Thursday, August 30, 2012

Model for Sustainable Business

Use the word "sustainable" in a business environment and don't be surprised to see some eyeball rolling. The concept of business sustainability for some conjures up images of "tree-hugging dirt lovers," as one bumper sticker proclaims. Yet in the end, sustainability -- not growth for growth's sake -- is the optimal model for long-term business and stakeholder success.
When Businesses Focus on Growth for Growth's Sake
What you usually see in businesses with a great idea and solid footing is an initial phase of rapid growth. Investors get in on the feeding frenzy and become accustomed to taking big profits. Growth continues over time, but it eventually levels out for a variety of natural reasons. Trouble is, the sharks are still hungry.
And the pounding begins. A sort of pounding for which many business executives are completely unprepared. The pressure from investors -- and even from the board of directors -- grows, and executives begin to look for ways to bring back the good old days of big gains and large profits. They look for ideas that sound good, rather than ones that are aligned with their founding principles and what they do consistently well.
The real trouble begins when a business takes liberties with its principles and competencies. To justify going after a profitable market niche, it's easy to generalize principles and competencies until they become so fuzzy that any opportunity looks achievable.
Engineering companies, for example, can fall into the trap of believing they can solve ANY problem -- even one outside their core area of expertise -- because they redefine what they do consistently well as solving problems. Sorry, folks, but the world does not that way. Such a mistake has destroyed many a technology company.
Once a company gets fuzzy about its principles and competencies, bad things happen. Companies often go out of business because their desperation to satisfy investors leads them to venture into markets for which they are grossly unsuited.
Definitions of Sustainability
A sustainable business is in which organizational leaders focus on delivering long-term value to all stakeholders. From a stakeholder perspective, sustainability means different things:
  • Employees: I can count on being meaningfully employed with a company that has a plan for the future. I'm not only included in that plan, I'm a part of the planning and implementation process. I'm not human capital, I'm a business partner.
  • Customers: This company will be around for awhile. I can trust that they'll stand by their products and services for the long term. I can make my own plans accordingly.
  • Investors: This company gives me a long-term reliable return on my investment dollar. I'm interested in more than a fast buck -- I want to build my portfolio for years to come.
  • Community: This company is a steward. It will do what's right by our community and act with our interests in mind. It will contribute to our long-term sustainability, too.

The Importance of Staying on Course
The most important thing business founders can do is take the time early on to clarify what their principles are and what their business does consistently well. A focus on principles and competencies creates the compass that always points toward True North for business sustainability.
We call that the Step Zero effect, and we see it working in successful businesses every day.
Rather than look for big profits, leaders of sustainable businesses take great pains to practice their founding principles and ensure that all stakeholders know what the company does consistently well. They focus on building long-term stakeholder relationships. When the initial growth spurt levels off, the company doesn't ignore investors -- it works with stakeholders in collaboration to bring about the best of all long-term possible
worlds for everyone involved.
Obviously a shift in some investment practices will have to happen before all companies will work toward sustainability. The lure of big profits is difficult to resist. But by looking to the long term, we can create a business ecosystem that serves the best interests of all stakeholders. And perhaps that is the greatest good for each of us.