“There are only two worthwhile things to leave behind when you depart the world; children and art,” wrote Stephen Sondheim. Patagonia’s founder Yvon Chouinard is alive and well, but it seems he agrees.
Chouinard and his family are transferring 100% of Patagonia’s voting and nonvoting stock to a specially set up trust and nonprofit dedicated to fighting the climate crisis in a move they’re calling an “exit to purpose”. This means that all the profit the clothing brand makes will be distributed as a dividend; not to the CEO, board and private shareholders but instead to those working on efforts to protect the environment.
Patagonia has always been known as a purpose-led brand. But are there lessons we can take here that are relevant to early-stage startups and people working on software, not ski jackets? I think so.
The startups I work with as an angel investor want to balance purpose and profit; part of their ambition in building global companies is maximising their positive impact in the world. But words like “impact” have been so overused as to be almost meaningless, and bad actors have made us inclined to be cynical when startups talk about their ambitions to do good. So we have to work harder to determine how we want to be good citizens.
Being a good citizen as a startup naturally involves thinking about who you’re a good citizen to; recognising the impact you have, or could have, for your customers, workers, investors and the broader community.
Articulating this intent is powerful in finding the right aligned investors, and we know how much publicly expressed values are attractive to a certain customer. Patagonia knows this only too well; in communicating clearly and frequently what it cares about, it attracts a devoted fanbase. Customers know exactly what they’re getting.
And, while in the past there have been few legal templates that help companies cement their intent into legal structures and principles, there are new models emerging.
Exit to community
Exit is the obvious moment when founders and companies take a pause to determine the right future for the company, and I’m excited about routes opening up beyond the classic IPO.
One is the exit to community, best explained by Joy Howard, the founder of clothing brand Early Majority and former chief marketing officer of Patagonia, as “an alternative to an IPO or acquisition whereby a startup transfers ownership to its customers and/or employees instead”. You’ve invested deep time in building a community of employees, customers and investors who believe in, and have contributed to, what you’re building.
An exit to community allows you to reward those who believed early, such as your earliest team and investors, and hand over control to a trusted group that you know already believe in the mission.
Clearleft, a Brighton-based design consultancy, took this route in exiting to its workers a few years ago. And marketing software Conductor exited to WeWork in 2018 but, after a bumpy few years when WeWork failed to IPO, the founding team bought the company back and gave employees a new category of stock to ensure workers had a deeper say in the company’s future going forwards.
Patagonia’s choice goes a step further; it’s created an entirely new path to ensure future impact. The marketing team calls it “going purpose”.
A new playbook
Most excitingly, Patagonia’s decision inspires early-stage companies to realise they don’t have to follow the same old business playbooks. Emma Shaw, cofounder of Library of Things, a London-based startup which helps people rent rather than own items like BBQs and sewing machines, says “this is gamechanging for companies like us who are experimenting with new forms of governance to keep our purpose clear”.
Library of Things has an alternative governance structure that legally mandates that the company’s directors and shareholders put the company’s mission first.
Chouninard says in the introduction to this shift that Patagonia is in the middle of a 50-year experiment; coincidentally the company launched only a few years after Milton Friedman’s famous comment that the only social responsibility of business was to increase profits.
We know so much more now than we did 50 years ago. Certainly, it seems old fashioned not to consider our broader stakeholders in making smart choices, from the communities we operate in to the Earth itself. The best businesses should want to be good citizens and good neighbours, not simply because it’s the right thing to do, but because it’s how you build resilient and long-lasting organisations.
Ultimately, innovative commitments like Patagonia’s help shift new forms of governance and corporate ownership from the margins to the mainstream — and, beyond the billions that will pour into environmental nonprofits from this decision, that’s something to be celebrated.