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GMI 38 Summer 2002 71
An Insider’s Experiences with
Environmental Entrepreneurship
Lassi Linnanen
Helsinki University of Technology, Finland
The author argues that most of the normal entrepreneurial laws are valid also for
environmental ventures. However, the value-based leadership often rightly associ-
ated with environmental entrepreneurs gives a special flavour to these businesses.
With hands-on practical experience and an insightful theoretical orientation, the
author analyses typical environmental business features and its main segments and
presents a typology of ecopreneurs.
● Entrepreneurship
● Ecopreneurship
● Start-up
companies
● Finland
Lassi Linnanen is professor of environmental and quality management in the
Department of Industrial Engineering and Management at Helsinki
University of Technology. Before joining academia in 2000 he was chief
executive officer and co-founder of Gaia Group Ltd, a leading Finnish energy
and environmental management consultancy. His main research interests
include corporate responsibility strategies and system innovations for
sustainable development.
u
Department of Industrial
Engineering and Management,
Helsinki University of Technology,
Saimaankatu 11, 15140 Lahti,
Finland
!
lassi.linnanen@hut.fi
<
www.tuta.hut.fi
gmi38.linnanen 2/4/03 11:56 am Page 71
© 2002 Greenleaf Publishing http://www.greenleaf-publishing.com
s environmental entrepreneurship something different from ordinary
entrepreneurship? The right answer might be both no and yes. Most of the normal
entrepreneurial laws, such as the correlation between risk and profit, the right timing
for market entry and the need for adequate financial and human capital are valid also
in environmental ventures. To be successful, environmental entrepreneurs should
move fast, motivate others and take risks as well as anticipate and supply what large
numbers of people want. However, the values-based leadership often rightly associated
with environmental entrepreneurs gives a special flavour to these businesses.
In this paper, the phenomenon of ecopreneurship is examined from two different
sides. The practical side is that I have over ten years of personal experience in the creation
and management of environmentally oriented business ventures in Finland. This
experience is drawn on to provide many of the hands-on observations cited in the paper.
The second side is academic: I also hold a professorship in environmental and quality
management at Helsinki University of Technology and continue to support and advise
young academic entrepreneurs. All the recent start-ups with which I have been involved
also have something in common: a quest for more sustainable products and services.
Owing to the sensitive nature and confidentiality of the information behind the real-
life examples, most of the companies and individuals referred to in this paper will
remain anonymous.
Ecobusiness classification
Environmental businesses can be classified into four different segments. Each has a
distinctive character, and their emergence has been influenced by a different combi-
nation of drivers. Three main drivers for environmental business and technology can
be identified as follows:
t The geographical area of influence, ranging from local, to regional, to global. The
balance has shifted from local point-source pollution, such as waste-water treat-
ment, to global and more complex issues, such as climate change.
t Reason for market emergence, either by regulation or by voluntary decisions of
market actors. Besides the traditional command-and-control approach, market-
based instruments and voluntary actions have become increasingly important.
t Degree of enforcement, varying from high to low. The degree of enforcement differs
from country to country and from one law to another.
Thus, I am inclined to propose, on the premises of these drivers, that at least the
following four segments can be identified among environmental businesses:
t Nature-oriented enterprises. These are concerned with wildlife habitat preservation,
eco-tourism and other close-to-nature concepts that utilise economic and human
resources to improve the state of the environment.
t Producers of environmental technology. The production of such technology is
driven by legislative pressure on communities or industrial enterprises to reduce
their environmental load on water, air and soil.
t Providers of environmental management services. These aim to advise corporations
to utilise environmental excellence as a source of competitive edge.
lassi linnanen
72 GMI 38 Summer 2002
I
gmi38.linnanen 2/4/03 11:56 am Page 72
t Producers of environmentally friendly products. Such products are differentiated
from existing products by their better environmental performance over the product
life-cycle.
Table 1 summarises the drivers of these four environmental business segments.
Nature-oriented enterprises
The purest segment of environmental entrepreneurs might consist of those trying to
make their living through sustainable use of natural resources. Businesses in this
segment are often run by individuals with alternative lifestyles, or by otherwise dedicated
people to serve good causes. They offer voluntary and local means to practise environ-
mental resource management.
Producers of environmental technology
Public perception of environmental business is often limited to environmental technol-
ogy, an industry segment that is usually compliance-driven. The tightening of national
legislation is the most important driver of these firms. However, the importance of
market-based growth drivers is becoming more and more evident in environmental
technology businesses. The tightening of international regulation may result in less
binding agreements than seen in nationally enforced laws, but it will force global
businesses to react more quickly and voluntarily.
A typical eco-business situation with respect to environmental technology is to
overestimate the legislative push and to underestimate the market pull, as Case study 1
illustrates.
Providers of environmental management services
Environmental management services achieve their aim by taking into account environ-
mental protection criteria in all the company’s planning, implementation and control
activities, aiming at decreasing the environmental load and achieving long-term corpo-
rate objectives (Linnanen 1998). This industry segment includes but is not limited to
environmental management system consulting, environmental accounting and com-
GMI 38 Summer 2002 73
an insider’s experiences with environmental entrepreneurship
Driver
Segment
geographical
influence
reason for market
emergence
degree of
enforcement
Table 1 drivers of eco-business sectors
Nature-oriented
enterprises
Local Market Low
Environmental
technology
Local or regional Regulation High
Environmental
management services
Global Regulation and
market
Low
Environmental
products
Global Market Low
gmi38.linnanen 2/4/03 11:56 am Page 73
munication, legal services and life-cycle assessments (LCAs). More recently, environ-
mental management has expanded to cover the triple-bottom-line approach.
Producers of environmentally friendly products
Environmentally friendly products have markets as their driver. The demand for these
products is derived from the increasing environmental awareness of consumers. These
consumers constitute 10%–20% of all consumers in Western societies and have the
willingness to pay an environmental premium in the purchasing price (Peattie 1993).
In addition to environmental criteria, this differentiation can be achieved by social
criteria, such as the sale of fair-trade products.
Barriers to ecopreneurship
It appears that there are a few critical issues that successful ecopreneurs must address
and that conventional entrepreneurs do not. These can be classified into three broad
categories: (1) the challenge of market creation, (2) the finance barrier and (3) the ethical
justification for existence.
The challenge of market creation
The diffusion of environmental awareness is an important factor in supporting market
creation for environmental technology, products and services. The diffusion of environ-
mental awareness and, even more so, a change in consumer behaviour have proved to
be slow (Meffert and Kirchgeorg 1993). One potential explanation for this slowness lies
in the complicated nature of the sustainability challenge. Environmental management
and sustainable development are still fairly discredited concepts in public discourse and
it is therefore a natural inclination to require greater proof of these new and provocative
ideas than for the view already believed to be true (Sutton and Staw 1995).
One problem in communicating environmental problems is the difficulty in provid-
ing clear cause-and-effect relations. Consider the following imaginary example with
regard to carbon dioxide emissions:
When you drive a car to a local hypermarket you will add to global carbon dioxide
emissions, which contribute to global warming, which in turn might lead to food scarcity
lassi linnanen
74 GMI 38 Summer 2002
Case study 1 legislative push and market pull: tyre recycling
in the mid-1990s a start-up company planned to enter the market to
recycle rubber from waste tyres. At that time, a car-tyre recycling scheme was established in
Finland as a result of legislative measures. The company quite rightly assumed that there would
be an important and cheap material flow resulting from approximately three million waste tyres
per year. It prepared a production and investment plan for rubber sheets based on its patented
technology and on the expected price of the raw material. However, it failed to recognise the
fact that the remanufactured products, like all other products, do not automatically have
commercial value. There needs to be a market for them. After a more careful market study it
was revealed that the intended production capacity was approximately 100 times higher than
the existing market demand. Even with an annual growth rate of 100% in demand it would have
taken almost ten years to run the plant at full capacity. The investment would clearly have been
a failure, and the investment plan was cancelled.
gmi38.linnanen 2/4/03 11:56 am Page 74
as the conditions in many productive agricultural areas will decline and, therefore, your
food price rises in the long term. And, of course, you should calculate the fuel cost, which
has a direct impact on the price of your food.
When you hear the argumentation above for the first time, would you buy the idea and
reduce your driving in order to keep your food prices down? Considering the plausibility
of the causal relations, probably not. Luhmann (1988) argues that it is not possible for
a society to respond even to grave environmental problems until they become public by
means of the social communication system. Environmental threats become social
threats through communication. This socialisation of threats is also a prerequisite for
their elimination.
A newly established company always faces a major challenge: the good business idea
needs to be realised in practice. Market creation requires strong belief in the entrepre-
neur’s own vision and capabilities. The need to create a new market for new products
often proves difficult, as Case study 2 demonstrates.
When the market creation challenge is combined with high-level capital investments
to enable industrial-scale production, small companies often end up facing substantial
financial barriers to launching themselves and to growth (see Case study 3).
The finance barrier
On the one hand, environmental entrepreneurs with drive and ideas often find it difficult
to find investors who share their objectives and ideals. On the other hand, people
interested in direct investment in environmental businesses experience difficulties in
finding the enterprises they can believe in and support. Many environmental companies
GMI 38 Summer 2002 75
an insider’s experiences with environmental entrepreneurship
Case study 2 the timing of market entry: future trade in fresh water
a profound example of the challenges of timing one’s market entry
can be drawn from the fresh water trade. By logical deduction, this seems to be set to become
a huge market in the future. All the predictions argue that water availability is the world’s most
pressing resource issue, as fresh water is growing scarce amid competing human needs (e.g.
Doering et al. 2002). The demand is expected to rise, making margins higher, which, at a certain
threshold level, will make bulk shipments of fresh water profitable on a global scale. However,
it is next to impossible to predict when this threshold level will be achieved.
Case study 3 the challenge of market creation and high start-up costs: nanotechnology
nanotechnology is argued to be a potential future market for
supporting sustainable development. Staff at a technology centre developed a number of
nanotechnology innovations relating to the surface treatment of materials (atomic layer
epitaxy). The methods provide significant eco-efficiency potential in several areas of application
(e.g. through extension of product life). The business potential was recognised, resulting in a
spin-off company from an existing corporation. However, this company had hard times during
its first years of existence. The capital investments required were high, and there was no existing
market. Finally, a couple of industrial companies that were potential users of this new surface
technology in their products decided to acquire minority stakes in the company. This simul-
taneously gave the company a more solid financial ground and created a market channel.
gmi38.linnanen 2/4/03 11:56 am Page 75
seem to know little about the investment community, and many investors believe that
ecopreneurs lack knowledge about the realities of financial markets and fail to grasp the
investor’s interests. Whether these prejudices are justified or not, they create an obstacle
to placing and obtaining capital (
IISD 2002).
Many ecopreneurs express the need for a period of product development to reach a
market breakthrough that is longer than the period sought by typical venture capitalists,
who may seek to exit their investment after two to three years. This may be not enough
for eco-innovations to become commercially viable. As a result, environmental venture
capital is marginal. Randjelovic et al. (2002) have estimated the size of green venture
capital to be around 0.1% of mainstream venture capital. One venture capital executive
put it quite bluntly:
The environment may be a successful screening criterion to find possible growth
companies, but after that it does not influence [investment] decision making. The
problems and solutions are found from three areas: management, management and
management.
In the my experience, it is difficult to sell investors a novel business concept containing
positive environmental arguments. Stubbornness is needed to beat the resistance to
change (see Case study 4).
Case study 4 indicates an important trend. An emergent channel for ecopreneurs to
raise venture capital is the stock of high net worth investors (‘business angels’) who seek
sustainability-related investment because of their environmental and social beliefs and
the understanding of the potential double dividends (Randjelovic et al. 2002).
The ethical raison d’être
Financial and market considerations are essential to all entrepreneurs. Therefore,
maybe the most distinctive feature of many eco-businesses is their explicitly expressed
ethical reasoning. This has positive and negative effects on the business and its corporate
governance. The ethical dimension is a major issue to take into account when main-
streaming environmental businesses and innovations.
lassi linnanen
76 GMI 38 Summer 2002
Case study 4 overcoming resistance to change: the re-using of textbooks
a recent start-up company aimed to replace the distribution chain of
the high-school textbook market by re-using books. The business was especially interesting
because of the high profit margins and its effectiveness in reaching the customer with accurate
provision of books. The company’s core success factor is an information system that is
designed to gather the data as to where, when, what and how many books can be acquired and
are needed for the lessons for the next term. According to this information, the correct items
are taken to schools and the trading is organised through bookstore-like trading events. The
customer benefit is a significantly lower price combined with a better service. However, the
raising of finance for the company proved to be a difficult task as there was no prior example
of this earning logic. This raised doubts among venture capitalists. After several unsuccessful
approaches, a group of private investors were able to provide the needed 4 0.5 million finance
for the company to roll out the business to cover Finland.
Now, the concept has good prospects for future expansion both abroad and into other
products with similar features. An international survey made by the company has shown that
the United Kingdom, Germany, Spain and many other countries are possible markets, where
the opportunities to leverage know-how and information systems are frequent.
gmi38.linnanen 2/4/03 11:56 am Page 76
On the positive side, most of the ecopreneurs I have met are highly committed to
their business. Their reason for running an enterprise is not solely to make money but
involves also a willingness to make the world a better place in which to live. This personal
commitment also increases their marketing credibility and trustworthiness as business
partners.
Another issue is that sometimes this willingness to serve good purposes even exceeds
the desire to make money. Eco-businesses are indeed measured by multi-dimensional
success criteria, many of them being non-financial. The combination of fact-based and
value-based issues linked with various impact levels—from the individual level up to a
global level—leaves room for great diversity of performance indicators and makes it
difficult to define success. Integration of the financial and the ecological perspectives
has proved to be difficult, if not impossible. The current lack of clarity of sustainability
criteria leads use to the conclusion that ‘good business’ is continuously open to multiple
interpretations.
It is also possible to identify negative issues relating to an ethical raison d’être. First,
a quest for ethical excellence complicates management. For example, recruitment and
outplacement decisions are never easy, but they might be even more difficult in values-
led enterprises. In these enterprises, people coming in should naturally be talented and
productive but they must also show an ability to commit themselves to the world-
improving value base. Then, if the company faces a need to reduce its workforce, firing
people will be difficult, as there will be a tendency to take into account a wider variety
of factors than would be the case if the decision were based solely on rational reasoning.
Second, many of those companies with a high ethical profile seem to resemble non-
profit associations more than business organisations in their governance and decision-
making. A somewhat surprising link can be found between established family
enterprises and environmental enterprises. Mustakallio (2002) identifies family busi-
ness characteristics to have (1) a low mobility of shares and controlled ownership and
(2) an emotional dimension, with mixed self-interested and altruistic behaviours. Most
of ecopreneurs share these two characteristics.
The link between financial-sector values and ecopreneurial values deserves special
mention. It is sometimes unclear whether the entry of venture capitalists into eco-
businesses is solely a positive phenomenon. Too often, blind money-making intentions
overrule the ethical orientation that is one of the positive features of many ecopreneurs
(see Case study 5).
GMI 38 Summer 2002 77
an insider’s experiences with environmental entrepreneurship
Case study 5 venture capitalism and ecopreneurs: the small print that
compromised the ethical vision of the founders of an
environmental management software company
a provider of environmental management software applications
offers holistic solutions to its customers’ environmental management challenges by using web-
based technology, automating basic routines encountered in environmental management, such
as data collection. The business concept of this company is a lucrative mix of environmental
management and information technology, and the company’s initial start-up finance was easily
raised. Unfortunately, it soon transpired that the investor selected was interested only in the
human capital of the young entrepreneurs, not in developing the company itself. Soon after the
start-up stage, the investor announced a plan to employ these entrepreneurs directly. The
company may still prove to be a market and financial success, but it will happen at a high ethical
price. In this case, the young enterprise and its founders being forced to abandon their original
vision and values by strict contractual policy and by overuse of negotiation power was an
unwanted side-effect imported from the financial community.
gmi38.linnanen 2/4/03 11:56 am Page 77
Developing a typology of environmental entrepreneurs
Several definitions of ecopreneurship can be found in the literature. Some of them have
a rather limited scope. For example, Anderson and Leal (1997: 3) define ecopreneurship
as ‘entrepreneurs using business tools to preserve open space, develop wildlife habitat,
save endangered species and generally improve environmental quality’. Schuyler (1998)
provides a more generic definition by stating that ‘the term ecopreneurs has been coined
for entrepreneurs whose business efforts are not only driven by profit, but also by a
concern for the environment’.
Taking into account the considerations outlined in the above discussion, ecopreneurs
can be classified according to two criteria: (1) their desire to change the world and to
improve the quality of the environment and life, and (2) their desire to make money and
grow as a business venture. These two dimensions seem to be independent. The first
dimension of pursuing the ‘good life’, like sustainability, is an acceptable goal as such
but it is primarily an inefficient business concept. It is often argued in management
practice that the more focused the business idea, the better it is in terms of commercial suc-
cess. The second dimension emerges from a reasonable assumption that economic
success factors are no different in ecobusinesses than they are in any other business.
Successful ecopreneurs are expected to move fast, takes risks with prospective gains,
motivate others and to anticipate and supply what large numbers of people want.
A typology of environmental entrepreneurs is shown in Table 2. The elements of this
typology are analysed in the following sections.
Self-employer
An important factor among ecopreneurs who do not prosper financially is an unwilling-
ness to grow. Many of these companies have been born as an alternative to the dream
of continuous growth usually found in ‘normal’ business enterprises. Among this type
of ecopreneurs there is often a low desire to proceed along the same path and ‘to repeat
the same mistakes the capitalist system always does when assuming an infinite and
ever-growing system’. It is self-evident that substantial growth will not take place without
entrepreneurial drive. It should also be borne in mind that the majority of small-scale
entrepreneurs are self-employers. They are satisfied with a level of cash flow that is
sufficient to guarantee a reasonable living standard. Out of the four eco-business
segments presented earlier, ecopreneurs who advocate nature-oriented business ideas
are most likely to belong to this category.
Non-profit business
Among this type of ecopreneur, the distinction between business and non-profit
organisational roles is often unclear. They usually have a strong commitment to change
lassi linnanen
78 GMI 38 Summer 2002
Desire to make money
low high
Table 2 drivers of eco-business sectors
high
Non-profit business Successful idealist
low
Self-employer Opportunist
Desire to change
the world
gmi38.linnanen 2/4/03 11:56 am Page 78
existing business and consumer behaviour. However, good citizenship often overtakes
the quest for high-performance financial results. In other words, these people often have
a high willingness to influence society but a low willingness to grow. A typical example
of such an enterprise is a sustainability think-tank; these tend to remain as fairly small
expert organisations but which have an influence much bigger than their size.
Opportunist
Opportunists are rather recent entrants among ecopreneurs. They typically have a
professional background in traditional industries or they are ‘ordinary’ entrepreneurs
expanding into ecobusiness in order to increase their profits. Driven by pure economic
considerations, their business ideas are not linked to changes in the entrepreneur’s
value base. Opportunists tend to be involved in environmental technology, which
provides the most direct promise for economies of scale.
Successful idealist
Taking the growth leap needs an internal ambition, and sometimes ecopreneurs suc-
ceed. The successful ecopreneur builds a dynamic equilibrium between two virtues:
making money and making the world better. These ecopreneurs could be labelled as
successful idealists. Their desire to improve the world leads to motivation to create
markets. The cycle is enforced by positive feedback from customers and other stake-
holders, providing additional momentum for positive business results and further
strengthening the entrepreneurial motivation. This virtuous cycle is illustrated in Figure 1.
Conclusions and discussion
Environmental entrepreneurs share many features with other entrepreneurs. Similar
to mainstream businesses, the ecopreneurial success cycle is quite unstable and can
easily shift to be a vicious cycle. The less successful cycle does not emerge or collapse
as a result of good intentions but because of failure in the market test. Consequently,
this decreases motivation, paralyses further development of competence and impairs
the ability to serve markets. However, a few differences can be seen between ecopreneurs
and other entrepreneurs. Market creation is even more difficult for environmental
business ideas than it is for non-environmental business ideas, because the financial
community may not yet be mature enough to finance environmental innovations, and
GMI 38 Summer 2002 79
an insider’s experiences with environmental entrepreneurship
Desire to improve
the world
Positive feedback
from stakeholders
Motivation to create
markets
Business growth
▼
▼
▼
▼
Figure 1 the virtuous cycle of ecopreneurship
gmi38.linnanen 2/4/03 11:56 am Page 79
the role of ethical reasoning creates confusion within the mainstream business commu-
nity.
Perhaps the most distinctive feature of many ecobusinesses is their explicitly expressed
ethical reasoning. Being highly ethical brings with it certain difficulties in today’s
business culture, which is dominated by a mistaken assumption that most decisions are
value-free. Luckily, these attitudes are gradually softening as socially responsible
investments and other value-driven commercial successes demonstrate the win–win
option. Hall (2001: 19) describes a responsible entrepreneur in the following terms:
The popular thinking was that to succeed one must be tough, selfish and ready to do
whatever it takes to beat the other side...to the contrary, many entrepreneurs who are
nice, decent people build better relationships and, in turn, accomplish great things for
that very reason.
There is also one other factor that helps partially explain why the creation of
environmentally driven markets is difficult. The barrier arises from the inherently
different logic between academia and the business community. Companies and their
managers often expect some kind of prescriptive recommendations to be drawn from
research. Entrepreneurs tend to look for specific examples of successful management
and an inventory of success stories as well as suitable tools for use when one aspires to
success. In contrast, academic researchers and policy-makers are more interested in
consistent and systematic data on environmental performance and in the drivers of
change. What appears as an interesting success story of environmental management
for a businessperson might only ‘add yet another case study to the literature’ in the eyes
of an academic. Such an imbalance of expectations does not make the complex issue
any easier and needs to be addressed.
References
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Tomorrow’s Markets: Global Trends and their Implications for Business (Washington, DC: World
Resources Institute).
Hall, G. (2001) The Responsible Entrepreneur (Franklin Lakes, NJ
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IISD
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q
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