The Company is the Product

“Our family considers our bottom line to be the amount of good that the business has accomplished over the year. However, the company needs to be profitable in order to stay in business and to accomplish all the other goals, and we consider profit to be a vote of confidence, that our customers approve of what we are doing...No company will respect us, no matter how much money we give away or how much publicity we receive for being one of the ‘100 Best Companies’ if we are not profitable.”’  - Yvon Chouinard

Earthrise started as a purpose committed company. A desire to form a new type of business structure - incorporating a model of stakeholder capitalism directly into the business at inception.

We may fail, for many reasons, but the hypothesis we are testing is not whether our initial product will succeed, or whether we can serve a specific customer market.

We are testing whether a company formed with a specific, irrevocable commitment to distributing profits more widely among stakeholders has a sustainable advantage in the world today.  If so, the purpose committed model could serve as a template for other entrepreneurs and investors seeking to create new businesses that exist for more than profits alone.

The purpose committed model is the result of a twenty year journey bridging corporate and social sectors. I have worked in small nonprofits with little resources and a huge heart, multinational corporations that employ thousands of people, and a private foundation founded on the belief that there is a role for both markets and non-market services in improving society’s most intractable problems.

In 2012, I founded a technology startup, building a new organization for the first time.  It was soon clear how hard it is for any management team to sit at the intersection of investors, customers and employees, all with pressing needs, sometimes directly at odds with each other. The challenge is especially acute if you don’t have a clear north star - a long-term goal for the outcome desired from all the time and toil. We developed this early at CircleUp, though I believe now not early enough.

In Let My People Go Surfing, Yvon Chouinard, the founder of Patagonia, has a small aside: ‘the real product may be the company itself.’  He says this with regard to VC backed startups being grown to be sold, meaning whether they are selling widgets or ad clicks, the true goal (and thus the focus of the executives) is to scale the business in order to be in a position to cash out themselves, by selling the business in whole or part to new investors.

I agree.  For most entrepreneurs today, the real product is the company.  But while Yvon uses the remark to disparage the VC model, I see the opportunity to build a new market led equilibrium between profits and purpose.

What Yvon and team have created at Patagonia is much more than the apparel they sell.  Their company is a ‘product’ too - a paragon of corporate governance that has continually set the standard for stakeholder management. Their existence as a company is a net positive not just for their consumers, but also for their employees, for other entrepreneurs, and for the environment.

Patagonia today represents a different model for company building.  Through its forty plus years of existence the company has consistently balanced the interests of shareholders with other stakeholders, notably employees and the environment.  As the quote at the top of this piece notes, they always need to serve customers well. But, Patagonia measures performance and evaluates success based on more than serving customers well.  

Today, there is more opportunity for creativity and experimentation in corporate structures.   The free flow of information in the digital age has changed the decision making process for employees, customers and investors.  

Potential employees look not only at review sites like Glassdoor, but also social media feeds of founders, or corporate sustainability reports for large companies. By 2025 millennials will be 75% of the workforce.  Within that population, 76% consider a company’s social and environmental commitments before deciding where to work, and 64% of millennials report they won’t take a job if a potential employer doesn’t have strong corporate responsibility practices.

Costs to create a new company and reach new customers have dropped precipitously in recent years. As more of the economy moves digital, more opportunities open up for entrepreneurs to displace legacy companies, whose brands and values no longer resonate with current customers. Finance, healthcare, and education are all major markets desperate for innovative models - innovation not just in serving customer needs but in corporate purpose and design.

Purpose committed organizations provide opportunity for increased choice from customers, employees and investors.   They fill a need in the Long Tail of the market.  As more information proliferates in our digital age, that long tail stands to increase, taking more share from the undifferentiated mass market.