HAVING THE PHILOSOPHIES IN WRITING, and the shared cultural experiences of our classes, played a critical role in the company's turnaround, at the end of 1991. Within a few years we had eliminated several layers of management, consolidated inventories, and brought our sales channels under control—meaning that for the next decade and a half we would refocus on living up to our mission statement: "Make the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis."

But what good does having fixed philosophies do when everything in the business world is so dynamic? How does Patagonia follow its philosophies in light of the expanding Internet market, the effects of NAFTA and the WTO, dozens of technological leaps that significantly affect design and production, new and different employee demographics, and the ever-changing styles and lifestyles of customers?

The answer is that our philosophies aren't rules—they're guidelines. For example, our mission statement says nothing about making a profit. In fact, Malinda and I consider our bottom line the

We also want—and need—to make money, something best accomplished by remaining nimble and efficient. Managing our finances this way helps us remain in yarak, a falconry term derived from Persian and meaning "superalert, hungry but not weak, and ready to hunt."

amount of good that a business has accomplished over one year. At Patagonia, profit is not the goal, because, as the Zen master would say, profits happen when "you do everything else right." In many companies, the tail (finance) wags the dog (corporate decisions). We strive to balance the funding of environmental activities with the desire to continue in business for the next 100 years.

Our financial decision-making reflected our environmental ethics. Back in the mid-nineties, to cite just one instance, we changed the packaging of our thermal underwear. We were using a thick, wraparound cardboard header inside a heavy Ziploc plastic bag. Instead, we decided to hang up the heavier long underwear like regular clothing and simply bundle our lighter underwear with a rubber band. The first year after the change, we saved 12 tons of material from winding up in a landfill, saved $150,000 in packaging, and boosted sales by 25 percent—largely because the product wasn't hidden in a wrapper and people could feel the material and appreciate its quality.

Because we are a privately held company, we could make these kinds of decisions without worrying about the demands of shareholders. This allowed us to grow at a natural rate. When our customers told us they were frustrated by not being able to buy our products because of constant out-of-stock situations, we made more. We have not created artificial demand for our goods by advertising in Vanity Fair or GQ, or on buses in inner cities, hoping to get kids to buy black down jackets from us instead of The North Face or Timberland. We want customers who need our product, not just desire it.

Of course, we also want—and need—to make money, but we believe that's best accomplished by remaining nimble and efficient. One of our goals has been to have no debt. A company with little debt, or with "cash in the kitty," can take advantage of opportunities as they come up or invest in a startup without having to go further in debt or find outside investors. One of our most recent examples is a Japanese fabric mill we're working with to help us switch all of our polyester items, like our Capilene underwear, to 100 percent recycled material—something we probably couldn't have done if we carried a lot of debt. Managing our finances this way helps the company remain in yarak, a falconry term derived from Persian and meaning "superalert, hungry but not weak, and ready to hunt."

This kind of independent thinking applies to our management philosophy as well. In fact, our employees are so independent, we've been told by psychologists, that they would be considered unemployable in a typical company. We don't want drones who will simply follow directions. We want the kind of employees who will question the wisdom of something they regard as a bad decision but, once they buy into something, will work like demons to produce something of the highest possible quality—whether a shirt, a catalog, a store display, or a computer program. How you get these highly individualistic people to align and work for a common cause is the art of management at Patagonia.

Part of the key is strong communication. We have no private offices at our Ventura headquarters; everyone works in open rooms with no doors or separations. What we lose in "quiet thinking space" is more than made up for with better communication and an egalitarian atmosphere. Managers try to lead by example. We don't have special parking places; the best spots are reserved for fuel-efficient cars, no matter who owns them. Malinda and I pay for our own lunches in the cafeteria, so that we don't send a message that it's OK to take from the company. And we have an open-book policy; financial details are available with all employees to promote full transparency.

A familial company like ours runs on trust rather than authoritarian rule. Maybe a few people take advantage of our flextime and our "let my people go surfing" policy, but none of our best employees would want to work in a company that didn't have that trust. They understand that my M.B.A. style of management is as much a sign of my trust in them as my desire to be out of the office.

Because style is so important, I often use climbing mountains as an illustration. You can solo-climb Everest without using oxygen or you can pay guides and Sherpas to carry your loads, put ladders across crevasses, lay in 6,000 feet of fixed ropes, and have one Sherpa pulling you and another pushing you. Rich, high-powered plastic surgeons and CEOs who attempt to climb Everest this way are so fixated on the target—the summit—that they compromise on the process. The goal of climbing big, dangerous mountains should be to attain some sort of spiritual and personal growth, but this won't happen if you compromise away the entire process.