January 9, 2023
Introducing Our Thesis on Product-Led Purpose
Over the past decade, technology companies have contributed to significant progress across many industries including healthcare, education, productivity and collaboration. Equally though, technology companies have caused significant harm and broken the trust of their customers.
Issues have ranged from less publicized but critically important failures such as model bias perpetuating racism in healthcare or mortgage lending, misuse of user data by Facebook and Cambridge Analytica, down to outright company failure at Theranos due to fraud.
Despite setbacks, technology products have never been a more important and embedded part of our lives and work — and that central role presents an opportunity for builders. We can continue to “move fast and break things”, or we can think differently about how to capture value and build for the long term.
We launch new thesis areas when we see emerging societal and technological trends changing how software businesses are built and how value is created. We’re seeing this opportunity today with a trend that’s been developing for a long time.
We believe that the next generation of market-leading technology companies will use their central role to build products that deliver superior economic value and quantifiable positive impact on societal challenges.
In our view, these companies will identify and embed organizational purpose within their products — enabling impact with each use. By building in this way, we believe they will achieve quantifiable proof of impact and will move purpose far beyond where it is most commonly found today as a marketing strategy. By adopting this mindset, we anticipate that the leading companies will build better products that deliver net-new customer value, competitive advantage and superior returns.
We believe that building software products that incorporate purpose is a way to deliver significant value in all market cycles — particularly now, as tech companies face turbulent markets and a challenging economic forecast.
There is a long history of market-making companies being built in downturns, and the coming years present an opportunity to rethink what the next generation of tech leaders will be. Rather than a “growth-at-all-costs” mindset focused on a narrow set of stakeholders, we expect that the next generation of leading companies will build better products by incorporating purpose and expanding their views on key stakeholders, operating practices and the impact of their technologies.
Considering long-term impact and new stakeholders will require companies to think more creatively about product design, impact and value capture across the vast markets that software serves. This is the thinking behind our newest thesis, Product-led Purpose.
The Case for Product-Led Purpose
Purpose is not a new idea. The change we’re describing is that it is now a central ingredient of market-leading software products.
We see two major reasons driving firms to adopt a product-led purpose approach.
1. Software companies have the scale, leverage and advanced technologies to solve problems that were previously out of reach.
The first is that tech companies now have the ubiquity and the opportunity to address a broad set of business and societal challenges.
Their opportunity to solve new problems is in the leverage and scale of their customer base and the advancement of technologies such as machine learning. More than ever, technology adoption defines enterprise success and tech investments are a differentiator. McKinsey recently found that top-quartile corporations prioritize technology initiatives such as digitizing the end user experience at greater than 50% the rate of all other companies. A significant number of business processes can be automated or augmented through technologies available today.
Simply put, the capabilities and reach of software means that tech companies can extend their impact to new parts of the markets they serve.
2. Buyers and job-seekers are making decisions based on how companies respond to challenges like climate change and inequality.
The second key driver comes from consumer and corporate expectations.
According to a 2020 survey from IBM and the National Retail Federation, one-third of customers will stop buying preferred products if they lose trust in their brand, and 70% of purpose-driven shoppers pay an added premium of 35% more per upfront cost for sustainable purchases.
The corporate sector is also responding to changing consumer and regulatory demands by increasing sustainability and/or ESG disclosures from the companies that they partner with. The Climate Disclosure Project (CDP), a not-for-profit that runs a global disclosure system for companies and cities, reported that the number of corporations engaging with suppliers on climate change increased by over 50% between 2018 and 2019.
While the talent market has shifted over the last 12 months, we expect that rare skill sets such as machine learning and engineering expertise will consistently be in high demand, and purpose is a powerful lever to attract and keep quality people. Purpose-driven organizations experience 40% higher talent retention than their peers (Deloitte).
In short, software companies are in a position to have an impact and are motivated to do so by societal shifts.
Product-led Purpose in Practice
Now that we’ve seen why this is happening, let’s look at some successful companies to see how their products enable their purpose. In doing so, they’re not only realizing the benefits of a strong purpose, but also opening up new revenue streams through their product.
For example, ecommerce leader Shopify, a former Georgian customer and investment, is “helping people achieve independence by making it easier to start, run, and grow a business.” Their purpose focuses on participation in entrepreneurship. For Shopify, “the future of commerce has more voices, not fewer.” In executing this strategy, Shopify now supports over 5 million jobs and over US$590 billion in gross merchandise value has been generated by merchants on Shopify.
Another example is a recent Georgian investment and customer, Oyster. Oyster’s product helps businesses access competitive talent by sourcing remote workers globally. Their mission is to help “overturn the status quo and create a more equal world of work.” But this is about more than enabling remote work.
To meet their purpose, Oyster reaches beyond areas where people have traditional education credentials and mobility, and finds opportunities for people in emerging markets, low-income job seekers or those unable to leave their location. These people have low job prospects because of where they live, but they’re an untapped opportunity. The result is better income for job seekers and access to new talent pools for hiring companies.
In its Global Impact Report for 2022, Oyster projected it would reach US$50 million of total dollar flow into emerging markets by the end of 2022 — and expects this to increase to US$1 billion by 2024.
Product-Led Purpose: Creating Impact at Scale
In these examples, the incorporation of purpose enables a superior value proposition for the product itself when compared to alternatives on the market. For Shopify, it led to building the simplest way to bring a business online, and for Oyster, the easiest way to access the best talent for a business.
We believe that Product-led Purpose starts with two essential ingredients. The first is a statement that describes an ambitious, relevant reason for a company to exist beyond profit— its purpose. The second is the integration of this purpose into the company’s product in an effort to create a better, more differentiated product in the market.
With these ingredients in place, companies can choose how to bring their product to market. They can use purpose as a marketing strategy, or not, depending on the customers that they are looking to sell to. Regardless of customer buying behavior, the product will deliver impact and a superior value proposition when compared to existing approaches in the market.
Here’s an example that illustrates what we mean. Here are two companies that offer similar products, with Company B representing a product-led purpose approach to business.
Company A’s ROI from product adoption is a reduction in charge-offs. Company A has performed well, growing in line with several of its close competitors. It has market average talent attrition, time to hire and engagement rates.
While providing a similar product to Company A, Company B also uses the data that they collect in pricing loans to identify and qualify new, previously underserved consumer segments for a bank. Working with Company B, the bank’s ROI is a reduction in charge-offs equal to Company A. Crucially, though, Company B also receives the extra interest revenue from the loans to these underserved segments.
Company B can market its superior customer ROI in order to accelerate its customer growth and revenue over its peers. The expanded dataset from the new consumer segment (beyond Company A’s mandate) also improves the quality of the company’s risk assessment in its core product.
What’s more, Company B can market internally by using its data-backed social impact to attract and retain the best talent.
Each of these companies had a goal and created a good business and product to execute it. However, Company B outperformed by setting a purpose that extended beyond their direct customer. They built a better product that generated quantifiable new value—growing revenue, attracting talent and generating meaningful impact.
This flywheel of business success and broader societal impact is at the heart of product-led purpose.
How Does a Company Find a Purpose?
Not every firm sets out with a purpose in mind from the start; some find their way there as part of their journey.
Former Georgian customer and investment Fiix (recently acquired by Rockwell Automation) built a successful business in the predictive maintenance space. It sold software to manufacturers that helped them better maintain their physical assets.
When CEO James Novak joined the company, he recognized an opportunity. Not only was the software reducing the total cost of ownership and extending asset lifespan for customers, it was also helping them operate more sustainably by reducing emissions, prolonging asset lifespans and improving health and safety outcomes.
Factory owners needed this — not only to “do good,” but to lower costs and meet regulatory emissions requirements. James adopted this approach into Fiix’s purpose of “creating a more sustainable world.”
Fiix started to quantify the product’s financial and climate-related impact. The results were clear. From 2017 to 2020, a quarter of Fiix customers bought the software because of its sustainability impact. And all of Fiix’s customers benefited from the full value proposition as it was incorporated into the software. By adopting sustainable operations, Fiix’s customers could see up to 67% emissions reduction and 80% reduction in energy consumption.
Fiix saw the economic opportunity of creating a more sustainable world and oriented their entire business around that opportunity.
Internally, Fiix communicated their purpose and used it to hire and retain an in-demand workforce. Their hires were easier to make and stayed longer than their competitors. As a result, they had one of the lowest attrition rates across all Georgian customers and saved significant operating expenses.
Towards Product-Led Purpose
We believe the next generation of leading technology companies will put purpose at the center of their products. In doing so, it is our view that they will expand their addressable markets, identify and build for valuable new use cases and attract the best talent to drive the innovation process in their businesses.
This way of building will result in products that provide superior economic benefit to their customers and the overall market. By using technology to help rather than hinder, we believe these leaders will try to use purpose to drive significant returns and differentiated business models in their industries.
Over the coming months, we will be introducing new thinking on this topic and building out a playbook of how we have seen companies execute on Product-led Purpose.
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