Startups typically operate with the mentality that growth and profit come first, higher calling comes second. This strategy, however, is misguided. Increasingly, entrepreneurs are imbuing their ventures with a grand ideal in addition to a great idea. This ideal not only serves as a moral purpose but also has three strategic and operational advantages. First, it can help expand entrepreneurial ambition. Second, it can attract fellow travelers. And third, it can help align a winning team.
Many startup leaders aim for growth first and foremost. Although they might like the idea of running a business according to a greater purpose, they regard that as a luxury they can ill afford. Achieving product-market fit is, as venture capitalist Marc Andreessen has claimed, “the only thing that matters” early on. Once they’ve established their businesses as profitable, these entrepreneurs have difficulty breaking from this mindset. They aim for another, more ambitious goal: even bigger growth.
This notion that startups must focus obsessively on growth, and that growth and purpose are somehow conflicting, is misguided. A number of experts have emphasized how important it is to cultivate meaning and to have a “why” firmly in sight when starting companies. Over the past several years, I’ve increasingly observed fast-growth startups, ranging from agro-venture Gotham Greens to health-tech venture Livongo to eyeglasses retailer Warby Parker, mobilizing for purpose at a very early age — much sooner than we might presume and well before they achieve product-market fit. Instead of simply talking about and executing on a new idea, the leaders of these young companies talk about — and commit themselves to — a grand ideal. They want to achieve financial success, but they also want to advance societal goals such as making agriculture more sustainable and equitable, improving patients’ lives and the health care system, and transforming commerce to be more humane.
This fixation on purpose isn’t mere posturing. These entrepreneurial leaders are true believers. They’re also pragmatic doers who see purpose as a key to unlocking their success. As they understand it, idealism doesn’t have to preclude a practical orientation toward business; the two can go hand in hand, giving rise to a virtuous cycle in which companies challenge themselves to become progressively better at delivering on both purpose and profit. These leaders applaud the pursuit of ideals in moral terms, but they also clearly see its strategic and operational advantages.
[ Advantage 1 ]
Purpose Expands Entrepreneurial Ambition
In risky startup ventures, founders and early employees must make bold, imaginative choices in the face of adversity. Most teams are genuinely inspired to chase an exciting business idea, which helps guide them through this difficult process. But striving after an ideal in addition to an idea enhances their motivation, tapping into their deeply held values and beliefs. As my colleague Rebecca Henderson has observed, these dual goals widen people’s ambition, impelling them to solve systemic problems that enhance overall value creation.
In 2009, Viraj Puri cofounded the indoor farming and fresh-food company Gotham Greens. The startup’s mission is to reimagine food production, “creating new ways to farm, produce local food, revitalize communities, and innovate for a sustainable future.” As Puri told me in an interview, the company’s purpose inspired him and his founding partners from the beginning: “We were very idealistic early on. Our goal was to be carbon neutral or at least net neutral for energy, and recycle 100% of our irrigation water.” The team also cared about enhancing local communities and their relationship with food. Such idealism led to defining moves the company might not have made otherwise, such as siting its first greenhouse on a rooftop in New York City rather than in a more economical location in a rural area. Doing so enabled the company to engineer a new form of sustainable urban agriculture that would allow city dwellers to remain close to their food.
But dedication to a purpose didn’t simply lead the firm to “do good.” It also motivated Puri and his team to generate attractive returns for investors. “If we were going to make a positive impact and a real, lasting difference to the food system, the business would have to be financially sustainable,” he explained. “We didn’t want to just rely on copious amounts of venture capital money, grow at all costs, and not show a profit. Neither did we want to rely on grants or have a nonprofit approach.”
In other words, to make food production more sustainable and a boon to communities, the founders had to operate at scale. And that meant their business had to be profitable. Purpose, in this case, inspired the founders to become more focused on unit economics, not less. In particular, they elected to expand slowly into new geographies to ensure they had “very strong, four-wall economics and strong flow and profitability.” The result was a thriving business that by 2020 had built eight greenhouse facilities, employed more than 350 people, had attracted $130 million in investment, and was selling its products in 40 U.S. states.
[ Advantage 2 ]
Purpose Attracts Fellow Travelers
Entrepreneurs seeking to launch and build startups must convince a range of stakeholders — including employees, investors, customers, and suppliers — to take a risk on them. Selling an ideal rather than merely an idea makes for a far more compelling pitch. After all, ideas appeal to the head, while ideals potentially speak to both the head and the heart.
Glen Tullman founded the consumer digital health provider Livongo in 2014 with the purpose of “empowering people with chronic conditions to live better and healthier lives.” Contracting with employers and health plans, the company uses digital technology to help members better manage their chronic conditions, keeping them well while helping employers lower their costs. Tullman drew inspiration from his son, who was burdened by the need to manage his diabetes.
It turned out that top digital talent also found the mission inspiring. As Dave Engberg, Livongo’s chief technology officer, says, “We were able to recruit some people that, if we had just been a social network for cats or something, would have chosen something else.” Engberg, whose father had diabetes, noted that he could win over in-demand Silicon Valley engineers simply by describing the impact the company was having. “I could explain to them that when we’ve got half a million people on our program for diabetes, there are literally tens of thousands of them who have avoided a major medical complication as a result.” To ensure that new employees felt inspired by the mission, Livongo hired and promoted people around their resonance with it. As Tullman said, “I want people to come because of their commitment to make a difference in people’s lives.”
The talent Livongo attracted was highly motivated as well. Many employees — a full third of Livongo’s workforce as of 2019 — had a chronic condition like diabetes, while another third had family members who were stricken with such a condition. They felt deeply driven to help improve the lives of patients managing chronic illnesses. Livongo’s high-quality, committed workforce fueled its commercial success, and in 2020 the company was acquired at a valuation of $18.5 billion, over five times its IPO value from a year earlier.
Another entrepreneur I spoke with, Jon Olinto, observed that purpose plays a vital role in helping young startups survive because it inspires early employees to make outsize contributions. When founding his first venture, the restaurant chain B.Good, Olinto and his partner, Anthony Ackil, had a clear purpose in mind — reinventing fast food to be healthful. People put their all into the company, he noted, treating it as more than a job, because they believed in the purpose. After leaving B.Good, Olinto injected purpose from the outset into a new startup he cofounded, One Mighty Mill, which fresh mills its own flour for its line of healthy foods. Dedicated to restoring “local food systems that help our communities be healthy and thrive,” the startup has won designation as a certified B Corporation from B Lab, an external certifying body that ensures compliance with a set of standards involving governance, community, and the environment.
[ Advantage 3 ]
Purpose Helps to Align a Winning Team
Startups can be chaotic and often break apart under the strain of the immense challenges they face. As my colleague Tom Eisenmann reports in his recent book, Why Startups Fail, as many as three-quarters of U.S. firms backed by venture money fold. Although business risks are a key factor, it often happens, as I have written about before, because of their failure to scale. As startups grow, not only can they lose their strategic focus, but their founding culture often becomes more diffuse and their intense spirit of community and team identity subsides. Employees often convey this change by observing that the growing company has lost something vital and intangible — its very soul.
Fidelity to a purpose helps to keep team members aligned and connected throughout this process, assembling them into a cohesive community over the long term. From the very beginning, founders should create a clear culture that infuses coherence, connectivity, and soul into the budding enterprise, creating a foundation upon which to scale. Purpose creates a shared framework of values and assumptions that serves as a filter for strategies and executional tactics. It also aids collaboration — especially important today, when more team members are working remotely.
At Warby Parker, a strong culture has risen up around the ideal of giving everyone access to affordable eyewear. Cofounder and co-CEO Neil Blumenthal told me the firm takes great pains to inculcate the company’s values in new members of its growing workforce. Team members’ awareness of the purpose leads to pride and dedication — to a sense of serving a common cause. It also fosters an environment of close-knit teamwork. “You’re starting from a place of greater trust,” Blumenthal says, “because there are presumably people to the right and left of you that have a similar belief system, namely in trying to achieve a particular mission.”
Trust, behavioral norms, and a belief system linked to purpose are so deeply ingrained at Warby Parker that they shape everyday decision-making. One of its newest products, a line of contact lenses called Scout, arose as a result of a cross-unit collaboration driven by the firm’s purpose. The team members worked together to ensure that Scout delivered on it, most notably in its accessible pricing and eco-friendly packaging.
To be sure, purpose isn’t the only path to success for a startup, but the advantages it offers are both underappreciated and important. Large companies are increasingly putting themselves on the path toward deeper, more sustained engagement with purpose, and it would behoove startups to do the same. The venture ecosystem should get on board as well, using fidelity to a purpose as a filter for selecting startups to fund, and encouraging founders to nurture and sustain commitment to the purpose as the enterprise grows. Big ideas certainly matter. But at all times in a company’s life cycle, so do grand ideals.
Ranjay Gulati is the Paul R. Lawrence MBA Class of 1942 Professor of Business Administration at Harvard Business School.
Copyright 2021 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.