Definitions and Conceptualizations of Sustainable Entrepreneurship

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Bell and Stellingwerf compiled what they considered to be a representative list of definitions of “sustainable entrepreneurship” that were suggested from 2003 through 2011, all of which are presented below in chronological order[1]:

  • “Innovative behavior of single or organizations operating in the private business sector who are seeing environmental or social issues as a core objective and competitive advantage”.[2]
  • “The continuing commitment by business to behave ethically and contribute to economic development, while improving the quality of life of the workforce, their families, local communities, the society and the world at large, as well as future generations. Sustainable Entrepreneurs are for-profit entrepreneurs that commit business operations towards the objective goal of achieving sustainability”.[3]
  • “The process of discovering, evaluating, and exploiting economic opportunities that are present in market failures which detract from sustainability, including those that are environmentally relevant”.[4]
  • “The examination of how opportunities to bring into existence future goods and services are discovered, created, and exploited, by whom, and with what economic, psychological, social, and environmental consequences”.[5]
  • “Create profitable enterprises and achieve certain environmental and/or social objectives, pursue and achieve what is often referred to as the double bottom-line or triple bottom line”[6]
  • “The discovery and exploitation of economic opportunities through the generation of market disequilibria that initiate the transformation of a sector towards an environmentally and socially more sustainable state”.[7]
  • “An innovative, market-oriented and personality driven form of creating economic and societal value by means of break-through environmentally or socially beneficial market or institutional innovations”.[8]
  • “Sustainable Entrepreneurship is focused on the preservation of nature, life support, and community in the pursuit of perceived opportunities to bring into existence future products, processes, and services for gain, where gain is broadly construed to include economic and non-economic gains to individuals, the economy, and society”.[9]

From their perspective, Bell and Stellingwerf believed that the definitions collectively identified four defining attributes of sustainable entrepreneurship[10]:

  • Balancing environmental and social concerns: Bell and Stellingwerf observed that sustainable entrepreneurship was “a balancing act of strategically managing and orienting environmental and social objectives and considerations, with entity specific financial goals steering the business objective” and that sustainable entrepreneurship required finding the right balance with the disparate economic, social, cultural and ecological environments in which businesses must operate.  They also noted that in the course of their efforts to limit and minimize the environmental and social impact of their activities sustainable entrepreneurs focused on improving the quality of their processes.[11]
  • Economic gains: Entrepreneurship, sustainable or otherwise, has making a profit as an essential characteristic and objective and the concept of “gain” can be found throughout the definitions reproduced above.  However, sustainable entrepreneurship is a based on a broad construction of gain that includes economic and non-economic gains to individuals, the economy and society.  Profits are recognized as being essential to sustaining the livelihood of businesses and providing entrepreneurs with the resources that are need for reinvestment in the sustainable goals of their companies.  Bell and Stellingwerf argued that entrepreneurial activities can only be labelled sustainable, and therefore satisfy sustainable development, if there is an equal blending of, and equal consideration for, each of the 3 P’s of the triple bottom line described above.[12]
  • Market failures and disequilibria: Half of the definitions reproduced above explicitly mentioned recognition and exploitation of opportunities caused by environmental and/or social imperfections and identification of opportunities has been a long-standing tenant of disruptive entrepreneurship.  Cohen and Winn argued that there are four types of market imperfections (i.e., inefficient firms, externalities, flawed pricing mechanisms and information asymmetries) that contribute to environmental degradation and provide opportunities for sustainable entrepreneurs to create radical technologies and innovative business models that can achieve profitability while simultaneously improving local and global social and environmental conditions.[13]
  • Transforming sectors toward sustainability: A number of theorists have argued that startups launched by sustainable entrepreneurs can solve sustainability-related problems through the introduction of innovative products, process and services and that the commercial success of these solutions, and accompanying support of professional investors and other influential stakeholders, can and will eventually influence incumbents to adopt similar solutions and otherwise take steps that will lead to the transformation of the entire industry toward sustainability.[14]  Under these theories, sustainable entrepreneurs make their impact by targeting market niches defined by a particular sustainability-related problem, generally introducing the radical changes that are outside the comfort zone of incumbents that prefer change to be incremental; however, Bell and Stellingwerf cautioned that research “in the field” lacked support.[15]

From all of this, Bell and Stellingwerf proposed their own definition of sustainable entrepreneurship as “startups that introduce an innovation, with the aim to solve a sustainability-related market failure, which initiates the transformation of an industry toward sustainability”.[16]  The “innovation” could take the form of a product, process or service and the sustainability objectives behind these innovations were equally important as the economic objectives associated with them.  The use of the term “startups” is intentional and significant as it explicitly differentiates sustainable entrepreneurship from the activities of established organizations, such as corporations, to address sustainable development issues in their environment (i.e., corporate-sustainability/CSR initiatives).

Rey synthesized the results of his review of various definitions of sustainable entrepreneurship as follows: “conducting business which commits to ethical standards and behavior, contributing to economic development, all the while maintaining a progressive upkeep of the well-being of society—including the labor-force and their families, their communities and the world on a whole, for the present and future inhabitants”.[17]  According to Rey, a sustainable company is one that operates in accord with the philosophy of the Brundtland Report while recognizing and balancing the economic, social and environmental aspects and impacts of their businesses.[18] Rey noted that “sustainable entrepreneurship may seem odd as entrepreneurship is principally associated with accomplishing certain goals while maximizing profits in the most efficient way possible” and entrepreneurs who are focused on projecting a sustainable outlook for their business will likely stray from profit maximization due to the added costs of sustainable goods and practices that traditional entrepreneurs are able to avoid by simply going for the cheapest alternative.[19]

Rey noted that while CSR is often compared to sustainable entrepreneurship, he believed that there are significant differences between the two concepts.  Most importantly, according to Rey, CSR is primarily concerned with the actions of corporations that have been operating for a significant period of time and which have reached a certain size and determined that they have a responsibility, beyond the traditional profit-making objectives, to be more aware of their external environment and stakeholders and find ways to give back to their local communities beyond their mandatory legal obligations.  While these initiatives are generally welcomed, they typically lack certain core characteristics of sustainable entrepreneurship such as offering environmentally-friendly products and services and making changes to internal operations of the company to bring sustainability practices to personnel matters and production processes.[20]

Muñoz observed that the specific form of entrepreneurship engaged in by sustainability-driven enterprises is about simultaneously achieving three objectives (i.e., social, environmental and economic), while committing to securing the economic welfare and social well-being of future generations and ensuring a long-term sustainability of the environment.[21]  He then went on to propose that sustainable entrepreneurship should be defined and conceptualized as being “focused on pursuing business opportunities to bring into existence future products, processes and services, while contributing to sustain the development of society, the economy and the environment and consequently to enhance the well-being of future generations”.[22]  From this definition it is possible to identify certain central factors that sustainable entrepreneurs need to consider in developing and executing their business models: integrating environmental best practices and protection into all business activities; social justice; economic prosperity for investors, entrepreneurs and economies; improving the well-being of communities; and intra and intergenerational equity.[23]  Muñoz pointed out that his definition acknowledged and integrated constructs from both sustainable development and entrepreneurship literature, a path also taken by Shepherd and Patzelt’s opinion that the practice of sustainable entrepreneurship called for sustaining and developing three constructs informed by sustainable development literature (i.e., sustain nature, life support systems and communities) and three constructs informed by entrepreneurship literature (i.e., develop economic gains, non-economic gains to individuals and non-economic gains to society).[24]

Racelis used the term “authentic sustainable entrepreneurship” to describe the situation “when the economic, environmental, and social motives come together in the business action of the entrepreneur, along with the internalization of the fiduciary, stewardship, and moral responsibilities to future generations”.[25]  Racelis went on to suggest that the specific normative elements that should be found in the activities of the authentic sustainable entrepreneur should include “production of socially desirable products in a socially desirable manner, and advancement of the health and well-being of those affected by such, all within a values-driven framework”.[26]  Racelis pointed out that sustainable entrepreneurship is a model of entrepreneurship that enables founders to seize opportunities relating to environmental and social degradation which are created by market imperfections (e.g., inefficient firms, externalities, flawed pricing mechanisms, and information asymmetries) to obtain entrepreneurial rents while simultaneously improving social and environmental conditions both locally and globally.[27]  Racelis argued that the core motivation for sustainable entrepreneurs is to “contribute to solving societal and environmental problems through the realization of a successful business”, while their main goal “is to create sustainable development through entrepreneurial corporate activities”.[28]

Another important implicit condition for sustainable entrepreneurship is the capacity of the venture to survive, develop and grow.  Rey referred to this condition as “viability” and emphasized that a sustainable entrepreneurial company must, at a minimum, cover all costs, enjoy continuous growth in size and output, make a positive return on turnover and, fundamentally, “remain out of financial danger for years”.[29]  In other words, the company must seek and achieve long-term sustainability in order to successfully pursue and achieve its goals and purposes and provide prospective stakeholders, including employees, with security that their contributions to the enterprise will be product value over an extended period.

Build Lasting Visionary Companies—Habits of Sustainable Entrepreneurs

Writing in the early 1990s, a time when management books had become somewhat of a fad, Collins and Porras claimed that they were doing something different in their best-selling book Built to Last: Successful Habits of Visionary Companies.  They weren’t writing about charismatic visionary leaders, visionary product concepts or visionary market insights, and reminded readers that all leaders eventually die, all products become obsolete and all markets mature.  Instead, they believed that one of the most important economic challenges and issues was figuring out how to build enduring “visionary companies” that met the following criteria: a premier institution in their industry that was widely admired by knowledgeable businesspeople; a company that had made an indelible imprint on the world; and a company that had been in business for at least 50 years and gone through multiple generations of chief executives and multiple product (or service) life cycles. Collins and Porras tackled two fundamental and difficult questions: “What makes the truly exceptional companies different from the other companies?” and “Is it possible to discover the timeless management principles that have consistently distinguished outstanding companies and which apply over long stretches of time and across a wide range of industries?” Based on their extensive research, Collins and Porras argued that such timeless management principles did exist and can and should be applied by managers, CEOs and entrepreneurs all over the world to create their own visionary companies and effectively practice sustainability leadership.

In Built to Last and other articles regarding their research, Collins and Porras listed and described at least ten management principles they had identified from looking at both companies that they believed had achieved visionary status and at comparison companies which, while “born in the same era, with the same market opportunities, facing the same demographics, technology shifts, and socioeconomic trends”, had been less successful.  Of those principles the authors felt that four of them stood out—“be a clock builder—an architect—not a time teller; embrace the ‘Genius of the AND’; preserve the core/stimulate progress; and seek consistent alignment”—and most of the book was about explaining and illustrating each of these concepts.

For example, the authors explained that “[h]aving a great idea or being a charismatic visionary leader is ‘time telling’; building a company that can prosper far beyond the presence of any single leader and through multiple product life cycles is ‘clock building’”.  Embrace the “Genius of the And” meant that visionary companies had “the ability to embrace both extremes of a number of dimensions at the same time” such as having a purpose beyond profit while engaging in the pragmatic pursuit of profit.  Preserve the Core and Stimulate Progress meant that “[a] visionary company carefully preserves and protects its core ideology, yet all the specific manifestations of its core ideology must be open for change and evolution”.  Finally, visionary companies achieved alignment by making sure “that all the elements of a company work together in concert within the context of the company’s core ideology and the type of progress it aims to achieve”.  On a day-to-day basis, alignment met making sure companies didn’t adopt incentive systems that rewarded behaviors that were inconsistent with the company’s core values or policies and procedures that inhibited change and improvement.

As mentioned above, Collins and Porras identified and followed pairs of companies, 18 in all, over a long period of time in order to identify those capable of achieving enduring success and not get caught up celebrating a company that may have had just one or two moments of good fortune.  It was interesting that more often than not the comparison company had greater initial success during the entrepreneurial phase than the visionary company.  While all of the pairs were used to illustrate the four key concepts mentioned above, let’s look at just three examples starting with Hewlett-Packard (a visionary company founded in 1937) and Texas Instruments (the comparison company founded in 1930).  HP was consistently applauded by the researchers as an example of the clock-building orientation and the researchers noted that it was telling that when Dave Packard, one of the HP founders, was asked about which product decisions were most important to the growth of the company his response completely ignored specific products and focused on organizational decisions that are so much a part of clock-building: “developing an engineering team, a pay-as-you-go policy to impose fiscal discipline, a profit-sharing program, personnel and management policies [and] the ‘HP Way’ philosophy of management”.  The researchers also praised Packard as a strong example of understanding “Genius of the AND” in the way that he and his company simultaneously pursued “profit and purpose beyond profit”.  In order to illustrate their point the researchers provided a quote from a presentation that Packard made to HP personnel who would be responsible for management development training which included the following: “I want to discuss why a company exists in the first place.  In other words, why are we here?  I think many people assume, wrongly, that a company exists simply to make money.  While this is an important result of a company’s existence, we have to go deeper and find the real reasons for our being . . . The real reason for our existence is that we provide something which is unique [that makes a contribution].”  In contrast, the researchers “could find not one single statement that TI exists for reasons beyond making money”.  HP also received high marks with respect to the way it aligned its practices and policies with its “lofty values and aspirations” by finding ways to show respect for its employees, reinforce the importance of technological contribution, promote an entrepreneurial environment and “immerse employees in the tenets of what became known as the ‘HP Way’”.

A second pair of twins was Wal-Mart (a visionary company founded in 1945) and Ames (the comparison company founded in 1958).  The researchers complimented legendary Wal-Mart founder Sam Walton for implementing “concrete organizational mechanisms to stimulate change and improvement” and noted that he “concentrated on creating an organization that would evolve and change on its own”, each of which were consistent with clock building.  Walton also knew the importance of succession planning to make sure that the company philosophies survived.  In contrast, “Ames leaders dictated all change from above and detailed in a book the precise steps a store manager should take, leaving no room for initiative” and the researchers noted that Ames had no succession plan in place and eventually management control fell into the hands of outsiders with no ideas about the philosophies of the founders.

A third pair of twins was Walt Disney (a visionary company founded in 1923) and Columbia Pictures (the comparison company founded in 1920).  With respect to clock building the researchers judged Harry Cohn, one of the founders of Columbia to be a complete failure who “cared first and foremost about becoming a movie mogul and wielding immense personal power in Hollywood and cared little or not at all about the qualities and identify of the Columbia Pictures Company that might endure beyond his lifetime.”  On the other hand Walt Disney spent every moment from the day that he founded the company to the day that he died thinking about future ways that the company could make people happy.  Disney was also praised for its efforts to institutionalize its core technologies while simultaneously maintaining ongoing efforts to stimulate progress and the researchers took particular note of how Disney developed a cult-like culture through “intensive screening and indoctrination of employees”.  For its part, Columbia, like Ames, was criticized for its neglect of investments for long-term growth and failure to invest in employee recruiting, training and professional development.  Today Disney remains an important force in entertaining children and adults all around the world while Columbia, lacking a strong heritage or reasons to exist beyond its cash and assets, ceased to exist as an independent company.

As to how the research they conducted twenty years ago might relate to the future, such as today, Collins and Porras predicted that clock building would become even more important as ideas, products and markets became obsolete more quickly due to “accelerating rate of technological change, increasing global competition and dramatically shorter product life cycles”.  They also thought that preserving the core/stimulating progress would become more important as companies became “flatter, more decentralized, more geographically dispersed” and workers became more knowledgeable and seek more and more individual autonomy.  In other articles Collins talked about how the work done to write Built to Last might be helpful in understanding dramatic and seemingly sudden failures of high flying companies like we seen so often recently and mentioned the dangers of “hubris born of success” and undisciplined and reckless pursuit of more success—more money, larger size, more celebrity.  The stories collected, and lessons learning, in creating Built to Last should be useful for the current crop of celebrity companies such as Facebook, Google, Amazon and Apple that have been so successful in their start-up phase, but must now settle in for the long haul of decades of ups and downs before they are eligible for entering the visionary class.  The founders and other leaders of these companies have often spoken of their intent to achieve and sustain long-term greatness and impact.  Perhaps the trials and triumphs of the legendary sustainable entrepreneurs from the past, such as Packard, Walton and Disney, can be valuable teaching tools.

Sources: J. Collins and J. Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperBusiness, 1994); J. Collins, “Building Companies to Last”, INC. Special Issue—The State of Small Business (1995); and J. Collins, “How the Mighty Fall: A Primer on the Warning Signs”, Businessweek (May 2009). 

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This article is an excerpt from Sustainable Entrepreneurship by Alan S. Gutterman, which is available for purchase at various online booksellers.  Readers may also enjoy the author’s book on Entrepreneurship.

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Notes

[1] J. Bell and J. Stellingwerf, Sustainable Entrepreneurship: The Motivations & Challenges of Sustainable Entrepreneurs in the Renewable Energy Industry (Jonkoping, Sweden: Jonkoping International Business School Master Thesis in Business Administration, 2012), 13-14.

[2] A. Gerlach, “Sustainable Entrepreneurship and Innovation”, in: University of Leeds: The 2003 Corporate Social Responsibility and Environmental Management Conference (Leeds, UK: University of Leeds, 2003), 101, 103.

[3] E. Crals and L. Vereeck, “The affordability of sustainable entrepreneurship certification for SMEs”, International Journal of Sustainable Development and World Ecology, 12 (2005), 173.

[4] T. Dean and J. McMullen, “Towards a theory of Sustainable Entrepreneurship: Reducing environmental degradation through entrepreneurial action”, Journal of Business Venturing, 22 (2007), 50, 58.

[5] B. Cohen and M. Winn, “Market imperfections, opportunity and Sustainable Entrepreneurship”, Journal of Business Venturing, 22(1) (2007), 29, 35.

[6] D. Choi and E. Gray, “The venture development process of “sustainable” entrepreneurs”, Management Research News, 31(8) (2008), 558, 559.

[7] K. Hockerts and R. Wüstenhagen, “Greening Goliaths versus emerging Davids – Theorizing about the role of incumbents and new entrants in Sustainable Entrepreneurship”, Journal of Business Venturing, 25 (2010), 481, 482.

[8] S. Schaltegger and M. Wagner, “Sustainable Entrepreneurship and Sustainability Innovation: Categories and Interactions”, Business Strategy and the Environment, 20 (2011), 222, 224.

[9] D. Shepherd and H. Patzelt, “The New Field of Sustainable Entrepreneurship: Studying Entrepreneurial Action Linking “What is to be Sustained” with “What is to be Developed””, Entrepreneurship Theory and Practice, 35(1) (2011), 137, 142.

[10] J. Bell and J. Stellingwerf, Sustainable Entrepreneurship: The Motivations & Challenges of Sustainable Entrepreneurs in the Renewable Energy Industry (Jonkoping, Sweden: Jonkoping International Business School Master Thesis in Business Administration, 2012), 14-17.

[11] D. Choi and E. Gray, “The venture development process of “sustainable” entrepreneurs”, Management Research News, 31(8) (2008), 558.

[12] J. Bell and J. Stellingwerf, Sustainable Entrepreneurship: The Motivations & Challenges of Sustainable Entrepreneurs in the Renewable Energy Industry (Jonkoping, Sweden: Jonkoping International Business School Master Thesis in Business Administration, 2012), 15.

[13] B. Cohen and M. Winn, “Market imperfections, opportunity and Sustainable Entrepreneurship”, Journal of Business Venturing, 22(1) (2007), 29.  See also T. Dean and J. McMullen, “Towards a theory of Sustainable Entrepreneurship: Reducing environmental degradation through entrepreneurial action”, Journal of Business Venturing, 22 (2007), 50, 58 (“Environmentally relevant market failures represent opportunities for simultaneously achieving profitability while reducing environmentally degrading economic behaviors.”).

[14] See, e.g., K. Hockerts and R. Wüstenhagen, “Greening Goliaths versus emerging Davids – Theorizing about the role of incumbents and new entrants in Sustainable Entrepreneurship”, Journal of Business Venturing, 25 (2010), 481, 482.

[15] J. Bell and J. Stellingwerf, Sustainable Entrepreneurship: The Motivations & Challenges of Sustainable Entrepreneurs in the Renewable Energy Industry (Jonkoping, Sweden: Jonkoping International Business School Master Thesis in Business Administration, 2012), 17.

[16] Id.

[17] L. Rey, Sustainable Entrepreneurship and its Viability (Rotterdam: Master Thesis for MS in Entrepreneurship, Strategy and Organizations Economics from Erasmus School of Economics, December 2011), 12.

[18] Id.

[19] Id. at 9.

[20] Id.

[21] P. Muñoz, “The Distinctive Importance of Sustainable Entrepreneurship”, Creativity, Innovation and Entrepreneurship, 2(1) (November 2013) (citing W. Young and F. Tilley, “Can businesses move beyond efficiency? The shift towards effectiveness and equity in the corporate sustainability debate”, Business Strategy and the Environment, 15(6) (2006), 402).

[22] Id.

[23] Id. (citing S. Dresner, The Principles of Sustainability (2nd Edition), (London: Earthscan, 2008); and W. Beckerman, “Sustainable Development and Our Obligations to Future Generations”, in A. Dobson (Ed.) Fairness and Futurity: Essays on Environmental Sustainability and Social Justice (Oxford: Oxford University Press, 1999), 71.

[24] D. Shepherd and H. Patzelt, “The new field of sustainable entrepreneurship: studying entrepreneurial action linking ‘what is to be sustained’ with ‘what is to be developed’”, Entrepreneurship Theory and Practice, 35(1) (2011), 137.

[25] A. Racelis, “Sustainable Entrepreneurship in Asia: A Proposed Theoretical Framework Based on Literature Review”, Journal of Management for Global Sustainability, 2 (2014), 4.

[26] Id. (citing S. Hodgkin, Business social entrepreneurs: working towards sustainable communities through socially responsible business practices (Master’s thesis, University of Calgary, Calgary, Alberta, Canada, 2002)).

[27] Id. (citing T. Dean and J. McMullen, “Toward a theory of sustainable entrepreneurship: reducing environmental degradation through entrepreneurial action”, Journal of Business Venturing, 22 (2007), 50).

[28] Id.

[29] L. Rey, Sustainable Entrepreneurship and its Viability (Rotterdam: Master Thesis for MS in Entrepreneurship, Strategy and Organizations Economics from Erasmus School of Economics, December 2011), 14.

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