There is point where the world of C-level executives, business consultants, and investment talking heads form a kind of cult. At this point, business is less about society and economics, and becomes a religion with its own sacraments and dogma. Perhaps you have heard their creed, “Our first responsibility is to the shareholders.” Or maybe, “We are always looking to maximize profitability.” The world is starting to wake-up and realize that profitability may not be the guiding light of Capitalism after all. The real measure of success should be: Sustainability.
What Does It Mean for a Business to Be Sustainable?
Sorry environmental advocates, I am not talking about being “green.” Sustainability means that a business is doing a good job of being stable, durable, and viable throughout external economic changes and upsets. It also means the business processes and culture are so strong they cannot be upset with the slight loss of any leaders, employees, or executives. Of course, business that are sustainable in this manner are often the first to be environmentally friendly as well, but that is more of a correlation than a cause.
“Up and to the Right” Is NOT Sustainable
While a successful business is starting up, it is going to have a few years of pretty solid “up and to the right” growth. This happens for one reason: If an entrepreneur had a good concept for a business, then he has successfully identified a need and matched an effective solution, that means his business will naturally expand until it meets “critical mass” with that need. However, once that need is being met in the mass market, there is no longer room for the business to expand so dramatically. (see chart)
Once a business is supplying to a need at “critical mass,” it will fluctuate along with its market. If the market shrinks, it shrinks, if the market grow, it grows, and so on. Investors, shareholders, and market commentators just can’t help but PANIC when they see their nice little “up and to the right” arrow turn more into a slight slope. This means that perfectly sound and viable businesses are often put under extreme and harmful pressure to continue “up and to the right” which leads to bad decisions. "Critical mass" doesn't mean a company will never see huge growth again, it just means a new market has to be found.
Sustainability is Ultimately About Employee Well-Being
Profitability comes from loyalty, productivity, and having a character base from which to work.
- Zig Ziglar
Most of the bad decisions which come from “up and to the right” obsession is toward employees. Once a business has hit “critical mass,” the only way to boost profit in a hurry is to squeeze employees. This works for a period of time long enough for whatever jack-ass who suggested it to look like a business wizard. However, after a little more time has passed, turn-over shoots up, high-quality workers avoid you like the plague, and the quality if your products and services sink like a bodybuilder in a pool.
Business is About Making the World a Better Place
Power and politics can keep bad businesses in place for a certain period of time, which can give the illusion that Capitalism supports corruption. However, as time passes, and as history shows, the business which stick around are those which did a good job of making our lives better, and improving the lives of their employees. Hopefully, investors, shareholders, and board members will learn sooner-rather-than-later that they should prop up leader capable of making sustainable businesses which can endure, not profit bubbles that are here today and *pop* tomorrow.
We Need Better Financial Incentives
As a final note, we need a better form of investment. The other problem is that the current stock market actually rewards business drama, the quick rise and fall of companies, and incentivizes extremes. Thanks to the ability to short a stock, hedge funds, and other little tricks-of-the-trade people make more money on the quick rise and sudden destruction of companies. Of course, these people are not the majority of people, so the rest of us don’t benefit from this tradition of playing with fire. We need to change the rules to match the best interests of the economy and reward sustainability over quick profit and dramatic collapse.
Capitalism: You're Doing It Right!
Here is an article on how Chipotle is making their business sustainable for profit and employees: http://www.foodtechconnect.com/2014/06/24/chipotle-vision-for-future-sustainable-restaurant-design-operations/
Here is a video of the CEO of Starbucks, Howard Schultz, talking about sustainability and employee interests at his company: