‘Why’ Passion Matters
October 30, 2015

What is your secret?

Over the next few weeks and months, then we will be diving into the deep end of secret discover.

What do we think we know that few others believe?  Mission driven companies outperform and it is possible to spot these companies.

Can mission-driven companies be identified in advanced and drive long-term performance?

Inspired by a few items, notably the Simon Sinek Ted talk and portions of Future Perfect by Steven Johnson, we think we have found a secret.

In order to drive long-term performance, then the Why must provide a competitive advantage (see this Evergreen Business Weekly overview of competitive advantage).  As Warren Buffet likes to discuss, what is the moat?

So, our theory is strong mission-driven companies have a moat that includes engaged employees and engaged customers.  Mission-driven companies differentiate through common values and avoid mercenaries.

It would be good to define mission-driven because I do not think it relates solely to a specific “cause” or you must value your employees.  I think it means the founders are driven by a specific mission or objective.  A world changing concept and they set up the company culture to achieve that goal.

Under this premise Uber and AirBnb are mission-driven.  I’m not sure if there are two startups that have more different founders and company cultures, but both are aiming to redefine transportation and travel.  Massively entrenched sectors, but both are succeeding.

As noted from the returns (measured against the S&P 500), it is certainly easy to find select companies that look quite good.  Previously, we looked at a similar topic in Mean People Suck and showed returns (also based on Future Perfect information) are quite successful.

Johnson includes returns of “stakeholder” firms against the S&P 500 for the 10-year period ended in 2006.  The results would seem to align with Mean People Fail.

Stakeholders Return: 1,026%
S&P 500 Return: 122%

But we questioned the sustainability of these returns because it is easier to select a successful stakeholder driven company with a rearview mirror.  To be a viable framework for future investments, then it is important to create a filter that will be forward looking and sustainable over time.

Interestingly, the recent Bloomberg Business (f/k/a BusinessWeek) issue detailed how public companies may be forced into changing core values in order to produce better returns.  Largely, the media discusses these companies as part of the conscious capitalism movement and takes a deep dive into The Container Store (TCS).  The piece examines if shareholder pressure will impact the stakeholder friendly (and employee friendly) company culture.

Will Investors Put the Lid on the Container Store’s Generous Wages?

CEO Kip Tindell’s brand of “conscious capitalism” is being tested in the face of a plunging share price.

The Container Store provides a live experiment.  Can the founder and management team hold strong to investor pressure?  It will be interesting to see how the quarterly and annual performance shakes out over the next 6-12 months.

Often, examples of conscious capital companies, which are mission-driven are proven companies (see Starbucks and Southwest Airlines).  The Container Store provide an opportunity to see a successful and growing company, which is newly public respond to investor demand.

Over time, then a Why filter can be created and evaluate early stage companies.  The connection to Why the company was formed, the vision and the culture to create the company seems like the primary driver.  The commitment of the founder and management team to execute against the values could align with the successful companies that move from startup to Fortune 500 and that is what we are trying to discover.

If so, then we can make investment decisions with these filters.  This is Why Why matters.