What is Sustainability?

There are various definitions of sustainability. One of the most commonly accepted definitions comes from a 1987 UN Conference: “Sustainability is the ability to meet the needs of the present without compromising the ability of future generations to meet their needs.” This sounds good, but what does it really mean?

What is sustainability?

Meeting the Needs of the Present

Think for a moment about our most basic needs: food, water, and shelter. Traditionally throughout human history, these were provided on a local, moderate scale. Food was grown locally, water came from a clean local source such as a river, and shelter was modest. In recent decades, however, this has completely changed.

Now, our food is mass-produced on huge farms using pesticides and then transported halfway around the world, which has resulted in the displacement of small farmers, pollution from pesticides, and significant energy requirements from the transportation alone. Our water supplies are strained as a result of increased demand from growing populations and reduced supply from the pollution of our waterways. Finally, the size of our shelter has increased as well: the average American home has increased in size from 983 square feet in 1950 to 2,434 square feet in 2005. These homes require great amounts of energy to heat and to cool, not to mention the amount of resources used in building them in the first place.

Beyond food, water, and shelter, it’s worthwhile to look at our wants in addition to our needs. We want to have the latest electronics and gadgets, the latest fashions, the latest cars, etc. – all of which require raw materials and energy to produce, transport, and maintain, and most of which will ultimately end up in landfills. Multiply this by 300 million people in the U.S. alone, and you can begin to see how this can create a strain on a planet that has never in its history had to produce so much for so many people.

Sustainability: Beyond Green

Although sustainability is often thought of as “going green,” it actually goes beyond that. Green can be limited to environmental issues such as reducing our carbon emissions, conserving water, and minimizing waste. These are, of course, all important activities that are needed for us to work and live within the natural limits of the planet.

Sustainability, however, challenges us to look at both social and environmental impacts. When the air and water are polluted, those are not just environmental issues – they are public health issues for the people who will breathe that air and drink that water. When development expands into isolated areas, the effects go beyond just the loss of forests and habitat destruction – it’s a cultural issue for indigenous people who may lose their traditional way of life. When oil spills occur, the effects aren’t limited to the loss of animal life and damage to ecosystems – they are a blow to local communities and people whose livelihoods are threatened.

By examining more closely the interactions among our economic activity, our environmental impacts, and our social impacts, we can begin to understand how sustainability is, ultimately, a much more holistic and comprehensive way of looking at our lives and understanding the world in which we live.

The Implications of Sustainability for Business

This is why the triple bottom line has emerged as an important concept in sustainable business. The triple bottom line takes into account that every business needs to be financially profitable – the traditional “bottom line” of business. In addition to this, it takes into consideration the environmental impact as a result of business operations (such as its use of energy and water) and its social impact as well (such as its treatment of employees and people in the local community). The idea is that for a business to be sustainable in the long-term, it will need to be profitable in a way that operates within natural limits and respects the well-being of people affected by the business. In short, it will need to factor people, planet, and profit into all business considerations.

This is not a perfect model, of course, and many businesses large and small are struggling to adapt to it. After all, it goes against traditional business practices, which have focused solely on maximizing profits. On a positive note, there are interesting and innovative models emerging that are helping to pave the way for sustainable business, such as B Corps.

Sustainability can actually be quite complex and is subject to different interpretations. How would you define sustainability? Leave your thoughts in the comments below.

AB 361: Benefit Corporation Legislation Introduced in CA

The state of California recently became another in the growing list of states to consider Benefit Corporation legislation. Introduced by Assemblymember Jared Huffman of the 6th Assembly District, representing Marin and southern Sonoma County, the legislation proposes establishing a new type of corporation in the state.

Assemblymember Jared Huffman’s website explains the proposed legislation:AB 361: Benefit Corp legislation - B Corp logo

AB 361 – Benefit Corporations: This bill creates a new type of corporation for a new type of corporate social responsibility. Current law requires corporations to prioritize financial interests and shareholder profits. This bill creates a new, entirely voluntary type of corporate entity to let California businesses balance the pursuit of corporate profits with environmental and social goals. “Benefit Corporations” would operate under a broadened definition of fiduciary duty that allows business leaders, shareholders, and employees to include environmental stewardship and community development as part of their companies’ mission – people, planet, and profit.

The ability to incorporate consideration of people, planet, profit – the triple bottom line – will allow Benefit Corporations to move past the limited focus on pursuit of financial profit, regardless of social and environmental impact. Instead, Benefit Corporations will be able to focus on making a financial profit while also being socially and environmentally responsible.

This follows on the heels of increasing momentum for Benefit Corporations nationwide:

  • Maryland and Vermont became the first states to pass legislation last year.
  • New Jersey and Virginia are awaiting the governor’s signature; legislation in both states has passed the state Senate and Assembly and both houses of the General Assembly, respectively.
  • Colorado, Hawaii, North Carolina, and Pennsylvania have all introduced legislation this year.

The B Corp website provides a complete list of Benefit Corporation legislation on their public policy page.

If you’re interested in learning more about B Corporations, the post “What Are B Corps?” contains some helpful background information.

Reflecting after the 2011 State of Green Business Forum

The State of Green Business Forums have recently wrapped up. The San Francisco Forum kicked off a three-city tour on Feb. 2 & 3, followed by a forum in Chicago on Feb. 9 & 10 and one in Washington D.C. on Feb. 16 & 17.

Green Business Forum

GreenBiz Chairman Joel Makower interviews former San Francisco Mayor Gavin Newsom at the State of Green Business Forum on Feb. 2.

The forums are an opportunity to get the latest on the State of Green Business, an annual report that captures the 10 key trends and 20 indicators that tell us which way the winds are blowing in sustainable business. The 2011 State of Green Business Report is an important resource for anybody who is interested in gaining a better understanding of the developments in green business. The forums are also worthwhile events that have generated a flurry of activity in both the blogosphere and the twittersphere, with the first posts and tweets being published during the conference and a steady stream following ever since.

A multitude of topics have been covered in these posts – ranging from trends in sustainability reporting to green dentistry and green travel – and a wealth of information has been generated. For a complete overview, you can visit the State of Green Business page, which includes links to the report as well as highlights from all of the forums.

Yet, as with all conferences, it’s always helpful to step back and remind ourselves about the most important question of all.

Why are we doing this?

Umair Haque writes about the need for reflection in business. As he notes, we often jump right to the “what” and the “how” – what are the trends in sustainability reporting, and how do we keep up? We end up missing the “why.”

In this case, asking, “Why are we doing this?” can yield numerous responses: we are doing this to learn, to help our companies be competitive, to network with other sustainability professionals.

We can delve deeper and answer the question on another level as well: we are doing this to advance sustainable business, to demonstrate that a new paradigm in business is possible, to build a community committed to common goals.

Finally, we can answer the question on the most fundamental of all levels: we are doing this because we care about the world that we live in, we care about the people in it, and yes, we may even want to make the world a better place.

It may seem virtually impossible sometimes to stop and reflect. After all, emails need to be sent, meetings need to be scheduled, calls need to be made, and businesses need to be run. Who has time to stop and reflect? Yet it is by reflecting that we can renew our commitment to sustainability and to the work that we need to do.

What about you? Why are you doing this work? Leave your thoughts in the comments below.

Natural Capital: What It Is and What It Means For Your Business

Natural capital and triple bottom line  business

One of the fundamental features of sustainable business is the concept of the triple bottom line. Rather than just focusing on growing financial profit, a sustainable business will take into consideration its social and environmental impact as well. This requires recognizing the value that lies in both social and natural capital, in addition to financial capital.

Ray Anderson, former CEO of Interface, described this in a recent post titled “Is Interface’s Sustainability Strategy Still Relevant?”:

“Soon, “green” was becoming mainstream, a crowded field of corporations, governments, academic study, and celebrity endorsement. Today, it’s mostly a healthy mix of doing the right thing and good old capitalism in action, in which “natural” capital takes on value along with financial capital.”

But what exactly is natural capital?

According to the International Institute for Sustainable Development, “Natural capital is the land, air, water, living organisms and all formations of the Earth’s biosphere that provide us with ecosystem goods and services imperative for survival and well-being. Furthermore, it is the basis for all human economic activity.”

Natural capital is continually providing us with something of value, whether it is the air that we breathe, the water that we drink, or the raw materials that we use in our products. The problem is that we have not traditionally placed a financial value on these natural resources. By not placing a financial value on them, it became easy to destroy forests, pollute rivers, endanger species and habitats, and otherwise plunder our natural resources.

Now, however, we are starting to recognize the value of natural capital. In fact, it is estimated that the value of natural capital worldwide is $33 trillion per year. In 2008, humans destroyed $6.6 trillion worth of natural capital – equivalent to 11% of the global GDP. The top 3,000 companies by market capitalization were responsible for $2.15 trillion in environmental costs. Unfortunately, under our current economic system, these costs are externalized, which means that while these companies caused this damage, they are not footing the bill for it. In many cases, it is the local communities and taxpayers that ultimately pay the price (the BP oil spill in the Gulf is but one example of this).

If this were cash, we would be appalled to see it squandered so recklessly. However, because these costs aren’t factored into our current economic system, this waste goes largely unrecognized. That’s why natural capital is important: it has value, and once we recognize that, we have a responsibility to spend it wisely.

What does this mean for your business?

The calculations for placing a financial value on natural capital in a business are still being developed, but there are simple ways that you can begin to consider natural capital in your business. For example, removing waste from your production process will conserve natural resources – while also possibly providing cost savings to you as well. Using materials that can be more rapidly renewed, such as bamboo, will ensure that the most scarce of our natural resources are preserved – while also building your products around a resource that may be more abundant in the long-term.

Although we are still figuring out how to accurately value natural capital, this is the direction in which we need to move – it is part of reimagining business for the 21st century. The businesses that begin to consider natural capital in their decisions now will be the ones to gain a competitive advantage in a future of constrained resources.

Will Your Holiday Gifts Support Green, Women-owned Businesses?

Green holiday gifts

The busiest election season of the year is coming up… how will you vote?

Yes, I know that the political mid-term elections are already behind us. However, that’s just one type of election: a political one. Every day, you vote many more times with your dollars. You may choose to support large corporations that focus on maximizing shareholder profits; small, independent businesses that are active in their local communities; or any number of other businesses in between. But with each purchase, you are casting a vote in support of that company’s practices.

This holiday season, you might consider supporting green, women-owned businesses. To get you started, here are a few suggestions (and in case you’re wondering, I’m not receiving any compensation for listing these companies). All of these businesses are either certified B Corporations or members of the Green America Business Network (GBN).

  1. Bamboo gifts: Bambooya offers clothing for men, women, and children, housewares, handicrafts, gift sets, and more – all made from bamboo, which is a renewable natural resource. Bambooya is a member of the GBN.
  2. Fair Trade fashion and footwear: Autonomie Project is a B Corp that makes clothes using organic cotton, natural FSC rubber, and other environmentally friendly and locally sourced materials produced by independent co-ops and Fair Trade-certified facilities. Items include clothing for men, women, and children.
  3. Green toys: Toys made in the U.S. from recycled milk bottles are just one of the items available through Kate’s Caring Gifts; other items include soaps and lotions, dinnerware, and more. Kate’s is certified through the Bay Area Green Business Program and is a member of the GBN.
  4. Handmade jewelry: Turtle Love Co. and Melissa Joy Manning are both B Corps that make handmade jewelry and seek to use conflict-free gemstones and local artisans, among other sustainable practices.
  5. Natural cosmetics: Alima Pure is a B Corporation that makes all natural cosmetics. Their products do not contain any additives, fillers, or fragrances that might irritate the skin.
  6. Organic gift baskets: Choose from a wide selection of gifts including items that are free of preservatives and artificial ingredients. It’s Only Natural Gifts is a member of GBN.
  7. Porcelain dinnerware: Mary Anne Davis of Davistudio produces sustainably and individually made porcelain dinnerware. Davistudio is a certified B Corp that has reduced energy use, uses a lead-free glaze, and recycles all waste material.
  8. Recycled housewares: Organic Bug is a GBN member on a mission to offer quality, contemporary, eco-friendly, fair trade and natural wellness products. On their website, you can shop housewares, toys, clothing, and more by collections such as fair trade and made in the USA.
  9. Thai silk home and personal accessories: Siw Thai Silk is a B Corp that works with village artisans in Thailand to produce pillows, throws, scarves, and shawls all using Fair Trade practices.
  10. Recycled paper gift wrap: This year, forget the plastic bags filled with gift wrap and bows. Earth Presents, a GBN member, provides a more earth friendly alternative – recycled paper gift wrap for your holiday needs.

In addition to purchasing green gifts, you might also want to consider other holiday options such as making your own gifts, supporting charitable organizations through volunteering and/or donations, or choosing gifts that give back to women, which give back to the women who produced them.

Do you have a green product that would make a great holiday gift this season? If so, please share it in the comments!

Tips for 2010 Year-End Business Planning

The end of the year is a great time to plan for the new year. This is an opportunity to reflect, evaluate what worked and what didn’t, and set goals for the new year.

As a business owner, you are already constantly working on four of the five key areas for a sustainable business: planning and strategy, finances, operations, and sales and marketing. The fifth area – sustainability – is one to begin working on, if you haven’t done so already. Taking the time to review your performance in these areas during the past year and engaging in reflection and planning will prepare you to get off to a strong start in the new year.

  • Planning and strategy: A SWOT analysis is a good way to think through the strengths, weaknesses, opportunities, and threats that will affect you in the coming year. The strengths and weaknesses are internal to your business, whereas the opportunities and threats are external. As you think through this, consider how you can leverage your strengths, improve your weaknesses, capitalize on opportunities, and mitigate the threats. This process can help you to then identify your top business goals for the coming year.
  • Finances: This is the time to make sure that your financial records are organized and to work with your accountant. The Business.gov site has set up a Small Business Tax Center for 2010 that has a number of resources available, including information about recent tax changes and the health care tax credit as well as a virtual small business tax workshop. You should also check the financial health of your business. Review your financial statements with your accountant, especially your balance sheet, income statement, and cash flow statement.
  • Operations: During the past year, you’ve most likely noticed some inefficiencies in your business. What were the recurring problems that you encountered? Maybe your product ordering process can be streamlined, or customer orders can be delivered more quickly. Take the time now to analyze these inefficiencies and develop a strategy for fixing them.
  • Sales and Marketing: If you have a marketing plan, review it and make updates as necessary. If certain strategies aren’t working effectively, now is the time to reconsider them and try something new. If you don’t have a marketing plan, make that a priority for the coming year. This is also a good time to review your sales strategy. Remember the 80/20 rule – 80% of your sales will come from 20% of your customers. Identify who those customers are and reach out to them. Simple ways of reaching out, such as a personalized holiday card or a phone call, are nice ways of saying “thank you” and staying in touch.
  • Sustainability: Review the sustainability initiatives that you have in place and update any measures that you are tracking such as energy use or solid waste generated. Identify any new initiatives that you might want to implement in the coming year. Maybe it’s time to launch a green team or to green your supply chain by switching your purchases to socially and environmentally responsible vendors. Or perhaps you might decide to begin working on a sustainability certification like B Corp.

While this may seem overwhelming, the key will be to keep it manageable. Set aside some time to review each area of your business, identify the key improvements you can make, and plan out your strategy for the coming year. Even a day or an afternoon devoted to each area will help you to get prepared for a successful 2011. (Of course, don’t forget to take some time from all the planning to rest and enjoy time with friends and family!)

What would you add to this list? Are there other end-of-year business activities that you recommend?

What are B Corps?

The conventional wisdom when it comes to business is that, as a business owner, you have to make a choice: you can either make money, or you can do good.

This is, however, a false dichotomy. You don’t have to choose to either ensure your personal livelihood or to live according to your values. As one of my instructors from the Green MBA used to say, you can choose “both/and” – you can both make money and do good.

What are B Corps?

Benefit Corporations, commonly known as B Corps, are a new type of corporation. Unlike the traditional corporation that gives priority only to financial profitability, B Corps actually use the power of business to address social and environmental problems.

How do they do this? Among other things, they “institutionalize stakeholder interests.” Instead of taking the shareholder as the What are B Corps?primary person to which they are responsible, B Corps give primary consideration to the stakeholder. This is a very important distinction. A shareholder, as we know, is someone who owns shares in a company; a stakeholder, by contrast, is someone who has a stake in the company, regardless of whether he/she actually own shares. Who can have a stake in the company? Anyone who is affected by the actions of that company, such as employees, members of the local community in which the business operates, or members of the community in which the business has an environmental impact.

A traditional C Corporation will focus on increasing shareholder profits, often without regard to how that affects other stakeholders. This is why corporations sometimes do not pay living wages or provide inadequate health benefits – because those are costs that, if saved, can provide profit for shareholders. B Corps, however, are committing to taking social and environmental interests into account when making decisions.

Why are B Corps Important?

B Corps are important for several reasons:

  • They are demonstrating that business can address social and environmental problems. This by itself is important, as it provides a new model for how business can be different in the 21st century.
  • They are creating rigorous and transparent standards around social and environmental responsibility that support the triple bottom line. In effect, when a company becomes certified as a B Corporation, that company’s practices have been vetted by a third party.
  • There are already over 300 B Corps representing over 54 industries with $1.6 billion in revenues – and this is just the beginning.

However, beyond all of these reasons, there is one primary reason why I believe that B Corps are important. They are fundamentally changing the rules of the game when it comes to business.

You see, when a company becomes a B Corp, it doesn’t just earn a certification. It also commits to changing its legal organizing documents to include consideration of stakeholders. Earlier this year, the states of Maryland and Vermont became the first states to legally recognize B Corps.

One of the co-founders of B Lab, the non-profit that issues the B Corp certification, explained why this is important on the B Corp blog earlier this year:

“Today, there is a critical mass of entrepreneurs, investors, consumers, workers, and policymakers seeking to create social and environmental impact through business. However, they face two systemic obstacles: 1) the absence of transparent standards which allow all of us to support “good companies” not just good marketing; and 2) the legal concept of shareholder primacy which makes it difficult for corporations to include employee, community, and environmental interests in decision making.”

B Corp provides a fundamental alternative to these obstacles by establishing transparent standards and challenging the legal concept of shareholder primacy.

How can B Corps Help Your Business?

There are several ways that B Corps can help your business:

  1. Get certified! B Corps must get a score of 80 out of 200 on the Impact Assessment, a survey that covers all areas of the business, including corporate governance, employee benefits, and more. By becoming a B Corporation, you will ensure that your own business meets high standards, join a community of like-minded businesses, and support a larger movement towards sustainable business.
  2. Commit to stakeholder interests in your business. Prior to becoming certified by B Lab, you may be able to include your commitment to consideration of stakeholder interests into your legal organizing documents if you are an LLC, which is what I did for Cultivating Capital. However, be sure consult with an attorney about this, preferably one who is familiar with B Corps. The Katovitch Law Firm explains more about the legal implications of being a B Corp on their blog.
  3. Identify areas in which you can improve. Even if you do not get certified right away, the Impact Assessment is a tool that you can use to identify areas for improvement in your business. To get started with the Impact Assessment, visit the B Corp website.
  4. Support other B Corps. Every dollar that you spend, for yourself or your business, is a vote for either an economy in which businesses can make money at the expense of people and the environment, or one in which businesses can make money in support of people and the environment. Supporting businesses with a social and environmental mission will also help to green your own supply chain.

To learn more about B Corps, you might want to read a related post about “Completing the B Corp Impact Assessment.”

Women’s Network for a Sustainable Future West Coast Summit

Last Friday, approximately 200 women attended the Women’s Network for a Sustainable Future West Coast Summit. This gathering, held at IBM’s Almaden Research Center in San Jose, was a forum designed to allow women to “co-create a picture of success for the next phase of sustainability development.” Attendees represented the diverse mix of women in sustainable business, from MBA students to entrepreneurs to corporate executives.

The summit proved to be both interesting and informative. In particular, five questions were posed throughout the day to frame some of the larger issues around sustainability in business:

  1. How does business develop long-term strategies to think globally and act locally in today’s environment?
  2. How does business work with different kinds of partners or even competitors to make a difference?
  3. How are customer values changing? What can companies do to keep up?
  4. What are the lessons learned from businesses creating new jobs in the expanding sustainability arena?
  5. How do engaged employees continue to help companies develop and implement their sustainability strategies? What keeps employees involved and enthusiastic?

These are all, of course, questions that businesses are grappling with – developing long-term strategies in a dynamic environment, understanding the changing market, recognizing that success requires partnerships, creating jobs, and keeping employees engaged so as to retain the best talent.

The speakers included women who represented a wealth of experience in the field of sustainable business:

  • Dr. Sharon Nunes, VP of Smart Cities Strategy & Solutions at IBM, spoke about “Sustaining Sustainability.” She outlined the major trends that businesses need to be considering, including social/demographic trends (e.g., increased urbanization), economic trends (e.g., global financial crisis), environmental (e.g., cities are seeking ways to reduce carbon emissions and increase their energy from renewable sources), and technological (e.g., emerging technologies) and explained how IBM is responding to these. In particular, she articulated one of the most important challenges for business today: to create relevant and compelling solutions that people will be willing to pay for.
  • Nancy Sutley, Chair of the White House Council on Environmental Quality, delivered the afternoon keynote. In a lively address, she explained the steps that the federal government has taken to support the clean energy economy. The GreenGov Challenge, for example, asked federal employees to identify ways in which federal agencies could reduce their environmental impact. When asked about the role of the Department of Defense in federal sustainability efforts, she remarked that the DOD has already recognized climate change as a national security threat and is quite forward-thinking in this regard. She also made it clear that we as a nation must build a clean economy if we are to continue to lead the world.
  • Kimberly Hosken, (Program Director, Green Building at Johnson Controls), Allison Taylor (VP, Sustainability for the Americas, Siemens Corporation), and Melissa O’Mara (VP, Green Building Solutions, Schneider Electric) were all part of an afternoon panel. During this wide-ranging session, they discussed topics such as the challenges of working with business units throughout the world and working with their supply chains to minimize their environmental impact. One of the more interesting themes that emerged, especially since this panel followed Nancy Sutley’s keynote about how the U.S. must lead with a clean economy, was their observation about the challenges they face with China and Europe. Coming from women who are on the ground throughout the world with international corporations, their comments about finding it hard to keep up with how quickly things were changing in China and how Europe has a clearer vision about sustainability than the U.S. were particularly provocative. At the same time, they described ways in which their businesses are seeking innovative partnerships and collaborations, sometimes even with competitors, which is a fundamental difference between the “old” way of doing business and the “new” way required by a changing world.
  • Judy Estrin, serial entrepreneur, author, and founder of JLabs LLC, delivered the final address on the topic of innovation. She provided an overview of types of innovation and described the five core values necessary for innovation: questioning/curiosity, risk, openness, patience, and trust. In a part of her talk reminiscent of what Dr. Nunes had said about changing trends, she underscored the fact that 21st century realities are creating opportunities for innovation, as we find that traditional solutions no longer work. Interestingly, she also pointed out that significant growth will only come from innovation-driven start-ups and new industries (my personal twist on this is that it is the combination of women-owned business and sustainable business that will lead the way to a healthy, thriving economy).

Why Women Business Owners & Sustainable Businesses Are a Powerful Combination

The statistics from the last few years confirm that women entrepreneurs are a force to be reckoned with. Women are starting businesses at twice the national rate, and the revenue from women-owned businesses is estimated at $2.8 trillion, according to an October 2009 report on the economic impact of women-owned businesses. If U.S.-based women-owned businesses were their own country, they would have the 5th largest GDP in the world.

At the same time, we’re seeing that many of our most common business practices are fundamentally unsustainable. For example, many businesses today are built on the use of cheap labor from third world countries to develop products full of toxins that are then shipped worldwide using fossil fuels. How long, realistically, can such a model be sustained? The rise of sustainable business is in large part due to the realization that business models dependent upon the indiscriminate use of both social and natural resources are not sustainable in the long term.

Both women-owned businesses and sustainable businesses are fairly new trends in business. Neither had an impact until perhaps the past 20 years, and weren’t even a consideration during the Industrial Revolution when many of our business practices were established. Now, however, they are both positioned to significantly change the way we do business in the 21st century.

The opportunity that we have with women-owned businesses is this: to harness that entrepreneurial activity and steer it in a sustainable direction. By doing so, we can demonstrate that businesses can be successful without depending upon the exploitation of workers in third-world countries. We can show that businesses can be successful without destroying our natural environment or exposing us to toxins in the products we bring into our homes. We can show that business has a role to play in mitigating the effects of climate change. We can develop businesses that benefit the communities in which they operate.

All of this is possible through sustainable business, which shows that businesses can be financially profitable while also being ecologically sustainable and socially beneficial. And women can lead the way, because we are the ones who are currently driving much of the entrepreneurial activity. If small businesses are the engine of the economy, then women are in the driver’s seat. We can choose the path that we want to take.

What do you think? Would you like to develop your business to be sustainable? Why or why not?

Reimagining Business: New Possibilities for a New Era

Do you remember rotary phones? At one time, rotary phones were in every home. Now they’re relics of the past, displaced by better, newer, faster technology.

If you were starting a business today, would you set up a rotary phone for your business? Of course not. The very idea is ludicrous. However, you wouldn’t do it because the rotary phone doesn’t work; technically, you would still be able to make and receive telephone calls. The reason you wouldn’t do it is because the rotary phone is not suited to the business needs of the present. To keep up with the pace of business today, you need a phone that you can take with you, that allows you to read email, search online, and send and receive text messages.

Many of our business practices and beliefs are just like the rotary phone. They were developed during a different era, in which they were widely used and met the needs of those times. However, they are not suited to the needs of the present, much less the future. Consider a few long-held beliefs that are now being challenged:

  • Resources are unlimited. At the beginning and during most of the Industrial Revolution, resources appeared to be unlimited. Drilling for oil was on the rise, forests were being cut down, and rivers and lakes were being polluted. However, we now know that those resources are actually limited. Just one look at the famous picture of the blue marble shows that our planet is finite, as it hangs in the vast darkness of space. Therefore its resources are generally finite as well, with the exception of certain renewables such as wind and sunlight. Simply put, there is only so much water, lumber, and minerals available on the planet. As economist Kenneth Boulding once said, “Only madmen and economists believe in perpetual exponential growth.” To expect unlimited resources on a finite planet is simply unrealistic.
  • Hierarchical management is best. What we accept today as the way that management must be set up is actually a system that developed in response to the manufacturing environment of the Industrial Revolution, when many low-skill factory jobs needed to be coordinated by a foreman. Unfortunately, this model of one person (or a few) at the top making the decisions and having everyone else fall into line is completely unsuited to the knowledge economy in which we now find ourselves. Today, all employees in a company have access to information, not just the senior management. By holding onto the old belief that only management has the knowledge to make decisions, businesses are actually  missing out on the wisdom of their own employees – and putting themselves at a disadvantage, when their more savvy competitors are tapping their own internal resources.
  • Financial profit should be the defining feature of business. As Milton Friedman famously said, “there is one and only one social responsibility of business: to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” In other words, a business should exist only to make a profit. However, what happens when the rules of the game change? A generation ago, perhaps, we could plead ignorance to the destruction of the environment and exploitation of workers in pursuit of corporate profits. Now, in the wake of the Wall Street meltdown and the BP oil spill, the damaging evidence of the natural and social costs of pursuit of profits at all costs is all too clear. While financial profit must necessarily remain an important component for business, it cannot remain the only reason for business to exist. Indeed, businesses that embrace social and environmental responsibility are showing that it is possible to make money while doing good. B Corps provide an excellent example of this.

These are just a few examples, but they illustrate the point that some of our most central business ideas were developed under vastly different circumstances than the ones in which we now find ourselves.

It is time for us to reimagine business for the 21st century.