What, exactly, is a purpose statement? It’s something that articulates a company’s reason for being, beyond making products or services. The Kellogg Company, for example, describes its purpose as “Nourishing families so they can flourish and thrive.” Disney’s purpose is “To create happiness for others.” Google says it exists to “Organize the world’s information and make it universally accessible and useful.”

Defining a purpose is not just for large organizations, however. In small and midsize companies, a purpose statement can bring teams together, strengthen culture, connect business goals with personal values and help employees realize the true meaning of their work.

Five characteristics of a purpose statement

There’s a practical reason for businesses to put purpose first: It drives financial performance. In his book “Built to Last,” Jim Collins documented that purpose-driven companies tend to achieve better financial performance than profit-driven companies. His research showed that organizations with a clear purpose achieved financial returns that were six times greater than businesses that focused only on profits.

Developing a good purpose statement — one that captures the why of a business — is hard. It takes time, thought and input from individuals throughout the company. Collins argues that a good purpose statement has five characteristics:

1. It should be inspiring to those inside the company.
2. It should be as valid 100 years from now as it is today.
3. It should help you think expansively about what you could do but aren’t doing.
4. It should help you decide what not to do.
5. It should be truly authentic to your company.

Distinguishing mission, vision and purpose

Companies tend to use the words “mission,” “vision” and “purpose” interchangeably, but that’s a mistake. Here’s the distinction:

• Mission describes a company’s business and deliverables. It answers the question “What do we do?”
• Vision articulates what is possible for a company in the future. It answers the question “What do we aspire to do?”
• Purpose captures why a company exists. It answers the question “Why do we do what we do?”

But creating a purpose statement is only the first step. Leaders must then demonstrate, through their words and actions, what it means to live that purpose. Over time, this will lead to stronger employee engagement, improved job satisfaction, and better talent recruitment and retention.

Leaders must demonstrate, through their words and actions, what it means to live that purpose. Over time, this will lead to stronger employee engagement, improved job satisfaction, and better talent recruitment and retention.

Joe Galvin
Vistage Chief Research Officer

This ideal is reflected in a story you may have heard: Three laborers were hauling bricks on a construction site. A man stopped and asked each worker what they were doing. The first sighed and said, “I am laying bricks.” The second said, “I am building a wall.” The third smiled and said, “I am building a cathedral!” Connecting employees to your larger purpose will make them see their work differently — not as laying bricks, but as building cathedrals.