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The Habits of Successful Scale-Ups: Why Vision Is More Valuable Than Profits

Wednesday, 29 March 2017 14:36 PM | LEADERSHIP


Pursuing a ‘mission’ is more profitable than maximising financial returns

Electric car company Tesla Motors is one of the most innovative companies in the world. Ranked #1 in Forbes’ list of ‘America’s Most Innovative Companies’, it’s one of the most forward-thinking motor manufacturers in the industry.

Its mission is to “accelerate the world’s transition to sustainable energy.” And in pursuit of that goal, in June 2014 Tesla did the unthinkable and announced that all of their patents would become open source. Thereby available for any person or company to use in their own products, in the name of fostering innovation and furthering the green energy agenda.

“If we clear a path to the creation of compelling electric vehicles,” wrote Tesla boss Elon Musk in a blog post, “but then lay intellectual property landmines behind us to inhibit others, we are acting in a manner contrary to that goal.”

“Technology leadership is not defined by patents,” Musk wrote, “but rather by the ability of a company to attract and motivate the world’s most talented engineers. We believe that applying the open source philosophy to our patents will strengthen rather than diminish Tesla’s position in this regard.”

Musk’s intention was to position Tesla as an integral part of the new green energy infrastructure. This helped to progress the development of the electric car market and to help evolve electric car technology – with an eye both to the development of the market and Tesla’s own success.

It's too early to say what the long-term effects on Tesla will be, but with sales of $4 billion and an estimated value of $33 billion, the business is thriving.

People tend to think about the value of their business in terms of money and profits, but there’s another side of the equation. Capital value in a business is calculated as profit times multiple – and that multiple comes from a combination of the ability to defend profits via intellectual property, patents and branding, its growth potential, and its sustainability over the longer term.

But what’s interesting is that taking a longer-term view, understanding purpose, and building for sustainability are almost certainly correlated to sustained growth rates. Evidence shows that purpose-led strategy works in financial terms.

In their 1994 book Built to Last, Jim Collins and Jerry Porras shared research that showed over the long term, ‘visionary’ companies driven by a purpose beyond profits returned six times more to their shareholders than profit-driven competitors. A more recent Harvard Business Review study supported this claim.

Experience and research show that longevity and sustainability in a company are about more than profit-seeking. That also means that pursuing a ‘mission’ is ultimately more profitable than simply maximising financial returns! It’s a brave move to say that money isn’t the biggest driver to your business, but it’s one that can pay off in almost every way if you get it right.

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