Curious about the dual goals of purpose-driven businesses and how they differ from traditional “old school” business models? Let’s explore!
In the landscape of modern business, a new paradigm is emerging that challenges the long-held belief that a company’s sole purpose is to maximize profits for its shareholders. This new model, embodied by purpose-driven businesses, seeks to achieve a delicate balance between financial success and positive societal impact. These dual goals – profit and purpose – are at the heart of what distinguishes purpose-driven companies from their “old school” counterparts.
Traditionally, businesses have operated under the principle that their primary, if not sole, responsibility is to generate returns for their investors. This mindset, popularized by economists like Milton Friedman in the 1970s, argued that a company’s social responsibility was fulfilled simply by being profitable. This view led to a narrow focus on short-term financial gains, often at the expense of other stakeholders such as employees, communities, and the environment.
Purpose-driven businesses, on the other hand, recognize that profit is necessary but not sufficient. They see financial success not as an end in itself, but as a means to achieve a broader mission. This mission might involve addressing social inequalities, promoting environmental sustainability, improving health outcomes, or any number of other worthy goals. The key is that these companies view their business activities as a way to create value beyond just financial returns.
Consider, for example, a traditional shoe company. Its primary goal would be to produce and sell shoes at a profit, with decisions driven by cost reduction and sales maximization. A purpose-driven shoe company, however, might set out to provide durable, affordable footwear to underserved communities while also ensuring ethical labor practices and using environmentally sustainable materials. Profit is still important – it allows the company to sustain and expand its operations – but it’s not the only measure of success.
This dual focus creates a fundamentally different approach to decision-making. Where an “old school” business might choose the cheapest supplier to maximize short-term profits, a purpose-driven company might opt for a slightly more expensive supplier that aligns with its values, such as fair labor practices or sustainable sourcing. The purpose-driven company recognizes that this decision, while potentially reducing short-term profits, contributes to its broader mission and can lead to long-term benefits such as improved brand reputation, customer loyalty, and employee satisfaction.
Which bucket does your company live in? Why?