Sustainable venture capital

What is the role of ‘sustainable’ venture capitalist in developing new sustainable start-ups?

Venture capitalists have a special role to play as they usually invest during the more risky stages of doing business – when businesses are still relatively young and the business benefits are not yet fully crystalized. This research has focused on ‘pragmatic idealists’ – in short, those that want to change the world positively, but also want to make good business out of this.

Figure 1. Role of venture capital. Source: Bocken (2015) based on Marcus et al. (2013)

Key people in the industry were interviewed over a period of a couple of months in 2013. These ‘sustainable venture capitalists’ either started to work on this area because they see themselves as ‘practical idealist’, they disagree with the status quo, or they want to help mainstream sustainable businesses. Some are motivated by fear or a personal epiphany (e.g. having their first child).

Figure 2.  Pragmatic idealists. Source: Bocken (2015)

Innovation in the business model, collaboration, and a strong business case were found to be key reasons for sustainable start-up success. Failure often happens due to the fact that ‘start-ups just fail’ (about 9 in 10 as mentioned by some of the experts), but a strong existing industry is also important. On the investor side, there may be only a few suitable and willing venture capitalists to invest in sustainable ventures, because of a short-term investor mindset and a search for quick-win-formats (e.g. apps).

There is plenty of opportunity for large businesses to collaborate with start-ups by acting as an R&D partner of serving as a major customer. Entrepreneurs are already challenging existing business models (e.g. Airbnb, Zipcar, and numerous new service models, and sharing models (e.g. Peerby and Yerdle), which can eventually make existing business models obsolete. There is also opportunity in new forms of financing such as crowdfunding and peer-to-peer lending. In the end venture capitalists should plan for potential slower returns, in favour of positive societal and environmental benefits.

The full article can be found here:

Bocken, N. 2015. Sustainable venture capital – catalyst for sustainable start-up success? Journal of Cleaner Production (in press) http://www.sciencedirect.com/science/article/pii/S0959652615006460 (open access)

Other sources:

Marcus, A., Malen, J., Ellis, S. 2013. The Promise and Pitfalls of Venture Capital as an Asset Class for Clean Energy Investment: Research Questions for Organization and Natural Environment Scholars. Organ. & Environ, 26 (1), 31-60.

Image

Value mapping for sustainable business thinking

Value mapping for sustainable business thinking

Pressures on business to operate sustainably are increasing. As a result, companies need to adopt a systemic approach to doing business, that integrates consideration of the three dimensions of sustainability – social, environmental, and economic – in a manner that generates shared value creation for all stakeholders including the environment and society.

This is referred to as “sustainable business thinking”.

The business model is a useful framework for system-level innovation. It is about the way business is done. It makes a link between different activities inside a company, such as design and production, to more outward looking activities, such as supply chain management, managing partnerships, and distribution.

A business model framework is included below.

Screen Shot 2015-03-09 at 14.44.21

 Figure. Business model framework. Bocken et al. (2015), adapted from Richardson (2008), Osterwalder and Pigneur (2010) Bocken et al. (2013) and Short et al. (2013).

A value mapping tool has been developed before to assist in ‘sustainable business modelling’ (see below). The tools aims to help create awareness of stakeholder perspectives, contradictions and synergies, and consider the value captured, missed and destroyed for each stakeholder to develop new opportunities that could benefit the whole network of stakeholders, not just the firm and the customer.

Figure. Value mapping (this particular version was used in a joint workshop for AMFI together with Christiaan Kraaijenhagen 20 Jan, 2015)

In this study, the potential use of value mapping as a tool and process was explored, to encourage sustainable business thinking. A range of workshops (over 20) was held with different audiences – industry, academic and student, non-profit – to get a better idea of the usefulness of the tool in different settings.

The potential applications to stimulate sustainable business thinking identified by using the tool include the following:

(1) Ideation for start-ups and established firms, to develop new sustainable business model ideas

(2) Education, to learn about sustainable business model innovation, by using case studies for example

(3) Product and process design and life cycle thinking

(4) Evaluation and screening, of new business model ideas

(5) Systems thinking, to take a more holistic perspective on doing business

(6) Collaboration, to find out about each other’s ‘value maps’ and find common ground

More information on value mapping as an approach is available at:

Bocken, N., Rana, P., Short, S. 2015. Value mapping for sustainable business thinking. Journal of Industrial and Production Engineering, DOI: 10.1080/21681015.2014.1000399 

Bocken, N., Short, S., Rana, P., Evans, S. 2013. A value mapping tool for sustainable business modelling. Corporate Governance, 13 (5), 482 – 497

From refining sugar to growing tomatoes

How could the biggest sugar refiner in the UK become the biggest tomato grower as well?

Over the past three decades, British Sugar has systematically identified ways to turn waste streams and emissions from their sugar production processes into useful and positive inputs to new product lines. Their main business is still sugar, but the business model has evolved to offer a broad range of additional profitable product lines, including animal feed, electricity, tomatoes, and bioethanol.

The article “From refining sugar to growing tomatoes” describes the business model innovations British Sugar has pursued over time, ways in which it achieved these innovations, and the sizes of these innovative opportunities. The innovative examples seek to inspire companies to also find ways to transform ‘waste’ into a valuable resource for new business lines.

The full article, which is part of a special issue in the Journal of Industrial Ecology on “Industrial Ecology as a Source of Competitive Advantage” is available here.

About the special issue on “Industrial Ecology as a Source of Competitive Advantage

Industrial ecology has contributed important innovations to the pursuit of sustainability in business. Life cycle assessment and the use of life cycle thinking more broadly, industrial symbiosis and the exchange of resources among neighboring factories, loop-closing, material flow analysis, design for environment are innovations with the potential to reduce environmental impacts and to generate financial benefits for companies.  Yet the case that these intriguing approaches actually contribute to corporate competitive advantage has not been made.

In “Industrial Ecology as a Source of Competitive Advantage,” a special feature of the new issue of the Journal of Industrial Ecology, cutting edge research is presented on how, when and why the use of industrial ecology by business can lead to cost savings, enhanced profits and a variety of more intangible business benefits.

Some highlights from the issue include:

  • Johnathan DiMuro and colleagues from the Dow Chemical Company use replacement cost methodology and life cycle assessment (LCA) to systematically document the financial and environmental benefits of a constructed wetland at a Union Carbide Corp. plant in Texas.
  • Christoph Meinrenken and colleagues from Columbia University and Pepisco present a tool that uses data mining and machine learning to rapidly generate product carbon footprints (PCFs) for PepsiCo and combine them with business key performance indicators on a routine basis in its strategy and business planning.
  • Mark Finster and Michael Hernke of the University of Wisconsin develop a typology of strategic benefits related to competitive advantage that are enabled by industrial ecology concepts and methods, drawing on examples from Grohe, Interface, Maersk, Nestlé, Procter & Gamble, and Unilever.
  • Samuel Short, Nancy Bocken and Claire Barlow from Cambridge University and Marian Chertow from Yale University explore the relationship between industrial ecology and business model innovation through a case study of British Sugar, the UK’s largest sugar producer.
  • Connie Hensler of Interface tracks the 20-year evolution of Interface’s use of LCA as a tool guiding the company toward more-sustainable practices in carpet manufacturing.
  • Mona ManYu Yang and colleagues of AU Optonics present a case study of how AU Optronics Corp., a global leader in thin-film-transistor liquid-crystal displays, differentiated itself from its peers and competitors by implementing IE approaches, most notably carbon footprint (CF) management and dematerialization.
  • Joo Young Park and Hung-Suck Park present a case study of an industrial symbiosis involving a municipal waste-to-energy incinerator and the Hyosung chemical company in South Korea showing economic and environmental benefits of the project as well as an assessment of the competitive advantages for the participants.

Articles will be freely available online for a limited time.

The Journal of Industrial Ecology is a bimonthly peer-reviewed scientific journal, owned by Yale University, published by Wiley-Blackwell and headquartered at the Yale University School of Forestry & Environmental Studies.

Business model innovation for sustainability grid

Today, the business model innovation for sustainability grid was launched.

The business model innovation for sustainability grid was developed to inspire businesses to reconceive how they operate and become more future proof when faced by growing sustainability challenges. It was based on based on research by Nancy Bocken, Samuel Short, Padmakshi Rana and Steve Evans (University of Cambridge)A literature and practice review to develop sustainable business model archetypes. It is maintained by Plan C the Flemisch network for sustainable management of materials.

To grab the opportunities of a sustainable future, innovations need to introduce environmental and social considerations at the core of the business model, while retaining a profitable proposition. Classified around 8 archetypes of business model innovations for sustainability, a multitude of approaches and real life business cases is presented.

The business model innovation for sustainability grid is available here.

Image

Sufficiency based sustainable business model innovations – towards a typology

Business models define the way a firm does business. Sustainable business model innovation may be viewed as an important lever for change to ‘business as usual’ to tackle pressing sustainability issues. To expand the scope of business model innovations in practice and research beyond product service systems (e.g. Tukker, 2004), green (FORA, 2010) and social business models (Yunus et al., 2010), sustainable business model archetypes were developed. These include: Maximise material and energy efficiency; Closing resource loops; Substitute with renewables and natural processes; Deliver functionality rather than ownership; Adopt a stewardship role; Encourage sufficiency; Seek inclusive value creation and Re-purpose the business for society/environment (see figure below).

Figure

 Figure: Sustainable Business Model Archetypes. Adapted from Bocken et al. (2014)

 Sufficiency based sustainable business models seek to reduce consumption and, as a result, production. The focus is on influencing consumption behaviour, which may involve product design for durability, a major shift in promotion and sales (e.g. no overselling) and supplier selection based on durability. Profitability would typically result from premium pricing, customer loyalty, and better (particularly more durable) products, while societal and environmental benefits include reuse of products and resources across generations, reductions in product use (impact) and societal education (Bocken et al., 2014). Perhaps the opposite of premium models are ‘frugal innovations’ (or Jugaad innovations) where business model solutions are developed with minimum resource inputs. This may also be viewed as a form of ‘sufficiency’.

The figure below includes a typology for sufficiency-based business models, which may facilitate the process of building up these business models.

Figu

  Figure: A sufficiency-based business model typology (Bocken, 2014)

 

Explanation of the Sufficiency Typology

The examples are briefly explained below:

Extending product life – Ensuring the product will last as long as possible. Characteristics for design: durability, reparability, modular design. The original customer retains ownership of the product. The business model is often ‘premium’ but includes high levels of service.

Encourage direct product reuse – Reuse of the product across markets and generations. After use by one customer, it will be passed on to another ‘customer’ for free or a price mostly lower (except e.g. antiques, collector items) than the original purchase price. Companies such as Ebay facilitate this. A different example of direct product reuse can be seen at Reduse, home of the Unprinter. This start-up (which I support as an advisor) has developed a technology to remove print from paper and make paper reuse possible.

Sharing resources across more people – Sharing the same product across multiple customers. The customer never ‘owns’ the product. Product sharing platforms are emerging to facilitate this.

Mitigate product use – Mitigating the use of energy / resources by individuals and businesses such as demand management by energy providers stimulated by government incentives.

Mitigate product life cycle resource use – Solutions focused on minimising resources, the most prominent example being ‘frugal innovations’. Unfortunately, most of these solutions have been focused on low income countries and have not yet widely expanded to the ‘west’.

References

  • Bocken, N.M.P., 2014. Sufficiency based sustainable business model innovation. Sustainability Science Congress, 22-23 October 2014. Copenhagen.
  • Bocken, N.M.P., Short, S.W., Rana, P., Evans, S. 2014. A literature and practice review to develop sustainable business model archetypes. Journal of Cleaner Production, 65, 42–56
  • FORA, 2010. Green business models in the Nordic Region: A key to promote sustainable growth, Denmark. Retrieved  http://www.foranet.dk/media/27577/greenpaper_fora_211010.pdf
  • Tukker, A., 2004. Eight types of product–service system: eight ways to sustainability? Experiences from SusProNet. Business Strategy and the Environment, 13(4), 246–260.
  • Yunus, M., Moingeon, B., Lehmann-Ortega, L., 2010, Building Social Business Models: Lessons from the Grameen Experience, Long Range Planning, 43(2-3), 308–325.

 

Sustainable business model archetype: Encourage Sufficiency

Sustainable business model archetypes are groupings of mechanisms and solutions that contribute to building up the business model for sustainability. We developed these as part of collaborative research to develop a common language that can be used to accelerate the development of sustainable business models in research and practice. The sustainable business model archetypes are:

  • Maximise material and energy efficiency;
  • Create value from ‘waste’;
  • Substitute with renewables and natural processes;
  • Deliver functionality rather than ownership;
  • Adopt a stewardship role;
  • Encourage sufficiency;
  • Re-purpose the business for society/environment;
  • Develop scale-up solutions.

 

The “Encourage sufficiency” sustainable business model archetype for example is about solutions that actively seek to reduce consumption and production. The focus is on customer relations and influencing consumption behaviour, product design for durability, a fundamental shift in promotion and sales (e.g. no overselling) and supplier selection based on durability. Profitability would typically result from premium pricing, customer loyalty, and gaining market share from better (e.g. longer lasting) products.  Societal and environmental benefits of sufficiency-based business models include reuse of products and resources across generations, reductions in product use, and societal education (Bocken et al., in press).

Examples

In the clothing industry, the Common Threads Initiative by Patagonia is a good example of ‘sufficiency’. The company pledges to ‘build useful things that last, to repair what breaks and recycle what comes to the end of its useful life’, whereas customers in return are asked to pledge to only but what is needed and will last, make repairs and reuse (share) what is no longer needed and recycle anything else. Patagonia also asks customers to “Not Buy” their jackets, trying to make them aware of the effects of their purchases and encourage them to make things last rather than buying new. However this may have the same effect as asking people not to think of a pink elephant… yes, more purchases!

Clothing swaps, where you come together with friends and swap clothes you no longer wear, are a fun way to freshen up your wardrobe without having to buy something new. It makes use of the ‘resources’ we have in the back of our wardrobes. This also encourages reuse of resources rather than new sales. A specific initiative by M&S encourages its customers to ‘shwop’: to donate clothes to charity through collection bins placed in their stores. In return, customers receive discount vouchers for M&S. Although shwopping encourages customers to have a critical look at their wardrobes and give unwanted items to charity, it does not encourage fewer sales, it may even encourage more by generating traffic to the store.

In the furniture industry, Vitsoe is an interesting example of ‘sufficiency’. Vitsoe has created a video, which shares vision against planned obsolescence – ‘the design and manufacture of products that are deliberately intended to have a limited useful life’ –, which results in an endless cycle of replacement and repurchasing. Vitsoe’s design is aimed to be timeless and durable and its 606 shelving system is still compatible with its first system decades ago. Vitsoe does not give discounts and employees do not receive sales commissions. Vitsoe seeks to provide customers with furniture solutions that  ‘do more with less’.

How can a business still make money if it sells less? Neither Vitsoe nor Patagonia is on the lower end of the price spectrum – on the contrary. Their products are premium-priced but they believe in good customer service. Vitsoe for example helps customers reinstall its shelves when they move home. Patagonia supports repair of its products. The proverb “I am not rich enough to buy cheap things!” applies here.

Although the number of sufficiency-based business models is not yet overwhelming, the concept of making products that last and are repairable is not new and there is an opportunity to make it stylish again to make stuff last. In the fashion industry there are several emerging business models such as Mud Jeans who have combined a sufficiency-based idea with leasing, or the ‘deliver functionality, not ownership’ archetype discussed in the next blog. What interesting sustainable business model innovation-combination will be next?

Source

This blog is based on the following article:

Bocken, N.M.P., Short, S.W., Rana, P., Evans, S. A literature and practice review to develop Sustainable Business Model Archetypes. Journal of Cleaner Production (in press/ Open Access)

Sustainable business model archetypes

Sustainable business models include a triple bottom line approach and consider a wide range of stakeholder interests – including environment and society – into the way business is done. They are important in driving corporate innovation for sustainability, can help embed sustainability into business purpose and processes, and serve as a key driver of competitive advantage.

Many innovative concepts and approaches may contribute to delivering sustainability through business models, such as dematerialisation and choice editing, but these have not been collated under the theme of business model innovation. Through literature and business practice review, a wide range of examples, mechanisms and solutions that contribute to business model innovation for sustainability were identified. These were collated and analysed to develop a categorisation of sustainable business model archetypes.

Sustainable business model archetypes are groupings of mechanisms and solutions that contribute to building up the business model for sustainability. The aim is to develop a common language that can be used to accelerate the development of sustainable business models in research and practice.

The sustainable business model archetypes are:

  • Maximise material and energy efficiency;
  • Create value from ‘waste’;
  • Substitute with renewables and natural processes;
  • Deliver functionality rather than ownership;
  • Adopt a stewardship role;
  • Encourage sufficiency;
  • Re-purpose the business for society/environment;
  • Develop scale-up solutions.

 

Each of these archetypes will be discussed in greater detail in subsequent blog posts.

 

Source

This blog is based on the following article:

 

Bocken, N.M.P., Short, S.W., Rana, P., Evans, S. A literature and practice review to develop Sustainable Business Model Archetypes. Journal of Cleaner Production (in press/ Open Access)

 

 

 

Concentrated, cold-water laundry detergent

In Europe, 43% of laundry washes are done at 40°C and 17% at 60°C or above, the average laundry washing temperature being 41°C. Reducing the wash temperature from 40°C to cold can reduce energy use by 50-65%. It seems that laundry detergent product innovations, campaigns to wash at lower temperatures, updated washing labels in clothing and the availability of more efficient washing machines have led to an increase in the number of cold washes in Europe. Washing at or below 30°C is on the rise: 32% of loads were washed at 30°C or colder in 2011 (up from 29% in 2008) (laundry data are retrieved from A.I.S.E., 2013).

The development of concentrated cold-water laundry detergent can be seen as a win-win-win business model innovation, because it provides opportunities and benefits for manufacturers (of laundry detergent and new more efficient washing machines), retailers, consumers and the environment.

 Win-win-win:

  • Manufacturer-win: reduced packaging and reduced cost. More products per shipping
  • Retailer-win: Less shelf space, because of concentrated products, more space for other products.
  • Consumer-win: Save cost (energy and water use) on low temperature washes, smaller bottles take up less space
  • Sustainability-win: energy and carbon emissions reductions in product use, packaging reduction which results in reduced resource use, customer education about climate change

 

Examples:

Examples of companies who have created or promoted concentrated cold-water laundry detergent include P&G (e.g. Tide, Ariel), Unilever (Small & Mighty) and Marks & Spencer.

 

The concept of win-win-win business models is introduced in the following article:

Bocken, N., Allwood, J. 2012. Strategies to reduce the carbon footprint of consumer goods by influencing stakeholders. Journal of Cleaner Production, 35, 118-129.  (Table 10 and Figure 3 include the win-win-win business models)

Second hand clothing collection and sales at retail

Consumers in the UK spend about £780 per head per year on textiles and clothing, which amounts to 2.15 million tonnes in total or 35kg per person, of which one-eight is sent for re-use through charities and the rest is discarded. This shows ample scope to keep clothes for longer and to make them available for reuse.

Innovative clothing retailers have started to offer consumers the opportunity to return second hand clothing to a store for new product discount vouchers (e.g. M&S) or asked consumers to pledge to make their products last as long as possible, keep them for longer and buy second hand. Patagonia now sells second hand clothing in its stores as well as through Ebay through their Common Threads initiative.

Win-win-win:

  • Manufacturer-win: Brand loyalty, potential to explore reuse of materials to make new garments or textiles products
  • Retailer-win: Generates traffic to stores and can induce more sales
  • Consumer-win: Affordability, feel-good factor
  • Sustainability-win: potential absolute reduction in raw material use through reuse, reductions in landfill, consumer education about reuse

 

Examples:

  • The Common Threads Partnership: reduce, reuse, recycle and reimagine
  • Shwopping: bringing old clothing items into an M&S store (even if not from M&S) each time you come to buy something new.

 

The concept of “win-win-win business models” is introduced in:

Bocken, N., Allwood, J. 2012. Strategies to reduce the carbon footprint of consumer goods by influencing stakeholders. Journal of Cleaner Production, 35, 118-129. http://www.sciencedirect.com/science/article/pii/S0959652612002545   (Table 10 and Figure 3 include the win-win-win business models)