BY MARTIN ZWILLING | FROM YOUNG ENTREPRENEUR | NOVEMBER 27, 2012
Young entrepreneurs are more socially conscious today than ever before, which is a great trend. Unfortunately, some are so focused on this principle that they forget that every business, even nonprofits, must practice the basic principles of capitalism — that is, build a business model to make money to cover their costs and to do other good things.
Examples of profitable companies practicing this model include Trader Joe’s, led by Doug Rauch who retired as president and now serves as a trustee for Conscious Capitalism a research and membership organization for socially-minded businesses. Then there’s The Container Store, led by Kip Tindell. Both of these are purpose-driven businesses that boast high growth, high loyalty and very low employee turnover.
Of course a profitable model isn’t required if you intend to rely solely on donations, or have deep pockets to fund your socially-conscious efforts yourself. Conscious capitalism is an alternative approach, dedicated to advancing humanity, while using tried and proven business principles.
The concept has four pillars:
1. Higher purpose. Business can and should be done with a higher purpose in mind, not just with a view toward maximizing profits. A compelling sense of purpose creates an extraordinary degree of engagement for all stakeholders and catalyzes tremendous organizational energy.
2. Stakeholder orientation. To recognize the interdependent nature of life and the human foundations of business, a company needs to create value with and for its various stakeholders (customers, employees, vendors, investors, communities, etc.). Like the life forms in an ecosystem, healthy stakeholders lead to a healthy business system.
3. Conscious leadership. Conscious leaders understand and embrace the higher purpose of business and focus on creating value for and harmonizing the human interests of the business stakeholders. They recognize the integral role of culture and purposefully cultivate a conscious culture.
4. Conscious culture. This is the ethos — the values, principles, practices — underlying the social fabric of a business, which permeates a company’s environment and connects the stakeholders to each other and to the purpose, people and processes that comprise the company.
I see conscious capitalism emerging at just the right time for young entrepreneurs who are a bit disillusioned with the image of “business” today. They want to be profitable without sacrificing trust, reputation and credibility with their peers and stakeholders. They want their business potential to support the overall human potential as well.
None of these positives obviate the need for a viable business model, in order to survive. I would expect that to seem intuitive to all entrepreneurs, but every investor I know has many stories about startup funding requests with no clear business model. The most common failures are solutions looking for a problem, lack of a defined market, and giving away the product.
Soon, companies that also want legal recognition of their socially conscious focus will be able to incorporate as a Benefit Corporation (B-Corp). The B-Corp status, already available in eleven states, including New York and California, is meant to reduce investor suits, and gives consumers an easy way to spot genuine social commitment, without assuming it is a non-profit.
Entrepreneurs and startups are all about innovation, in business principles as well as in products and services. Perhaps it’s time to innovate how you do business too?