Why Invest Without a Profit Motive?

You may find this notion of profit as an incentive rather than a purpose foreign to your thinking. You may believe the only stakeholder who is entitled is the stockholder. Are you wondering why someone would invest without a profit motive? Is the creation of jobs too philosophical when you are worried about your own well-being?

I am not advocating that investors should invest in any business that will not offer a return for their investment. I am not suggesting that businesses can lure investors without a profit incentive. To the contrary, I am suggesting investors should invest where there are substantial opportunities for gain. However, the greatest opportunity lies with companies that embrace organizational loyalty. Organizational loyalty recognizes all stakeholders. Organizational loyalty recognizes investors, employees, and customers as stakeholders of the enterprise.

Malden Mills

Malden Mills is a textile mill based in Lawrence, Massachusetts. The mill was founded in 1906 by the grandfather of current owner, Aaron Feuerstein. A fire destroyed three of the 10 buildings on its complex on December 11, 1995.

The mill employed 3,000 workers and was the only industry of any size in Lawrence. Most of the workers believed they had lost their jobs forever when the mill burned down, but Aaron Feuerstein, CEO, believed differently.

Feuerstein told his employees, "Your dedication and hard work are what have made Malden Mills successful. The township of Lawrence has supported Malden Mills for many years and Malden Mills is not going to turn its back on Lawrence."

While the mill was being rebuilt and equipment was being moved to restart production, the company continued salaries and benefits to all 3,000 of its workers. During this period, the township of Lawrence remained vibrant. Businesses, churches, and schools remained open and families stayed together in Lawrence.

Malden Mills is the sole producer of Polartec and Polarfleece synthetic fabrics and various other upholstery fabrics. By the time the company returned to full production, it had lost substantial market share to foreign competitors with much lower operating costs. Malden Mills struggled and finally filed for reorganizational bankruptcy.

Critics and creditors of Malden Mills questioned Feuerstein's charity to his workers. They charged that Feuerstein was too charitable and not prudent enough when he continued the workers' wages after the fire. Feuerstein believes his workers are an asset, not an expense. He believes he has a responsibility to all stakeholders and it would be unconscionable to put 3,000 workers on the streets. Feuerstein said, "Maybe on paper our company is worth less to Wall Street, but I can tell you that it's worth more. We're doing fine."

Feuerstein did not waste the millions of dollars he spent in continuing wages after the fire. It was not just an act of generosity or charity, it was well reasoned and Sound to invest millions of dollars in Malden Mills' most critical asset. Continuing wages to laid off workers was an investment. Malden Mills' CEO, Feuerstein, is a striking contrast to the CEOs of other companies who earn enormous salaries by eliminating jobs and moving plants to countries with minimal labor rates.

At the bankruptcy hearing, all but one creditor believed Malden Mills could emerge successful. All the creditors hut one believed in Feuerstein and his evaluation of the worth of his workers. The one dissenting creditor wanted his money right then. He disagreed with Feuerstein's actions and charged him with spending someone else's money. On the courthouse steps, Aaron Feuerstein said, "I did what was right. I did the morally correct thing to do…and I would do it again."

Today, Malden Mills is a vibrant company: It is producing more Polartec and Polarfleece than ever before and has emerged from bankruptcy and is more profitable than ever. The township of Lawrence is vibrant. The workers at Malden Mills are committed because they understand that loyalty works both ways.

Commitment to a Mission

Tom Monaghan and his brother James borrowed $500 to purchase DomiNick's pizza store in Ypsilanti, Michigan, in 1960. After one year in business, James had all he wanted of the pizza business and traded his ownership in the store for his brother's used Volkswagen Beetle.

As the sole owner of the struggling business, Tom changed the name of the store to Domino's Pizza in 1965. By 1967, business had improved and the company opened its first franchise store. Over the next 17 years Domino's Pizza grew to include 2,841 stores and became the fastest growing pizza company in the United States. Today, Domino's Pizza operates more than 7,000 stores including more than 2,000 stores outside the United States. Its worldwide revenue exceeds $3.5 billion and the company is still growing at a remarkable pace.

Tom Monaghan developed and nurtured his business on the vision:

"Exceptional people on a mission to be the best pizza delivery company in the world utilizing the company's guiding principles, which are:

1. We demand integrity.

2. Our people come first.

3. We take great care of our customers.

4. We make ‘Perfect 10’ pizzas every day.

5. We operate with smart hustle and positive energy".

Domino's Pizza starts with regular people and teaches them to be exceptional through teamwork and the company's vision. Its vision/mission statement recognizes daily activities as the path to accomplishment. Domino's puts its team members first with the imperative, "Our people come first."

Does Domino's have a profit motive? Of course they do. But it is interesting to note that profit is an incentive of its success, it is not the purpose. Its purpose is clearly, "To be the best pizza delivery business in the world." They measure being the best by the five principles that guide them. These are not just words on a piece on paper; Domino's has lived by these principles.

Domino's has demonstrated this very real concern for making its 140,000 team members its number one priority. Domino's assists its team members in times of special need or tragedy as a result of natural disasters, unexpected afflictions, on-the-job accidents, and other emergencies. Domino's Partners Foundation was founded in 1986 and has helped thousands of team members and their families with financial, emotional, intermediary, and advisory assistance.

Domino's has also demonstrated its very real concern for taking great care of its customers through participation in many community and charitable organizations where its employees and customers live. The company has a Pizza Donation program through the Community Relations Department. Domino's stores in New York City and Washington, D.C., provided more than 12,000 pizzas to relief workers at Ground Zero following the September 11, 2001, tragedy. Domino's established a team member matching funds program to financially assist the American Red Cross and donated $350,000 to the Disaster Relief Effort.

In July 2001, Domino's Pizza began a long-term national partnership with the Make-A-Wish Foundation. Through this alliance, the company is dedicated to delivering wishes to children with life-threatening illnesses.

Many companies helped during the September 11 tragedy and many companies are philanthropic: however, Domino's has made it an integral part of its mission. It is the purpose of its business.

In 2002, Tom Monaghan founded Ave Maria University. He announced he was donating $200 million to this cause. Ave Maria is the first Catholic university to be built in the United States in 40 years. The campus is being built on agricultural land in Collier County, Florida, in the southwestern part of the state. The campus is scheduled to be completed in 2006.

Within just a few years, Ave Maria University will be the centerpiece of a college town. There will be apartment buildings, single-family neighborhoods, shopping centers, restaurants, medical offices, insurance agencies, barbershops, and enterprises of all sorts. No one is sure exactly what the town of Ave Maria will look like, but public officials are claiming that the town will have a population of about 50,000 within 10 years.

Back in 1961, when Tom Monaghan handed his brother James the keys to his Volkswagen Beetle, I doubt that he considered the problems or opportunities of founding a university and a town. But then again, the purpose of his business was to do just that.

The purpose of a business or the incentives that may be derived seldom conic to fruition in a year, or even several years. However, any business with a worthwhile purpose can be immediately successful. (See Chapter 7 for "What Is Your Definition of Success?") The purpose of any business must be addressed every day. This purpose must be a constant in every endeavor the business attempts. Aristotle said that you can change things only if they lie steady under your hand. Constancy of purpose is the appropriate starting point for every business enterprise. Without a constancy of purpose, the variables of the marketplace will strip a business of its aim. Like a ship without a rudder, the business will be powerless to reach any worthwhile destination.

The business management guru Peter Drucker said, "The purpose of every business is to get and keep customers." I wonder if the CEOs of IBM or AT&T considered Drucker's advice when they laid off 100,000 and 44,000 workers, respectively. These layoffs took place during the 1990s, when the U.S. economy was described as "booming." What purpose did these layoffs serve beyond cost savings for the quarter or year-end report? What message did these layoffs send to the remaining workers? When businesses downsize or lay off workers, they are forever forfeiting that human capital that causes the company to he productive.

I'm not suggesting that businesses should ignore current financial or market conditions; however, if the purpose of business is "to get and keep customers," it is hard to imagine that a layoff of 144,000 workers would serve that purpose. Why were those 144,000 workers hired in the first place?

The Porsche Difference

Porsche has been an independent automobile manufacturer since the introduction of its first sports car, the Porsche 356, in 1948. The 356 was a light metal roadster based primarily on Volkswagen parts. By 1958, Porsche had built a total of 25,000 automobiles at their only facility in Gmund, Austria.

Porsche has embraced the notions that "money alone is not the mother of invention," and "Porsche must continue to grow. Not as much as possible, but as much as necessary." Porsche feels very much at home in its role of David in a world of Goliaths.

Today, Porsche builds about 55,000 cars each year and delights in telling the world that 70 percent of all the Porsches ever built are still being driven. The people at Porsche believe they enjoy customer loyalty because they have been loyal to the work they have chosen. A visit to Porsche's Website (http://www.us.porche.com) discloses its commitment to ever improving the sports cars it builds. Its constancy of purpose is unchanged from its earliest days in the late 1940s.

Most companies use their earnings report to tout their profit projections for the next quarter or year-end report or to point out the temporary nature of any lack of profit. Every year, Porsche's annual report to Wall Street consistently declares, "We have always made a profit and we will continue to do so." Porsche feels that any projections of specific profit would make the financial projection a priority rather than its true priority: the production of great cars. This total focus on building the best sports cars can be seen in every aspect of Porsche's corporate culture.