There is a misconception that most people have when they think about business. That misconception is that all of business revolves around making a profit. While making a profit is certainly important for businesses, I would argue that it is not the chief end of a business. There are a couple of metrics that are just as valuable as profit that businesses should be paying attention to.
Before I get into those two specific metrics, I would like to briefly state that this misconception has infected many people to the point that business has gotten a bad reputation (I mean, the financial sectors of the U.S. didn’t help this misconception, I understand that). If you are in business, especially sales, you are seen as skeezy and almost underhanded. People believe that the business owner only has his/her interests in mind and will do anything to get those interests satisfied even at the expense of the customer.
This is the general consensus that I pick up from most people when I talk to them about business.
A Better Way
While profit is important for reasons I will explain later, there are two other metrics that are just as important. Those metrics are people and the planet.
All three of those metrics together make up what we call The Triple Bottom Line. This term was coined by Consultant John Elkington in 1994 and shall hereafter be referred to as TBL.
Why is the TBL model better than the traditional model of measuring profit alone? Imagine this.
Say there is a manufacturing company that continuously makes a profit and leaves shareholders smiling and satisfied. But say that this same manufacturing company is responsible for dumping thousands of pounds of raw waste in order to produce their products. Though the company is making quite an enormous profit, it is also causing tons of damage to the environment that the manufacturing plants are in. This isn’t good.
There are two questions that come to mind when thinking about this example:
1. Is this an admirable way to do business?
2. Is this a sustainable way to do business?
I would argue that the answer to both of those questions in our example would be a resounding no.
It’s a no because we frown upon organizations that profit at the expense of others (as we touched on awhile ago) in our society and eventually the manufacturing plant is gonna run out of space to dump its waste.
However, if we broaden what success looks like for a business, we are able to be more efficient with our resources and, ultimately, do business better.
A Closer Look
Let’s take a closer look at the Triple Bottom Line, shall we?
Profit refers to the money generated by a business after all of its costs have been deducted. Why is profit important for a business?
For many reasons.
Profit allows a business to expand by conducting more marketing or by hiring more employees. It is also attractive for investors and is a measurement of growth and improvement. A business that turns a profit is also beneficial to the economy as a whole because it boosts domestic GDP. When the size of the pie increases, there is more for everyone to eat. Am I right?
Ultimately, if a business doesn’t turn a profit, it will die.
The planetary bottom line refers to a business’ sustainable environmental practices. In our previous example with the manufacturing company, the organization, if it decided to implement TBL practices, would look at its manufacturing process from a holistic and sustainable perspective. It would also attempt to reduce its ecological footprint and implement renewable energy into its business functions. Among other environmentally-friendly things.
Some argue that it is more costly to abide by environmental regulations and implement sustainable practices. And perhaps they are right.
But only in the short run.
When analyzing a business, in the long run, sustainability is always beneficial and more efficient than not implementing sustainable practices.
I wanted to save this metric for last because it is the main reason that I am in business and I have a lot to say in regards to it. But I will keep it short 😉
First of all, 100% of your clients, customers, bosses, and coworkers are people (astonishing revelation, isn’t it?). If profit gives a business its life, then people give a business its meaning.
A business is also always conducted in the context of a community. Whether that is B2B or B2C, doesn’t matter. This means that the business has more stakeholders than one would typically think.
Not only is the success of the business dependent on how that business treats its employees and customers, its success is also dependent on how it interacts with the city/town that it conducts business in and any community groups within that city/town. Basically, a business has to treat well any people that it comes into contact with. And there are a ton of people that interact with businesses without even knowing it.
If an organization doesn’t take seriously how it treats people, then the effects can be detrimental to the business (see all of the trouble that Uber has gotten into recently).
Ultimately, it is my belief that more companies are moving away from the traditional profit-only model of measuring organizational success and moving towards the Triple Bottom Line model. Businesses can benefit from this model because it is a broader definition of what success looks like for an organization and it is a more holistic approach to doing business. There are more things at stake than just money and I believe that organizations and people are waking up to that fact.