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Tools: Purpose is crucial to grow your startup

"Companies with a clear purpose report 40% higher levels of #workforce #retention than their competitors" Setting out a good purpose statement is vital to building bonds between the workforce and the company, learn how to create a compelling statement in this Sifted article by Martin Schilling and Dr. Thomas Klugkist:

If you walk into an Airbnb office, you might see a prominent sign proclaiming: “Belong anywhere”. This is the statement of purpose that the Airbnb team has used to build towards their mission of creating a world where anyone can feel at home anywhere. And it’s plastered visibly in their offices for a reason: having a clear purpose drives performance.

This isn’t just a PR exercise; according to a study by the Boston Consulting Group (BCG), companies with leaders aligned around a well-articulated purpose are twice as likely to achieve above-average shareholder returns. And a purpose beyond profit is a magnet for top employees: companies with a clear purpose report 40% higher levels of workforce retention than their competitors.

Purpose encompasses what is often also known as mission or vision statements, which are often ill-defined and for startups often not useful. Talking about purpose instead gives a clear sense of direction and forms part of the “North Star” that every startup should have at some point.

What defines a purpose statement?

A good purpose aligns leaders, creates a sense of meaning and establishes bonds built on pride and emotional attachment between the workforce and the company. It’s usually defined by three qualities:

First, it describes a timeless social good that reaches beyond employees, customers and investors. For example, if the company contributes to climate neutrality, equal opportunities, universal access to knowledge, combating food waste or unleashing human creativity, it reaches out to society as a whole, ideally for humanity. Google’s “Organize the world’s information and make it universally accessible” is a good example here.

It describes a timeless social good that reaches beyond employees, customers and investors.

Secondly, the purpose is independent of profit or growth, and therefore, it can’t usually describe a quantitative (business) goal. When fintechs such as N26 or Monzo aim to reach millions of monthly financially active customers, they’re defining a business ambition — which is necessary, but can’t replace the purpose. Monzo’s purpose is a great example: as “make money work for everyone” and they have a good explanation of how they arrived there.

The deeptech startup from Zurich also aligns its team with a purpose beyond financial goals. It “enables and enriches human senses through body-related smart devices, such as hearing aids and virtual voice assistants”.

Third, the purpose is never completely attainable. Its time horizon is infinite. When Spotify talks about unlocking the potential of human creativity, that will never be completed. Or when the fintech Wise is aiming for “money without borders — instant, convenient, transparent and eventually free”, this will never be fully achieved either.

Finding an attractive purpose is more difficult when you sell to companies. The US B2B payment provider Square has found an interesting solution. Its purpose is to empower “everyone to participate and thrive in the economy”. So, the company seeks to empower the electrician to send invoices, help the clothing boutique pay its employees and give the coffee chain capital for a second, third and fourth location. For B2B companies, it’s often helpful to envision the societal contribution of their products and services, be it in the form of more secure jobs or reducing the carbon footprint with higher energy efficiency.

How to actually create a purpose statement?

As a first good step, the leaders can run the “startup raider thought experiment”. Imagine an investor offers to buy the company at a multiple of the given market value. All founders and shareholders are happy, and all employees will receive fulfilling jobs at equal or better pay. However, all services and products will be terminated, and the brand erased. Why would you reject the offer? That answer leads to the theme of the company’s purpose, such as carbon neutrality, access to knowledge or healthcare.

As a next step, it is often helpful to write a one-page manifesto around this theme — ideally delivering an authentic rationale why the founders or the leadership team care about the purpose. An off-site leadership presence that is far away from the office is often a great place to do this. An external author, consultant or agency might also help here.

If your purpose is compelling, [your employees] will be able to tell in simple words why it’s valuable to get up every morning to work for your company.

Finally, you can refine the purpose with your employees by giving them the opportunity to comment on the manifesto. Running the “granny test” with your employees is a good way to check if they feel ownership. What story about why they work for the startup can a front-office employee tell that will excite their grandmother during a Sunday afternoon coffee? If your purpose is compelling, they’ll be able to tell in simple words why it’s valuable to get up every morning to work for your company.

Keep gran smiling

It’s essential for startups to walk these steps as soon as they surpass 30-40 employees and start hiring more senior leaders (usually no later than Series A), as a clear purpose helps them set direction for their teams.

Building a company only to make its leaders and investors rich will not cut it anymore — you also need to pay your employees in the currency of meaning. Doing this will not only unlock their potential to perform and grow your business but will inspire them — and might even get your granny smiling.

This article is an abridged version of a chapter of the book “The Builder’s Guide to the Tech Galaxy — 99 Practices to Scale Startups into Unicorn Companies”.

Martin Schilling