March 3, 2022

TPL Insights: Building Peak-Performance Cultures #108- Inside Companies that Enable Purpose to Drive Peak Performance Part 2

By Rob Andrews

With paraphrased content from Ranjay Gulati’s HBR article published February 15, 2022

Making Tough Choices by Stubbornly Fixing on Purpose as a North Star

According to Puri at Gotham Greens, a commitment to environmental stewardship (in tandem with corporate growth) permeates the company’s “entire DNA.” That means it’s the starting point for any decision-making, whether executives are framing long-term strategy or addressing small-scale tactical questions.

Take the packaging dilemma. After researching various eco-friendly options, Puri’s team first chose highly attractive, compostable fiber containers. Affordable and good for the environment, they seemed like an exciting win-win. But as workers began harvesting and packaging lettuce, the company encountered a problem: The greens lasted only a few days before wilting, compared with two weeks or longer in plastic.

From there the company could have gone the Good Samaritan route, sticking with the compostable fiber and in due time possibly going out of business as retailers and consumers rejected the less-than-crisp greens. Or it could have quickly opted for profit and switched to plastic without a second thought. Instead, guided by its mission, it embarked on several more months of research.

One alternative was to leave the produce unpackaged, with supermarkets selling to consumers in loose bins. But shoppers had been gravitating away from such purchases, perceiving packaged greens to be cleaner, of higher quality, and safer to eat. Retail buyers said they might still order from Gotham Greens, but not nearly as much as they’d planned to. That was no recipe for an enterprise to succeed in its larger vision of reinventing agriculture.

Next Puri and his team researched various types of plastic, again with sustainability as their primary focus. Recyclable and recycled plastic intrigued them, but it would be too costly. Compostable plastic seemed most promising, but the team soon concluded that it wasn’t as “green” as it seemed, because suppliers used subsidized, genetically modified corn to manufacture it, and only consumers who lived near the right municipal facilities could compost it. Most of it would wind up in landfills or, worse, mixed in with recyclables when it didn’t qualify.

In the end Gotham Greens decided on #1 PET plastic, the most universally accepted at recycling facilities. Ten years later it’s still using the same boxes. But it also has a dedicated group of employees who stay abreast of new technologies and search for more-sustainable options. Purpose in this instance was not only the starting point for decision-making but also a constant source of clarity that helped leaders sharpen their evolving understanding of a difficult trade-off and make informed and deliberate choices to navigate it.

Livongo is another organization that has used purpose as its North Star in making difficult decisions. Glen Tullman founded the company in 2014 with a simple but revolutionary mission: to help people with chronic conditions such as diabetes, which requires regular blood-glucose monitoring, stay healthy without constant visits to hospitals or doctors’ offices. This was a personal cause for Tullman, a serial health care entrepreneur: A decade earlier his son Sam, then age eight, had been diagnosed with type 1 diabetes.

Livongo—short for “Live Life on the Go”—equips users (“members” in its parlance) with devices that provide immediate health metrics after glucose test strips are inserted and then upload the data to the cloud, allowing consistent tracking, interpretation, recommendations, and even alerts when data looks off. With their mission of making members’ lives easier always at the forefront, Tullman and his team made some unconventional trade-offs early on.

These included giving away glucose test strips as a way of getting people to use them more often; hiring a virtual care team to provide real-time advice in emergency situations; and keeping individuals on the platform even if they left the employers that initially enabled their subscription to the service. All represented big investments for a small start-up—Good Samaritan decisions at the time—but Livongo knew that a long-term payoff would come in the form of customer retention and value creation for investors. Within two years of its launch, the company had 53,000 active members across more than 200 clients, 100 employees with soaring engagement rates, and close to $40 million in revenue. Following its IPO, in July 2019, Livongo was valued at $3.4 billion. Last year, before its merger with Teladoc, the company was valued at $18.5 billion.

By Leaning into Trade-Offs

Deep purpose companies and their leaders resist the urge to dodge tough decisions. Instead, they are willing to linger in a space of discomfort, ambiguity, and contradiction. That’s why Gotham Greens spent months investigating the best kind of packaging and ultimately settled for an imperfect solution while continuing to look for a better one.

As Sarah Kaplan of the Rotman School has remarked, companies don’t get ahead by “declaring the problems irresolvable.” They must learn to “persevere until they reconcile those tensions.” Doing that should involve intense consultation with stakeholders to gain insight into their perspectives, the implications various decisions might have for them, and which moves they regard as deal breakers. Consider how Puri’s team talked to retail buyers, engaged materials and recycling experts, and involved its own employees throughout its decision-making process.

Etsy, the online arts-and-crafts marketplace, has leaned into even higher-stakes trade-offs in recent years. Founded in 2005 by the craftsman Rob Kalin and three others, the company has always been defined by its purpose of giving “makers” a venue and tools for marketing their wares and creating their own small businesses. By 2012, under a new CEO, Chad Dickerson, Etsy had adopted a more ambitious mission—“to reimagine commerce in ways that build a more fulfilling and lasting world”—and become a certified B Corporation, a designation given to companies that meet strict environmental, social, and governance standards. By 2015, the year it went public, it was facilitating $2 billion in sales for some 1.4 million sellers each year and attracting top talent thanks to its social purpose and generous workplace policies. What Etsy wasn’t delivering was profit: It had lost money since 2012, and within nine months of that IPO, investors had lost patience. The stock plunged 75%, Dickerson was fired, and in 2017 a new CEO, Josh Silverman, was appointed.

Silverman understood the assignment: His job was to rethink how Etsy could better operate to everyone’s benefit, rebalancing among stakeholders and injecting more accountability into both its commercial and its social efforts. As he and his team worked to diagnose the problems, they realized that the company had been prioritizing employee and broader societal concerns (key requirements of B Corp certification) over sellers and shareholders, which was a big threat to its long-term health.

Over the next few months Etsy made some major changes: It laid off 160 employees (on top of the 80 it had let go before Silverman’s arrival), which amounted to about a quarter of its workforce; shut down projects that were staff favorites; disbanded its existing sustainability group; and announced that it would let its B Corp certification lapse. The blowback was harsh. One disgruntled former employee described those moves as “a cautionary tale of capitalism.”

And yet, as Silverman described it to me, he was playing the long game, keeping Etsy’s purpose and all its stakeholders in mind. Within a few years the company was able to hire again, and its impact initiatives (refined to focus on three key areas: empowering people, environmental responsibility, and diversity) began to bear fruit. Silverman estimates that the trade-offs the company made in 2017 have allowed it to become five times as productive, as measured by the number of weekly software releases its engineers churn out to improve the selling and buying experience on the site.

I sincerely hope this paraphrased content has inspired you as it did me. Stay tuned for Part 3, the final post based on Ranjay Gulati’s article on balancing purpose and profit. Please give us a call if you’d like a little thought partnership.

Warmest Regards,
Rob

Rob Andrews
Allen Austin
Consultants in Retained Search & Leadership Advisory