Sustainable entrepreneurship
The triple layer business model canvas - Joyce & Paquin (2016)
Business models & sustainable entrepreneurship - Business models are not static. They are used to design and modify how a business creates value. - Business models are a way to run experiments to look for ways to innovate - Innovation is a key aspect of being entrepreneurial - Innovation is needed to solve complex problems related to a sustainable future Week 2 The entrepreneur-environment nexus: uncertainty, innovation and allocation. - York and Venkataraman (2010) Set out to address how entrepreneurship can be a solution to environmental degradation. Their starting point is that environmental degradation represents an opportunity for new value creation. Central to the article is the following idea about entrepreneurship: - Entrepreneurs are more likely than incumbents to act under conditions of uncertainty to solve problems of environmental degradation and create the conditions under which incumbents can act. - Entrepreneurship is driven by uncertainty - Entrepreneurs may address the 'found world' but they can also create a new one. The theory of effectuation calls this creating the future instead of predicting it. Incentives to address environmental issues Context: traditionally efforts to reduce environmental degradation focused around 4 main incentives to act: - Governmental / regulation - Stakeholder action / pressure - Ethical - responsible action - Corporate action - economic benefits Governmental / regulation - Laws and regulations often seen as the ideal mechanism for solving environmental issues. - But degradation persists! Stakeholder action - Motivated by the view that businesses take insufficient responsibility and governments fail to act to regulate effectively. - Stakeholders lobby to change practices, behaviors and consumer preferences and gain support to address environmental issues. - But this seldom (zelden) solves the actual problems directly. Ethical action - Private responsibility: businesses should take responsibility for the problems they cause. - As an ethical duty, they should solve problems related to air and water pollution and the consumption of natural resources. - But this often leads to a reactive: do less bad than do more good approach Corporate action - Focuses on business case approach which primarily relies on financial benefits. - For example: reduce waste, operate more efficiently to reduce costs. - But often limits the range of possible solutions (incremental innovations) Traditional view of the relationship between environmental degradation and business: - There is a trade-off between environmental and economic goods - Environmentalists see it as a zero sum game in which nature loses out to business interests - The question being asked is: How can existing companies become more sustainable? Why do incumbents not act: risk and uncertainty - Incumbents suffer from organizational inertia (they are slow) - Sunk costs in plant and equipment - Specialization leading to competency traps, path dependancies and a reliance on routines - Risk to reputation and legitimacy - Uncertainty over which types of environmental strategy will be rewarded by customers, stakeholders or governments Entrepreneurship and sustainability An alternative view: - The problems of environmental degradation represent opportunities for value creation - Entrepreneurs discover and create opportunities in the face of ambiguity about the future - Entrepreneurs can find new ways to simultaneously create economic value and ecological value Uncertainty and entrepreneurs - Entrepreneurs privatize risk - they invest in opportunities even tough they do not know if they will produce profits - The produce information, when determining the viability of the market and thus reduce the risk and uncertainty - In doing so they can also help incumbents Entrepreneurs take action under conditions of uncertainty and run experiments to validate what is possible. Entrepreneurs take the risk, and while doing that they generate information. These information can be used by incumbents to enter the market. Then the innovation becomes the new standard and norms are adjusted. Conclusion The issue of resolving our current crisis is not one of regulation, but of innovation. Because environmental uncertainty translates into business uncertainty for existing firms, they are unlikely to act themselves. - Environmental issues clearly represent the type of opportunity that entrepreneurs have a particular orientation toward - Environmental entrepreneurship is most effective in for-profit, new ventures - The more uncertain and intractable the environmental problem, the greater the likelihood that entrepreneurs can make a contribution to resolving it So, it is entrepreneurs who will be the game changers.
Design for the triple top line: New Tools for Sustainable Commerce. - McDonough & Braungart (2002)
- Saving energy, living moderately, making production processes more efficient and less harmful - to Prof. Dr. Michael Braungart these principles of sustainability as we understand today do not sound attractive. - In his opinion they do not go in the right direction. - His vision is different, he wants to develop products and production processes, which eliminate waste. The products he develops must be completely safe for both people and environment. Eco-efficiency: minimize impact Eco-effectiveness: positive impact Three types of products Products of consumption, such as cleaning chemical, shampoos, and packaging materials are made from biological nutrients and designed for safe disposal in the natural environment. (producten die 'op' kunnen). Products of service, such as cars, washing machines, televisions, are made from technical nutrients and designed to provide a service to users and then to be recycled. Unmarketable products, such as hazardous waste, cannot be consumed or used in an environmentally sound way, and should be discontinued and substituted as soon as possible. Triple top line Once products have been eco-efficiently optimized and fit the Cradle to Cradle framework, the triple top line can be met. The triple top line takes the concept of the triple bottom line but reorients the view from minimizing harm to maximizing benefit. Cradle-to-cradle design At the level of the product design there are 5 steps to become eco-effective: - Free of substances from the X-list: substances that are known to be bad for humans or animals - Personal preferences - The passive positive list: okay to use since they have a neutral impact on the environment. - The active positive list: okay to use since they have a neutral impact on the environment - The active positive list: materials are completely compatible with human and environmental health, and are selected for their good and useful qualities. - Reinvention of substances that are on the Gray list: substances are not ideal but lack viable substitutes and are necessary for continued manufacture. These steps are aimed at specifying all the inputs that go into a product and making sure that they are either biological nutrients or technical nutrients. The ABC-X list is used to determine whether a product is marketable.
What is the difference between a green business and a green-green business (Isaak (2002) - The making of the ecopreneur)
A typical green business did not start out that way. But once it was established, managers discovered the cost, innovation and marketing advantages, if not the ethical arguments for greening their existing enterprise. A green-green business is designed to be green in its processes and products from scratch. Furthermore it is intended to transform socially the industrial sector in which the company is in towards a model of sustainable development.
Causation and effectuation: toward a theoretical shift from economic inevitability to entrepreneurial contingency - Sarasvathy (2001)
Core goal - entrepreneurial processes To develop a special theory that explains the creation of new firms. To do this she develops a decision model that involves processes of effectuation rather than causation that is derived from observing expert entrepreneurs. Responses form 27 companies with experienced entrepreneurs. Previous research had tried to identify the personality traits and characteristics that define WHO entrepreneurs are - the goal was to identify key success factors and how to design education programs to make more successful entrepreneurs. But was unsatisfactory results: people with very different personality types appear to be able to set up and run different kinds of companies. So, research turned its attention to WHAT entrepreneurs actually do - the process of entrepreneurship. Sarasvathy argues that existing management approaches to decision making are only relevant for existing firms. None of these decision theories involve creation of new firms, markets of economies. So, how do entrepreneurs make decisions op pricing, recruitment, valuation... When the firm and market does not yet exist? Difference between causation and effectuation Causation To what extent we can predict the future, we can control it. Effectuation Starts with: - Who am I? - What do I know? - Who do I know? Non-predictive control Risk: the outcomes are random, the probabilities are known Uncertainty: the outcomes and their probabilities are not know To what extent we can control the future, we do not need to predict it How do you take decisions without using predictive information? - Gather information through experimental and iterative learning techniques. - Entrepreneurs have a high tolerance for ambiguity: So... find partners, stakeholders, customers or make alliances that lead to success or adapt to a new product resource combination. Sarasvathy identifies 4 principles related to the logic effectuation - Affordable loss rather than expected return - Strategic alliances rather than competitive analyses - Exploitation of contingencies rather than exploitation of pre-existing knowledge - Controlling an unpredictable future rather than predicting an uncertain one Since the article - the effectuation principles have been further developed: - Bird in the hand principle - The affordable loss principle - The crazy quilt principle - The lemonade principle - The pilot in the plane principle The bird in the hand principle Begin with the means available, who they are, what they know, whom they know. Start with the means already within control, focus on the doable. The affordable loss principle Invest only what you can afford to lose, rather than focusing on picking a venture with the best expected returns. If you are going to fail, do so quickly and cheaply. The crazy quilt principle Rather than seeing the market as something to be entered and conquered, make a new market, allow stakeholders to self-protect grow networks and partnerships who commit up front to help co-create, shape the opportunity and the market and thus reduce uncertainty. Direction depends on who joins them and when. The lemonade principle When life gives you lemons make lemonade, start with flexible goals and focus on doing the doable. Contingencies become resources to be leveraged rather than distractions to be avoided. Expert entrepreneurs welcome the unexpected and turns surprises into opportunities. The pilot in the plane principle Don't rely on predictions and trends to know what to do, rather take control and choose your own direction. Bring together people and resources, transform existing structures into better configurations rather than waiting from them to change. The future is not predicted or discovered, but made. Effectuation is a continuous process. Lean startup approach Why do so many startups fail? - Entrepreneurs don't always know who their customers are - And if they want their product Lean startup method use formal business models and processes - core to the approach is: - Get out of the building - Talk to your customers - Test your assumptions - Pivot or persist - make small or large changes in direction and... - Run experiments again and again
The making of the ecopreneur - Isaak, 2002
Difference between green businesses and green-green businesses. A typical 'green business' did not start out that way. But once it was established, managers discovered the cost and innovation and marketing advantages, if not the ethical arguments for greening their existing enterprise. A 'Green-green business' is designed to be green in its processes and products from scratch, as a start-up, and furthermore, is intended to transform socially the industrial sector in which it is located towards a model of sustainable development. Ecopreneurship is an Weberian ideal type that refers to a person who seeks to transform a sector of the economy towards sustainability by starting up a business in that sector with a green design, with green processes and with a life-long commitment to sustainability in everything that is said and done. What drives an ecopreneur? It should not be only a money-making concern but also a mission of social consciousness and political transformation in order to make the earth a more sustainable place. Ecopreneurs may be well advised to go start up other green-green companies rather than hanging on the one that enters an older, established 'maintenance' phase and that demands a trustee manager role more than an entrepreneurial influence. Promoting ecopreneurship In the current global economy where people are inclined to take short cuts to economic growth the question becomes: what can be done practically in the private and public sector to further ecopreneurship? Merely 'greening' business as usual appears to have had but a marginal effect in moving society towards sustainability. To make society sustainable requires a jump-start process of spreading green-green businesses. Private-sector initiatives that can promote ecopreneurship - Create their own world of value by setting limits (check paper, unclear) - Search for green strategic innovations - Use green marketing, adding distinction by understatement - Promote green brainstorming to reduce costs - Encourage green networking in the community to generate free publicity - Use social ecopreneurship as an extraordinary motivator for your employees Public strategies to foster ecopreneurship - Change tax incentives to reward the creation of green jobs and to punish resource use - Build creativity and ecopreneurship incentives into standards for public-sector management - Use ecopreneurship as a strategy for boosting civic competence and social capital - Start a public campaign to de-legitimatise non-sustainable business results -> increase social pressure besides fines. Summary in own words A green business is a business that was not green from the beginning and adjusted its business model towards sustainability later. This can be because of the ethical arguments, but mainly because of marketing, cost and innovation advantages. A green-green business was designed to be green from the scratch. Its goal is to transform the sector they are in towards a sustainable business model. Sustainability should be integrated in all the aspect of the firms design. According to Isaac these firms can be called ecopreneurs. Ecopreneurs are driven by not only a money-making concern but also a mission of social consciousness and political transformation in order to make the earth a more sustainable place. They often start other green-green companies rather than hanging on to the first the initial one when it reaches a maturity phase (less need for entrepreneurial influence). In the current global economy where people are inclined to take short cuts to economic growth the question becomes: what can be done practically in the private sector and public sector to further entrepreneurship?. Merely 'greening' business has only a marginal effect in moving society towards sustainability. To make society sustainable requires a jump-start process of spreading green-green businesses. Options in the private sector are: - Create their own world of value by setting limits - Search for green strategic innovations -> sustainability criterion limits the parameters and makes business strategy more focused - Use green marketing, adding distinction by understatement - Promote green brainstorming to reduce costs - Encourage green networking in the community to generate free publicity - Use social entrepreneurship as an extraordinary motivator for employees Public options are: - Change tax incentives -. Reward creating green jobs, punish use of (public) resources - Ecopreneurship incentives - Using ecopreneurship as a strategy for boosting civic competence and social capital -> use targeted means to bring people together for a common cause - Start a public campaign to de-legitimatize non-sustainable business results -> environmental damage should be heavily fined and exposed. But beyond this social pressure must be increased.
What is the definition of an ecopreneur according to Isaak 2002 (The making of an entrepreneur)
Ecopreneurship is an weberian ideal type that refers to a person who seeks to transform a sector of the economy towards sustainability by starting up a business in that sector with a green design, with green processes and with a life-long commitment to sustainability in everything that is said and done.
Greening goliaths versus emerging Davids - Theorizing about the role of incumbents and new entrants in sustainable entrepreneurship. - Hockerts and Wustenhagen (2010)
Greening Goliaths versus Emerging Davids Greening Goliaths represent larger incumbent firms using incremental innovation to bring about sustainable development. Emerging Davids are start-ups and young companies introducing disruptive innovations. Both can play a role in contributing towards sustainable development but they do so in different ways. For future success the interaction of the two types is needed. For emerging Davids social and/or environmental objectives are at least as important as important as economic objectives. For Greening Goliaths the economic objectives are dominating, social/environmental objectives are complementary. Starting point: incremental solutions will not be enough to maintain critical levels of natural and social capital. Sustainable entrepreneurship has a role to play. Their definition of sustainable entrepreneurship: The discovery and exploitation of economic opportunities through the generation of market disequilibria that initiate the transformation of a sector towards an environmentally and socially more sustainable state. There is a need for transformational change! Innovations can be disruptive or incremental. According to Hockerts & Wustenhagen only Davids introducing disruptive innovations can be classified as demonstrating sustainable entrepreneurship. Emerging Davids - They are not limited by previous (technological) mindsets and are more innovative - They are part of the solution and not seen as part of the problem - Sustainability start-ups have a value-based approach and externalize costs by asking customers to pay a premium for socially and environmentally superior products (and services) - They tend to have a single issue focus and can be less good at addressing a broader range of sustainability issues - Idealistic approach can lead to little or no attention to growth strategies - They prefer to keep their niche market small and exclusive, in order to avoid incumbents moving into their markets. Greening Goliaths - Incumbents may be slow to react but are often able to catch up quickly once they have decided to follow - They may then benefit from being able to charge premium prices, following the price level established by the start-up - They can launch Venture Capital funds to monitor innovating Davids - They may be able to influence the setting (or reduction) of environmental standards in their favor (e.g. car industry lobby) - They may try to keep standards fixed rather than encourage continuous improvement Goliaths and Davids follow different approaches but they can converge (see image below). Over time the externalized costs are increasingly internalized. Sustainable transformation of an industry when both start-ups and incumbents respond to the influences of each other in the market. B Lab founders - We did well, and now we want to do good. - Obstacle: There was no real way to distinguish authentically good companies from companies with good marketing campaigns. - "By law, corporate leaders had the fiduciary responsibility to maximize investor profits". - The goal became to reinvent capitalism. Week 3 The Brundtland report, 1987 Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It contains two concepts: - Needs, in particular the essential needs of the world's poor, to which overriding priority should be given - The idea of limitations imposed by the state of technology and social organization on the environment's ability to meet present and future needs.
What drives an ecopreneur according to Isaac 2002 (The making of an ecopreneur)
It should not only be a money-making concern but also a mission of social consiousness and political transformation in order to make the earth a more sustainable place.
Sustainable entrepreneurship and sustainability innovation: categories and interaction. - Shaltegger and Wagner (2011)
Shaltegger & Wagner, develop a typology in order to distinguish sustainable entrepreneurship from other forms of social entrepreneurship and corporate, environmental responsibility. They also develop a framework and a classification matrix that positions companies along dimensions related to market impact and environmental and social issues as core business performance goals. Sustainable entrepreneurship and Sustainable innovation Innovation - With their innovations sustainable entrepreneurs and sustainability managers are shaping markets and society - Market innovations driving sustainable development do not occur by accident but can be created by leaders who put them into the core of their business activities Entrepreneurship ass creative destruction Schumpeter: sustainable entrepreneurs destroy existing conventional production methods, products, market structures and consumption patterns and replace them with superior environmental and social products and services. Schaltegger & Wagner: Sustainable entrepreneurship: An innovative, market-orientated and personality driven form of creating economic and societal value by means of break-through environmentally or socially beneficial market or institutional innovations. Forms of sustainability oriented entrepreneurship - Ecopreneurship - Social entrepreneurship - Institutional entrepreneurship - Sustainable entrepreneurship Ecopreneur Core motivation: contribute to solving environmental problem and creating economic value Main goal: Earn money by solving environmental problems Role of economic goals: Ends Role of non-market goals: environmental issues as integrated core element Organizational development challenge: From focus on environmental issues to integrating economic issues Social entrepreneurship Core motivation: Contribute to solving societal problem and create value for society Main goal: Achieve societal goal and secure funding to achieve this Role of economic goals: economic goals are means to reach the main goal Role of non-market goals: Societal goals as ends Organizational development challenge: From focus on societal issues to integrating economic issues Social entrepreneurs are individuals with innovative solutions to society's most pressing social problems. They are ambitious and persistent, tackling major social issues and offering new ideas for wide-scale change. Ashoka is the largest network of social entrepreneurs worldwide, with nearly 3000 Ashoka Fellows in 70 countries putting their system changing ideas into practice on a global scale. Social entrepreneurs are seen as influencing small groups and not mass markets, but could influence trends and institutions and thus move towards sustainable entrepreneurship Institutional entrepreneurship Core motivation: Contribute to changing regulatory, societal and market institutions Main goal: Changing institutions as direct goal Role of economic goals: Means or ends Role of non-market goals: Changing institutions as core element Organizational development challenge: From changing institutions to integrating sustainability Sustainable entrepreneurship Core motivation: Contribute to solving societal and environmental problems through the realization of a successful business Main goal: Creating sustainable development through entrepreneurial corporate activities Role of economic goals: Means or ends Role of non-market goals: Core element of integrated end to contribute to sustainable development Organizational development challenge: From small contribution to large contribution to sustainable development Disruptive innovation, scaling up to reaching mass markets and replace the existing materials. Sustainable entrepreneurship should make a substantial contribution, meaning both a large market influence and a large social or political influence. - A large market influence can be based on a large market share or on influencing competitors and other market actors (such as suppliers) to adopt superior sustainability solutions - A large social and political influence includes the development of trends, fashion, values and political opinions, institutions, regulations and frameworks. In turn what is needed is (sustainability) innovation.
Sustainable business models - Bocken et al. (2014)
Sustainable business models The route to a sustainable economy will require the development of innovative sustainable business models. Sustainable business models incorporate a triple bottom line approach and consider a wide range of stakeholder interests, including environment and society. What is a business model? - How the firm does business. - A business model articulates how the company will convert resources and capabilities into economic value. It is the organizational and financial architecture of a business and includes implicit assumptions about customers, their needs, and the behavior of revenues, costs and competitors. - A series of elements: the value proposition, product/service offering, customer segments, customer relationships, key activities & resources, partners, distribution channels, cost structure and revenue model. These definitions are only focused on creating economic value. Sustainable business model: - Key differences that influence the strategy of the enterprise - Sustainable business models build on the triple bottom line approach to define the firm's purpose and measure performance, include a wide range of stakeholders, and thus consider the environment and society as stakeholders. - Business model innovation for sustainability often involves changing the way you do business Model The model has 8 archetypes divided into three groupings. The groupings are: - Technological - Social - Organizational The technological archetypes are: - Maximize material and energy efficiency - Create value from waste - Substitute with renewables and natural processes The social archetypes are: - Deliver functionality rather than ownership - Adopt a stewardship role -> (care for ...) - Encourage sufficiency -> reduce production because durability or education about reduced consumption) The organizational archetypes are: - Repurpose for society/environment -> e.g. become not-profit organization, or home based flexible working - Develop scale up solutions -> scale up in order to increase created sustainable value The key components of the business model are: - Value proposition -> Product/service offering to generate economic, social or ecological return - Value creation and delivery -> create value by seizing new business opportunities, new markets, new revenue streams; key activities, resources, channels, partners, technology; customer segments - Value capture -> cost structure, revenue streams The model works like this. You pick an archetype that your business fits in. Then adjust your value proposition to that archetype. Base on that value proposition what value creation you are going to do (resources, activities etc.) and lastly describe how you are going to capture value from it (costs and revenues). Summary in own words: The route to a sustainable economy will require the development of innovative sustainable business models. Sustainable business models incorporate a triple bottom line approach and consider a wide range of stakeholder interests, including environment and society. A business model is a reflection of the way you do business. The main difference between business models and sustainable business models is that a wider range of stakeholders (environment and society) is taken into account in sustainable business models. A business model innovation for sustainability often involves changing the way you do business. The model works like this. You pick an archetype that your business fits in. Then adjust your value proposition to that archetype. Base on that value proposition what value creation you are going to do (resources, activities etc.) and lastly describe how you are going to capture value from it (costs and revenues). The Bocken model helps you the fill in the TLBMC in a sustainable way based on one of the archetypes.