Monday, April 03, 2006
Purpose as Strategy
I used to talk quite a bit about purpose. In the last few days, the idea is making the rounds again. I stopped largely because I felt my def of purpose had been hijacked by intellectually and morally bankrupt snake-oil salesmen like Rick Warren - because it had taken on the color of religion.
But let's discuss for a sec. How can we define purpose? My def is simple: foregoing near-term profit (but not value creation). Put another way, trading financial capital for social, cultural, or intellectual capital. Put another way, not selling out.
Now, purpose is indeed defining a huge category of new ventures. Craigslist is the most obvious example to geeks; but we can think of TerraPass, AdBusters, Etsy, food, etc; the examples are plentiful, and growing.
The deeper reason is, I think, straightforward: the benefits to yesterday's myopic version of competition are eroding fast. Profitability, competitive advantage, etc, are less and less durable.
In this kind of world, it begins to make sense to do what you think is cool - yesterday, this was more risky than otherwise; today, the risk in both equations is equalizing. And, of course, it's far more satisfying to do something that actually means something to you.
Most simply, perhaps the truth is that purposiveness is a strategy that dominates the economics of hypercompetition.
Thanks for the thoughts on our business model. TerraPass certainly is a purpose-driven organization, although I'm not sure the rise in such companies reflects a shift in the calculus of risk. Rather, I think society is more generally open to the notion of business and entrepreneurialism as a force for social change.
Also, technology in general and the internet in particular really do change the game for companies like TerraPass. Often social enterprises only become viable once transaction costs and distribution costs drop to the point that it's feasible to reach a niche market. Microfinance is perhaps the best example of this phenomenon. Check out kiva.org for an example of an organization using the internet to slash the costs of loan financing. Certainly Etsy and craigslist also exemplify this phenomenon (and both are companies I admire a lot).
Finally, we take Web 2.0 very seriously at TerraPass, even though we aren't properly speaking a technology company. I think it's fair to say that TerraPass is only possible due to the economics of the internet, and will only be successful to the extent that we can harness the participatory nature of new media. This is something we very much share with the other companies you mention.
P.S. I'd be remiss if I didn't at least mention what TerraPass does, because it isn't clear from the post. We sell carbon offsets to drivers so that they can neutralize the global warming impact of their cars. It's like Kyoto on a much smaller scale. It won't come as a surprise that we can be found at terrapass.com
Actually, if you follow my logic, risk is shifting exactly because yesterday's transaction costs are being vaporized...
I think we talk about TCs a lot, but we have little understanding of their deeper effects - maybe food for thought.