A business proposition that is built to sustain is more likely to attract investment in the current coronavirus-effected climate. Here’s a guide on how to create a business that is built for the long-term.
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Build a business that people trust
Individuals and organisations with purchasing power are increasingly looking to buy from businesses that do no harm or are able to deliver a net-positive gain to society or the environment. And businesses are adapting to these changing pressures. The largest US business group, the Business Roundtable, decided in 2019 to remove the shareholder primacy mantra that has been at the heart of US business for decades, and replaced it with a commitment to five stakeholders: customers, workers, suppliers and communities alongside shareholders.
Unilever is proving that sustainability and stakeholder responsibility go hand in hand with long-term financial success. Under CEO Paul Polman in the 2000s, the multinational made a bold commitment with the Unilever Sustainable Living Plan that put sustainability at the heart of its business. Polman stressed that Unilever could only last another 100 years if it changed its behaviour. The business even refused to publish quarterly earnings statements so that it could focus on generating longer-term value rather than short-term profit.
It may be well intentioned but it was not a purely altruistic mission: Unilever puts the value of its trust and reputation at €100bn and recognised that to last in the long-term it must retain this. In fact, Unliever’s share price has increased by nearly 200% in the recent years, above and beyond its closest competitors who some consider have not made the same commitment to sustainable approaches.
A new approach to business
Businesses that last have to be ready to change. Consumer demands are shifting rapidly and the rate of technological advancement will continue to accelerate. Complacency has never been more dangerous. But to secure a true long-term future, there needs to be an even bolder attitude towards new ways of operating.
With the global population increasing and economic growth leading to billions more consumers with middle class purchasing habits, there is enormous opportunity for growth. Yet we are already consuming resources at an unsustainable level, so the way our products and services are produced must pivot.
Business models will need to change to solve the challenge of supply and resource scarcity, and consumers are increasingly aware of the problems. Customers of tomorrow - whether they are individuals or businesses with stricter procurement policies - will increasingly expect that the products they buy to not harm the environment and the people that work for your company and in your supply chains.
Consider not only how your products or services are made (and the energy use involved), but also the products themselves. Many products use natural resources that consumers may interpret as harmful, and these materials may be in short supply in the future - potentially leading to higher prices. Is there a way your business model can change? Models can include:
The circular economy – can you reuse parts in your products, design for disassembly and move to a ‘closed loop’ supply chain? Philips is acting on this with its Diamond Select Advance system that offers pre-owned, refurbished products such as MRI scanners.
Ownership – can your product or service be rented, reducing the materials wasted when products are owned but not used at full capacity? Ikea is testing furniture rental in 30 countries to explore how it can remain relevant.
For businesses that sell services, you’re already part of the service based, greener economy, but you might want to firstly consider questions such as: are workers in your supply chain paid fairly? How much energy are your servers using? What is the source of the rare earth elements that make the LCD displays your service is dependent on, and where is the E-Waste going?
Create a materiality matrix
As a founder it takes incredibly hard work to maintain your business and find cash flow or funding to enable growth. But to remain competitive in the future, you also need to consider the longer-term risks and opportunities related to your product, service or processes.
One way of making sense of the multitude or possible risks is with a materiality matrix. Get a piece of paper and label one axis ‘impact on my company’s reputation’ and the other ‘importance to stakeholders’.
On the matrix, firstly plot economic factors such as financial profitability, investor appetite and risk management. Think where you want to place them in order of priority on both axes: it’s likely financial profitability will be in the top right of the matrix.
Then add social factors: sense of community, consumer health, diversity or product safety could be included depending on what’s important to your business. Next consider environmental aspects: energy use, reducing waste or climate change.
Within minutes you’ll have a new way of looking at what is important to the sustainability of your business, and you can later increase the accuracy through a wider stakeholder engagement process.
A materiality assessment should help to give you a clearer picture of what needs to be considered in your strategic planning, beyond just financial profitability. If there are points plotted that will have a big impact on your company’s reputation, think how you can incorporate them into your strategy, how you can measure them and how to show investors you are prepared.
For those areas that are listed as important to your stakeholders, think about your communications and whether your stakeholders know what you’re doing in this area. For example, are you communicating your diversity policy to your employees? Do your customers know your ethical sourcing and energy efficiency policies? Many of Eagle Labs’ founders supply some of the world’s largest firms across the legal, health, technology and agriculture sectors. Chances are if your clients don’t already have sustainability requirements for their suppliers they will do soon.
And what about the opportunities?
Once you’ve identified risks to the business, you might want to think more in terms of what positive contributions your organisation can make to its stakeholders, earning their trust and their loyalty. A good way to do this is by defining a purpose. This will help communicate to customers, investors and employees what your business’s mission is beyond pure profit. Havas’s Meaningful Brands research indicates that purposeful brands outperform the stock market by 133%.
Motivating staff through a mission beyond profit is vital for building a lasting business. This can be linked to exciting staff around outstanding design or customer service, as well as through a greater purpose for companies taking a stand on environmental or social issues while also ensuring a profit for years to come.
Be careful not to ‘purpose wash’ – you need the purpose to be authentic and believable to customers and staff alike. Staff must share the same beliefs, whatever those beliefs are. Facebook VP Andrew Bosworth’s infamous internal note to staff saying “questionable contact importing practices” were justified by growth is an example of where a company’s public commitments to privacy and responsibility were not reflected by an employee’s actions and undermined the corporate message.
Choose a goal
You could start shaping a purpose by looking at your materiality matrix and choosing two or three areas that relate to the UN’s Sustainable Development Goals and align with where your business can make a difference. Goals relate to various environmental issues as well as elements including innovation, infrastructure and education.
Or define your own purpose: GE’s former CEO Jeff Immelt thought terms such as ‘sustainability’ were distracting so decided to launch ecomagination in an effort to “make money while solving society’s greatest problems”1 . Whatever you decide, the important thing is to make sure the purpose is authentic.
Small and sustainable
The good news is that as a small business or start up, you’re in a great position to influence and shape an authentic company culture as you don’t need to persuade thousands of colleagues to embrace a new mission. Decide your values, communicate them and then importantly, take action. A business’s stated purpose and values too often exist only on paper.
Think: ‘how can I be effective? What do I need to say, to whom? What would the objections be? What data should I gather? Is this something I will do alone or with others?’ By rehearsing these arguments, it is much more likely that your purpose will be shared with the rest of your company2.
Attractive to investors
An understanding of how to build a sustainable business is something that many investors will be looking for. A start-up that has a story to tell and an approach to business that it can be proud of is more likely to win over investors looking for long term potential.
Further insight and examples of business sustainability
To really work on leading sustainability in your business, try reading All In: The Future of Business Leadership. Author David Grayson takes you through the value cases and suggests the steps that lead to corporate sustainability: purpose, plan, culture, collaboration and advocacy.
The gold standard in sustainable business is widely recognised as being B Corp certification. To become a B Corp, businesses must pass stringent environmental and social tests. Patagonia, Ben & Jerrys and Danone are among certified B Corps.
You may not be ready for certification, but it’s never too early to consider how to build a business that will be supported by investors, staff, customers and the community. It is that on-going support, earned through responsibility, sensitivity and stewardship that will ensure the sustainability of businesses large and small.
1 Grayson et al, All In, The Future of Business Leadership
2 Mary C Gentile, Babson College, Giving Voice to Values: An Action-Oriented Approach to Values-Driven Leadership