All companies start with a purpose. They’re formed to solve a customer problem and, in that sense, their purpose is to solve the problem so that part of the value of the solution can be captured in revenue. They need revenue and free cash flow as they go bankrupt otherwise.
Over time, as companies grow, serve more customers and employ more people, the focus often tends to shift from solving the customer’s problem to improving the product. This often means adding more features, segmenting the market and providing new products or product configurations for each segment, entering adjacent markets and so on.
In this process, companies often start to be driven more by financials than by optimally solving the customer problem. Examples include cost-down initiatives to reduce the cost of the product, internal scaling efforts and closer integration with suppliers to increase efficiency. Each profit and loss center is evaluated on its contribution to the company’s financial goals and the competition causes a constant focus on cost reductions, margins and market share.
Along the way, the company’s purpose is easily forgotten. It either isn’t discussed at all or becomes a bit of window dressing, meaning that there’s a major gap between the espoused purpose and the actual behavior of leaders in the organization.
In my experience, one of the challenges in this context is the misconception by many that being purpose-driven and running a profitable company are at odds with each other. I believe that this is completely wrong and that it’s perfectly possible, and even preferable, to do good while doing well. In the words of the former CEO of Wholefoods: companies need profit like our bodies need red blood cells. Our life’s purpose isn’t to build red blood cells, but without them, we die pretty quickly.
A second reason why purpose is so difficult is that it easily alienates people. Defining a purpose will cause a situation where some actively support it, some are neutral and others are against it and may either passively or actively work against it. This is why it’s so important for companies to stay true to their purpose throughout their lifecycle as potential employees will self-select to join the company or go elsewhere. When a company, after a period of solely focusing on financials, decides to define its purpose, it easily leads to a situation where many inside the company resist the purpose and it ends up being a paper tiger after all.
Creating purpose is an important part of a leader’s job. People hate to be told how to do their jobs but love coming together around a common ‘why.’ When I turned 50, I invited to a series of lunches with individuals willing to share their life lessons with me. These discussions were wonderful, very diverse and covered a spectrum of insights. The common thread, though, was that everyone wanted to die with the belief that their lives had meant something, that they had contributed to making the world a little bit of a better place and that it was their efforts that resulted in that. In the end, we’re all social beings who want to contribute to the tribe and be recognized as valuable members of the tribe.
Last year, I wrote about my professional purpose as part of my “protagonist” series, so I’ll refrain from repeating that here. However, purpose is important for individuals as well as companies. For us individuals, the challenge is that we so easily become a small gear in a very large machine and we fail to connect what we do to the larger company purpose. Again, it’s the role of leaders to make their people see what the purpose of the organization is and how each individual is contributing.
The focus on purpose not only leads to more engaged employees who have jobs that contribute to meaning in their lives; according to research, it leads to better business outcomes too. In “Corporate culture and performance,” John Kotter and James Heskett show that over a decade-long period, purpose-driven companies outperform their counterparts in stock price by a factor of twelve. See also my deep-dive on this.
Finally, for all the complaints about Gen-Z and millennials, one of the aspects of the younger generations that I really appreciate is that they expect and even demand that companies have a purpose beyond earning money. So, if you want to avoid a situation where the average age in the company continuously increases, you’ll need to appeal to young people and that requires offering more than a salary.
It’s the role of leaders to define and clarify the company’s purpose and then ensure that everyone acts in line with it. That leaves us with one important question: are we clear on our purpose? Are we able to communicate our purpose to the people around us? And how does our purpose relate to the purpose of the company? To end with a quote by W. Clement Stone: “Definiteness of purpose is the starting point of all achievement.”
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