Startup founders with hopes of becoming the next Steve Jobs are being told over and over these days that having a purpose is crucial. This claim isn't entirely new — two years ago, in Marketing News, David Aaker, the father of modern branding, named the five biggest ideas of the branding era. At the end, he quietly listed three more big ideas that would define the era to come.
“Embrace a higher purpose" was last on his list. “In part because of the value of inspiring employees and creating a relationship with customers that goes beyond functional benefits, a high percentage of brands have taken on a higher purpose, sometimes around the environment or a social program but often around the offering itself, as in creating 'insanely great products' or 'delivering food that is natural and organic," Aaker wrote.
Today, Aaker is Vice Chairman of Prophet, a global brand consultancy. We checked back in to see if he still believes that purpose is crucial, and whether startups need a higher purpose to succeed, and also got the perspective of Leslie Payne, an entrepreneur who leads social impact and corporate affairs for LendUp, a later-stage startup that uses technology to connect in-need borrowers with short-term loans.
Lesson 1: Your Business Strategy and Purpose Can Be Distinct
Most of the time, for-profit organizations fund causes, such as preserving the environment or ending homelessness, that are separate from their lines of business. Aaker points to Salesforce.com and its 1/1/1 program as the model for this kind of approach.
Each year, through the Salesforce Foundation, the company gives one percent of its product, one percent of its employees' time, and one percent of its equity to charitable causes throughout the world.
Hundreds more companies have since tried to emulate the success of the Salesforce Foundation. According to the the "Pledge 1%" movement, today over 400 companies have pledged some portion of their products, their employees' time, or their equity (or all three) to causes that aim to make a difference in the world.
Tech startups involved in the program include 6Sense, an analytics provider, Choozle, which provides programmatic advertising services, Shoelace, which helps retailers sell more via Facebook and Instagram, and Trill, which makes a one-tap digital business card. Foundry Group, an early-stage venture capital firm, is also involved in the Pledge 1% program.
"Salesforce's 1/1/1 [commitment] really had nothing to do with what they made or sold," Aaker says, but it did help Salesforce to draw a certain kind of employee who was interested in doing more than booking sales and collecting profits. Startup founders committing to the Pledge 1% movement seem to be thinking similarly, and for good reason.
Millennials prize the idea of being connected to causes. A survey of 7,700 millennials in September and October of last year by Deloitte found a majority want companies to exhibit a higher purpose in how they do business. Aaker says he sees a similar dynamic at work in the brands he's studying.
"Millennials are not turned on by increasing sales by ten percent and profits by twelve percent. They want to be with an organization that has a higher purpose, that does something more," Aaker says. Some, such as LendUp, are cause-driven from the start.
Lesson 2: But It's Doubly Powerful When They're Connected
"We are absolutely a mission-driven company," LendUp's Payne says. "But we think you can do it from a market solutions standpoint."
Payne is referring to LendUp's credit products aimed at consumers with little, poor, or no credit who would otherwise be subject to predatory payday loans and usurious credit card fees. The idea, she says, is to provide anyone with a path to achieve financial health.
In a recent blog post, the company said it had saved borrowers $18.3 million through the end of June. Qualified users of LendUp's products get better rates and terms and more access to cash as they develop a pattern of paying back loans on time. The company calls this the "LendUp Ladder."
"Payday lending varies state by state. But in a lot of states, if at the end of the term you can't afford to pay back your loan, you can just pay another set of fees — it's called rolling over. Do that a couple of times and you're paying more in fees than you ever got in principal. From our perspective, that is the definition of predatory," Payne says.
LendUp has carved out a niche by providing options other subprime lenders refuse to offer. For their part, investors seem to like the LendUp story. According to Crunchbase, 22 different angel investors, VC firms, and incubators have committed $111.5 million in total funding, including a $47.5 million round completed on August 22.
Lesson 3: Start-up With a Purpose
Serving causes and succeeding as a startup can go hand in hand. Aaker's favorite examples include not only Salesforce but also Whole Foods, Patagonia, TOM'S, and KIND Snacks.
"If you read the bio of the founder [of KIND] you'll see that the whole impetus of the company was based on doing a little act of kindness," Aaker says. "Higher purpose is really something that's inspiring, ennobling, and worth doing beyond just making money."
Sometimes that means adopting corporate philanthropy. Other times it can mean working on products that make a difference in people's lives. Either way, the days of talented young workers signing up for nothing more than a paycheck and a handful of benefits appear to be numbered.
Startup founders who ignore this trend do so at their peril.