For some, the concept of a purpose-driven business may sound like a neat marketing trick to try to attract Millenials into the workforce. The reality is starkly different, as these purpose-driven approaches are altering business models in companies of all sizes.
As we previously reported: The move toward purpose-driven business appears to have gathered steam over the past decade.
Andrew Edgecliffe-Johnson, a columnist for the Financial Times, writes in a piece titled Beyond the bottom line: should business put purpose before profit?: “I have seen companies such as Merck and Johnson & Johnson remind investors that their pre-Friedman founders believed profits would only flow if they attended to other priorities first; and I have heard Unilever’s outgoing CEO Paul Polman ask provocatively: ‘Why should the citizens of this world keep companies around whose sole purpose is the enrichment of a few people?’”
Indeed, the drive to install a purpose-driven business model often doesn’t come from accountants or economists. It derives from leadership.
Fast Company addressed this issue, highlighting the importance to “Know The Difference Between Mission And Purpose,” and noting that “our organizations are sorely lacking leaders who are aware of and deeply connected to the purpose behind their work.”
“We believe this is in part because our culture conflates being mission-oriented with being purpose-driven. A mission is the what you’re trying to accomplish, and a purpose is the why. Toms founder Blake Mycoskie says the company’s mission is to sell shoes, but his purpose is to provide free footwear to people in need. Apple’s mission centers on being a leading computer company, but Steve Jobs’s purpose was to create beautifully designed, innovative tech products. Clearly the why and the what are two different things.”
If leadership and understanding the what vs. the why of what you do provide the backbone to creating and maintaining a purpose-driven business model, then another example can be seen in the leadership team of MOD Pizza, a Clayton, Dubilier & Rice portfolio company.
MOD Pizza’s what is evident in its name: It’s an operator and franchisor of fast casual restaurants offering customizable, made-on-demand artisan-style pizzas and hand-tossed salads. In fact, MOD Pizza, with more than 430 locations system-wide, is the fastest growing restaurant chain the U.S. for the last four years, according to Fox Business.
But the why is something different.
As a recent release states: “Since its founding, MOD has maintained a commitment to be a force for positive social impact by doing what it does best – employing and feeding people. The Company is dedicated to creating a diverse and inclusive workforce by hiring and developing individuals who would otherwise face barriers to employment (including opportunities for youth, those transitioning out of incarceration, homelessness, rehabilitation programs and foster care, and individuals with developmental/physical disabilities). In addition to its progressive employment practices, MOD is focused on tackling food insecurity in the communities it serves. In 2018, with the help of its franchisees, MOD funded, packed and distributed nearly half a million meals to food banks and backpack programs throughout the US, and expects to create an additional one million meals in 2019.”
Said Scott Svenson, co-founder and CEO, MOD Pizza: “Over the past 11 years, we have built MOD upon a conviction that we could build a best-in-class business by putting our people and the communities we serve first.”
Svenson added in the Fox Business interview that the company’s goal is to increase the “MOD Squad” – the MOD employees – to 22,000 people. Forbes recently wrote about MOD Pizza’s “impact hiring” practice.
“Impact hiring staffs people with a history of incarceration, drug abuse, mental illness or homelessness – it gives everyone an equal chance at being part of a meaningful brand and community. At first glance, hiring disadvantaged people may sound like a business risk. However, MOD has found that these people are more appreciative and work harder than others at performing entry-level tasks. From a branding standpoint, offering jobs for people who traditionally struggle with finding employment has positioned the company as a force for good. In turn, consumers feel good about supporting MOD and purchasing pizza with a purpose, effectively building impact into the act of consumption itself.”
Entrepreneur also reviewed MOD Pizza’s hiring practices in a provocatively-titled piece: “Why MOD Pizza Loves Hiring Ex-Cons.”
The headline adds: “Eight years ago, Ally and Scott Svenson started hiring felons to staff MOD Pizza. That turned out to be one of the best business decisions they ever made.”
Said Ally Svenson: “We have no interest in just building another fast-casual pizza business. We’re building a business platform to make positive social impacts.”
Can Purpose-Driven Businesses Also Be Good Business?
Of course, regardless of what the Svensons might say, the key question that often accompanies discussion of purpose-driven businesses: Can “doing good” contribute financially to “doing well?”
Yale Insights, a publication from the Yale School of Management, took on this question, noting: “Impact-driven businesses are trendy, offering both social good and profit. But according to Professor Henrietta Onwuegbuzie of Lagos Business School, the approach isn’t new; rather, it’s a revival of a traditional model. “Business, initially, was created to meet the needs of society, but capitalism derailed that understanding,’” Onwuegbuzie says. ‘We now believe that you set up a business to make money.’”
Onwuegbuzie argues that enterprises that set out to solve a societal problem are built to deliver value: “Being purpose-driven helps companies grow faster and make more money.”
So is employing a purpose-driven business model the same as advancing a corporate and social responsibility plan? Not according to Onwuegbuzie:
“The difference between an impact-driven business and corporate social responsibility (CSR) approach is that, in the case of an impact-driven business, the problem you wish to solve is the purpose of the business and a profitable business model is built around the solution to ensure it can solve the problem in a sustainable way. However, with CSR, the business is not necessarily impact-driven, but simply gives a percentage of profits back to society. The former has a stronger and more transformative impact on society than the latter.”
“With profitable purpose-driven businesses, profit ensures business sustainability and extends the reach of their impact. While most social enterprises tend to be nonprofits, it is important to build sustainability into the business. We’ve got to be creative about designing sustainable business models aimed at transforming society. Similarly, the world needs a new educational system so that we can have shared prosperity and more peace.“