March 10, 2022

TPL Insights: Building Peak-Performance Cultures #109- Inside Companies that Enable Purpose to Drive Peak Performance Part 3

By Rob Andrews

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

Practical Idealism means refusing to sacrifice real albeit incomplete progress in the name of perfection and being brave enough to take action that might cause short-term pain. Here we continue to examine Etsy’s purpose driven journey.

Gross sales climbed in each of the past three years, and Etsy has been profitable since 2017. In 2020, thanks to a surge in pandemic sales, its sellers numbered more than 4 million, and they generated more than $1.7 billion in revenue and $349 million in net income for the company. It currently employs about 1,400 people, a few hundred more than it did before the layoffs. And social impact in its key areas is also impressive: Etsy has contributed about $6 billion to the maker economy; it is the first major online shopping destination to offset 100% of emissions from shipping; and it has doubled the number of underrepresented minorities on its staff and has a majority female workforce. As it has done all this, its stock price has shot up.

Look Beyond Short-term Win-wins to Accept Good-Enough-For-Now Solutions that Lead to Broader Long-term Benefits.

Practical idealism means refusing to sacrifice real albeit incomplete progress in the name of perfection and being brave enough to take future-focused action that might cause short-term pain for some. Without question, that happened at Etsy. Livongo’s decisions weren’t immediately beneficial to investors. Gotham Greens’ use of plastic has a negative impact on the environment.

Remember, though, that even imperfect decisions must be made thoughtfully, with an eye to achieving your social objectives and profit someday soon. When a business idea or a course of action would primarily create social value, recognize that you might want to take the leap before commercial value seems entirely attainable, but continue to aggressively explore options and give yourself a timeline. When potential plans would primarily drive commercial value, investigate ways they might help you deliver social impact as well, and if those projections are positive, continue. (If they’re not, disengage.) In a legacy business you can try to graft purpose onto your existing products, services, and initiatives—for instance, by making your operations more sustainable and socially responsible or your products safer or healthier. Or you can take a portfolio approach, supplementing your efforts with others that better serve all stakeholders while also taking the steps and making the investments needed to shift your business from purpose on the periphery to deep purpose as soon as possible.

At Recruit, the Japan-based company that owns job-focused websites such as Indeed and Glassdoor along with staffing, recruitment, and HR technology businesses around the world, management would “never, ever” fund a project that delivered only financial returns, its former CHRO Shogo Ikeuchi told me, because that would violate one of its three core principles: “Prioritize social value.” (The others are “Wow the world” and “Bet on passion.”) At the same time, he insisted, the company wouldn’t support projects that serve society but lack commercial potential. “Always, always we have borne in mind the balance between social value and economics,” he said.

As of 2020 Recruit has for eight years funded one of its Japan-based ventures, Study Sapuri, an online learning platform for students that is designed to address the country’s educational inequities, in the hope of making it profitable. But this is not passive patience. Executives are constantly having “heated debate, discussion on how we can grow this business…how can we possibly generate more revenue?” Ikeuchi explained.

A similar story comes from Mahindra Group’s farming equipment business, which decided to make its farming-as-a-service (FaaS) technology available free. That ate into profits but was a way to quickly and efficiently serve the broader company’s mission—to “innovatively use all our resources to drive positive change in the lives of our stakeholders and communities across the world” (or, in the company’s shorthand, just “Rise”). Cash-poor farmers got immediate access to state-of-the-art tech that would increase their productivity and boost their income potential. The eventual financial benefits were also in sight, however: Free FaaS helped the company gain market share and strengthened its business.

Effectively Communicate the Rationale

When making trade-offs, it’s critical to explain the logic behind your decisions so that stakeholders understand how they connect to and support purpose. Being explicit builds trust and cohesion by giving meaning to the sacrifices some stakeholders are making and reinforcing a mutual commitment to shared long-term benefits.

Use Purpose to Transform Your Workplace

Leaders at Etsy were quite explicit with employees and customers in explaining why the 2017 restructuring was necessary to put the company back on a sound financial footing and deliver on its promise to create the best maker marketplace in the world. Silverman and others speak openly about the sometimes imperfect decisions they came to. Livongo, Recruit, and Mahindra never hid their purpose-driven choices from shareholders (which were venture capitalists for Livongo and public market investors for the other two); instead executives outlined exactly why they were making those choices and how they would ultimately lead to better returns.

Bühler, a fifth-generation family-owned business that specializes in high-end milling, grinding, sorting, and die-casting machines and process engineering and services expertise, is constantly working to justify its pursuit of strict sustainability standards to its customers and its private owners. Some customers buy in, but others are more skeptical, worrying that the company is sacrificing performance for social goals. A few even feel that its reps and executives have become overly moralistic, “lecturing” them about how to run their businesses. As an employee at one large client told me, “No one is going to say, ‘Oh, great, it’s a perfectly sustainable company, so I’ll just spend more’” with it than would be necessary with a competitor.

As a result, Bühler needs to be extremely careful when courting new business, its former HR chief Dipak Mane told me. At the start of a bidding process, its reps tend to focus on “hard” dimensions such as quality, longevity, and price. But once they’ve progressed to later rounds, they transition to a greater emphasis on purpose, which they believe distinguishes the company from competitors whose product or service specs are otherwise equivalent. The chance to be a part of “saving the world” helps customers justify their choice of Bühler. The company’s CEO, Stefan Scheiber, summed it up well: “What’s the value? If I cannot answer that, then it’s not good.”

Acting with Intention in an Imperfect World

To drive performance and inspire stakeholders, leaders must abandon the notion that win-win solutions are the only ones that count. Of course, you should avoid underachiever decisions at all costs. And you shouldn’t content yourself with just doing good or just racking up profit—you must constantly challenge yourself to do both. But recognize that you won’t get it perfectly right for everyone all the time and that sometimes the best way to arrive at broad long-term benefits is to patiently negotiate short-term sacrifices.

Ultimately, the purity of your intention is what counts, along with the ferocity with which you pursue and manifest it. Stakeholders know that you can’t perfectly align their interests every time. But their commitment to the company and its purpose deepens when you consistently make a valiant and thoughtful effort. You can make purpose meaningful in your organization by approaching every choice determined to serve all stakeholders to the greatest extent possible but mindful that trade-offs are sometimes absolutely necessary.

When deep purpose leaders bend idealism’s arc to accommodate the practicalities of commerce, and vice versa, they ultimately generate more widely shared value. They also show us all what we can accomplish if we don’t push our ideals to the extreme but instead seek to realize them in measured, practical, and sustainable ways.

I sincerely hope this paraphrased content has inspired you as it did me. Stay tuned next week’s post, as we further explore the nine principles that will lead you to your peak performance culture.  Please give us a call if you’d like a little thought partnership.

Warmest Regards,

Rob Andrews
Allen Austin
Consultants in Retained Search & Leadership Advisory