Can companies focused on sustainability and well-being become very big?
Large consumer product companies have been successful because they offer great products that perform well or taste great at attractive prices that almost anyone can afford. But in recent years, consumers have indicated that they want products that meet their personal values. Two concepts are still in fashion: sustainability and well-being.
Large consumer product companies have been challenged to provide these attributes and small startups have taken advantage. The question for these startups is: are these long term trends and, if so, how big can these young companies reach? If they remain niche businesses, they will also fail to achieve their goals of impacting sustainability and the well-being of society. Which leads to the question: what does a business have to do to focus on values and still grow very big?
Successful values-driven businesses do three very difficult things:
- They don’t sell at price. They almost never discount and are almost never the cheapest.
- Their consumers tell their friends personally or on social media, which gives them a marketing boost that they don’t pay for.
- Business is the key to their belief system. It’s personal; leadership and management are motivated for social reasons, not just financial ones.
None of the companies that do these three things have yet reached the scale of Unilever, Procter & Gamble, Coca-Cola, and other large consumer products companies. Will this ever happen? I recently attended Retail X, a trade show that touts itself as the digital future of retail, and spoke there with a number of CEOs from these successful companies.
Even companies that do not sell on the basis of price must relentlessly focus on low costs is imperative or risk being undermined by competition. Philip Raub of Model No., a sustainable furniture company that uses 3D printing and only makes products to order, says their strategy makes them effective. By having no additional inventory to mark down, the model number maintains profitability, avoiding price reductions on unsold inventory. Because their furniture is so durable, Raub also believes there is an opportunity to buy back their furniture from customers and resell it in a secondary market, attracting consumers who could only afford resold products.
Reham Fagiri, the founder of sustainability-focused furniture resale site AptDeco, agrees. AptDeco enables consumers who cannot afford new and expensive furniture to purchase it from the resale market and works with major retailers to help them develop a resale component for their businesses. AptDeco is building a centralized marketplace to provide consumers with resold furniture from all major brands.
Some sustainability and wellness companies claim that they are already on par with their larger competitors in terms of costs. Andrea Lisbona is the founder and CEO of Touchland, a hand sanitizer company with popular fragrances and packaging that looks more like an iPhone than anything else. She says that while the ticket price for their product is higher, consumers get a lot more use from it than the gels made by the big players. Danny Alexander, co-founder of toilet paper company Who Gives A Crap (sic) speaks of “cost per wipe”, explaining that they keep costs down by spending much less on marketing and promotion than the competition.
Not everyone agrees that efficiency is the goal. Lindsay McCormick is the CEO and founder of a company called Bite that eliminates plastics and containers in normal dental routines by selling subscription products in compostable containers. “I don’t see myself wanting to be Crest or Colgate,” she told me. “I want to make the most sustainable products, paying fair wages… [and proving] it is viable. To grow, Bite intends to expand horizontally to other bathroom and care products.
McCormick may be on to something that makes his business more successful. According to a special Edelman Trust Barometer report first published by Axios, more than half (61%) of employees say they would rate an employer based on their stance on social issues or the employees’ ability to voice their concerns. convictions. McCormick’s vehemence about his values can make it easier for his company to recruit the best people.
And there are still huge challenges to overcome. Jomaree Pinkard, CEO and co-founder of Hella Cocktail, whose flagship product is a premium bitter drink and soda, says it is difficult to increase carbon efficiency because the existing supply chain “has a grip on what is possible “. He cites the aluminum containers that Hella uses for its products. Although aluminum can be recycled, removing it from the ground is harmful to the environment. But big companies use so much of it that it’s cheap and Hella can’t compete if it switches to more environmentally friendly containers.
Successful businesses cannot spend unlimited amounts on marketing. I have seen the financial statements of hundreds of private companies and found that the profit, after deducting the cost of goods and the entire marketing budget, must be equal to or greater than 40% of net income. If not, it is almost impossible to achieve significant profitability. But the cost of online marketing is increasing and becoming more and more complex. To be effective, businesses need new ways to communicate without relying on incessant paid messaging and advertising.
The photo of the Who Gives A Crap products above was taken by me in the bathroom of a private house that I visited. The owners proudly displayed their commitment to a sustainable but cheeky brand. When consumers tell their friends about products, it boosts a company’s marketing spend. Without the help of consumers using word of mouth and social media posts, it’s usually not possible for a brand to achieve the profitability it needs. Lisbona from Touchland told me: “We want to unleash the ability of people to turn their friends into customers”.
Terri Rockovich, co-founder and CEO of dog food brand Jinx, uses the unique measure of digestibility of her dog food to compete and avoid messaging clutter. Jinx relies on objective performance metrics to motivate consumers to maintain their subscriptions upon delivery and secure storage space at some of the world’s largest retailers, including Target and others to be announced.
Pinkard of Hella Cocktail told me that the company is preserving its capital by going into unexpected places. Because they focus on a ‘high food and beverage experience’, they first sold to West Elm, Sur la Table and other home retailers where consumers see Hella products and no distractions. competitive. Lisbona of Touchland Hand Sanitizer said that even before the pandemic their products were sold to Ulta, Urban Outfitters, Nordstrom, Bloomingdale’s and Revolve, almost none of which sold hand sanitizer before Touchland. Having a clear message in a single, target-rich environment is a cost-effective way for businesses to communicate without noise and ever-increasing costs.
All the experts I speak to say that sustainability and wellness are not temporary accidents but long term trends and it is clear that being mission based is the engine of success. McCormick of Bite reports that the business is growing 200% per year; Bite has not raised any outside capital, which means the company is financing its growth through profits. But the question of how big a mission-driven company can grow is still open. The larger consumer companies have typically acquired many different brands and we are starting to see acquisitions from the smaller upstarts. No one knows what the effect of combining multiple mission-oriented businesses into one corporate structure will be on culture and authenticity.
The answer to the question of whether these companies can get really big is: it’s too early to tell. A number of them will fail because their business model is not good. But for those who can find the narrow path to economic success, none have yet proven they can be massive businesses. Over time, we can see mission-driven businesses drift out of their way to grow and we can see larger consumer product companies adding more meaningful personal values to their strategies. For now, we need to ask ourselves whether sustainability, wellness, or any goal-driven corporate mission can reach the scale they need to make a real impact in the world. It will take more than reaching high income, highly educated households and we will have to wait for the response. Time will tell us.