Profits and Purpose: The Free Market at its Finest

Instead of discussing capitalism from the traditional sense of profit maximization, let’s discuss it from the standpoint of purpose maximization. Can a company serve a purpose beyond maximizing wealth for its shareholders? I contend that it can, and the development of companies in the past few years that are both socially responsible and profitable is evidence of this.

One such company is TOMS Shoes, a for-profit company established in 2006 that has built social responsibility into its brand promise. Many of you likely have heard this company’s story. The company was founded by Blake Mycoskie, an entrepreneur from Arlington, Texas, who found that many children in developing countries did not have access to shoes and therefore were susceptible to a multitude of health risks that could have permanent effects. Not only was their health affected, but without shoes, these children were unable to attend school, giving them limited hope for a better life. Mycoskie wanted to address this social injustice and decided that establishing a for-profit company with a not-for-profit division would enable him to make a greater impact than if he established a not-for-profit organization—which likely would have struggled to establish and maintain sufficient funding.

And so the company was born with its motto of “one-for-one.” When TOMS sells a pair of shoes, a pair of shoes is donated to a child in need through its non-profit subsidiary called Friends of TOMS. During its first year in business, TOMS sold 10,000 pairs of shoes. Four years and much rapid growth later, TOMS gave the one millionth pair of new shoes to a child in need.

But the company hasn’t stopped there, recently launching a Summer of Sight campaign using the same business model but with sunglasses. The company has a goal to sell 100,000 pairs of sunglasses (and therefore help) 100,000 people restore their sight with the glasses they need for each pair of sunglasses they sell.

TOMS is a perfect example of purpose maximization, which has led to both strong profits and a positive social impact. Building a social initiative into the brand promise can actually drive sales. Buy a cool pair of shoes and feel like you made a difference in the life of an underprivileged child. Without the social responsibility aspect, TOMS is just another shoe company. But with that brand promise came millions of dollars of free PR and word of mouth marketing that launched sales and led to profits not likely earned otherwise.