4 Ways Profit Creates a Flywheel Effect in Your Culture (Path to Profit Series, Part 8)

8 min read

If you are lucky enough to be someone’s employer, then you have a moral obligation to make sure people do look forward to coming to work in the morning.” – John Mackey, Whole Foods

Some of the most successful companies today are continually working hard at making their organization a place people want to come to every day by simply making ongoing investments in their culture, from small ways to large, sometimes quirky, sometimes generous, just a few examples:

  • The popular online eyeglass company, Warby Parker, hands out copies of Jack Kerouac’s The Dharma Bums to employees on their first day of employment.
  • Warby Parker also hosts their own internal conference for employees, led by employees, called WarbyCon, a conference consisting of random topics “from Bayesian statistics to pop music to being a good person.”
  • Netflix’s vacation policy is, “take a vacation” with no rules around how many weeks per year, and their expense policy is only five words long “act in Netflix’s best interest.”
  • Squarespace pays 100% coverage of health insurance premiums.
  • Whole Foods believes in their healthy food mission so much that they offer 10% off all store products as an incentive to employees who maintain their health.

Zappos. Southwest Airlines. Facebook. Apple. The list is long of notable companies who have learned that culture breeds success and success breeds culture.

We’re in the middle of a multi-part series called “The Path to Profit,” where we’ve talked about commissions, loss, uncovering more profit with clients, working with suppliers (and more) and now we’re going to talk about culture?

What does profit have to do with culture?

Everything.

I’d like to argue a controversial point: without substantial profit, you cannot affect a healthy work culture.

When you look at Fortune magazine’s top 100 companies to work for list, you’ll find companies like privately owned Wegman’s, a $1B grocer with an astounding success story, and an amazing culture, but importantly: an incredibly successful business. In fact, the 100 best companies to work for are a “Who’s Who” of business success stories.

Please don’t misunderstand, you can produce an insane amount of profit and still have a terrible culture. And you can be lean and still create a safe and pleasant work environment. Profit doesn’t automatically engender a strong culture, but profit gives you the resources you need to make decisions about the kind of culture you want to build, and moreover, the lack of profit can handcuff your ability to build a spectacular culture.

A simple example is just being able to pay adequate compensation for the best possible candidates you can recruit. Without significant profit you can’t meet even the minimum requirement of fostering a great culture which is, hiring the right people.

More profit means success and success means more profit, and they create what Jim Collins in his book Good to Great called, “the flywheel effect”:

“Picture a huge, heavy flywheel—a massive metal disk mounted horizontally on an axle, about 30 feet in diameter, 2 feet thick, and weighing about 5,000 pounds. Now imagine that your task is to get the flywheel rotating on the axle as fast and long as possible.”

“Pushing with great effort, you get the flywheel to inch forward, moving almost imperceptibly at first. You keep pushing and, after two or three hours of persistent effort, you get the flywheel to complete one entire turn. You keep pushing, and the flywheel begins to move a bit faster, and with continued great effort, you move it around a second rotation. You keep pushing in a consistent direction.  Three turns … four … five … six … the flywheel builds up speed … seven … eight … you keep pushing … nine … ten … it builds momentum … eleven … twelve … moving faster with each turn … twenty … thirty … fifty … a hundred.”

“Then, at some point—breakthrough!  The momentum of the thing kicks in your favor, hurling the flywheel forward, turn after turn … whoosh! … its own heavy weight working for you. You’re pushing no harder than during the first rotation, but the flywheel goes faster and faster.  Each turn of the flywheel builds upon work done earlier, compounding your investment of effort. A thousand times faster, then ten thousand, then a hundred thousand. The huge heavy disk flies forward, with almost unstoppable momentum.”

Profit has a way of creating a profound flywheel effect in your business. Every small benefit you create with your profit accelerates another spin in the flywheel, which will ultimately compound your effort to build a strong, lasting culture.

Here are four ways profit accelerates the flywheel effect:

 

#1: Profit boosts the energy in your culture.

 

With more profit, you can create more opportunities to invest in emotional stakeholders in your business, employees will not only throw their skill and their talent into the job, but they throw their heart and soul in the work, too.

With more profit, you can create robust bonus plans or create a profit sharing program that invigorates these most important stakeholders (employees). Even just the simple act of building in small surprises for your team -dinners, parties, small surprises- requires more profit. The cumulation of these together can have a profound effect on the energy in your culture as “a company’s culture is the foundation for future innovation.” (Brian Chesky, Co-founder and CEO of Airbnb).

 

#2: Profit gives you the flexibility to invest essential seeds in bold ideas.

 

Patagonia has had an on-site child care center at their headquarters for 33-years, but it began as a simple trailer parked outside their first headquarters. Patagonia didn’t go into business with the perk of a fully staffed and incredible child care facility, but the seed of an idea planted years ago grew into it. Their passion for working moms staying near their children was a key cultural touchpoint for their business and would shape the type of employee that would dedicate themselves to the mission. According to Quartz, “100% of the women who have had children at Patagonia over the past five years have returned to work, significantly higher than the 79% average in the US.” But it all began with a small investment in a simple trailer.

Your investments in your business culture do not have to be huge, but small investments in a belief system that governs your culture (like Patagonia’s) can have a profound impact on your business and profit down the road. Start small, invest small, but invest in big, bold ideas.

 

#3: Profit amplifies your impact beyond your team, which encourages your team!

 

My mentor Mervyn Hackney, a former military man, once told me that “if you invest in a soldier’s family, you’ll earn yourself a soldier.” When I ran a distributorship, for years, we would encounter a recurring, significant challenge: consistent, escalating healthcare costs.

Every time we had to reconsider rising healthcare costs for our company and our employees, we had to ask ourselves “how much of these costs will we have to pass along to our employees.” Because of Merv’s cultural conviction, which he passed on to me and our management team, we paid upwards of 70% of the premiums for our team. Insurance cost us well over $250,000 per year, but the impact that investment made in our team and beyond our team was substantial. It raised, what Merv called the esprit de corps the “spirit of the troops.”

This is where profit breeds success and success breeds profit. By investing more in your team, they, in turn, invest themselves in the business. Anne Mulcahy, CEO of Xerox, said that “Employees who believe that management is concerned about them as a whole person — not just an employee — are more productive, more satisfied, more fulfilled. Satisfied employees mean satisfied customers, which leads to profitability.”

 

#4: Profit enables you to get better tools to build a stronger, more responsive business.

 

Many distributors are reluctant to spend money on the right tools for the right job. But with more profit, you can invest in the tools to streamline your operation and make it efficient. A lack of investment in tech resources (both digital and physical resources) is a major hindrance to a distributor in this fast-paced, always-on business climate. Customers want ideas now and the right tools, such as cloud-based software, enable your employees to respond quicker and remain mobile.

In addition, surveys reveal that the most desired benefit from workers today are “flexible work hours.” The right tools -mobile software, cloud-based software- foster a “work from anywhere” environment that gives employees the flexibility they are demanding from their employers.

The lack of the right tools in this business is one of the most frustrating and culture-killing experiences you can create for your employees. Not only does it make you less attractive to exceptional job candidates but you can’t demand 1st class customer service with 5th rate tools, clients today are too impatient, and the winners are capitalizing on this by investing in the most modern tools possible.

Profit alone does not build a great culture, but a great culture cannot be built without substantial profit. The lack of profit means you cut corners, hire less than stellar candidates, and skimp on vital resources to create a promising work environment, which stunts growth (at best) or creates a high-cost and a revolving door of talent leaving your business.

Profit affects who you are and who you want to become because your brand is your culture (Tony Hsieh). 


commonsku is an effortless business management platform that empowers you to process more orders and handle more business. Start your free trial now!

This post is the eighth installment in our series, The Path to Profit, the previous posts are:

 


Also published on Medium.