Sustainable Startups: beyond policies

The whole Startup Savvy website is suffused with sustainability thinking and practice, but this page is here to help you take a more reflective look at what is implied by business sustainability.

Ethos—the guidepost for sustainability

The core function of business is innovation, technology development, capital investment and the implementation of sound management capability for value creation. However, business is increasingly being looked upon as a bringer of solutions to global problems.

The truly sustainable company will have convictions and values based on a strong ethos and if you slice the company any which way the ethos should be clearly visible. The three 'E's: Economy, Equity, Ecology as depicted below will follow a fourth 'E' or Ethos. A guiding light. It is perfectly possible to run a company based simply on the three 'E's in a programmatic way: a fair, ecological and profitable enterprise.

To the ancient Greeks, the meaning is simply "the state of being", the inner source, the soul, the mind, and the original essence, that shapes and forms a person or anima, or here we might say, the organization. It is the underlying reason for the company's existence and not simply good business practice. The state of being implies morality, not just policy. The ethos has to be dominant to be genuine.

An ethos-driven organization relies on its reputation and thus derives from what it is deep within. Reputations can come and go as we see with the fickle nature of brand rankings. Thus to be sustainable, rather than fashionable, a company has to be consistent and totally trustworthy, having made explicit its core values.

Most debates of sustainability in business center around the three 'P's (Profits, People, Planet). The assumption also is that sustainability implies continuity. However, (a) there is no reason to consider a company as being a permanent, and (b) there are two other important considerations:

• culture, beliefs and inner life
• systems thinking and life cycle.

We live and we die. Businesses come and go. And so they should. "Impermanence is the very heart of life. It makes life possible. Reject impermanence, you reject life."¹; Everything changes. We exist within a complex system. Mass extinctions have been taking place for eons. Causation has been varied: asteroids, radiation, climate. The Darwinian idea of steady evolution is being daily bombarded by new scientific evidence to the contrary.

On the other hand, ideas and values have continuity and meaning that can outlast the physical, so long as human beings are around. To prevent disequilibrium, we need a new ethos on human society's relationship with natural systems. Hence the importance of putting ethos in the middle of the constellation of economy, equity and ecology.

Economy, Equity, Ecology—the essentials of sustainability

The widely held core thinking about sustainability is around

• Economy: the so-called business of business, and employment, but remember that only half of the stock price of publicly traded companies is the result of the after tax profits they generate—the other half results from many different intangibles.
• Equity: fairness and fair-trade are high on the sustainability agenda, but remember that the terrible pay of poor people in India may enable children to be educated; also imbalance and inequity often starts at home.
• Ecology: the environment and the green movement are often uppermost in the mind when sustainability is mentioned. Passing on the planet viably to succeeding generations is vital. So too, is respect for it and all its creatures.

No wonder the triple bottom line is now a part of generally accepted good management practice. Increasing numbers of companies make commitments (such as the Sullivan Principles) that underline the wider purpose of business to meet its obligations to all their stakeholders (not exclusively to shareholders). Nor is it surprising that many large companies now have CSOs—Chief Sustainability Officers. The list includes Dow (David E. Kepler, EV-P), Google (Robyn Beavers), Mitsubishi (Ryoichi Ueda, CEO) and HSBC (Jon Williams). CSOs have also been appointed at law firms such as Nixon Peabody (Carolyn S. Kaplan, Attorney) and Universities, such as the University of New Hampshire (Tom Kelly, Ph.D). Each one of these organizations approaches sustainability in a different fashion, bearing witness to the fact that there is no single universally agreed definition. The spirit of sustainability, however runs through their policies.

Nearly two decades ago, Paul Hawken set these principles for sustainable small business:

• Replace nationally and internationally produced items with products created locally and regionally.
• Take responsibility for the effects they have on the natural world.
• Do not require exotic sources of capital in order to develop and grow.
• Engage in production processes that are human, worthy, dignified, and intrinsically satisfying.
• Create objects of durability and long-term utility whose ultimate use or disposition will not be harmful to future generations.
• Change consumers to customers through education.

Culture, beliefs and inner life—transform mundane sustainability

John Ehrenefeld (you should read his Sustainability by Design blog every day; he writes regularly even from his summer home in Maine), says he collapsed the strategy for creating sustainability into three domains:

• recovering our sense of what it is to be human,
• our sense of ethical behavior (responsibility), and
• our sense of our place in nature.

The successful startup will have a leadership with a clear set of values to ensure that the business is sustainable. The successful leader will knows the inner self and will be a natural ecologist of the soul as well as the environment,

"The planet's survival--and evolution—depends on our collective capacity to look within more honestly, and to act more consciously and less defensively in every sphere of our lives," says Tony Schwartz in What Really Matters. Robert Glassman, co-founder and co-chairman of the socially progressive Wainwright Bank & Trust based in Boston considers that the "harmony" between his personal life, business life, and philanthropy, "is as close as I'm going to come to being a spiritual person."

Ricardo Levy, founder of one of the component firms and Lead Director of Renegy, a company that has a growing portfolio of biomass-to-electricity power generation facilities, discovered the need for spiritual guidance in crucial decisions, especially those that affect other people such as employees. His guidelines are:

• Quiet the mind.
• Reach deep inside. Go beyond the ego to hear the inner voice.
• Don't fear ambiguity; rest in the unknown.
• Stay humble in the face of temptation and power.

In an interview with HBS senior research fellow Laura Nash in 2002, he said, "I'd rather use the word fulfillment. Success is a metric; you never have enough. But only you can define fulfillment. We as individuals are the only judges."

When asked recently in course of my teaching on an MBA in Managing for Sustainability, to name three leadership qualities of importance, my answer was: lovingkindness, vulnerability and focus on outcomes.

Systems thinking, life cycle and change

Systems thinking: You are more connected than you think. You are also connected at more levels than you think. Peter Senge, the author of The Fifth Discipline, describes business as being "bound by invisible fabrics of interrelated actions, which often take years to play out their effects on each other. Since we are part of that lacework ourselves, it's doubly hard to see the whole pattern of change. Instead we focus on snapshots of isolated parts of the system, and wonder why our deepest problems never get solved." You will find it rewarding to read Senge's latest book, The Necessary Revolution, in which he and co-authors offer a model of sustainable shareholder value.

Senge suggests that organizations need to develop an ensemble of five disciplines to enhance their capacity to realize their highest aspirations:

1. Systems Thinking: experiments with young children show that they learn systems thinking intuitively and quickly.
2. Personal Mastery²: clarifying and deepening our personal vision, focusing our energies, developing patience and seeing reality objectively.
3. Mental Models: deeply ingrained assumptions, generalizations, even pictures or images that influence how we understand the world and how we take action.
4. Building Shared Vision: leadership that has the capacity to hold a shared picture of the future we wish to create.
5. Team Learning: the discipline starts with "dialogue"; teams in business today, are where the rubber meets the road.

Stop to consider the interactions between: you-›‹-group/team-›‹-system and start seeing

• interrelationships rather than things,
• patterns rather than events, and
• structures that underlie complex situations.

I learned the hard way in the early days of my first business. You should watch for them from now on. One of the best demonstrations I know of an entrepreneurial company that demonstrates an understanding of these interrelationships is ShoreBank that reversed the cycle of economic and social decline on Chicago's South Shore. It was created to demonstrate that a regulated bank could be instrumental in revitalizing the communities being avoided by other financial institutions. ShoreBank is a B Corporation (like WorkSavvy).

Life cycle: A shift of mind is needed to integrate and apply the ensemble of disciplines, together with the realization that all businesses go through life cycles. The life cycle is not a fixed linear progression, any more than is your own life. The natural phases of the business life cycle are:

• startup
• growth
• decline, leading to:
• renewal or death.

Many times, there are feedback loops, and mini life cycles within the whole. At the excitement of starting a business, it is vital to consider the implications of the probable futures for it, even if they spin out beyond your own life span. Just like you, your new business may die. If the time is right, then the ending of the business does not of itself signify the lack of sustainability.

Change: Given that everything is always changing and there are things we can do to change within, but it is much more difficult to change without, we do better to start inside. Our ability to impact sustainability will be greater if we first work on ourselves. This means starting with ourselves as individuals, even before we think of ourselves as organizations.

Of course environmental or social justice activists have an impact on what happens in civil society, but real systemic change only comes from individuals deciding to make changes in their own behavior. So there is nothing wrong in entrepreneurs wanting make a contribution to changing the world, but their contribution will start within.

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Those whom we do not see

Traditional business models are concerned with issues and people that are visible: investors, customers, staff and immediate community—the stakeholders. However, business now impacts many whom it does not see at the boundaries of the system.

For this reason we have to consider the unintended impact of our business activity: the butterfly effect³. Considering the 'unseen' often also provides opportunities to the entrepreneur.

Think contribution: your enterprise will be making a contribution if it is genuinely doing something of value and does want to survive.

Think service: your enterprise can be of service beyond immediate financial reward and get benefits in profusion: learning, new ideas, a sense of playing its part in the world, recruiting motivated staff...

Relocalize the distanced:

While we can enjoy the benefits of globalization, there are many things which we have globalized that can be repatriated and relocalized with benefit. It is worth thinking about what we can procure of make locally, in the community of which we are a part. What might we be able to produce locally on our own or with collaborators, given the benefits of

• lower transport cost,
• speedier deliveries,
• better service,
• greater local business support
• personal contact.

A consumer who relocalizes is a localvore: someone who eats food grown or produced locally or within a certain radius such as 50, 100, or 150 miles and the movement is now quite widespread in the US. The principle is being taken up by other industries desirous of appealing to consumers who consider themselves localvores. The New Oxford American Dictionary chose localvore as its word of the year in 2007.

The availability of local financial support has been dwindling, as mega banks gobble up local ones. And some cases, then go bust in a downturn. One way forward has been demonstrated by Community Supported Agriculture. Now that model is being borrowed in many other sectors in the form of community supported business—in fields like other food services, books, and manufacturing.

Invigorate the poor:

An inclusive business is a sustainable business that benefits low-income communities. Inclusive businesses may engage low-income communities through, among other things, directly employing low-income people; targeting development of suppliers and service providers from low-income communities; or providing affordable goods and services targeted at low-income communities.

BoP, an acronym for "base of the (economic) pyramid," refers to the approximately four billion people whose incomes are less than $3,000 a year, based on analysis done at the World Resources Institute. BoP - a term first introduced by Professors C.K. Prahalad and Stuart Hart in their 2002 article, "The Fortune at the Bottom of the Pyramid" - has come to designate not the poverty but the potential of the world's poorest citizens as entrepreneurs, employees and discerning consumers. A practical primer of microcredit and how it works is by businessman Phil Smith and mircrocredit expert, Eric Thurman; called A Billion Boostraps, the book should convince you. The Life You Can Save by Peter Singer, professor of Bioethics at Princeton University sets out the ethical case for contributing to the elimination of world poverty.

For an excellent summary of the opportunities for investing at the base of the pyramid, download a copy of KPMG Netherlands' Profiting from the Poor? report. Micro-businesses are proliferating through the use of the mobile phone as a means of deliver—the mobile phone is becoming a key tool for reaching new markets and servicing customers at the lowest possible cost. In South Africa, for example, there are many more mobile phone customers than there are bank account holders.

Take a look at Wizzit, a South African startup that takes low cost transactional banking to the poor through mobiles. Research suggests that there will be 43 million mobile phone owners in the country by 2011 (a 90% market density). The BOP world has a myriad of mobile phone based stories and more than 1.5 billion people in developing countries now have mobiles. In India, there are door-to-door sellers of spices working by mobile and moped. Read more about how the mobile phone companies have cracked the Bop code.

NextBillion brings together the community of business leaders, social entrepreneurs, NGOs, policy makers, and academics who want to explore the connection between development and enterprise. The goal is to identify and discuss sustainable business models that address the needs of the world's poorest citizens. NextBillion.net is a website and blog about how business drives positive social and environmental change in low-income communities.

Trend? There are beginning to be financial institutions set up to serve those who deliver to the BOP. An example is IGNIA Fund I is a social venture capital fund that invests in high growth businesses in Mexico and other regions of Latin America. By providing responses to the under-served needs of the low income population, both as consumers as well as active participants in productive value chains, IGNIA empowers entrepreneurship and generates social impact while creating attractive financial returns for its investors.

Trend? Sustainability Consultants are beginning to be established. An example is The Green It Group, sustainability professionals with expertise in green building, sustainable business strategy, green product assessment, and organizational development. They can help determine the environmental impact or carbon footprint of products, train employees on sustainability or the LEED rating system, or implement a comprehensive sustainability platform.

The Green it Group (like WorkSavvy they are a B Corporation) team has been working with organizations to achieve value through sustainability for more than a decade and say that they, "deconstruct assumptions and beliefs to rebuild a regenerative society."

Enfranchise the disadvantaged:

Social enterprises are social mission driven organizations which trade in goods or services for a social purpose and their business offer is beginning to blur with the traditional business model as the latter strives to meet the needs and wants of all its stakeholders.

Social enterprise describes any non-profit, for-profit or hybrid corporate form that utilizes market-based strategies to advance a social mission.

Recalibrate success:

One of the reasons we so often fall into economic downswings and the social suffering that results is that globally we try to measure things in the wrong mix. From the international and nation level on down, we consider progress in terms of Output and Growth. Using Gross National Product as the evaluator, we convey the idea that doing more beats doing better. There is a huge movement to change the way we calibrate the way we live.

The tiny Himalayan Kingdom of Bhutan measures GNH or Gross National Happiness. The GNH measurement attracts a lot of attention, but is often seen as remote as the kingdom that uses it. At levels nearer to home there are also many efforts, many of which are described by Mark Anielski in his book, The Economics of Happiness.

As an entrepreneur, you can make similar decisions about what you measure. Naturally your business has to thrive, but you can join the thousands of companies (big as well as small) that measure the Triple Bottom Line and meet the interests of all your stakeholders.

There are many examples in books on sustainability, but see especially Bo Burlingham's Small Giants—Companies That Choose to Be Great Instead of Big and John Ehrenfeld's Sustainability by Design. The former for good case material and the latter for a more reflective treatise, though applicable nonetheless.

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1. Thich Nhat Hanh, the revered Zen Vietnamese Bhuddist monk.

2. 'Personal proficiency' is a similar term used by Ulrich, Smallwood and Sweetman in The Leadership Edge to mean clear thinking and rising above the details; knowing yourself; tolerating stress; learning agility; tending to your own character and integrity; taking care of yourself; personal energy and passion.

3. Small variations of the initial condition of a dynamical system may produce large variations in the long term behavior of the system.The idea is that a butterfly's wings could create tiny changes in the atmosphere that would alter the path of a tornado or delay, accelerate or even prevent one somewhere else.

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