Consider two kinds of companies, each inspired by its own variety of non-financial goals. The first kind wants to achieve some big social impact, like making the world more connected, organizing the world's information and making it universally accessible, or making humanity an interplanetary species. The second kind of company has more modest goals, like trying to operate an authentic Parisian bakery, an indie game studio, or a bookstore that only sells mystery novels. In both cases, strict adherence to that mission trades off against current profits. So both kinds of businesses can easily become businesses that have to choose between contributing to its mission and ever making money. But you'd tend to categorize the first set of companies as "mission-driven companies," and the second set as "vanity businesses." How different are they really, and how do these differences matter?

The first obvious difference is that some mission-driven companies do earn profits, and actually end up becoming very valuable companies. This happens with enterprises that might initially be described as vanity businesses, too; when Martha Stewart started her catering company in the 1970s, while married to a prominent publishing executive, it looked exactly like the kind of company that a rich guy would subsidize so the model he married wouldn't be bored. Martha ended up being a billionaire, albeit briefly, and while Andrew appears to have done fine professionally, he never reached that level. There are also plenty of consumer packaged goods companies that started as fun side gigs before scaling up into actual products. Some of the celebrities who launch cosmetic lines or wellness brands are doing it as a minor sideline to their main business, but in some cases they turn out to be pretty ruthless operators themselves (Jessica Alba, for example, did a decent job timing the market by taking the Honest Company public in 2021; it's down 87% since then). These businesses can exist with other funding sources and other backstories, too. Consider David Ellison, who worked his way up in twenty years from being a minor actor to being the controlling shareholder of one of the Big Five studios through sheer grit, intelligence, and also being the son of the fifth-richest person on earth.

Mission-driven companies and vanity businesses can both read as a form of very expensive consumption by rich people. On the mission-driven side, that consumption is in the form of opportunity cost, and in the vanity business model it's that plus the actual cash infusions required to keep the company going. But the way these companies interact with other parts of the economy is quite different: if a business looks like a vanity business, the people it will attract are people who are fine with working for a company that isn't viable on its own; the economic role they play is similar to that of waitstaff at high-end restaurants, where they're helping to put on some expensive, highly-customized entertainment centered on the provision of actual goods. But for mission-driven companies, it's almost the reverse—they have an edge in recruiting people who either like the mission or can be persuaded that it's a good thing.

So the mission is a cost paired with a subsidy: the company directs some of its resources towards lower-return activities, but it also has more resources to direct at a given level of revenue and funding. Unlike a vanity business, a mission-driven company always has something to do next: as long as the world's information isn't fully organized or we haven't colonized Mars, there's plenty more spending to do. Vanity businesses have almost the opposite problem, at least if they're truly a vanity business and not just a bad business with access to capital on preferential terms: the more they grow, and the more seriously they're taken, the easier it is to see whether they're legitimate or not. Someone willing to spend $10k/month on a fun retail boutique will probably not want to turn it into a chain just to burn ten times as much.

Mission orientation also gives companies a different permission structure, which can evolve in a few ways: they're sometimes prone to a more dictatorial model, where the mission is the property of the CEO and every detail needs to be checked against it. The other option is roughly the opposite: part of the point of a mission statement is to provide a sort of company constitution, but one that’s closer to the British sense than the American sense: a set of rules and norms that at least nominally supercede the org chart itself. That does involve distributing more veto power, but a company with a mission needs more vetoes over non-critical tasks.

Missions give companies a bit more flexibility in another way: call it "earning-to-give to earn"—set a prosocial goal, be convinced that you're indispensable to achieving it, and you can justify all kinds of ruthless behavior. This is an increase in variance not in direction: it probably encourages SpaceX to beat up suppliers on price a bit more, and to harangue government partners a bit harder. But it's also exactly the kind of reasoning that was used at FTX.

At least some of the distinction between vanity and mission is entirely ex-post. If SpaceX had failed, or if Tesla hadn't worked out, Elon Musk might be vaguely remembered as the dot-com millionaire who blew all of his money on rockets; there's a near possible world where Larry and Sergey are a reminder to Stanford grad students that if you chase the latest financial bubble, you'll give up a promising academic career that you won't get back when the bubble pops. (Of course, it's likely that in both cases, they would have found something else to do well. It's a very counter-factual counterfactual.) The nice thing about that is that a vanity project is a few shifts in priority away from being a mission-driven company, and that founders who are unsure of which they're really building will find out in the end when they see if their idea actually worked.

Read More in The Diff

The Diff has spent more time on mission-focused companies than on vanity businesses, but we’ve done a bit of both.

• Owning a sports team is buying meme stocks for the 0.01% ($).

• We’ve looked at how SpaceX scales.

• One good way to pursue  a mission: operate in an environment with cheap, patient capital.

• The Honest Company ($) hasn’t done well as a public company, but has done better than a pure vanity business would.

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