26. April 2021 | CEO Spotlight
93 percent of Fortune-500 CEOs believe their companies should focus on generating profits and be guided by sustainability goals. In the German tech industry, businesses with more than 1,000 employees almost universally consider sustainability to be an issue of central importance. And with good reason. While shareholder capitalism has served as a catalyst for tremendous progress, it has also proven that it doesn’t provide answers to deep-seated problems like climate change. On the contrary, it is a major contributor to global warming.
Where do we go from here? How do companies grow while also being committed to sustainability? One thing is certain: we need to move from business as usual to a less trodden, partly unknown path. There’s still no concrete plan in place, nor are there answers to the many new questions being posed. This is reflected in the sustainability goals of many companies today, who don’t expect to achieve their targets until 2030 at the earliest.
But is this really all that new? Entrepreneurship has always been at the forefront of pioneering efforts and necessarily involves a certain amount of incalculable risk. There have been and continue to be numerous pitfalls, including criticism from skeptical stakeholders. This is another reason why we’re seeing a trend towards greenwashing in many places instead of fundamentally scrutinising business processes and customer promises in terms of sustainability.
In this blog post, we hope to inspire you to question the old and think in new ways, as well as to have the courage needed to develop a new corporate culture. In doing so, we want to set new benchmarks for tomorrow’s entrepreneurship and sustainable growth that will support CEOs and their companies even in times of crisis, and enable them to enjoy long-term success.
Growth is essential if a business is to survive. According to the Bureau of Labor Statistics, approximately 20% of new companies fail in the first two years, 45% fail in the first five years and 65% fail in the first ten years. In other words, getting the ball rolling is not that difficult. However, scaling the business model and driving innovation are what pose major challenges. The figures clearly show how crucial it is to plan for sustainable growth from the very outset.
Start-ups in particular face the challenge of growing and becoming a successful scale-up. The idea is good, the founders are enthusiastic, but there are often only vague forecasts about how well the company will do in five to ten years. It has yet to be proven that the profits it is generating now are actually sustainable.
What distinguishes a successful scale-up from an ambitious start-up is that the experimentation phase is over for the scale-up as they have already figured out what makes them profitable. The concept has been validated and proven. Constant growth with reduced risk (thanks to successfully completed market tests) are the characteristic features of a scale-up.
How do companies continue to grow effectively and innovate while the risks they take are more calculated? Wild experimentation in the scale-up phase is a thing of the past. Developing new products and business models must now be actively managed while the innovation process must be aligned with the business strategy. The organisation that best meets customer needs with its products is the one that lays the foundation for successful growth.
Growth-oriented companies should now take a closer look at innovation. With Innovation Accounting, they measure the process and progress of innovation projects, ensuring that the product-market fit continues to increase in a rapid manner.
For this reason, everything should revolve around the customer: how many customers are interested in a product or one of its features? How much would they pay for it? What is their feedback? Where can we increase the relevance of our products for our target group? Later on, we can also ask how many customers will make another purchase, how many are willing to pay a higher price, and how many users would recommend the product to others.
The great benefit is that these metrics are not static. With this “build-measure-learn” cycle, not only is the product constantly improved; new data is also collected with every test or interaction. This gives the process a completely new and, more importantly, purposeful dynamic of innovation that always taps into the latest experiences and customer feedback. This way, businesses ensure that they create truly relevant products for their customers.
The basis for growth is a healthy, sustainable and effective balance of four areas of actions: people, strategy, execution and cash. If entrepreneurs are able to find honest answers to the following questions, they are well on their way to sustainable growth.
A well-thought-out plan combined with a validated product market fit makes a company attractive to investors and employees looking for an exciting, meaningful place to work.
Let’s stay on the subject of employees. Ever since the ongoing shortage of skilled workers and the “workforce” became a “team”, companies have had to offer much more than a good salary and a fancy company car. How well do we entrepreneurs manage to do that? The majority of employees neither feel connected to their employer nor are happy to stand up for it. The company hardly corresponds to employees’ own values and ideas, which means they don’t feel like an integral part of the company.
The reverse is also true: employees are supportive of company decisions and behaviour that they can proudly endorse. In particular, they turn to businesses that have a clear, distinct and positive impact on the world. Companies should have a deeper purpose. There is ample evidence of this: businesses such as einhorn, Bain&Company and Salesforce strive for sustainability and are loved by employees and customers alike.
This is in line with Simon Sinek’s famous phrase, which is probably not new to you: “People don’t buy what you do, they buy why you do it”. What is new, however, is that this “why” is now bound up with the topic of sustainability, as this is the only point at which all stakeholders come together. Customers, employees, investors as well as partner and supplier companies all live on the same planet and are increasingly paying attention to their carbon footprint. In short, corporate values such as passion, a pioneering spirit, team mindset, integrity and communication have a positive impact on both the team and company and pay off in the long run.
Let’s assume a company is enjoying continuous growth and also manages to maintain its pace of innovation – what could be missing from the recipe for long-term success? The answer is all around us: sustainability. Put simply, sustainable companies are the future. They care about the planet and adopt an ethical, long-term approach that values all stakeholders, including the largest stakeholder: planet earth.
Can sustainability and growth work together? The answer to this has to be yes! By acting in a way that is harmful to the environment, as we can already see in sectors such as traditional agriculture, entrepreneurs are depriving themselves of their own basis for future success.
If businesses have to erode resources in order to be successful and entire markets disappear as a result, they are simply not pursuing a sustainable model that has a chance of surviving into the future. Innovations that come at the expense of our planet are quite literally doomed to fail. Investors are moving into ESG funds, while sustainability funds, which used to be a hobby, have now become mainstream.
We put forward the thesis that companies that keep the climate, environment and people in the forefront of their minds will prevail as the only model that holds promise for the future. Maximising profits and securing them in the long term can only be achieved through sustainable action.
In other words, only those organisations that act sustainably will still be considered investable, grow and generate profits in the future. The new EU taxonomy, Blackrock’s decision to immediately stop investing in companies that pose a high sustainability-related risk, developments in the financial market and, last but not least, the change in customer needs themselves are already clear indicators of the great revolution in the corporate world known as sustainability.