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Build a business that is good for you

You’re no doubt aware that marketing is about creating something that people want and convincing them to buy it from you. But in small business, do we take too narrow a view of it?

Consider the ‘official’ definition of marketing as presented by the American Marketing Association: “Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”

It’s easy to understand the first part about creating and delivering value to customers. But take a look at the last part of the definition: it also includes doing things in a way that creates value for our partners and society in general.

This is a part of the equation that big businesses forgot over the years, as they selected suppliers based on the lowest possible price, regardless of how those suppliers had to slash their own margins or screw their own employees to do that.

They also closed local factories and went offshore to source ever-cheaper goods, and tried not to think about conditions in those factories. In terms of affordability, this was great for the customer: think about what you pay for clothes and electronic goods compared to 10 or even 20 years ago. But it was not so good for local suppliers, or workers in those factories.

When businesses realized the damage this approach caused to their reputation, they went down the path of corporate social responsibility, investing in ‘good works’ to restore their reputation. Think Ronald McDonald House, Starbucks’ Fair Trading efforts, or various cause-related marketing activities sponsored by corporations such as the Pepsi Refresh Project in the US.

Corporate social responsibility is a good concept. But companies are now coming around to the idea that, instead of throwing money at a good cause to offset the societal and environmental destruction caused by their operations, they should look at running their companies in a way that better benefits society, rather than just trying to squeeze the maximum profit at the best price for consumers.

Michael Porter, a management expert who is the world’s most-cited author in business and economics, wrote an article recently in the Harvard Business Review on the problems of corporate social responsibility and what he has identified as the way ahead. I am taking a risk in trying to distill a complex concept into one blog posting, but here goes.

Porter says most companies are stuck in a “social responsibility” mindset in which societal issues are at the fringes of a business, not at the core.

Businesses “view value creation narrowly, optimizing short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success.”

He argues that, rather than simply bolting social responsibility programs to their business, companies should change the way they do business to become more socially responsible in everything they do – and they can still make money by doing it.

He calls this the concept of ‘creating shared value’, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Company success, he argues, should reconnect with social progress.

I don’t want to delve into the charged politics of the carbon tax, but it is related to what I’m talking about. The carbon tax represents a government attempt to cajole businesses into operating more sustainably by making ‘dirty’ activities more expensive. Shared value, meanwhile, is about companies doing this as a part of their business, rather than being forced into it by a blunt instrument wielded by the government.

Shared value is also much broader than just clean air. It’s about providing opportunities for your local community and looking after the needs of people in far-flung communities where you buy your supplies from.

Porter gives the example of the fair trade movement. Dealing directly with farmers rather than large multinational corporations is a good thing, increasing local farmers’ incomes by, on average 10-20 percent. On the other hand, shared value investments – which would focus on teaching them to improve growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers’ efficiency, yields, product quality, and sustainability – could increase their income by 300 percent.

Closer to home, creating shared value can also mean re-opening factories near a business headquarters. If you are supporting your local community by providing jobs, you will have a ready market of loyal customers.

This doesn’t have to significantly raise costs. Porter encourages companies to improve productivity and innovation at the company’s location rather than just making the decision to source goods overseas. He cites examples of companies such as Johnson & Johnson and Wal-Mart saving money by investing in employee wellness programs, reducing packaging, and making delivery routes more efficient.

Porter writes: “In business, we have spent decades learning how to parse and manufacture demand while missing the most important demand of all. Too many companies have lost sight of that most basic of questions: Is our product good for our customers? Or for our customers’ customers?”

You’re no doubt asking, ‘that’s fine for large companies, but what does creating shared value have to do with small business?’ Ideas such as the 100-kilometer restaurant, where all food used come from local farmers, are a local example of this.

I’m not saying buy Australian at all costs, but think about where you buy your stuff from. Are your business cards and flyers printed overseas and shipped at a low cost, or are they printed on-site and delivered locally?

Don’t wait for the carbon tax to kick in; start today by finding more sustainable ways of doing things that will also save you money.

I’m starting my sustainability drive by recycling relevant old quotations. For example, I think Benjamin Franklin, the 18th-century entrepreneur and one of the founding fathers of the US, summed it up well when he said his business philosophy was, “doing well by doing good.”

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