Every founder or entrepreneurial empowered employee loves what they do at heart. Otherwise, why would we put in hours to build and contribute to a company that is larger than just ourselves?
If your company has a strong culture, you will find yourself surrounded by like-minded, driven individuals rallied around a common mission. While we may feel compelled to talk about the passion of our missions, there is another p-word we sometimes feel we need to shove under a rug.
When did profit become a dirty word? After all, without profit, companies can not continue to exist indefinitely, and further, the annual corporate social responsibility ratings published by Kinder, Lydenberg, and Domini (KLD) Research & Analytics show a strong correlation between profit and a company’s positive societal impact. Yet, the perception of profit amongst HBR study participants in 2017 was strongly negatively associated with perceived value to society.
Can we bridge the gap between the passion of our company missions and the perceived negativity of profit?
And you must if you wish to achieve your mission, create opportunities for your communities, and ensure the legacy of your work.
Debunking Profit’s Role as a Negative Contributor to Society
It only takes a few bad apples to ruin a bunch and create a great movie ... Bernie Madoff, Enron, Jordan Belfort. All of these now popular stories tell the same story: our main character finds himself good at something, starts a business, the business succeeds, then under pressure to perform, the company dabbles in gray area practices leading to outright illegal practices — or bad profits. He is caught, reputations are shattered, customers form negative opinions about businesses, and Hollywood gets a great screenplay.
However drama-filled we are as a society, these examples represent the minority not the majority of businesses. What most law-abiding socially aligned businesses do with profits creates more opportunities for communities, not less.
A Case of the Bad Profits
The idea of bad profits was created by Fred Reichheld in his book “The Ultimate Question.” The book refers to money made from customers by being deceptive or misleading. Basically, bad profits are earned at the expense of customer relationships.
So where does myth meet method? Impressively, in the classroom.
Consider these two definitions of profit:
Definition 1: Profit ultimately represents the amount that a customer knowingly provides a company for the value they have received above that company’s costs.
Definition 2: Profit ultimately represents the amount that a company receives above its cost structure to the disadvantage of its customers without their knowledge.
When asking a group of business students to choose a definition of profit, Douglas Tatum of the University of Florida found that the majority of his students believe that profit was ultimately derived by stealing or tricking customers out of their money. Not delivering value.
The origins of this thorny topic are unclear, but what is clear is that companies need to reframe their actions to change the perception of profitability in society.
Why We Need Profit
Unlike our movie examples, most small, mid-cap, and even Fortune 500 businesses use their profits for more practical purposes.
Consider the following possible uses for profit:
- Invest in increasing capacity or expanding into new markets.
- Invest in research and development
- Pay for new advertising and marketing strategies to help more customers
- Save profit as part of cash reserves, to use as savings for leaner times instead of laying off workers
- Pay taxes. A government levies a corporation tax on the percentage of firm profits
- Pay dividends to shareholders or pay back shareholder loans
- Pay down or restructure debt
Without profit, small and large corporations alike can not grow. What does this mean? It means they can not hire more staff, which would provide more economic opportunities for their communities.
It means they can not reinvest in the people in their businesses, which can take the form of not just raises for performance, but also employee benefits such as health care, retirement, profit sharing, etc.
Without profit, companies can’t upgrade equipment and facilities to produce better products and services.
Without profit, the company can not continue to market their products and services to try to reach and help more customers.
To be clear, customers are not victims in this situation, they are individuals, groups, and companies looking for solutions that your company can provide. This is a value-based transaction, not a deceptive money grab.
If you are a founder or owner, this isn’t news to you. If you are responsible for creating profits to cover payroll, this is something that keeps you up at night.
And if you are an employee of one of these companies, it should keep you up at night also — because without profit, you don’t have a paycheck.
Changing the Position of Profit
How often do founders and owners find themselves in the awkward position of championing the positive role of profit to their employees, families, and communities?
If you are like me, this is a weekly challenge to be met. And more often than not, you find yourself defending not only your company and its positive impact, but the idea of profit itself. In a society where profit has been characterized as a bad actor, we need to reframe the position of profitability.
Let’s break this down.
Profit is a Continual Outcome
Profit should be viewed as a flywheel. A flywheel is a large lumbering mechanical device specifically designed to efficiently store rotational energy — better known as kinetic energy — which is proportional to the square of its rotational speed and its mass.
For the rest of us who are not engineers — a flywheel is a frictionless device, which at first takes a large lift to get the flywheel to spin, but once spinning the kinetic energy kicks in, and the more the flywheel spins, the ease of the downward force required to turn the wheel decreases, until it spins easily.
This is not dissimilar to a business. At first, it is a huge lift to start a business, but once profit is achieved, it is easier to continue to achieve profits, provided the company is maintaining the functions that positively contribute to the kinetic energy within this “business flywheel.”
Profit is Measured by Positive Impact
Profits are the direct result of solving an issue for a customer, to a perceived level of service where the customer sees the value exchange to their benefit.
Simple enough, but what do you do in the case where there is a difference of opinion regarding perceived value? Consider the source.
If a customer doesn’t perceive your company’s product or service as a positive value translation, then you must address that individual customer’s concerns. There are numerous customer service strategies that you can employ to measure customer satisfaction. If you see a pattern of dissatisfaction among customers, you must address this trend swiftly. There could be a disconnection between customer perception and your company’s positioning, i.e., you are attracting the wrong customers. Or worse, there is a flaw in the delivery of your product or service to the customer that must be addressed.
If the perception of customer value is coming from an internal source, the same approach applies. Address that individual’s concerns swiftly. If those concerns are not voiced by current customers after inquiry, there is possibly a deeper issue to resolve.
- Is the value perception based in fact or opinion? Is the perception current or a past observation?
- Ask what can be addressed to resolve the value perception issue in the employee’s opinion? What role can they take to help?
- Are there constructive suggestions or evidence to discuss?
- When was the last time you did a competitive audit of your product/services?
The goal here is not to take the negative value perception personally, but to consider there could be opportunities in the feedback. This employee could be your “canary in a coal mine” calling out an issue before it manifests itself outside your organization and affects your customers.
However, if the negative value perception is emotionally driven, doesn’t manifest with others or your customer community and the perception doesn’t improve over time, there may be a larger HR issue to address.
Profit is Passion
When I started Illumine8, I was passionate about helping businesses bring their amazing solutions to people they could help without feeling like they were selling their soul in the process.
I am still passionate about that mission today — almost 8 years later.
The passion remains, and it has grown over the years to take other shapes that fuel our actions at Illumine8. Our employees talk about the transparency in the impact we have on the companies we serve. That impact has allowed those companies to further their own missions … collectively we are spinning on a large community flywheel.
And ultimately, that flywheel empowers more people creating a greater footprint of impact — through job creation and economic empowerment. From helping a family launch their first business, to helping others create multi-generational legacies, to helping a company create more meaningful relationships with their customers during times of good and crisis. I am moved by the work of our partners.
Reading this, I hope you can hear the passion in these words. And I know the same is true of our partners, and other businesses in our greater communities.
Without this passion, we wouldn’t have profits. The profits we achieve as companies are a direct result of the value we provide our customers, and the value we provide only grows through a passion for the mission we have to serve. The more passionate we are as companies about the humanity of our missions, the more we achieve. The perceived value of the transaction no longer becomes a topic of discussion.
Consider a SpaceX rocket costs $62 million per launch. Yet when it safely docked this summer at the International Space Station, no one was discussing the price tag — instead, we were glued to our screens watching history being made.
A more down-to-earth example of passion would be Google. With a passion for innovation, not taking success for granted, and doing the right thing, Google used its profits to become the first company to use 100% renewable energy in 2017 and is the largest purchaser of renewable energy in the world.
Even small businesses make their impact. Consider a locally-owned business in your community — a dry cleaner, restaurant, gift shop. If their passion is providing for their family — maybe funding college tuition or a first home purchase — don’t you support that mission? Do you notice the extra mile these providers go to make sure your clothes are clean, food is delicious or that gift is wrapped perfectly for shipping? If the value wasn’t there, you wouldn’t patronize these businesses.
Think about a company you do business with on a regular basis by choice. Do you mind that they make a profit? Do you believe in their passion? Do you support their mission? Chances are that you aligned with that company’s mission and feel that the value transaction is more than fair.
Call me sentimental any day — but it’s not profits that should get a bad name in the business. Rather companies should be called out for a lack of passion for solving for the missions they serve. Profit without passion is hollow and short-lived.
Without passion, there is no profit.
Illustrations by John Gummere