I’ve just read a truly depressing article about the Phones4U scandal by Alex Proud – the poignant quote of which is: “Phones4U was bought by the private equity house, BC Partners, in 2011 for £200m. BC then borrowed £205m and, having saddled the company with vast amounts of debt, paid themselves a dividend of £223m. Crippled by debt, the company has now collapsed into administration. The people who crippled it have walked away with nearly £20m million, while 5,600 people face losing their jobs. The taxman may also be stiffed on £90m in unpaid VAT and PAYE”
How can this be acceptable business practice? How have we come to live in a world that values making money above all else? It’s not the making money part that I object to but it is when maximisation of profit is the only driver, no value is placed on the wider influence of employment and social impact. Maybe it’s the board/shareholder herd mentality, there is no connection between the investment and those who they are investing in – and because there is no personal connection and understanding of the business, maximisation of profit is all that draws them together. There seems to be an ever-growing, widening chasm between big businesses and investment firms only interested in maximising profits and those who are taking a more holistic approach to business practice.
There is a postive trend for business to be more engaged in their employees and customers, more aware of the impact they have on this world and wanting that impact to be positive. NotOnTheHighStreet is a case in point, they are supporting 5000 small businesses on their site, six of whom have made £1 million directly through NotOnTheHighStreet sales. And yet they are still a highly profitable business, last year they turned over £87 million.
Winter Silk Scarf and Block Print by Just Clothing Company
I had a meeting with an investor recently, we were discussing the options of wholesale product purchase from our artisan businesses and that of building a platform that would allow them to sell directly to the consumer. The former has a much larger profit margin for Just Clothing Company, the later would increase the profit margin for the artisan business. In our model, both are needed, many artisan businesses from some of the poorest communities of the world are not established enough to sell directly to the consumer, by purchasing wholesale Just Clothing Company can support the business to grow until it’s independence. But a key driver for us is impact – by using the marketplace model we will be able to scale across many communities and, having just come back from a visit to the slums in Mumbai, I can assure you they need to greater profit margin far more than Just Clothing Company does. But we can still make money, we can still grow the business – it’s just that our profit is not just valued simply in monetary terms, social impact is at its heart as well.
The investor? He simply could not comprehend the concept of reducing profit margins – no matter what the social cost.
justclothingcompany 