The Keys to Successful Sustainability Entrepreneurship

5.2 The Keys to Successful Sustainability Entrepreneurship

Learning Objectives

Understand the role of entrepreneurship in sustainable business.
Discuss what is meant by providing value to customers and how this concept applies to sustainability practices.
Understand what is meant by social entrepreneurship.

All the factors that are important to the entrepreneur in a standard business are critical to the successful sustainable business. Sustainability entrepreneurship builds on the basics of entrepreneurship and extends it to encompass addressing ecological and social concerns through the creation of new enterprises and innovation in existing enterprises.

Sustainable businesses recognize change in the form of the increased scientific evidence about the effects of ecological disruption on human populations and the environment and increasing evidence of rising social inequities that are disruptive to the business environment and global society. Sustainable businesses recognize change by understanding that the consuming public is becoming increasingly concerned about these challenges to a sustainable world.

These changes create market opportunities for sustainability-focused businesses. The market opportunity includes the opportunity to address concerns about sustainability by providing new products and services that reduce energy and natural resource use.

Sidebar

Stonyfield Yogurt: Tapping into Consumers Taking Responsibility for Their Health and for Society

Stonyfield’s“Everybody Must Get Stonyfield,” Reveries, June 2002, http://www.reveries.com/reverb/cause_marketing/hirshberg/index.html. start-up years were 1983 to 1987—before the era of broad interest in organic agriculture and products. The company tapped into the post-1960s, maturing baby boomer generation. “People were looking to take greater responsibility for their own health and also wanted to have their purchases count for something more than just a purchase,” says Gary Hirshberg, the company’s CEO. “They liked the idea that their grocery dollars could go to causes that they cared about.” Ten percent of Stonyfield’s profits are donated, primarily to environmental causes.

Stonyfield Farms has been a success on an international basis by many different measures. By the time Groupe Danone, S.A., a French conglomerate, purchased a 40 percent stake in the company in October 2001, Stonyfield had $80 million in annual sales and was America’s number four brand of yogurt. The company in 2010 exceeded $100 million in annual revenue and is expected to rank number three nationwide in yogurt sales very soon. Underneath it all, Gary Hirshberg says, is the constant creation of new strategies. “We never knew what was really going to work because there were no models for us,” he explains. “We led with the only things we really knew—our yogurt and our causes.”

The opportunities to address sustainability concerns are worth pursuing if new ways of addressing the concerns can be conceived and delivered in ways that bring net value to significant numbers of consumers in the marketplace. A key for successful sustainability entrepreneurs is to make sure that the new way of doing things they create provide value to their potential customers.

An example of the value from a better and more sustainability-oriented product coming from an entrepreneur can be seen with the Nest Learning Thermostat, also known as the Nest (http://www.nest.com/reviews). Thermostats and even programmable thermostats have been around for a long time. But they have been hard to use and hard to achieve energy efficiency with. The Nest thermostat was created by Silicon Valley start-up Nest Labs, whose cofounder Tony Fadell used to be in charge of iPods at Apple and wanted to start up a venture to fill an unmet need. And not surprisingly, the Nest thermostat has been described as the thermostat that Steve Jobs would have loved and the thermostat can be accessed and set using the iPhone and iPad.

The innovative thermostat learns from household behavior and automatically programs the thermostat settings to reflect household routines and preferences to achieve maximum energy efficiency. The Nest thermostat adjusts to household patterns. The Nest thermostat gets smarter over time based on the way households raise or lower the temperature and how household members come or go at different times. In a week’s time, the Nest thermostat will automatically turn down heating or cooling when household members are not around. The Nest product was introduced in 2011, and in early 2012, the company was sold out and could not meet demand for its product even though the price was well above conventional and other programmable thermostats.

Consumers that purchase a Nest thermostat pay a premium above the cost of conventional thermostats due to the higher cost of the technology in the Nest product. The benefit consumers derive is that over time they can more effectively and more easily manage their home heating and cooling, use less energy, and reduce their costs and greenhouse gas emissions. Customers receive value in lowered costs and the personal satisfaction of knowing that their carbon footprint has been reduced, and they can also demonstrate their environmentalism to visitors in their home. A bit of conspicuous conservation can help sell “cool” new products like the Nest.

Sidebar

Making the World a Better Place with Invention and Entrepreneurship

To understand why Tony Fadell is building the world’s most high-tech thermostat with a team that includes several former iPod and iPhone engineers and an artificial intelligence researcher who’s won a MacArthur Genius Grant award, you have to imagine that you’re him: flush with cash after nine years leading mobile devices at Apple, and wandering the world with your family. You’ve just spent six months in Paris on a whim. You’re building an ultra-green home in Lake Tahoe, with a $15,000 heating and cooling system. When your architect shows you the archaic $350 thermostats that control the system, you’re not only genuinely offended by their lack of innovation, but you have the ability, time, and means to make your own.

The amazing thing about Tony is that he tells this story as though it’s the most natural thing in the world—as though anyone faced with a similar set of circumstances would immediately start trying to build a thermostat. Actually, that’s not the amazing thing. The amazing thing is that after a while you start to believe him.

“Most thermostats are built by plumbing companies,” Fadell tells me. “But you really need to understand how to build a phone to make them better.” His pitch to Nest co-founder Matt Rogers and their other team members was simple: a breakdown of how much energy a thermostat controls (50 percent in a typical home), the size of the potential market (150 million residential thermostats in the US alone, and another 100 million commercial units) and how much technology would be needed to make an impact (lots). “In a span of 25 to 30 seconds people are like ‘how couldn’t I do this?’” It’s 20 minutes into our meeting and now I’m fired up about thermostats too. Let’s change the world, one leaf icon at a time.

Source: Nilay Patel, “Inside the Nest: iPod Creator Tony Fadell Wants to Reinvent the Thermostat,” The Verge, November 14, 2011, http://www.theverge.com/2011/11/14/2559567/tony-fadell-nest-learning-thermostat.

Since there are always people pursuing market opportunities, to be a successful entrepreneur requires constant innovation and effort, continuously figuring out new ways to service customers’ needs and wants in cheaper, faster, and better ways. That is what Tony Fadell’s Nest efforts are all about. The opportunities to address sustainability concerns are worth pursuing if new ways of addressing the concerns can be conceived and delivered in ways that bring value to a significant numbers of consumers in the marketplace and that are capable of generating revenues higher than costs over time for the enterprise.

Entrepreneurship as a mind-set, or kind of behavior, lends itself well to sustainable business practices. For sustainable business practice, entrepreneurship is about constantly looking for innovative ways to protect the environment or improve societal conditions by providing new goods, services, or methods that reduce detrimental activities while also generating profits for the entrepreneur. By always thinking about doing things in new and better ways, entrepreneurship is highly relevant to individuals and organizations interested in sustainability.

From the business perspective, entrepreneurship and an entrepreneurial mind-set can be advantageous. It can allow for quicker response to market opportunities, such as those emerging for sustainable business. It can also allow for the ability to focus on particular customers, such as the households most interested in minimizing their environmental footprint even if that means having to purchase a product or service at higher cost than a similar product or service.

Sidebar

The Entrepreneurial Process of Sustainable Entrepreneurs

Choi and GrayDavid Y. Choi and Edmund R. Gray, “The Venture Development Processes of ‘Sustainable’ Entrepreneurs,” Management Research News 31, no. 8 (2008): 558–69. examined the entrepreneurial processes of sustainable entrepreneurs. They identified successful sustainable entrepreneurial companies in various industries ranging from apparel to biotechnology that were exemplary in their pursuit for sustainability. They examined their key decisions and activities in their “entrepreneurial process,” collecting most of the relevant information from published or self-developed case studies. They found that most sustainable entrepreneurs are an unusual breed with limited business backgrounds. Most obtain financing from nonconventional sources and employ unorthodox, yet sound, human resource management practices. They are shrewd in their marketing strategies and effective in running efficient, environmentally sound operations. Also they find innovative methods for balancing their financial goals against their objectives of making a difference in their environment and society.

International Entrepreneurship

China is the “place to be” for many clean technology companies. China is the fastest-growing market for all products and services and also for wind and nuclear power. It is the leader in solar power modules. In addition, the nation has a commitment to expand in the development of electric vehicles and carbon capture from coal plants.

With markets for sustainability goods and services in China and in some other nations growing faster than in the United States, there are significant opportunities and incentives for international entrepreneurship. This can, however, be very challenging, particularly for small start-up ventures. To enter global markets requires knowledge of different laws and regulatory requirements and also of foreign exchange. It also requires knowledge of historical, economic, political, social, and cultural differences among nations.

In China, for example, contracts are more of a memorandum of understanding than a legal binding contract. Business arrangements are commonly built on the foundation of a relationship instead of the law. Chinese companies are used to a rapidly changing business environment. They expect their business partners to be flexible to deal with changing conditions as they occur. This can be a good match for the entrepreneurial mind-set but difficult for entrepreneurial ventures relying on relations and “changing on the ground” while they are physically located thousands of miles and many time zones away from the Chinese market. Also for sustainable business ventures introducing new technologies, China can be a particularly difficult environment for protecting intellectual property. This issue has kept many technology companies from doing business in China. There is a real possibility that Chinese competitors will copy a Western product and nullify the patent or other intellectual property that is protected by law in the home country. Some entrepreneurs might not take this as a barrier. An example is if a US software company operating in China actually tracked down the hackers that had been infiltrating their system and talked them into joining their team as security experts. This is an example of an entrepreneurial company turning a threat into an international market opportunity.

Most entrepreneurs, especially first-time and relatively inexperienced entrepreneurs, would benefit from first focusing on home markets before entering global markets. The challenges of entrepreneurship are hard enough without also trying to figure out entry into global markets. Yet the reality is that China’s and other nations’ high growth rates and large populations make it an important market for sustainable products and services. Before engaging in global markets, however, entrepreneurs must prepare and recognize how global markets vary and how they may require different strategies and practices. If done right, the Chinese and other global markets could be significant opportunities for entrepreneurs focused on sustainability.

Social Entrepreneurship

Many of the for-profit entrepreneurs engaged in sustainable businesses might be characterized as social entrepreneurs—enterprising individuals who apply business practices to addressing societal problems, such as pollution, poor nutrition, and poverty, and are interested in social change. Social changeProcess in which values, attitudes, and institutions of society are changed. involves social processes whereby the values, attitudes, or institutions of society, including businesses, become modified. It includes both the natural process and action programs initiated by members of society. Entrepreneurship can be a process that contributes to social change.

Many social entrepreneurs are engaged in nonprofit organizations. An example is Kiva (http://www.kiva.org/about), a nonprofit organization with a mission to connect people through lending to alleviate poverty. Leveraging the Internet and a worldwide network of microfinance institutions, Kiva lets individuals lend as little as $25 to help create opportunity around the world. Since Kiva was founded in 2005, it has engaged nearly six hundred thousand lenders worldwide providing more than $200 million in loans to microenterprises in sixty different countries.

Sidebar

Profile of a Successful Social Entrepreneur

Jessica Jackley was a cofounder of Kiva, the world’s first person-to-person microlending website. Jackley and Matt Flannery founded Kiva in October 2005. Jessica obtained an MBA from the Stanford Graduate School of Business, with certificates in public and global management, as well as a BA in philosophy and political science from Bucknell University.

Social entrepreneurs engaged in for-profit ventures are concerned with creating shared value—for their companies and also for society. Creating both private and societal value aligns well with the interests of the large percentage of consumers. Edelman (http://www.edelman.com), the public relations firm, has identified that 87 percent of Americans believe that companies should place at least as much value on societal interests as on business interests. And many thought leaders on entrepreneurship have recognized the potential of social enterprises. For example, Bo Fishback, vice president of entrepreneurship at the Kauffman Foundation in Kansas City believes that “it’s not all pie in the sky.…Many social entrepreneurs have shown they can accomplish their mission.…They can deliver a social good and report a positive cash flow.”Stacy Perman, “Making a Profit and a Difference,” Businessweek, April 3, 2009, http://www.businessweek.com/smallbiz/content/mar2009/sb20090330_541747.htm.

The concept of building a profitable business model in which doing good and contributing to social change is an intrinsic part of the business and not just a sideline has been gaining ground in recent years. Social entrepreneurs total more than thirty thousand and are growing in number, according to B Lab, a nonprofit organization that certifies these purpose-driven companies. Together, they represent some $40 billion in revenue.

Sidebar

Certified B (Benefit) Corporation

Certified B (Benefit) Corporations are a new type of corporation that use the power of business to solve social and environmental problems. B Corps (http://bcorporation.net/about) are unlike traditional businesses because they meet comprehensive and transparent social and environmental performance standards and meet higher legal accountability standards.

Sidebar

Private Foundation Support for Social Entrepreneurs

The idea of blending a social mission with business is not new. One of the founding forces behind the movement, the Ashoka Foundation (http://www.ashoka.org), since its inception in 1981, has granted multiyear living stipends to support more than two thousand fellows dedicated to finding answers to a host of social ills through business ventures.

Examples of Sustainability Entrepreneurs (from the Textbook Case Studies)

Case chapters in the textbook document sustainable businesses and how they addressed consumer concerns about ecological and social matters in new ways across different industries. An entrepreneur was the key driver in four of these cases. Simply Green, Green Mountain Coffee, Seventh Generation, and Stonyfield Yogurt have provided fuel, coffee, household products, and yogurt to customers, respectively, with product options that have lower carbon and environmental footprints and higher attention to social justice. We summarize one of the case examples and its founder entrepreneurs here.

Green Mountain Coffee Roasters (GMCR)

Source: Wikimedia, http://commons.wikimedia.org/wiki/File:Salvadorcoffeegrower.jpg.

Bob Stiller opened his first coffee shop in 1981 in Waterbury, Vermont, selling high-quality coffee. His concept was simple: sell only high-quality coffee to ordinary people every day. When demand for his coffee outstripped his small store, he started bagging his coffee and sold it to wholesalers, supermarkets, and through mail order. Then recognizing and experiencing the challenges brought on by fierce competition in the specialty coffee segment of the industry, Stiller became an early advocate that his business—and all businesses for that matter—could help make the world a better place by committing to sustainable business practices. Green Mountain Coffee Roasters (GMCR), under Stiller’s entrepreneurial leadership, saw an opportunity to create a competitive advantage by embedding sustainability in its products and practices. Stiller was passionate about this commitment and was convinced that this would lead to financial success. By adopting innovative sustainable business practices, GMCR met customer demand while having a positive impact on the environment and society. GMCR implemented a fair trade procurement model that improved the quality of life for the farmers in the coffee bean supply chain and their families. At the same time, fair trade helped GMCR monitor quality and lower costs. By lowering dependency on traders and other supply chain intermediates in procuring its coffee, the company lowered supply chain costs and was able to respond more quickly to customer preferences. The company’s entrepreneurial success is seen in Green Mountain’s stock price with $100 invested in company stock in September 2004 valued at $1,600 by March 2009. In 2009, the company was listed as number eleven on Fortune’s “100 Fastest Growing Companies” and number five in Forbes’s “Best Small Companies.” The company sales and net income for year-end 2009 were $803 million and $55.8 million, respectively.

Key Takeaways

Addressing environmental and social concerns can create business opportunities that can benefit the economy and society.
Successful sustainable businesses are focused on the creation of new products and services that address ecological and social concerns in new ways.
Sustainability entrepreneurship can involve starting a new business or creating a new product or service in an existing business.
Sustainable entrepreneurship can impact companies of all sizes, from the very small to the world’s largest.
The entrepreneur is the key driver in sustainability efforts at both new and established companies.
To be successful in sustainable business practices often requires entrepreneurship and innovation.
Social entrepreneurship specifically utilizes a business as the vehicle to tackle a societal problem.
Green Mountain, Stonyfield, and Oakhurst all provide examples of how entrepreneurship led to innovation in regards to sustainability at existing organizations.

Exercises

Generate a list of possible sustainable new business opportunities that you might be interested in undertaking. What innovations are critical to the success of each of the new business opportunities that you identified?
In the sidebar on Peter Drucker’s interpretation of entrepreneurship (from Section 5.1 "Overview of Entrepreneurship"), discuss how that view applies to sustainability entrepreneurship.
Search for a blog on social entrepreneurship. Write a paper reflecting on what you learn from the blog and answer the question, “Why do you think social entrepreneurs do what they do?”