Published December 14, 2018
Our research suggests that environmental entrepreneurs may differ in important ways from your run of the mill entrepreneurs.
At first look, the story of entrepreneurs David Friedberg and Siraj Khaliq seems like the typical Silicon Valley success story. The friends and former “Googlers” set out to leverage big data and the internet of things to develop a novel software solution for an industry specific application. Launching their new venture in 2006 in San Francisco, Calif., they soon attracted the attention of a number of the top venture capitalists in the Valley, and a few years later had a $1 billion-plus exit when their business was bought by a leading incumbent in the industry.
But, there is more to this story. Their venture, originally named WeatherBill and later changed to the Climate Corporation, leveraged weather and geographic data to help farmers customize their operations to use less water and fertilizers, increase yields and minimize topsoil loss. Motivated by a desire to help address climate change and other environmental challenges, Friedberg and Khaliq set out to disrupt agriculture by helping it become more sustainable. They are part of a new breed of “environmental” entrepreneurs looking to create vibrant ventures while addressing critical environmental challenges.
Our research suggests that these environmental entrepreneurs may differ in important ways from your run of the mill entrepreneurs. First, the “environmental” part of the equation is a fundamental and primary driver of their desire to start businesses. They are change agents who are passionate about the environment and see venture creation as a way to address pressing challenges. Perhaps not surprisingly, we find higher rates of environmental startups in regions with more pro-social and environmental attitudes. More interestingly, we find that existing firms often ignore these local signals, suggesting environmental entrepreneurs can garner a first-mover advantage.
Second, environmental entrepreneurs’ desire to “save the earth” influences the risks they are willing to take and the choices that they make. The rise of the green building industry in the wake of the establishment of the Leadership in Energy and Environmental Design (LEED) voluntary building standard, drove the need for a whole new set of suppliers from those who can install organic insulation to the makers of low-water flush toilets. Who filled this void? More often than not, passionate environmental entrepreneurs who are solely focused on green products. While many established building supply companies eventually followed suit, the environmental entrepreneurs were critical to building the nascent industry. They were willing to recognize opportunities and accept risk in an unproven market when existing companies were not.
Third, these environmental entrepreneurs can be an important catalyst for greater sustainability — potentially even greater than policy makers in encouraging the adoption of new practices like green building. While political action can often by paralyzed in these partisan times, environmental entrepreneurs are more nimble, able to seek out opportunities and effect change. In our research, we find that environmental entrepreneurs can even help bridge partisan divides effective in both liberal and conservative regions. For example, NexGen Energy Partners, a renewable energy startup founded in the “people’s republic” of Boulder, Colo., has multiple clients in much more conservative regions across Ohio. By making renewable energy an economic, rather than ecological, choice, entrepreneurs can bypass the political divide on climate change.
So, what’s not to love? How can one become one of these effective environmental entrepreneurs? First, look for social clues that incumbent firms ignore. Rather than bemoan unsustainable farming practices, the Climate Corporation devised solutions that solved the information asymmetry and negative externalities driving those practices. Instead of trying to compete with large, state-based electrical utilities, NexGen Energy targeted more specialized projects in private companies and small towns.
Second, look for ways to complement the offerings of large firms while simultaneously thinking of how to supplant them. Partnerships with established companies can be a good way to establish a toe hold in an industry and existing firms interested in burnishing their own environmental image may be eager to partner. For example, many green building suppliers have started with their own local distribution, only to become the “green” offering of larger, existing firms.
Third, customize your message to the various stakeholders you are appealing to. One of Tesla‘s critical insights was that not only are electric vehicles potentially good for the earth, but they also have fast acceleration and tight handling that make them a blast to drive. While some people are willing to pay a price premium for a “green” car, far more were willing to buy a luxury vehicle with a unique driving experience. Similarly, know how to cater your company’s message to offer something for the environmentally and economically driven potential customers.
Environmental entrepreneurs are a unique breed that hold great promise to help us flourish economically, socially and environmentally. Environmental challenges may very well offer the biggest economic opportunity of our lifetime. We look forward to seeing more entrepreneurs rise to the challenge!
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