Principled Entrepreneurship

By Tim Busch

The term, “Principled Entrepreneurship” is defined by Charles G. Koch, CEO of Koch Industries, Inc. as “maximizing the long term profitability of the business by creating superior value for our customers while consuming fewer resources and always acting lawfully and with integrity.” Koch claims that this basically comes down to everyone in the business helping themselves by helping others to improve their lives. It requires a team of workers, each of whom knows the right thing to do and is motivated in doing it, without explicit directions or overly detailed rules. “Good Profit” then doesn’t mean high margins or high return on capital or lots of profit by just any means. Rather, Good Profit comes about by the contribution that is made to enhance society- not from corporate welfare or similar ways that take advantage of others.

Koch began in the mid-1960s to develop his management framework which he calls “Market-Based Management”. This framework enabled him to grow from a company that was valued at $21 million in 1961 to one that was valued at $100 billion in 2014. And this result occurred despite the Great Recession of 2008.

Koch is convinced that no one knows better than the customer which products or services he or she values. And providing those products or services establishes a voluntary, mutually beneficial relationship between the company and the customer which results in Good Profit. Allowing the government to mandate or subsidize products through special tax breaks, import tariffs, restrictions on exports, anti-competitive regulations or bailouts results in bad profit because it relieves recipients of the constructive pressure to innovate and create value for society, hinders the unsubsidized competition by coercion and limits choices available to consumers.

Koch believes that if Principled Entrepreneurship were a coin, value creation for the customer would be one side, but the other would be the conservation of resources, referring to “capital, new materials, energy, labor, specialized skills, intellectual property, and time.” Across the industries he owns and in reviewing other industries he does not own, Koch’s team is constantly studying energy-related benchmarks and best practices. The team leverages internal and external knowledge to develop a model that includes “measurement tools, an integrated site-by site roll up of energy saving projects and ideas, an annual energy best practice assessment to gauge progress and energy conferences to promote knowledge sharing” The result has been a substantial savings of costs.

At the Good Profit conference, we will have a once in a lifetime opportunity to hear about Good Profit from Charles Koch himself, along with a diverse lineup of other excellent speakers from a variety of corporate, religious, and academic fields. Market Based Management has transformed my own company, and I anticipate that Charles’ talk will have a tremendous impact on everyone in attendance.