GE and the Three Models of Sustainability Venturing

GE and the Three Models of Sustainability Venturing

GE announced the next phase of its $200 million Smart Grid Challenge at last week's 2011 CES. This phase, focused on crowdsourcing "ideas for harnessing and managing energy at home," is the latest in a line of entrepreneurial efforts used by market leading companies to accelerate their sustainability efforts. In fact, since the beginning of 2010, GE and several other companies turned to the venture playbook to connect capital and know-how with ideas to further pursue sustainability.

While sustainability venturing is en vogue, the tactic isn't right for every company. My review of companies with sustainability venturing efforts underway -- GE, Nike, Marks and Spencer, Vodafone, 3M, GM, and Virgin among them -- suggests two large steps must be completed before venturing can be effective.

First these companies made powerful connections between sustainability and corporate and competitive strategies. Specifically, they've adopted the view that sustainability is a means to grow, not solely a source of new risks to be managed. Second these companies adjusted business processes to improve their processes' environmental and social impacts. These adjustments have been very well covered elsewhere.

The completion of these steps increases the likelihood that venturing efforts will pay off. The next step is to be precise about the goals of your sustainability venturing plans. Are you looking for ideas to grow into new businesses? Are you looking to fund potentially disruptive sustainability innovations in your value chain? Or are you seeking access to start-ups that could provide a range of benefits for your company?

These three options have led to the creation of three sustainability venturing structures. Crowdsourcers engage the open public to provide ideas to solve a particular challenge and ultimately lead to business growth. Amplifiers are developing networks of venture capital firms, value chain partners, public sector partners, and even competitors to bring about systemic change in an environmental or social issue. Investors place an investment in either an incubator or similar firm that funds start-ups in a sustainability related market.

Crowdsourcers. These companies look to the open public to help solve a particular challenge. The best ideas are provided with a modest to significant level of funding. Perhaps the most prevalent example is the GE Smart Grid Challenge. GE sees the development of a smart grid -- a network that delivers electricity using digital technology -- as a massive growth opportunity.

The company has long been lauded for its ability to scale great ideas into successful businesses. By partnering with four preeminent venture capital firms to bring its Smart Grid Challenge to life, GE is turning to the open public to provide ideas to accelerate the development and adoption of a smart grid that the company can then scale.

Amplifiers. These companies have internal captive funds focused on sustainability. Nike and Marks and Spencer are examples of companies in this category. Nike's Sustainable Business and Innovation (SB&I) function created an "Innovation Lab," called the SB&I Lab, to identify and fund disruptive technologies that can provide sustainability solutions.

The SB&I Lab works with a range of partners to increase the impact of its investments. Similarly Marks & Spencer launched a 5-year, £50 million fund, called the Plan A Innovation Fund, to bring sustainability solutions to life. Like Nike's SB&I Lab, the Plan A Innovation Fund develops partnerships to maximize their investments' sustainability impact.

Investors. These companies invest in start-ups focused on bringing new sustainability solutions to market. At least two methods for these investments have emerged. The first method is an investment in a sustainability focused incubator. In January 2010 3M New Ventures invested in Germany based MAMA Sustainable Incubation AG.

MAMA, which opened in early 2010, invests in "green entrepreneurs" to bring innovations to market. The second method is the establishment of a branded investment firm. Associated with Sir Richard Branson's Virgin Group, Virgin Green Fund is a private equity firm "investing growth capital in the renewable energy and resource efficiency sectors in North America and Europe."

As companies transition from internally focused sustainability initiatives to investments that can bring about systemic change, sustainability venturing efforts are likely to become more prevalent. Companies will increase the likelihood of success by choosing the right structure for their sustainability venture efforts.