Patagonia is an example of a company that is effective in aligning its operating model to its business model. They have included the concept of sustainability into its business model, and have taken many innovative steps to ensure that they meet their sustainability goals.
A decade after its founding, Patagonia found itself stretched too thin in trying to fund its rapid expansion. In 1996, the founder chose to focus on durability and sustainability of its products. Customers responded by giving their loyalty to an outdoors company that had their best interests in mind.1 Since then Patagonia has qualified for a B Corporation, which requires “firms to have an explicit social or environmental mission and a legally binding fiduciary responsibility to take into account the interests of workers, the community, and the environment as well as its shareholders.”2 As a B Corporation, Patagonia releases an Annual Report describing their progress in achieving their environmental, labor, community, and governance missions. Patagonia measures success and their value with these unusual missions that take a very long term view on their business.
In supporting their business model, Patagonia has funded a number of innovative programs:
- “If It’s Broke, Fix It”: Because of Patagonia’s close relationship with its customers, Patagonia was able to distribute repair manuals through its Worn Wear program to fix common issues with clothing. Examples of manuals include repairing loose drawstrings or how to wash a water repellant piece of clothing. Patagonia also operates a repair shop with 45 full-time employees that fix ~40,000 items each year.3 Encouraging customers to fix existing clothes instead of buying a new item not only promotes sustainability, but also increases the sentimental value attached to a Patagonia-branded item.
- Suppliers: Patagonia established the $20 Million & Change fund to invest in startups who supported Patagonia’s mission. An early predecessor to this program was its partnership with Yulex, a company that was creating non-neoprene materials for wetsuits. Yulex had found a way to create latex rubber using the guayule plant, and with Patagonia’s help, was able to commercialize it. By investing in startups like Yulex, Patagonia is not only working towards its sustainability mission, but also gaining first access to these innovative new materials.4 For Patagonia customers, preserving the environment where so much time is enjoyed is extremely important. To give customers the option of purchasing a wetsuit that is petroleum-free is certainly a differentiator.
- Employees: Patagonia works hard to retain all of its employees, and in a retail environment where average turnover is 44%, Patagonia’s 25% turnover shows they are finding success. Turnover at headquarters is even lower, 7%.5 Patagonia’s success in product development comes because they hire their own customer. As Billy Smith, a product developer for surfing gear who would get up at 5am on days with big waves to test products, says, “I feel like I represent the brand as much as it represents me.” 5 The most passionate and innovative thinking outdoors enthusiasts come to Patagonia to design products that they would want – and these employees give interview after interview about how their hobby has finally become part of their work. Patagonia protects elements of their employees’ lifestyles, such as powder days after it snows, and in return, employees are motivated and aligned to carry out Patagonia’s business model.
With the benefit corporation designation, Patagonia has defined how to measure its business model. The Annual Report forces the company to track and set goals on how they are doing against these ambiguous missions. The alignment between Patagonia’s operating model decisions and business model shows customers that Patagonia truly believes in their stated missions. Customers in turn have shown their loyalty to Patagonia, even in a downturn. From 2007-2012, Patagonia’s sales grew 13%, while the US retail sector grew 2%.6 7 With an operating model that drives a business model that customers are loyal to, Patagonia will be a staple in the retail space for years to come.