What is a social purpose business?

Most businesses are shareholder-value businesses. That means they aim to maximise returns for the owners. Shareholder value increased in popularity throughout the 1900s. In the 1970s, shareholders became suspicious that corporate executives were operating in their own interest and NOT maximising returns. A larger movement towards shareholder value started. In the 1980s, political leaders, like Margret Thatcher, and Ronald Reagan, plus economists like Milton Freedman, got behind the movement. At that point shareholder value was at it's most dominant in government, business and public opinion.

Since then public opinion has shifted. Environmental disasters, product failures, corporate scandals and the credit crisis have all been blamed on shareholder value in some way. It's encouraged more people to be cynical about profit-motivated businesses.

Whilst most businesses still operate as shareholder-value businesses, most people now think in social-purpose terms. In a 2019 survey 95% of consumers thought that businesses should benefit all stakeholders. Amongst employees, 70% wanted to work for businesses that make the world a better place and 73% of investors said they consider the social impact of their investment decisions. This trend is continuing, with regulators now requiring professional investors to account for impact factors when choosing, managing and reporting on their investments.

As a result of this disconnect, shareholder-value businesses are finding it difficult to attract and retain customers, engage employees and excite investors. People are not being inspired by companies. They're struggling to find businesses they want to work for, buy from and invest in.

A shift towards social-purpose businesses is happening. Businesses that make this shift successfully have a queue of customers, the pick of the best staff and very willing investors. Those that don't are going broke!

A social purpose business:

What you do for the world comes 1st

A shareholder value business:

Shareholders come first

BUT

Social purpose businesses make more impact AND more money

Here's how a social-purpose business puts what it does for the world first. It then builds everything else on top of this social purpose. The example used is Tesla, as most people know it. It doesn't mean that Tesla is perfect, or your business has to be huge to have a social purpose. It doesn't help bring social purpose business to life using an example you know.

The 5-level Model of Social Purpose Business:

Level 1 - What you do for the world (Your social purpose)

Tesla example is "Accelerate the world’s transition to sustainable energy"

Level 2 - What you provide to your clients (Your product)

Tesla example of "Electric cars"

Level 3 - What you do for employees (Your engagement proposition)

Tesla's example is "Provide work that contributes to sustainability"

Level 4 - How you minimise negative impacts (Responsibility)

Tesla example - Investment in gigafactories to reduce energy and water consumption during manufacturing

Level 5 - Impact, growth and financial reward (Results)

Tesla example - Impact: 13.4 million metric tons of CO2 from cars avoided annually

Tesla example - Growth: 50% revenue growth in 2022

Tesla example - Financial reward: Elon Musk's net worth is $230bn.

The great thing about a social purpose business is that your social purpose creates a foundation for everything else, just as the 5-level model illustrates. Having a very clear social purpose (Level 1) helps drive product development and marketing (Level 2), employment value proposition (Level 3), your operations practices (Level 4) and your financial plan (Level 5). As well as these big-ticket items, having a clear social purpose helps with decision-making and prioritisation every day.

In contrast, putting profits first tells us nothing about what products to provide, to what customers and who will be the best team to create them. In a shareholder value business, those decisions are often separate. Think about how CSR and ESG work in many businesses today. Both frameworks are often separate from the core of the business. In a shareholder value oil company, it's possible to have a business strategy focused on exploring, drilling and selling oil and an ESG strategy about sustainability. They don't fit together, but the result is net-zero policies which allow 'the business' to do damage whilst the ESG approach offsets with carbon credits. An energy company with the social purpose of "clean energy for all", would have a very different transformative business plan. It would seek to create and distribute energy cleanly without the need to offset. As well as being more efficient it would attract customers, employees and investors, resulting in impact, growth and financial gain.

Many startups today are social-purpose businesses, but new start-ups are not sufficient to meet the huge demand for social-purpose products, employment and investment. I worked with a major fund manager who raised £5bn virtually overnight to invest in social purpose businesses. Three years later they still can't find enough social purpose businesses to invest in and stick to their impact investment mandate. As a result, billions of that initial investment is still unspent.

There is a big opportunity for existing businesses to transform from shareholder-value businesses to social-purpose businesses. Social purpose businesses create more impact, higher engagement and faster growth. This means that social purpose businesses are more rewarding financially as well as satisfying.

To start your transformation to a social purpose business there are three steps you can take.

(1) Assess - Review how well-defined and integrated your social purpose is. Challenge yourself on whether your business's purpose is really a social one, or whether it's a commercial statement in disguise. There are various tests to assess this. If your social purpose references your product, customer, growth or financials, then it's a commercial statement and not a true social purpose. You should also assess how well integrated your social purpose is into your business and where it can be improved. A social purpose needs to be integrated into every aspect of your business. It may be well integrated in some areas, and not in others. (Assess your social purpose).

(2) Define  - If your social purpose isn't crisp or doesn't pass all of the social purpose tests it's worth spending time getting this right. There is a set of techniques that help any business or founder to better define their existing social purpose. This will define an authentic purpose that's always been the case for you and your business, but is likely not clearly defined. Define your purpose in stage 1 of the DREAM business method.

(3) Integrate - Any business can integrate its social purpose over 1 year. The good news is, that it can be done in bite-sized chunks, so you can benefit as soon you complete the first chunk. You can prioritise the parts of your business that will give you the most immediate value and impact. As soon as that first piece is working well (usually within 3 months) it will start creating positive momentum for the rest of your integration. The key is to have a plan and have others hold you to account for the plan. Stages 2 to 5 of the DREAM business method show how to integrate your Social Purpose.

In the long term, all businesses will be social-purpose businesses. Those that are not won't survive. Right now, being a social-purpose business is a competitive advantage. There are not enough social purpose businesses yet for all the people who want to buy from them work in them and invest in them. The quicker you transform your business into a social purpose business, the faster you'll benefit from it. The more impact you'll create, the more enjoyment you'll get from your business.