Archive for June, 2013
The thrilling next segment in my ongoing live blogging of my book-in-progress, Branded to the Bone.
There’s a sign in the headquarters of Patagonia Clothing in Ventura, California, that reads “Let my people go surfing.” As directives to employees go, that’s a little out of the ordinary. But it happens to be not just the title of a book by Patagonia’s founder, Yvon Chouinard; it’s also company policy. When the surf’s up in Ventura, it’s OK to leave the office. Of course, you’re still responsible for your deadlines and commitments. But this is a company that means it when they say they want people to get outdoors.
A brand purpose is, in one important sense, about putting the customer first. It’s about where you take their product and their brand, and where it takes you. So Patagonia’s purpose as a company is to get you outdoors and into the wilderness, hiking, climbing or surfing. Southwest Airline’s purpose (which we’ll get to in a minute) is to make you free to move about the country. Apple’s purpose is to give me what I need to be insanely great. And Nike’s purpose is to get me out the door this morning for my run, because it makes me better, whether I feel like it today or not.
Each of these companies makes their brand about you. Each of these brands makes the work of their people — from the CEO to the important people like the janitor — about encouraging your to be my best. They make their brand about you, first, and themselves second. It’s a powerful and compelling way to make a connection with their customers.
“Patagonia is a brand I’ve utterly been in a relationship with since I was a kid,” says Lizzie Garrett Mettler, fashion journalist and author of Tomboy Style. “Really. I know that might sound weird or uncool or materialistic, but it’s true. When the Patagonia catalogs would come in the mail and I would see photos of these rad girls surfing and kayaking and climbing mountains, I was truly inspired to travel and be adventurous and, well, be a tomboy.” In a very real sense, Lizzie’s whole career and life was inspired by Patagonia.
But Patagonia takes purpose one step further. They make it their purpose “to use business to inspire and implement solutions to the environmental crisis.” They want to get you out in the surf and out in the mountains for your physical, mental and spiritual health. But they also want to get you out there to make you aware of the degrading environment and get you engaged in the idea of both changing your lifestyle and supporting environmental causes.
“I saw the relentless paving over of Southern California’s remaining coastline and hillsides,” remembers Chouinard in his memoir, Let My People Surf. “In Wyoming, where I spent summers for 30 years, I saw fewer wild animals each year, caught smaller fish, and suffered through weeks of debilitating, record-setting 90-degree heat. But most environmental devastation the eye doesn’t see. I learned more by reading about the rapid loss of topsoil and groundwater, about the clear-cutting of tropical forests and the growing list of endangered plant and animal and bird species, and of people in the once pristine Arctic who are now being warned not to eat the local mammals and fish because of toxins from industrial nations.”
It’s one thing for a company to survey likely customers, learn what causes are important to them and then make a splash by donating money to those causes. That’s a genuine way to share customers you share their values and interests—or at least to acknowledge their values. And Patagonia does contribute to environmental causes, earmarking one percent of sales or ten percent of pre-tax profits, whichever number is more. That’s a substantial commitment to the public good and one that earns the trust and respect of their customers.
But Patagonia has made it their purpose as a business to work for the solution of environmental problems, starting with their own sustainability issues. They’re in the water and on the mountains with their customers every day. They’re also on the front lines of environmental action. On the one hand, these actions can hurt their bottom line. Using fabrics made of recycled materials can cost more and take longer, as does holding their factories and and suppliers around the world to the highest standards of human rights, sustainability and transparency. And, although, they could follow the lead of most other global corporations and shelter overseas income in tax havens, they don’t.
“I might have looked for ways to defer taxes in the Cayman Islands,” Patagonia’s COO and CFO, Rose Marcario told the Wall Street Journal. “Here, we are proud to pay our fair share of taxes. It’s a different philosophy. My life is more integrated with my work because I’m trying to stay true to the same values in both.”
Is this a case of purpose taking a bite out of shareholder value? Probably not. Patagonia is a private company that brought in $414 million in revenue in 2011 and said they expected grow the top line in 2012 by 30 percent. They could easily grow to be a billion dollar company or more and they probably will. But, like Bluebell Creameries, they’re in no hurry to get there. They’re not interested in being the biggest. They just want to be the best, In Part 5, we’ll look at what being the best means in terms of their payoff.
To paraphrase Charles Kettering, it may be that none of us is smart enough to start out with the purpose we end up with. When Chouinard started making pitons because the ones that were available to him in the 1950s were unsuitable for the kind of climbing he and his friends were doing in Yosemite. So he bought a little forge, learned blacksmithing and started making and selling his own. As the company grew, its purpose was to provide climbers and surfers with the right gear for their sports. Then it became to get more people outside enjoying the personal contact with nature that these sports provide. And then it was to save the world. Sometimes, purpose is forged in the trials of a company’s early struggles. Southwest Airlines went hell in their first decade, and it was that hell in which their iron-clad purpose was formed.
In 1966, when Rollin King, a San Antonio air charter operator, told his lawyer, Herb Kelleher, that he thought there was an opportunity for an in-state airline, that’s all it was. An idea for a few plane to fly between Houston, Dallas and San Antonio and make a few bucks. But as they got into the idea, they started to get pushback from other airlines. As soon as their application to fly was approved, Braniff Airlines, Continental and Texas International filed suit to stop them. The lawsuits and appeals went on for years. Sometimes, it was the lone Herb Kelleher before the judge, arguing their case against a dozen or more attorneys from the big airlines.
It took until 1971 before Southwest was finally able to get their first plane in the air and still the other airlines fought them, first over airport rights and then over the infamous Wright Amendment, a bill written by the majority leader of the United States House of Representatives that sought to limit Southwest Airlines from flying out of state from their Dallas hub at Love Field and that finally limited the airline to flights to contiguous states only.
A House bill to written simply to try to keep one company grounded.
And all those years of struggle—more than a decade before the other airlines stopped suing them for their friendly, low-cost business model—gave the airline a powerful purpose. First, their purpose was just to survive. But, as the battles wore on, the men and women of Southwest began to feel that they were fighting for the rights of ordinary Americans to enjoy affordable air travel.
They were literally fighting so their customers could be, as their ads now say, “Free to move about the country.”
For Southwest employees, what was being done to them was wrong and violated everything America was supposed to stand for. The survival of their company became a cause worth fighting for and keeping their costs low so they could keep their fares affordable became their battle cry.
“The warrior mentality, the very fight to survive,” former CEO Coleen Barrett told Kevin and Jackie Freiberg in Nuts!,” is truly what created our culture.” That culture holds today and amazes everyone. Not just in the airline business but in every business.
The story continues HERE.
Do you know a company that’s really Branded to the Bone, with integrity of purpose that shows up at every touch point? I want to hear about it.
Ben & Jerry’s co-founder Ben Cohen gave an interview recently talking about the importance of having a spiritual side of a business. Not a spiritual side of the business people but of the business itself. It’s an interesting read.
“You have two choices when you go into business. You can just run a traditional business that only has a one part bottom line, that is only there to maximise profits for the owners, or you can do one that has a two-part bottom line that makes a bunch of profits and helps to improve the quality of life of the community. We like the second.”
Cohen said the decision to operate with a two-part bottom line was “very controversial.” He said: “It was controversial within our own company, at the board of directors level. We were criticised by the major business schools around the country. They would invite us to come and speak. We would tell them about it and would tell us, you know, we were stupid.”
Still, he said they remained undaunted. “We just continued to do it and continued to demonstrate that we were very profitable. We spent a lot less money on advertising and public relations. Companies traditionally hire and manage advertising agencies and public relations to essentially make up a nice story about the company so that people feel good about the company and buy their products. Instead, we decided to use our money to actually doing good things for the community and people really got to like us a lot.”
“It’s just a spiritual law. It’s the way the world works. It’s written in the Bible. As you give you receive. As you help others, others help you. As your business supports the community, the community supports your business. It’s just the same. I actually think it’s true for nations as well.”
I’ve been writing about companies like Ben & Jerry’s in my new book, Branded to the Bone. This is the first time I’ve heard anyone use this language, though it fits with what I call a “Corporation 4.0″ a trend Kevin and Jackie and I started talking about when we worked on Nanovation. It’s a trend we see where more and more companies are adopting what Cohen calls “the double bottom line” and actually out-perform companies with the traditional single bottom line.
The next segment in the live blogging of my book in progress, Branded to the Bone. Want to catch up on what you’ve missed so far? The thread starts here.
What if, instead of saying that companies can “do well by doing good,” it turned out that some companies can actually do better by doing good? When I joined Kevin and Jackie Freiberg in telling the amazing story of innovation in our book, Nanovation. How a Little Car Can Teach the World to Think Big and Act Bold, we were amazed at the culture we found in the Tata Group, a company that has a 145 year history of balancing profits with the public good.
The history of the Tata business empire begins in 1868 in Bombay, when 29-year-old Jamsetji Nusserwanji Tata raised investment funds to start a company supplying the British Army in their military campaign in Abyssinia. Tata came from a family of Parsi priests in Navsari, Gujarat. The Parsi community had arrived in India 1,000 years earlier as refugees from the Arab invasion of Persia. They found a welcome in Gujarat, where they established themselves as traders, taking advantage of a Hindu ban on sea travel to provide sea routes for the spice and silk trade with Persia, Arabia and Europe. They prospered and although they remained largely a closed community, they gained a good reputation with their Indian neighbors for their good nature, fair dealings and intelligence.
When the British East India Company arrived in India, they established their first foothold in Gujurat and found, in the Parsis, willing trading partners and kindred spirits. The Parsis were monotheistic and had long-since abandoned the class system. Parsis, with their roots in the Caucasus region of Central Asia, looked to the British like Indo-Europeans and, when they enrolled in British schools they excelled, earning both the respect of the British and lucrative positions of power, both bureaucratic and commercial.
Tata used profits from his first venture to enter the textile business, purchasing and renovating a run-down cotton mill we. This was at a time when most Indian cotton was shipped to England to be milled and then shipped back to be sold to India at a profit. So Tata began milling cotton cloth in Mumbai and keeping the profits in India.
He decided he needed to electrify his plants, so he created the first large-scale hydroelectric plants in India. Then he realized that if India were going to become a world power—and an autonomous one—it would need an industrial infrastructure. That meant steel and steel meant coal. The problem was that it was widely understood there was no coal to be had in India. And here’s where the story gets interesting.
Tata set off for America to find someone to help him. Dressed like a maharaja, with a full beard, turban and Indian clothing, he spent months traveling the United States in 1904. Finally, he walked into the New York offices of geologist Charles Page Perrin, marched up to his desk and informed the man that he was coming with him to India to build a steel industry. Perrin did, and spent the rest of his life there.
But while he was in America (and on earlier visits to the British Midlands) Tata was appalled by the horrendous industrial slums witnessed in both industrial powers. He brought back his knowledge of industrial efficiencies and the most modern machinery but he was determined to make the mills and mines of India not just modern but humane.
Perrin found coal in the state of Madhya Pradesh, at the confluence of the Subramarekha and Kharkai Rivers, a perfect site for a steel mill. But this was isolated, forested country, sparsely populated, so before they could build a steel mill, they had to build a city and an educated workforce, as well as a transportation infrastructure. They began by building a lake and planting trees. They built schools and hospitals and wide, well-planned boulevards. They built a community.
“Be sure to lay wide streets planted with shady trees, every other of a quick growing variety,” he wrote to his city planners. “Be sure that there is plenty of space for lawns and gardens; reserve large areas for football, hockey and parks; earmark areas for Hindu temples, Mohammedan mosques and Christian churches.”
The schools were important because the local population was largely uneducated. He knew it wouldn’t be enough to import a workforce. He insisted that the local community be able to participate in and benefit from the plant. By the time the plant was ready to start producing steel, the first class of students was graduating and ready to take jobs with Tata. Over the years and generations, many of them stayed with the company as did their children, grandchildren and great-grandchildren. When employees wanted to break off to start their own companies, Tata not only gave their blessing but invested in them to help them become suppliers to the plant. Many great entrepreneurs in India got their start as Tata employees.
Tata and the company leaders who followed them did all this with little help—and some opposition—from the administrators of the British Raj. When the Viceroy, Lord Curzon, arrived in Mumbai in 1899, Tata and other Indian industrialists presented him with a request to fund the Indian Institute of Science to train Indian scientists. Curzon politely declined, noting that since India had no industry, there would be little need for Indian scientists and, besides, he felt that it was unlikely they could possibly find enough qualified Indians to fill such an institution. Later, when Tata Steel proposed to produce steel rails for the vast railway network, the head of the Indian Railways cried out, “The Tata’s propose to make steel rails? I’ll eat every pound of steel rail they make!” He must have had a bad case of indigestion because Tata Steel not only became a primary producer of rails but also of rolling stock and of rail engines. That rail business grew into truck manufacturing (on license for Mercedes at first and then on their own) and later cars.
Tata was passionate about fighting for people’s dignity. When he was refused admission to Watson’s, a posh British hotel in Mumbai, he immediately announced he would build a hotel that would be open to all, a hotel that would be worthy of Mumbai. The result was the legendary Taj Mahal Palace Hotel, one of the most luxurious and beautiful hotels in the world.
Because of his clarity of purpose—that the role of his companies was to provide India with the industrial infrastructure they would need to be an independent, constitutional democracy and would provide Indians with employment and dignity—India was able to take its place on the world stage. In our book, Nanovation, we described the Tatas like this.
“They were ‘industrial Gandhis,’ dedicated to the vision of an India that could compete globally. As industrialists. And as innovators. Although a steel mill might look like the opposite of a spinning wheel—Gandhi’s symbol for Indian independence—it was just as important. An independent India would never survive on subsistence farming and homespun cloth. It would need the means to compete in the global marketplace and the Tata companies helped provide the means—the investment and the technology—to make independence work.”
That’s a powerful sense of purpose to put at the heart of a company. And it’s paid off for the Tata Group, now numbering more than 100 companies with revenues exceeding $100 billion dollars last year and throwing off more than $6 billion in profits. And where do those profits go? As in most businesses, they go to the shareholders. Only, in this case, two-thirds of the company’s shares are held by a pair of charitable trusts established by the founder’s two sons. These two trusts—one focusing primarily on healthcare and the other on education—have funded many of the greatest educational institutions and hospitals in India, as well as endless community programs across India and Asia. These two trusts distribute nearly $90 million dollars a year to charitable endeavors. And who sits at the head of these trusts? The same Chairman who sits at the head of the Tata Group. Imagine if your day job was to oversee the production of wealth by half a million employees and your night job was to oversee the distribution of that wealth through charitable trusts. It’s an awesome responsibility for a leader.
No wonder the Tata Group is one of the most respected companies in the world.
There are very few hedge funds that can generate $6 billion in profit every year and none that can do so while providing good careers to nearly half a million people and while making profound impacts on their communities.
And while social businesses like Grameen Bank have made great strides in addressing the problems of some of the world’s poorest people, it will take them a long time to equal the performance of the Tata Group in raising people from poverty. Just like they did in Jamshedpur, every time they’ve opened a plant in the last 110 years, they begun by assessing the needs of the local inhabitants around the plant site, evaluating what they would need to become employees of and suppliers to the plant and the creating programs to support these residents—before construction of the plant begins. They start with the basic issues that affect most rural Indian villages: water, electrical power, healthcare and education. They build roads and transportation infrastructure. And the decisions on what to build first are made by the villagers themselves.
There is a shift going on in business today and it’s a shift in what we mean by the words, Corporate Social Responsibility. That used to refer to a narrow band of spending done on the edges of companies, often as a PR move. Donating uniforms to a local Little League baseball team is a great thing to do, as is making annual donations to the United Way or the Red Cross. But corporate social responsibility is moving past doing good works by donating to charity to doing good works as the purpose of your business and the strategic heart of your business plan.
If you’re a start-up trying to attract bright young talent and venture capital investment so you can create the Next Big Thing, you’ll find that while a business plan with great numbers is what investors and employees want to see, a business plan with great numbers and a great purpose is what they will invest in, every time
“There are certainly investors who care only about the money,” said Tim Rowe of the MIT Entrepreneurship Program when he was interviewed by Ira Glass on the radio program This American Life. “But I think that of the investors I know, they would prefer to have an investment which both makes money and does something exciting that makes the world a better place. That’s probably why most of us who do investing got into that.”
Investing to make money? Or to make the world a better place? It’s not an either or question any more. It’s a question of clarity of purpose.