: Are people paying more attention to the values and purpose of business now than they were before?

Absolutely. This has been growing for a while. There was a turning point after the 2008 economic crisis when our blind trust in big institutions was shattered. We had our eyes opened to the fact that they didn’t always have ours or their employees best interests at heart, and that often their desire for profit alone was driving their decision making. So we stopped blindly trusting and started questioning whether this system really was working for everyone.

Out of this came the CSR movement when companies felt like they needed to be seen to be doing good so started bolting on a bit of charitable giving or giving employees a day off to volunteer.

But over the last decade our awareness of injustice and our desire for change has only grown. We’ve been rocked by business, political, religious scandals and have woken up to the climate crisis, seeing how it is disproportionally impacting the poorest communities in the world despite the fact they are not the ones creating it.

We’ve become more aware of racial inequality and social injustice, the mental health crisis and this last year we’ve lived through COVID-19 which has seen near 3million people out of work in the UK alone and a disproportionate amount of those people being under the age of 35.

We’ve realised that we can’t rely on governments or charities alone to fix the problems, that we all have a role to play and every person needs to get involved. And that includes business which for a long time have, however unintentionally, been the instigators and corroborators in a lot of these challenges. 

Suddenly in the light of these challenges, giving your employees 1day off a year to help paint a scout hut doesn’t quite seem to be taking this seriously enough.

This is where the purpose-led business movement has come from.

Businesses, which are essentially collections of people, looking at the challenges this world faces and thinking what can we do to help. How can we get involved? How can we use our scale, influence and resources to have a positive impact on the world, rather than a negative one.

James- Q4: Tell us more about the impact that COVID-19 has had on this movement.

COVID-19 has only accelerated this movement and it’s for a number of reasons.

More people than ever are out of work, the highest percentage of those being under 35 which is the generations who care about these issues the most, a generation who stress that finding meaning in their work is more important than what they're paid, and a lot of this is because they’ve grown up in the middle of all these crises. So instead of following the traditional route, they’re now setting up their own businesses.

From 2019 to 2020 an extra 85k businesses were registered in the UK, that’s x% more than the year before. Many are being set up by millennials and Gen z which means that these are businesses with purpose at their heart. Doing good through business isn’t a nice to do for these guys, they’re establishing businesses with a mission at their core.

Another factor has been the success we’ve seen of purpose-led businesses over lockdown. Whilst we’ve heard sad stories of many businesses closing, purpose-led businesses have thrived and that’s down to four factors: They can innovate quicker and more effectively, they’re more agile and adaptive as they have a flattened hierarchies and more flexible roles, they’re more focussed on people leading to more engaged, happier workforces and they’re meeting consumers ever increasing desire for companies do the right thing (a sentiment only enhanced by the global pandemic).

James- Q5: What do consumers look for in purpose-led companies? 

So when we say consumers are looking for companies to do the right thing, what they’re typically looking for as a base line is good ethical and sustainable practices, so for example treating their people well and sourcing sustainably (often communicated through badges such as fair trade and rainforest alliance.)

But on top of this, they’re also looking to see how companies live out their purpose authentically through their business decisions.

Consumers want a business’s purpose to infiltrate every part of the business, from what they sell, to who they employ, to who they bank with. There can’t be a disconnect between what they put on their packaging, and what we read about them online or hear about them from their staff. It’s a real case of us needing to see companies put their money where their mouth is.

The businesses who are really thriving are those who have taken steps to formalise this. Those who have publicly committed to be a B-Corp for example, like Innocent Smoothies or The Collective Yoghurt, have pledges to pursue a triple bottom line, creating a business that positively impacts profit, people and the planet. Another great example is those who have signed up to 1% for the planet- a movement where companies pledge to give 1% of gross sales revenue to support environmental causes, viewing it as a self -imposed environmental tax – companies like Patagonia and Pukka Teas.

These are the guys who are winning, and not just on the side lines either. Demand for B-Corp products has grown so much that Ocado and Waitrose now have online aisles dedicated solely to stocking these products.

James- Q6: Why are purpose-led businesses winning?

For three reasons. One they’re meeting consumer needs, two they’re better engaging their employees and three they’re more innovative.

From a consumer perspective, purpose-led companies are exactly what people want. A few stats for you… 

·      The Cone/Porter Novelli survey found that 66% of people would switch from a product they typically buy, to a new product from a Purpose-driven company. This figure goes up to 91% for Millennials, who now represent 32% of the global population.

·      The same study also found that 79% of people say that they are more loyal to brands with purpose, with 73% saying they would defend them.

·      Nielsen found that 2 in 3 consumers will pay more for products and services from brands that are committed to making a positive social impact.

So the demand is there.

From an employee perspective, these are the companies that people want to work for so they’re getting top talent who work harder and are more loyal:

·      Cone communications found that ¾ of millennials (who represent 50% of the UK workforce), would take a pay cut to work for a socially responsible company.

·      83% would be more loyal to a company that helps them contribute to social and environmental issues 

·      88% say their job is more fulfilling when employers provide opportunities to make a positive impact

And we saw this play through even pre-COVID-19 with B Corps receiving twice the number of job applications of standard companies.

And from an innovation point of view, purpose-led business are more flexible, agile, and less fixated on what they sell… instead focussing on what they stand for meaning that they are more creative. We also see this innovation drive translate into business performance:

·      Deloitte found that purpose-driven companies report 30% higher levels of innovation.

·      Kantar found that over 12years, Purposeful Brands Grow Twice As Fast As Their Competition.

·      The Big Innovation Centre estimates that “purposefulness” could be worth up to 7 percent a year in performance terms and that the loss of value as a result of UK companies neglecting purpose comfortably exceeds £100 billion a year.

James- Q7: How far will this go? Will this impact companies such as Google, Amazon and Facebook who, while having questionable ethics, seem to be so large that it doesn’t make a dent?

It’s hard to predict, but there’s hope if we look at the current trajectory. The test is always whether the issues that consumers say matter to them actually influence where they spend their money, but currently we’re seeing that they do. According to the Edelman Earned Brand study, 50% of consumers across 14 major markets, identify as being belief-driven buyers. And, with a younger generation now representing a higher percentage of consumers, people who understand the power their spending can have, there’s hope that this will continue to grow.

We are also starting to see change amongst some of the big companies. After facing criticism about its environmental record in recent years, in 2019 Amazon co-founded The Climate Pledge, investing $2bn in a commitment to be net zero carbon across our business by 2040, 10 years ahead of the Paris Agreement.

Jeff Bezos also then went on to launch the Bezos earth fund where he pledges $10bn of his 165bn fortune to support initiatives combatting climate change.

So the onus really is on us as consumers, business owners and employers to help champion those businesses who are out to do good, to call out those that aren’t and to put pressure on them to do more, whether that’s through activism or how we spend our money. As workers we can also choose to bring our values and ethics into work rather than leaving them at the door, and to each think about what role we can play in helping to make our world a better place.

James- Q8: What does it mean for those people building a business? Is it just a trend?

No not a trend, it’s bigger than that. It a movement that has been gaining momentum and is now starting to snowball.

It’s something we all need to be thinking about, not only from an ethical point of view but from a commercial point of view. With business results like this.. faster growth, more consumer trust, loyalty, harder working happier employees.. why would you not want to do it?

James- Q9: So how should we be reconstructing our businesses based on these different principles? 

Well first off the key in all of this is, as I mentioned earlier, is authenticity. Defining your purpose alone isn’t enough, it needs to be accompanied by action to make it real. If you’re doing it just for the business results than you’ve fundamentally missed the point, and you’ll end up doing it for show, which consumers will see through and it won’t work.  

The place to start is just to spend some time first of all figuring out what matters to you. There will already be a purpose lurking underneath the surface for nearly all of us, we just need to uncover it. What do you really care about? What issues are important to you? What challenges is your businesses uniquely positioned to help solve? Why does your company exist?

And then once you’re clear on that, it’s about infusing it through your business so everything is geared towards helping deliver that positive impact- who you serve, who benefits when you do well, who your energy provider is, what your HR policies say.

The challenge for many businesses is feeling a bit overwhelmed, and I get it, it can feel big. There’s a not a playbook yet. You can’t just pick something up which tells you how to build a purpose-led business. There are tools we can use to give us guidance, such as the Sustainable Development Goals, the Good Business Charter or the B-corp Impact Assessment, but it really starts with you, which is why it is so essential to start by taking some time to figure out what your business is really all about. Because once you’re clear on that, you won’t need a play book. You will be so motivated, excited, pumped up about what your business could do that the creativity will just flow out of you. Once you know why you’re here and what it is you want to achieve, then you’ll have the clarity to discern all the different, exciting ways you can get there.

The important thing is don’t worry about getting it all right. We’re all figuring this out as we go and as I said, there’s no blue print currently! Being genuine and authentic in your desire to help create a better world is more important than being perfect. The most important thing is just being prepared to step into the arena and have a go.