In his updated book Let My People Go Surfing (Penguin Random House, 2016), first published in 2006, Patagonia founder and owner Yvon Chouinard describes the unique pillars of success for his famous enterprise. In the following edited excerpt, Chouinard explains how a business philosophy focused on doing good ensures both profit and longevity for a company with more than $750 million in sales.
We are a product-driven company. That means the product comes first and the company exists to create and support our products. This is different from a distribution company whose primary concern may be service rather than product.
When you look closely at some companies, it may be a surprise to find that not all of them are in business to produce a tangible product or service. The real product may be the company itself, which is just being grown to be sold one day.
In a public corporation the product may be the shares of the stock, because all decisions made by the CEO and other internal stockholders, or by holders of options on stock and the board of directors (also stockholders), are made not for the long-term health of the corporation but to keep the stock price up until the principals can cash out. This can lead to "cooking the books," which is often the only way to show "profits" or growth every quarter, and it leads to confusion in the company about why it's in business.
Our mission statement says nothing about making a profit. In fact, our family considers our bottom line to be the amount of good that the business has accomplished over the year. However, a company needs to be profitable in order to stay in business and to accomplish all its other goals, and we do consider profit to be a vote of confidence, that our customers approve of what we are doing.
The third part of our mission statement, "use business to inspire and implement solutions to the environmental crisis," puts the responsibility of leadership directly on us. If we wish to lead corporate America by example, we have to be profitable. No company will respect us, no matter how much money we give away or how much publicity we receive for being one of the "100 Best Companies," if we are not profitable. It's okay to be eccentric, as long as you are rich; otherwise, you're just crazy.
At Patagonia, making a profit is not the goal, because the Zen master would say profits happen "when you do everything else right." In our company, finance consists of much more than the management of money. It is primarily the art of leadership through the balancing of traditional financing approaches in a business that is anything but traditional. In many companies, the tail (finance) wags the dog (corporate decisions). We strive to balance the funding of environmental activities with the desire to continue in business for the next hundred years.
Our philosophy does not hold that finance is the root of all business. Rather, it complements all other segments of the company. We recognize that our profits are directly tied to the quality of our work and our product. A company that doesn't take quality seriously will attempt to maximize profits by cost cutting, increasing sales by creating an artificial demand for the goods, and hammering the rank and file to work harder.
In direct sales distribution you do not necessarily make more money by cramming more product into your catalog pages or onto your retail sales floor. A quality presentation will always outsell "messiness." We recognize that we make the most profit by selling to our loyal customers. A loyal customer will buy new products with little sales effort and will tell all his friends. A sale to a loyal customer is worth six to eight times more to our bottom line than a sale to another customer.
We believe that quality is no longer a luxury. It is sought out by the consumer, and it is expected. For example, the Strategic Planning Institute has been collecting data for years on the performance of thousands of companies. It publishes a yearly report, titled PIMS (Profit Impact of Market Strategy). That report has begun to show quite clearly that quality, not price, has the highest correlation with business success. In fact, the institute has found that, overall, companies with high product- and service-quality reputations have on average return-on-investment rates twelve times higher than their lower-quality and lower-priced competitors.
Whenever we are faced with a serious business decision, the answer almost always is to increase quality. When we make a decision because it's the right thing to do for the planet, it ends up also being good for the business.
In the middle of the worst days of the Great Recession I spoke on a panel of surf industry leaders. I talked about our use of only organic cotton and cleaning up our entire supply chain. A CEO of one of the largest surf companies said that they did a few T-shirts and hats out of organic cotton, but when the recession hit they had to stop. I asked how his sales were, and he mentioned they were down 20 percent. I said ours were up 30 percent that year. Their company and others in the surf industry are barely hanging on now because they didn't understand that their young customers have changed.