Purpose creates value
The world of business is changing. The pursuit of profit alone is not enough to satisfy business owners, employees, investors and wider society, with the key question facing businesses in the 21st century being ‘what is our purpose’?
Purpose is not a marketing or brand exercise. It has a real impact on profitability and will increase business valuations, as Tim Levey and Lynsey Light explain.
In the Autumn of 2019 we launched a new dedicated Growth Advisory Service. The firm is running a series of masterclasses in Sussex, Kent and London that will give businesses an insight into how they can identify, adopt and live a strong corporate purpose and how that can reinvigorate and elevate sales and profitability.
Some businesses have for many years identified and championed a clear and strong purpose – it has stood them apart from their peers and created a strong market position.
Apple, driven by simplicity and design, successfully charges a premium for its products. Patagonia too charges a premium for their outdoor clothing whilst investing to protect the environment and wild landscapes. And on the high street, retailer Lush is changing the way we buy cosmetics by ditching environmentally damaging plastic packaging.
Society demands that businesses of all types look after their employees, take care of the environment, and contribute to the communities in which they operate. And as millennials and Generation Z enter the workplace in increasing numbers, matched with their spending power, businesses with a strong purpose will emerge as clear leaders.
To be successful, however, purpose has to be authentic, resonating with staff and customers, and lived day-in, day-out. It needs to be the golden thread that runs through the DNA of a business.
And those businesses with a strong purpose are seeing valuations increase.
Valuations are increasingly moving away from traditional EBITDA (earnings before interest, tax, depreciation, and amortization) multiples towards more intangible asset values. Put simply, successful businesses underpinned by a strong purpose are worth more to investors and would-be buyers.
A journey towards purpose
There will be many drivers for a business to explore its purpose but we regularly see two common scenarios: businesses wanting to address falling sales or, particularly in older business, forgetting the reasons why they set up in the first instance. We call this refresh or renovate.
Our Growth advisory team will lead businesses through a structured programme that will help them identify their purpose, how that then translates into the products or services offered, and any changes that need to be implemented.
The first step in this process will be to clarify core products and services and their benefits. The process gets to the very heart of what drives a business and the buying behaviours of its customers or clients.
It is a top-down approach that starts with purpose which then drives products and services, asking if growth is coming from the right places. For many businesses, it may mean the introduction of new products or services and side-lining others.
And it isn’t a process that businesses should do alone: it is important to recognise what staff think and believe, and what customers and clients say about the business.
Purpose is not a quick fix – it takes time to develop a purpose that is credible and long lasting. It is not, however, static. Just as the demands of society change, businesses must look to constantly refresh their purpose as well. That does not mean that it should change with every fad and whim but it should be tied to the underlying values of the business owners and its customers.
How we can help
The firm’s dedicated Growth advisory team can also work with businesses on valuations and forecasts, business compliance, and through ongoing advisory services helping businesses identify opportunities and barriers to growth.
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