Curt Fowler | Fowler & Company
Last week, we talked about the reasons conscious businesses should underperform their peers. All those reasons make a strong argument that these businesses should underperform, but they don’t. They have been shown to outperform the market by 10 times. Today I want to explain why.
Higher Sales
Conscious businesses are loved by their customers who are raving fans and advocates for the brand. They create tremendous value for their customers through their products and services. They also create value for their customers through association with their brand. These
customers buy more and are less price sensitive. Deep down we all want to make a positive impact on the world. Associating with a brand doing great things in the world makes us feel just a little bit better about ourselves and how we spend our money. Subaru is doing a lot of this through their “Share The Love” campaign.
Margin Mirage
Conscious businesses sacrifice gross margin by not applying oppressive pressure on their suppliers for rock-bottom prices. Instead, they partner with suppliers to make them even better. They also tend to pay their people more and offer generous benefits. These factors cause conscious businesses to have lower gross margins than their competitors.
But the next section on the income statement relates to sales, general and administrative. This is where conscious businesses more than make up any losses incurred in gross margins. They spend less on marketing, managerial overhead, legal fees and executive compensation. Conscious businesses are also more efficient. They pay their team members more but hire fewer people because their people are so good. In total, their payroll costs are equal or less than their competition.
Lower Marketing Costs
Many conscious businesses spend as little as 10 to 25 percent of what their competitors spend on advertising and marketing. They also spend their marketing dollars differently. This is possible because they are so loved by their customers. Word travels fast and these businesses attract great customers without needing to pull them in with advertising and sales.
For instance, Whole Foods Market spends only 20 percent of the industry average on marketing. A lot of what they do spend is spent on community service activities.
Lower Turnover, Higher Engagement
Conscious businesses are careful to hire team members whose personal passions align with the company’s purpose. These team members are more engaged and provide a much higher level of service to their customers who then buy more. These team members also stay longer because they are a part of a family that is working together for a bigger purpose.
The Container Store, who is listed on most all the great places to work lists, has turnover in the low single digits in an industry where turnover averages 100 percent.
Lower Administrative Costs
Conscious businesses continuously strive to eliminate non-value adding expenses. They are listening to their employees and their suppliers to learn what activities provide limited value and they eliminate those activities.
They get creative to control costs like how Whole Foods is battling health-care costs through a comprehensive wellness initiative. This initiative is lowering health-care costs and improving the lives of their team members. A healthy team is also a much more productive team.
Many conscious companies have placed caps on executive pay in relation to team member pay. This again lowers administrative costs and increases trust and engagement.
I hope these columns have given you a good overview of what a conscious business is and encouraged you to consider becoming one.
Curt Fowler is the President of Fowler & Company, a business advisory firm dedicated to helping leaders accelerate the growth, profit and impact of their firms by creating exceptional clarity and engagement throughout the organization. He has an MBA in Strategy and Entrepreneurship, is a CPA, and a pretty good guy as defined by his wife and four children.
Have a business growth topic you’d like me to cover? Send suggestions to cfowler (at) valuesdrivenresults.com.
