(Re)designing enterprise models for systemic change

Abstract

Amidst growing ecological and societal crises, government action is often sluggish, politics increasingly polarised, and large corporations hindered by a "growth at all costs" model. A radical shift in business models driven by innovative startups is imperative. This article explores the limitations of current corporate and governmental approaches and showcases how nimble startups, if approached innovatively, can ignite cascading waves of change in the sustainability landscape.

Introduction

Corporate sustainability efforts frequently encounter roadblocks, bogged down by bureaucracy, inertia, and a lack of agility. The bigger they are, the harder it is—this is the paradox of “Green-Growth-Capitalism,” the elephant in the room of all 21st-century board meetings. Despite increasing awareness, many established corporations fall short of implementing effective changes. This article contends that visionary startups (businesses still within their formative years) hold the key to leading the way toward genuine transformation in sustainability and human rights, bringing to the forefront a new question: “What if we could decouple business from the degenerative limitations inherent within the design of capitalisms necessity for exponential growth?” By delving into the frustrations of Corporate Sustainability Leaders and illuminating the transformative potential of regenerative business, this article aims to set the stage for a paradigm shift led by startups but supported by government, green/regenerative finance, and large private sector collaborations.

The corporate sustainability paradox

Navigating the labyrinth of corporate sustainability can be overwhelming, with a plethora of acronyms and frameworks that often lead to fatigue and disillusionment among professionals. As Mads Oscar Human, Co-Founder of the Post Growth Guide, aptly puts it:

"CSDDD, CSRD, CSR, IPBES, CCUS, TBL, PPP, EES, ESS, ESG, EPR, HRDD, IPCC, SDG, CCS, GRI, SBT, CDP, ISSB, ESRS, CDSB, CoC, DJSI, EMAS, GHG, GSSB, LCA, SASB, SCoC, WBSCD, NFRD, B-CORP, SFDR. Dealing with this day in and day out, one must feel the frustration."

The litany of standards and guidelines often leads to disillusionment among Corporate Sustainability Leaders. The irony is that we put all our energy into these, tickling at the edges, while the reality without tangible change is that planet Earth and wider society don’t give out gold stars for our efforts; they need to see results. Erin Remblance, the co-founder of RE-Biz and Project Tipping Point, underscores this urgency and inadequacy of current corporate actions nicely:

"We need a wartime mobilisation to decarbonise with urgency, starting now and completed as quickly as possible. The ‘carbon budgets’ and ‘targets set in the future for someone else to achieve’ are no longer acceptable. We have squandered three decades, actively exacerbating the situation by increasing our greenhouse gas emissions by 60% since 1990. We have no choice but to rapidly reduce our GHG emissions while ensuring everyone's needs are met."

In contrast, startups have the potential to catalyse sustainability transformations from day one. Unburdened by legacy systems, startups can chart a course toward sustainability from their inception. While existing corporations struggle with incremental changes, startups can forge a new path and embrace a sustainable-by-default model. A startup symbolises a blank canvas ripe for innovative ideas and sustainable practices. Instead of gradual changes and greater compliance, startups can commit to establishing a radically new normal from their inception—as long as they build themselves radically differently, to avoid becoming another bloated and unsustainable corporation-as-usual.

The green growth paradox

The notion of "green growth" is at the heart of corporate agendas, yet it is fundamentally flawed. Green growth suggests that economic growth can be decoupled from environmental degradation, but this has proven challenging for established businesses and has long been scientifically ruled out as not fast enough or even feasible — dependent on non-proven technology that's not viable on a global scale within the planetary boundaries. Despite this, their efforts continue, struggling to decouple “success” from growth. 

Timothée Parrique, a French social scientist and degrowth scholar, advocates for a shift towards post-growth models. In his talk “Rethinking Economic Systems Inside the Planetary and Social Boundaries” at Change Now, he emphasised that for sustainability to have any hope, various green initiatives must unite towards a common goal. Parrique's call to action includes three key steps to escape such traps:

1. Reduce and Minimise Resource Use: Start by significantly reducing resource extraction and over-consumption dependency.

2. Redistribute and Share: Better distribute and share all that cannot be reduced or redesigned.

3. Innovate and Improve: Innovate to improve the remaining processes and systems efficiencies.

These steps, when repeated, align with the need for startups to break away from traditional growth paradigms and adopt steady-state and regenerative models essential for restoring planetary sustainability and social equality. Established organisations face significant challenges in making this transition, but startups have the advantage of building these principles into their foundation from the outset.

The need for new business models

To transcend the limitations of prevailing corporate sustainability efforts, we must embrace novel business models prioritising tangible impact over mere compliance. Startups can adopt specific strategies and frameworks such as circular economy principles, regenerative business models, or impact measurement frameworks like the B Impact Assessment to ensure their operations are aligned with sustainability goals and the shifting of global social and planetary demands - whilst remaining lean and adaptive.

The role of startup pioneers

Startups hold significant potential for driving sustainability transformations, but it's important to recognise the challenges and criticisms they may face. Concerns about scalability, profitability, and market viability are valid, yet many startups have successfully navigated these obstacles through innovative approaches and strategic partnerships. Free from legacy systems and outdated practices, startups can embrace new economic modes of thinking and sustainability from the outset. Instead of creating new markets for extraction, they can pursue missions centred on social and environmental justice, restoration, and hyper-collaboration. These missions leverage revenue and income development techniques similar to those of for-profit businesses, but without the drawbacks of shareholder primacy, inequity, and monopolies.

By adopting this approach, startups can create meaningful jobs that pay employees more fairly and empower local communities to mobilise and gain agency in the face of critical challenges. By reinvesting capital into their missions, startups can also reduce the tax burden on governments, which would otherwise have to address the growing symptoms of systemic issues that these startups aim to otherwise solve. This aligns well with progressive political ideas such as universal basic income (UBI) and economic incentives like the UK’s Enterprise Investment Scheme (EIS), both of which are effective ways to use government funds to stimulate local job creation and innovation.

Such initiatives could allow governments to focus on critical roles in public services and security, while providing citizens with the additional security they need to transition from high-resource extraction jobs to impactful roles that address environmental and social challenges.

Mission lock: The key to sustainable impact

A cornerstone of these new business models is "Mission Lock." This entails crafting business ecosystems where a startup's success is intrinsically linked to the impact it generates. By decoupling impact from prevailing financing loops emblematic of unsustainable capitalist ethos, startups can pivot towards sustainable trajectories and regenerative/green financing. Mission Lock ensures that the mission remains central, fostering resilience, adaptability, and collaboration among these nascent enterprises. This multi-stakeholder form of mission capital considers the value of both citizens and ecosystem services, heightening democratic bonds while stimulating innovation and the creation of impact jobs, diversifying our economies' dependence on “growth only” models.

Specific strategies for redesigning enterprise models

To delve deeper into specific strategies or frameworks for redesigning enterprise models, startups can explore avenues such as:

• Circular Economy Principles: Implementing strategies to minimise waste and maximise resource efficiency throughout the product lifecycle.

• Regenerative Business Models: Focusing on restoring, renewing, and revitalising ecosystems through business activities rather than merely minimising a still rising harm.

• Impact Measurement Frameworks: Utilising tools like the B Impact Assessment and the UNs SDG’s to comprehensively measure and manage social and environmental impact.

Rethinking the glamorised high-return "impact-startup" space

For this to happen, the glorified realm of high-return "impact startups," fuelled by venture capital and accelerator programmes fixated on churning out tech "unicorns," demands a profound recalibration. While this ecosystem may allure many startup founders, its entrenched fixation on high growth and exponential returns mirrors the degenerative paradigm, posing a formidable obstacle to the emergence of startups committed to regenerating the living world and addressing systemic issues within planetary boundaries.

VYLD's approach to systemic change

Established in 2021, VYLD epitomises a German profit-for-purpose startup endeavouring to empower menstruators globally while championing radical sustainability. With a vision to revolutionise menstrual care and promote environmental stewardship, VYLD embarked on a mission to produce the world's first tampon crafted from seaweed: radically sustainable, equitable, healthy, and biodegradable (the "Kelpon").

VYLD's journey epitomises a commitment to steward ownership—a non-exit-oriented financing paradigm—and a steadfast focus on sustainability from inception. Ines Schiller and Melanie Schichan, the founders of VYLD, meticulously designed their financing framework to facilitate a transition to steward ownership, integrating a diverse group of investors and a crowdfunding initiative. They transformed financial instruments into a "Future Profit Partnership Agreement" (FPPA) founded on profit participation certificates, seamlessly aligning with their mission-driven trajectory.

Clarifying steward ownership

Steward ownership is an ownership structure that separates voting and veto rights from economic rights. This model is not inherently tied to purposeful and restorative behaviour; it can just as quickly lock in degenerative actions, but it is an excellent tool for ownership succession and mission lock. It can be used creatively in many ways; one example could be ensuring operations remain local, stimulating localised economic activity by preventing an otherwise bottom-line decision to move labour overseas. Equally, it keeps the mission (values/venture) out of the hands of potential shareholders who care little for the value added and more for the value they can extract.

Transitioning into steward ownership in late 2022, utilising a golden share model, VYLD serves as a beacon of possibility, prompting reflections on ownership dynamics, power structures, and financing modalities at the nascent stages of enterprise development. Their unwavering commitment to sustainability transcends product innovation, permeating their entire business model and financial approach. VYLD's trajectory underscores the imperative of aligning legal frameworks with core values and authentically communicating commitments to stakeholders.

Conclusion

While existing corporate sustainability endeavours are indispensable, they prove insufficient and too slow in isolation. To attain the requisite scale and velocity of change, we must champion a new wave of startup pioneers capable of revolutionising business paradigms. These startups embody the agility, innovation, and purpose-driven ethos essential for catalysing meaningful systemic change. By reimagining conventional business models and embracing novel approaches like purpose, mission lock, and steward ownership, startups can propel us towards a more sustainable and equitable future.

The era of incremental change has elapsed. Bold, visionary action is imperative to address our planet’s urgent challenges. Startups offer a beacon of hope, with their potential to disrupt industries, challenge entrenched norms, and pave the way for a more sustainable and regenerative economy. By fostering collaboration, driving innovation, and prioritising profit for purpose and purpose over profit, startups can inspire a fundamental shift in how business is conducted and give us a glimpse into what a deeply democratic and steady-state future could look like.

Moreover, startups serve as an olive branch for large corporations and progressive funds and finance leaders to stimulate impactful partnerships while simultaneously charting a new path forward for themselves. They provide inspiration and lessons in innovation and sustainability, encouraging established entities to rethink their strategies and embrace more sustainable practices. This role also alleviates pressure on governments by addressing the root causes of social and environmental issues, allowing governmental focus on critical public services and security whilst a new breed of enterprise creates jobs and grassroots movements that “put the world to rights”.

Appendix: Defining a startup

For this article, a startup refers to a business in its early formative stages. The future development of such a venture is not set in stone but encouraged by design to remain adaptive and ever-changing. However, if these enterprises are built using new innovative methods, like the many outlined in this article, they will inherently possess the qualities required to become viable and sustainable business models. This starkly contrasts traditional businesses that must later undergo significant transitions to become sustainable. Startups built with a sustainability-first, regenerative, and distributive approach are designed to thrive and remain adaptable to manage evolving ecological and social imperatives and lead a real tangible change.