Entrepreneurs in the Green Economy

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green entrepreneur

I recently completed a research paper as part of my MBA program where I examined the role of the Entrepreneur in the current transition to a renewable energy economy. I gained many insights in the course of my research and the following is a distillation of a few sections from the final draft that may be of interest those doing business in the green economy. 

 

Sustainable Entrepreneurship

There is a new breed of entrepreneur – the sustainable entrepreneur – that is emerging in parallel to the development of the green industry. In this new green economy, these entrepreneurs will find themselves with a competitive advantage as the challenges of transitioning to green will become opportunities. New sustainable businesses can benefit from better access to certain markets, differentiated products, green revenue, better risk management, better stakeholder relations, and lower costs of resources and energy. [1]

In many ways, the sustainable entrepreneurs still follow the same principles of any entrepreneur: developing opportunity, gathering resources, building and managing operations, all with the goal of creating value. While profit motive is still an underlying driver for this new class of entrepreneurs, their interests in monetary rewards is balanced by strong motivations to solve the problems related to sustainability concerns – often referred to as the “triple bottom line.” [2]

However not all so-called sustainable entrepreneurs share the same level of commitment to their triple bottom line, maintaining profit motive as their primary interest in building their venture. These “opportunity driven” firms tend to be less successful in the sustainability sector as their conventionally designed business models have a difficult time truly embodying sustainability values. In contrast, “sustainability driven” ventures possess the right set of values and motives, coupled with the focus to employ the skills to succeed, and thus a profitable business then becomes the vehicle with which to achieve its wider goals. [3]

As pivotal change agents, these entrepreneurs engage in both push and pull type of activities as they respond to external incentives as well as implement their own drivers for success.

Social Capitalism

In order to effectively drive a shift to renewable energy technology, governments can facilitate the creation of conditions in which entrepreneurs are compelled to act in their pursuit of an opportunity. Successful renewable energy policy implementation effectively splits an economy open and creates the “economic space” for new interests to flourish which previously were dependent on traditional energy systems. [4] Finding and exploiting this “space” is key for the sustainable / renewable energy entrepreneurs’ business success.

It is interesting that in recent times as China moves away from a strict communist nation to adopt some of the principles of Western Capitalism, the governments of the Western world have taken a more active hands-on role in the drive to build the renewable energy industry. The concept of “social capitalism” argues that for certain industries and sectors, governments cannot be invisible and rely solely on market forces to achieve desired outcomes. [5] Such is the case with energy: governments must ensure a fair distribution of power to its citizens and not allow access to energy to be based exclusively on economics. 

In various free market economies around the world, strong governmental influence in the form of feed in tariffs, tax rebates, and other incentives has been an underlying driver for renewable energy uptake.

This is precisely what has occurred in California, and as a result the State has a booming renewable energy sector. [6]  In other flourishing renewable energy markets, such as Japan and the European countries, social capitalism is the norm and government is merely considered to be a market force in its own right that injects its influence into the overall economic dynamic. [7] The renewable energy entrepreneur must be intricately attuned to the activities of the specific governmental jurisdiction he wishes to operate under. This is perhaps the most important element for the renewable entrepreneur to comprehend.

Business Models

As an entrepreneur seeking capital from investors it is crucial to understand the preferences of the investor and what kind of qualities they are seeking in the business model. Not surprisingly, renewable energy business models with a strong focus on technology development and production are preferred by investors, but interestingly “customer intimacy” is one of the most preferred characteristics. [8]

Indeed, business models that emphasize best services and customer support are favoured over simply offering lowest cost or best technology. This supports the notion of developing a powerful value proposition with a focus that creates and captures value for the customer by offering solutions for lowing complexity and transaction costs.

Moreover, entrepreneurial business models that focus on innovation should aim for leading the industry in capability. If the entrepreneur’s innovation is only industry average, they are better to focus on marketing and sales. [9] Patenting in renewable energy technology remains highly concentrated in larger, incumbent firms that typically focus on incremental technology developments, whereas successful startup firms that utilize highly innovative technology can establish themselves as industry leaders. [10]   

Parity

As technologies improve and costs come down, the point at which renewable energy production becomes cost competitive is rapidly approaching “grid parity.” In some markets, renewable development may already be able to compete with conventional fossil fuel sources, [11] and the entrepreneur must be able to frame the business such that it is not reliant on policy support from government, but is an equal player in the market.

In Germany, some firms are already experiencing loss of revenue as the feed in-tariffs are reduced and their business models have not been modified accordingly. [12] Business models must be updated and not remained bound to policy once it is removed.  In the spirit of entrepreneurship, continuous innovation is required for ongoing business success in a dynamic environment.

To read the paper in its entirety and for the reference list click here.

IW 80

 

[1] (Ambec & Lanoie, 2008)
[2] (Bell, Stellingwerf, Achtenhagen, & Rendahl, 2012)
[3] (Parrish, 2010)
[4] (Mathews, 2015)
[5] (Clark Ii & Li, 2010)
[6] (Del Chiaro, 2006)
[7] (Clark Ii & Li, 2010)
[8] (Loock, 2012)
[9] (Loock, 2012)
[10] (Nanda, Younge, & Fleming, 2013)
[11] (Breyer & Gerlach, 2013)
[12] (Karakaya, Hidalgo, & Nuur, 2016)

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