Why finding your purpose is critical for startups - whatever your product

The business case for purpose is clear - do good AND increase profits

Seems like you can’t move in business-land at the moment without bumping into the p-word. 

Purpose-this, purpose-that. The marketing industry is tearing itself up arguing about whether it ‘works’ in ads or not (and thereby missing the point). All the while investors and businesses are slowly coming around to the idea that you can not only make profits and do good but that you will make more profits if you do good.

But what surprises me, is that whenever I speak to startups, I hear about purpose far less. Yes, if you're on the right mailing lists you see the superstar startups with purpose baked-in, but it's not a word you hear around your average incubator. Maybe it’s a resistance to jumping on a perceived buzz-word, or maybe it’s because they’re so focused on their product they don’t have time to think about it. But, whatever the reason, it's often not part of the conversation. Which seems strange given the massive benefits, for both your business and the rest of us, if you put a purpose at the heart of your startup.

1. People will prefer your product and pay more for it

Let’s start with the easy one. Customers, whether B2B or B2C, prefer purpose-driven businesses and say they will pay more for them. For example:

• Wall Street Journal found that “Almost 60% of Americans said last year that they would “choose, switch, avoid or boycott a brand based on its stand on societal issues,” compared to just 47% in 2017.

• 2018 Edelman Earned Brand study found that “nearly two-thirds of consumers around the world will buy or boycott a brand solely because of its position on a social or political issue.”

• Nielsen found that 2 in 3 consumers will pay more for products and services from brands that are committed to making a positive social impact.

• IBM research and National Retail Federation found 70% of purpose-driven shoppers pay an added premium of 35% more for sustainable purchases, such as recycled or eco-friendly goods.

• Unilever found that their ‘Sustainable Living’ brands grew 69% faster than the rest of our business in 2018

Your startup is simply more attractive and valuable to purchasers if it has a purpose at its core.

2. There are large pots of investment money reserved solely for purpose-led startups

Investment is the lifeblood of startups, and getting access to it is often one of the core challenges founders spend their time on. As Impact Investing and ESG become the talk of the town in investor land, we’re seeing an increase in ‘purpose only’ investors like ETF Partners, Obvious Ventures and Tin Shed Ventures (launched by everyone’s favourite case study, Patagonia).

It may not be all investors, but it is growing quickly. A study by SquareWell Partners aggregated the views of investors collectively managing approximately $22.1 trillion in assets. Commenting on the study, the Harvard Law School said:

'While the Survey evidences a strong interest from the investor community regarding corporate purpose, these are still early days and only 21% of investors have already included the concept in their evaluation of ESG risks and opportunities. This could change quickly however as almost two-third of the surveyed investors are engaging with companies on their corporate purpose, which is the first step for them to evaluate the relevance of the topic. Companies that are successful in achieving this alignment between their purpose, their culture, their long-term strategy, their executive remuneration and their societal impact will have a much more attractive equity story to tell the market.'

These funds and VCs have millions to invest, and they’re only willing to do so if you can make a clear case for the purpose of your startup.

3. Investors specifically look for startups with a clearly defined purpose

It’s well known that one of the few things an investor wants to hear from you in a pitch is the ‘problem’ you solve for your customers. But it’s now becoming clear that solving your customer's problem isn’t enough, you also need to turn that into a clearly defined purpose benefitting the broader world:

• DeVere Group's survey of Millennial investors found that some 77% of them say that environmental, social and governance concerns are their top priority when considering investment opportunities.

• According to Morningstar, “net flows into sustainable funds this year are on track to triple their 2018 total, driven by ESG (environmental, social and governance) factors as well as the desire to make a social impact.”

• Bank of America Merrill Lynch report predicted a “tsunami” of capital flowing to “good” stocks, fueled by high levels of interest among women, millennials, and wealthy individuals. They say over the next two decades, $20 trillion in assets will flow into sustainable funds and strategies, nearly equaling the market value of the S&P 500 today (some $24.7 trillion).

It’s not only important, it’s on you to get it sorted prior to investment. The study by SquareWell Partners mentioned above found that purpose was now an expectation - 76% of investors are already expecting companies to have defined their purpose and 93% think it is a necessary foundation to set a long-term business that creates value and strengthens corporate culture.

4. It’s easier to attract talent, improve their performance and reduce turnover

It’s not only future customers who will get fired up by your purpose, your potential employees will too:

• Inc, found that millennials, who will make up 75% of the workforce by 2025, are looking for socially responsible employers.

• Cone Communications Millennial Employee Study found that 64% of millennials won’t take a job if their employee doesn’t have a strong CSR policy, and 83% would be more loyal to a company that helps them contribute to social and environmental issues

• Deloitte Insights 2020 Global Marketing Trends Report found that purpose-driven companies had 40% higher levels of workforce retention than their competitors.

• Fast Company found that ‘most millennials would take a pay cut to work at an environmentally responsible company.’

In the early years of a startup, people are one of your most precious assets, so it’s really a no-brainer to strengthen your purpose in order to attract the best and motivate them.

 5. It will make your business more creative and innovative

Founder burnout is a very real problem for start-ups - CB Insights found it caused almost 10% of startup failures. And you know it’s going to be tough no matter how purposeful your business is, but purpose does matter to you as an individual. Daniel H. Pink, Adam Grant and others have studied, proven and written extensively about the motivating power of having a distinct purpose to your own endeavours. 

It’s not only motivation it can help you with, but a purpose can also make you and your employees more innovative too:

• Harvard EY Beacon Institute survey found that “companies with a strong sense of purpose are able to transform and innovate better.” Executives with purpose have “greater ability to drive successful innovation and transformational change.” 53% said their organization is successful with innovation and transformation efforts, while less than one-fifth (19%) report success at companies who have not thought about purpose.

• Deloitte Insights 2020 Global Marketing Trends Report also found that purpose-driven companies report 30% higher levels of innovation.

Creativity isn’t necessarily something startups have in short supply, but when the late nights and constant pressure kick-in, it’s one of the first things to go. Knowing you're not only working for yourself but also helping out with a higher purpose can provide an antidote.

 Putting purpose at the heart of your startup

So, if you're one of the fortunate few who already have purpose baked-in, good on you, we're all rooting for you. If not, it might be worth considering how you can pivot your startup to one with a higher purpose and thereby do good and get higher profits.

SOURCES:

Most sources are listed above, but huge thanks to Peter Fisk's recent article Creating a business case for purpose … why customers prefer, employees work for, and investors support companies with purpose for a significant number of the stats.