John Mackey
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SUNNI: It sounds to me like you aren't a libertarian of a Randian persuasion -- wholly profit-driven and focused on the self; is that accurate?
JOHN: That is correct. I was very inspired by Ayn Rand's novels like millions of other people have been. However, I don't agree with some of her philosophies. For example: I don't think selfishness is a virtue and I don't believe that business primarily exists to make a profit. Profit is of course essential to any business to fulfill its mission and to be successful and to flourish and I will defend the goodness and appropriateness of profits for business with great passion. However, profit is not the primary purpose of business. Renee and I didn't begin Whole Foods Market to maximize profits for our shareholders. We began it for three main reasons: we thought it would be fun to create a business; we needed to earn a living; and we wanted to contribute to the well-being of other people.
As the business grew we created our mission statement back in 1985 and have tried to fulfill it ever since. That mission very clearly articulates that we have collective -- there's that word again -- responsibilities to all the various constituencies who are voluntarily cooperating with the company. In order of priority these constituencies or stakeholders are: customers; team members; investors; vendors; community; and environment.
We measure our success on how well we meet the needs and desires of all of these various stakeholders. All must flourish or we aren't succeeding as a business. I'll email you a graphic that represents how Whole Foods views the voluntary cooperation between the various stakeholders:
We call this a "New Business Paradigm" because it puts the Business Mission and Core Values at the center of the business model -- not maximizing profits. Profits aren't the primary goal of the business. They are an important result of fulfilling the Business Mission and meeting the needs and desires of customers. I'm writing a book on Whole Foods philosophy of business right now so it's hard for me to do justice to all the ideas and answer all the standard objections in this interview. My more complete statement on this will need to wait for the publication of the book. I'll share two ideas as food for thought here though.
Free-market economists have done a major disservice to capitalism and to business by making profit maximization the supposed primary goal of business. The terrible reputation of business in the world today is a direct result of the belief that business has no other purpose besides maximizing profits. The average person believes that business should care about its customers, employees, society, suppliers, the environment -- as well as its investors. The fact that business philosophers and economists articulate a philosophy that business should only care about maximizing profits and shareholder value (and has no other compelling ethical responsibilities to any of the other stakeholders) has done incalculable harm to the reputation of business. The "brand of business" in the widest sense is pretty terrible throughout the world. Read David Korten's book When Corporations Rule the World to get a good perspective on how many intellectuals see corporations and big business today -- a threat to the well-being of the entire world. The anti-globalization movement is actually an anti-corporation movement and it is a direct result, in my opinion, of the faulty logic of the shareholder value maximization model. You and I know that business and capitalism are helping increase prosperity throughout the world. Too bad the economists have done such a poor job of intellectually justifying the intrinsic ethical nature of business and the capitalist system. Both business and capitalism have terrible reputations as a result. Socialism, communism, and anti-globalization are all reactions to this philosophy. I sometimes wonder whether any of these horrible philosophies would have had much of a following except for the intellectual failures of our economists to properly understand the real purpose of business.
Second, there is a fundamental paradox that I call the "paradox of shareholder value". The best way to maximize shareholder value is to not make maximizing shareholder value the primary purpose of the business. Why not? Because it is the business that satisfies customers best that has the most customers, the highest sales, and the most profits. The best way to satisfy customers best is to organize the entire business around satisfying the customer. Every communication the business makes towards its customers, its employees, and the media should be about putting the customer first. Ultimately the best way to satisfy customers' needs best is to actually put those needs first. If profit is the articulated primary goal of the business then it is unlikely that the employees or management of the business will dedicate themselves to customer satisfaction to the same degree they would if customer happiness was seen as more important than investor profits. In the first case customer happiness is merely a means to an end -- maximizing profits. In the customer-centered business, however, customer happiness is an end in itself and because it is it will be pursued with greater interest, passion, attention and empathy than the profit centered business is capable of.
Let me give you an analogy that may make this point better: What is the key to happy marriage? Is my wife's happiness an end in itself for me or is her happiness merely a means to a different end -- my own personal happiness? It has been my experience that I am happiest in my marriage when my love for my wife causes me to place her needs and desires first -- ahead of my own. When my wife is happy then I am happy. When she isn't happy, then I'm not happy. I achieve my personal happiness in marriage best by not focusing directly on it, but by focusing on her happiness as the primary goal for me in the marriage. That is the way love works, in my opinion. The beloved's happiness is an end in itself -- not a means to some other end. Paradoxically by seeking to maximize my wife's happiness, I also maximize my own. However, that is a secondary by-product of my desire for her personal happiness. Fortunately for me my wife shares my philosophy of marriage and reciprocates my dedication to her happiness with an equal dedication to my own happiness as well.
Similarly to a happy marriage, the most successful businesses put the customer first -- ahead of the shareholders. They really have to have this dedication to the customer to maximize customer happiness. Customers aren't stupid. They know when they are being misled or merely being used. It is also difficult to impossible to truly inspire the creators of customer happiness, the employees, with the ethic of profit maximization. Maximizing profits may excite shareholders, but I assure you most employees don't get very excited about it even if they accept the validity of the goal. It is my business experience that employees can get very excited and inspired by a business that has an important business purpose (such as selling the highest quality natural and organic foods) and teaches them to put the needs of the customers first. People enjoy serving others and helping them to be happy -- when they know this is their primary goal and are also rewarded for successfully doing so.
The customer-centered business is usually the most successful and the most profitable, while the shareholder centered business usually underperforms over the long-term. I suggest reading Jim Collins' two books Built to Last and Good to Great for empirical evidence to this viewpoint. The ultimate test of these two business theories, however, is in the marketplace -- not in theoretical arguments. My company, Whole Foods Market, is a mission-driven business that puts the customer first, the team members second, and the shareholders third. We are winning competitive battle after competitive battle in the marketplace against businesses which adhere to the philosophy of maximizing profits and shareholder value as their primary goal. Whole Foods has never had a store we open ever fail in the marketplace. We have never lost a competitive battle in 27 years of business! Why not? Because the profit-centered businesses we compete against cannot beat us in the marketplace. Our customer and team member-centered business model beats them every single time. We did over $4 billion in sales the last 12 months. We'll be over $10 billion by 2010 and over $20 billion by 2014.
You may or may not agree with my business philosophy, but it doesn't really matter. The ideas that I'm articulating result in a more robust business model than the shareholder-maximization model that it competes against. They will triumph over time, not by persuading intellectuals and economists through argument, but by winning the competitive test of the marketplace. Someday businesses such as Whole Foods which adhere to a stakeholder model of customer and employee happiness first will dominate the entire economic landscape simply because it is a more robust business model. The old shareholder model that most economists believe in will not successfully compete over the long-term with the new paradigm that Whole Foods represents and that I've tried to articulate here. The better business model will win in the marketplace and it's the Whole Foods model. Wait and see!
