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Focus on Profits is Not Enough for a Great Business
By: Marty Zwilling
It’s always been tough to start a new business, even when the bottom line was just making a profit to stay alive. A few years ago, a second focus of sustainability (“green”) was added as a requirement for respectability. Now I often hear a third mandate of social responsibility. Entrepreneurs are now measured against the “triple bottom line” (TBL or 3BL) of people, planet, and profit.
The real challenge with the triple bottom line is that these three separate accounts cannot be easily added up. It’s difficult to measure the planet and people accounts in any quantifiable terms, compared to profits. How does any entrepreneur define the right balance, and then measure their performance against real metrics?
Lots of people are trying to help, with new twists on the age-old model of free-market capitalism that has driven businesses for the last 500 years. Current examples include the Conscious Capitalism® movement led by John Mackey, The B Team, led by Sir Richard Branson, the 1% for the Planet organization, and the Benefit Corporation (B Corp) now available in 20 States.
In the interest of helping first-time entrepreneurs, as well as existing business executives, keep their sanity as well as their focus, I offer the following pragmatic suggestions for dealing with the triple bottom line requirements:
- Sort out your personal definition of success first. Starting and running any business is hard work, so the last thing you need is “success” with no satisfaction. If your primary dream is to help the starving people around the world, or prevent global warming, you might consider a non-profit, academic, on government role, rather be an entrepreneur.
- Making a profit does not imply greed. Many young entrepreneurs seem to think that capitalism and making profit are dirty words. The reality is that you can’t help people or the environment, or yourself, if you don’t have any money. Businesses run by ethical people create value and prosperity based on voluntary exchange, while reducing poverty.
- Sustainability and social responsibility alone don’t make a viable business. As an Angel investor, I see too many business proposals that are heavy on sustainability, but light on financial realities. Most customers today won’t pay you five times the cost of alternatives, just because yours is “green.”
- The whole can be greater than the sum of the parts. The real opportunity for entrepreneurs is to provide solutions that solve a problem better than the competition, while also providing sustainability and social responsibility. Conscious Capitalism, for example, claims 3.2 times the return of other companies over the last 10 years.
- Responsibility and integrity are still the key. A responsible entrepreneur promotes both loyalty and responsible consumption by educating consumers so they can make more informed decisions about their purchases, based on ecological footprints, and other sustainability criteria. That’s a win-win business for the customer and the entrepreneur.
- Explore new forms of company ownership and profit sharing. There is no rule in capitalism that employees and other stakeholders can’t equitably share in the returns. In fact, there is plenty of evidence that these arrangements, such as with Whole Foods, are easy to implement, and pay big productivity, loyalty, as well as financial dividends.
- Begin tracking your positive social and environmental impacts. What you measure is what you get, because what you measure is what you are likely to pay attention to. Tracking can be informal, or you can follow a more formal system, like Global Impact Investing Ratings System (GIIRS). Even informal results can be your best advertising.
It’s a lot more productive and a lot less risky to start early in building your record of the positives on social, environmental, and people responsibility, rather than wait and hope never to be caught in an excessive profits scandal, child labor issue, or poor sustainability practice.
So while the bar for business success continues to go up, because we all now operate on a world stage, the entrepreneur “best practices” haven’t changed. Every entrepreneur needs to start with a strong vision, think long-term, communicate effectively, and always lead with responsibility and integrity. The days of success measured only by monetary returns are over. How does your business stack up against the triple bottom line?
This article was originally published by Startup Professionals
Published: January 2, 2015
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