Ending years of debates over environmental sustainability, the United States has officially declared climate crisis earlier this year, viewing climate considerations as an “essential element” of foreign policy and national security. After re-engaging the United States in the Paris Agreement, President Joseph R. Biden announced a new aggressive lens to reduce greenhouse gas emissions in the United States and pushed world leaders to collectively “intensify” their fight against climate change.
At the same time, consumers are more and more looking to do business with brands that align with their growing environmental values, rather than ignoring the climatic consequences of their consumption. Even without regulation like a stick, consumer demand is now serving as a carrot to increase the impact of sustainability on SOE programs.
Startups have already followed suit. Investors today see sustainability as an important pillar of any business model and look for entrepreneurs who “get it” from the start to create and grow next-generation businesses. Startups interested in thriving cannot see sustainability as an afterthought and must be prepared to present themselves to the public with a plan for sustainable growth.
Today, businesses of all sizes are held to higher standards by consumers, employees, potential partners and the media.
So what exactly do founders need to put in place to demonstrate that they are on the right track when it comes to sustainability? Here are five attributes that investors are looking for.
1. A truly customer-centric feedback loop
It’s easy enough for any business to pretend they understand customer wants and needs, but having the technology stack in place to prove that a business actually listens to customer feedback and meets those expectations is difficult. .
Investors now expect startups to have both platforms and solutions – social listening channels, relationship management tools, survey programs, and review forums – that allow them to hear and act on the needs of their customers. Without the right communication tools and the people who use them, your environmental efforts will likely seem like lip service.
Take the example of TemperPack, which manufactures recyclable insulated packaging solutions for cold and perishable food and pharmaceutical shipments. The direct relationship between a packager like TemperPack and the end consumer is often invisible. But while we were looking to invest in the business, some of its clients in the life sciences industry shared with us feedback they had received from end users, people who were given medication twice a day. Packaging from another supplier required them to go to a recycler for disposal, a real problem that made them consider switching to another drug.
Revolution Growth decided to add TemperPack as a portfolio company after seeing firsthand the feedback loop of its customers in action: end user demands informed product development, proving both a market need and a customer demand on the sustainability front. This first-hand example shows how an investor, packaging manufacturer, life science company, and end user are now interconnected in a single relationship, while also highlighting how end user feedback can connect the dots for the development of sustainable products.
2. Public commitment to sustainability goals
Over the past few years, we’ve seen millennials and Gen Z consumers demand transparency in sustainability efforts. As the purchasing power of these generations increases, investors are looking for startups that make their commitments to green goals as transparent as possible to meet the needs of savvy consumers.
For many VCs, making public commitments to sustainability goals is a sign that your startup is striving to become a next-gen business. Investors will seek thoughtful goals, with a clear understanding of where your business will have agency and influence, and which are SMART (Specific, Measurable, Achievable, Realistic and Time-bound). They will also await regular reports on progress.
While a company’s management sets these goals, its board must play a behind-the-scenes role in advancing the goals, keeping leadership on track, and setting the rules of the game so that leaders understand they are. are evaluated on criteria transcending positive EBIDTA.
Taking these steps will ensure that the goals are responsible and ambitious while holding the company accountable to consumers and stakeholders to carry the initiatives through.
3. Goal-oriented culture
Even the best-defined sustainability goals will not be achieved without a strong culture designed to ensure leadership and employee alignment. Sustainability has to be embedded in a startup’s culture – top to bottom and bottom to top – and there’s a lot at stake if that’s not the case.
Another company in the Revolution Growth portfolio, the global startup that is revolutionizing financial technologies Tala, shows how start-ups can imbue their culture with goal-oriented values. While Tala’s mission is to provide credit to the unbanked, the company believes that the best interests of the consumer should always come first. During the holiday season of 2019, Tala contrasted with the companies that fuel consumption by instead urging customers in Kenya to do not take out loans, shielding them from predatory unregulated lenders amid a lack of functioning credit bureaus and loan stacking databases. This forward-looking approach ultimately protected Tala’s clients and its vibrant digital lending industry.
Beyond determining what they represent, many of our portfolio companies face challenges in recruiting talent. People have a choice of where they want to work, and those with intrinsic motivations – such as concerns about the environment – will feel uncomfortable if their employers don’t share their values. Regulatory risks and client attrition are paltry compared to the human cost of losing star artists who seek other work cultures that better match their values.
A clear value system must integrate sustainable development into the decision-making process, impose obvious imperatives and empower employees to carry them out.
Companies are not only judged on their own initiatives, they are also judged by their partners. As startups establish new relationships or grow to work with new suppliers, investors will want to know that these external parties are aligning with their stated sustainability philosophies.
Before publicly getting involved with another company, a startup should assess the reputation of each new supplier, including information about their employment practices. Take the first quick and relaxed Mediterranean restaurant It’s okay or healthy salad-centric chain Soft green, two companies in the Revolution Growth portfolio; neither will source protein from farms with inhumane policies. If businesses aren’t aware of these factors, their customers will eventually let them know and likely hold them accountable for the oversight.
Think of it this way: If a diagram of your partnerships and supplier relationships were printed on the front page of The New York Times, would you be comfortable with what it is showing to the world? Today, businesses of all sizes are held to higher standards by consumers, employees, potential partners and the media. It is no longer possible to go unnoticed with relationships contrary to a company’s sustainable development objectives. So take a close look at your supplier and partner ecosystem and make it clear that you are bringing your green vision to life with every expansion of your business.
5. Financial realism
Financial realism recognizes that a business may want to do good, but if it doesn’t have the economic means, it won’t survive to make an impact. For most startups, starting with financial realism as a mindset and incrementalism as an approach will be the key to success, enabling all businesses to contribute to a more resilient planet. For startups that prioritize eco-friendly business practices alongside a product or service, this strategy can prevent kindness from becoming the enemy of greatness. Founders in this role can embark on a step-by-step sustainability plan, rather than expecting transformation overnight. Investors understand the delicate balance between striving to achieve green goals and keeping the lights on.
Entrepreneurs looking to build a business that not only adopts eco-friendly practices, but also has sustainability at the heart of its heart, may need to consider jumping into a less sensitive industry or niche market. priced and ready for a solution today. Once that solution is firmly established, the business can build on what it has created, rather than going further with something that doesn’t scale and quickly fails. Without an initial group of customers who appreciate and love what you do, you won’t get the greatest play.
As the public and private sectors continue to grapple with the climate crisis, sustainability will increasingly become a mandate rather than an option, and funding will increasingly flow to startups that have addressed potential environmental concerns. Unfortunately, the pressure on companies to meet sustainability requirements has led to “greenwashing” – the deceptive use of green marketing to persuade consumers that a company’s products, goals and policies are respectful. of the environment.
Greenwashing has forced investors to look beyond words and take action. As we move towards a more sustainable future, startups seeking venture capital funding will need to prove to investors that sustainability is a priority across their organizations, by aligning their awareness, public commitments and cultures. with responsibility and concrete examples of sustainable activities. Even though these examples are just steps towards bigger goals, they will show investors and clients that startups are ready today to contribute to a greener and better future.