How to turn sustainability into a billion-dollar business
This is an excerpt from the book “Green Giants: How Smart Companies Turn Sustainability into Billion-Dollar Businesses.”
“[The CEO] thinks Tesla could be a big disrupter if we’re not careful. History is littered with big companies that ignored innovation that was coming their way because you didn’t know where you could be disrupted.” — GM spokesperson
For “Green Giants,” sustainability is the springboard to innovation. These companies are not introducing incremental improvement or a greener, more ethical, socially responsible variation on the status quo.
Instead, they are implementing some of the most disruptive and successful business innovations of the past decade. It’s the kind of innovation that has made all of the Green Giants regulars on the Fast Company or Forbes lists of the World’s Most Innovative Companies over the past four years.
It’s a surprising change from the early days of green marketing, when many manufacturers created products that were often less sophisticated and less effective than standard product lines, called them “eco_______,” and packaged them in burlap. No wonder that when many people think of green products, they envision bathroom cleaner that doesn’t clean, deodorant that doesn’t deodorize, and toilet paper that is the hair shirt to Cottonelle’s cashmere. To them “sustainable” has come to mean primitive, rudimentary, unsophisticated, and low-tech.
Green Giant products are the polar opposite of primitive. Each of the companies is founded on innovation that disrupted a category, and innovation pervades their cultures. Disruptive Innovation, then, is the second characteristic of Green Giants. They embrace sustainability as a spur to develop radically better products and services, reinvent categories, unlock new sources of revenue, and in the process leapfrog less innovative incumbents.
The Green Giants have disrupted the fast food, automotive, supermarket, infrastructure, apparel, and beauty industries, while the Next Billions are taking on eyewear, cleaning products, ice cream, yogurt, and hospitality. This type of innovation isn’t just about product. It’s about supply chains, technology, business models — and entire systems.
First things first: What exactly is Disruptive Innovation? In my pre-sustainability days, early in my career, I worked with Kodak. The company had a small division devoted to digital photography — indeed, one of its engineers had allegedly invented the digital camera. But the rest of the company preferred to sweep that under the carpet and focus on film and prints.
In one conversation with a client in the marketing department, I suggested we keep a close eye on Apple, which had recently launched the photo software iPhoto. It was great — easy to organize your photos and really easy to order prints. My client gave me a scornful look.
“People talk about Apple, but our market cap is at least 200 times what theirs is. You have to remember they’re tiny,” she said dismissively. The year was 2002.
Today, Apple is the world’s most valuable company with a market cap more than 700 times the size of Kodak’s. (Indeed, Kodak declared bankruptcy and had to be bought out.) Not so tiny any more. Apple is a serial disruptive innovator. It changes the rules of a category in a way that incumbents either don’t see coming or completely underestimate. It challenges not just the technology but the business model upon which the category operates — a distinction defined by Harvard Business School Professor Clayton Christensen, the world expert on Disruptive Innovation. The traditional players are then forced to follow or risk obsolescence.
Sustainability has this kind of disruptive potential across multiple categories — as the Green Giants prove. Each of them is founded on an innovation — a product, service, supply chain, technology, or systems innovation — that has disrupted the category it entered. The innovation changes the dominant technology and, in some cases, alters the business model of the category. Each of the Green Giants has successfully overturned prevailing business wisdom and in the process brought us new ways to eat, dress, drive, shop, power the world, and define beauty.
Delivering disruptive innovation
Where do these Disruptive Innovations come from, and how have the Green Giants managed to make them so successful? Five principles build the kind of Disruptive Innovation that powers a Green Giant:
- Make it better, not just greener.
- Embrace the counterintuitive.
- Bet on yourself.
- Engage the problem solvers.
- Cultivate pervasive innovation.
There is clearly no one path to realizing your Disruptive Innovation. The paths to success are as varied as the companies that realize them. However, there are some themes from Green Giants that are instructive. To start with two of them: engage the problem solvers and cultivate pervasive innovation.
Create a tight definition of the problem you need your team to solve. Assemble the right mix of professional problem solvers, with a clear leader and accountability to the CEO. Figure out the knowledge and skill set gaps and how to plug them: Do you need to invite your sustainability team to collaborate with your engineers or designers (your equivalent of Nike’s Considered Design team)? Or do you need to hire an entirely new breed of technician, as Tesla did with its Silicon Valley-esque electrical engineers? Make it the team’s day job, its members’ sole job, and consider tying the team’s performance evaluation and compensation to a successful outcome.
As you decide how the team is structured, you need to ask some tough questions. Is your organization structured to allow sustainable innovation to happen? Can the team survive and be successful within the existing paradigm of your business, or do you need to create a separate “pirate” entity with freedom and a mandate to disrupt? Or is acquisition more your speed?
Note, though, that none of the Green Giants got there through acquisition alone. Unilever acquired the ice cream company Ben & Jerry’s in 2001, and although Ben & Jerry’s inherently disruptive culture undoubtedly contributed to Unilever’s success, each of the Green Giants built their Disruptive Innovation in-house.
Set ambitious but realistic time frames with regular review periods. Resource the project appropriately; invest the R&D dollars. Scale up external support if necessary. Tap the wealth of external resources that now exist, whether in carbon measurement, sustainable sourcing, sustainable business models, industry‐specific coalitions, green building, sustainable design and branding, and much more. Then get to work. Stay committed, maintain momentum, and stick with it through thick and thin until you have cracked your innovation.
For entrepreneurs, a few additional thoughts: This phase very likely involves finding investment, either from venture capital firms or from a corporate investor. Recall that Chipotle took investment from McDonald’s for the critical years that saw it grow from a handful of restaurants to a national chain, and Next Billions like Warby Parker and Method have relied on VC money for their success. Competition for VC money today is tough, but there are investors with a history of backing Green Giant–style brands. They include Tiger Global Management, First Round Capital, Menlo Ventures, and Thrive Capital.
It helps if you meet them prepared with answers to the criteria from the evaluation stage, as well as a business plan and evidence of existing revenue.
Developing a Disruptive Innovation will be one of the most engaging, confounding, frustrating, and ultimately rewarding jobs you have ever done. Invite your team to build greatness, then hold on tight.