Tomorrow’s Business Models will be X-rated

San Francisco Harbour in 1851, a few years after the Gold Rush began (Source: Wikipedia)

The California Gold Rush began exactly 100 years before I was born — and I also largely missed out on the aerospace boom of the 1950s and 1960s. But I have criss-crossed the Golden State since the early 1970s as it has lit up with subsequent wealth rushes sparked by music, electrons, genes or bits. Even so, the latest rush — in pursuit of exponential opportunities, or ‘X’ — feels even more seismic. The deeper I dig, the more potential opportunities surface to transform capitalism, markets and business in pursuit of sustainable development.

In our evolving Project Breakthrough, co-developed with the United Nations Global Compact, the 8,800-plus business-led change platform, we are focusing on three aspects of this latest economic earthquake: exponential technologies, exponential business models and, perhaps most fundamentally of all, exponential mindsets.

To get a better grip on what is going on, I have been accumulating air miles at an almost exponential rate. This year alone, I have visited such Meccas of the X-world as the X Prize Foundation in Los Angeles and, in Mountain View, Singularity University and — perhaps most mysterious of all — Google’s X facility, the self-styled “Moonshot Factory”. For a sense of what we are finding, take a look at the first round of filmed interviews on the Project Breakthrough website, including X prize CEO Marcus Shingles, Zipcar co-founder Robin Chase and Covestro CEO Patrick Thomas.

When visiting X last week, I was fascinated to see robotic arms, futuristic model aircraft dangling from the high ceilings (they have colonized an old shopping mall) and the sort of radar scanner used to guide autonomous cars. But my theme here is less the technology than the business models that are helping turn new technology into viable businesses — especially businesses that can help drive progress towards UN’s Sustainable Development Goals.

A business model, stripped to its essentials, is how an organization makes and distributes money — and other forms of value. Businesses, clearly, have business models, but so, too, do governments and civil society organizations. And external factors can blow a hole in even the best-performing business model.

Take the SeaWorld group, whose model has depended heavily on performing orca, or killer whales. When the public mood changed, after films like Free Willy and Blackfish, the orca revenue stream became increasingly precarious. It remains to be seen if SeaWorld can turn its business model inside out, as it now intends, focusing increasingly on involving its public in wider conservation and sustainability projects.

When we went trawling for business models, we quickly turned up over 80 distinct variants, though we also discovered that many could better be thought of as characteristics — with any given model combining multiple characteristics. The results of this work can be found in our latest report, Breakthrough Business Models, commissioned by the Business & Sustainable Development Commission — and launched on September 27 at the Sustainable Brands conference in Copenhagen.

Change or die

Industry after industry now faces this disorientating market ultimatum. In the European Union, leading energy utilities lost over half their value — more than €500 billion — in just a few years as they were squeezed by constraints on coal-fired and nuclear power stations. But an equally important factor was the exponential growth in the availability of renewable energy, necessitating systemic changes in transmission grids.

We see similar dynamics in the automotive industry. At the Los Angeles Auto Show a couple of years ago, Lyft president and co-founder John Zimmer delivered an ultimatum to the industry that, perhaps more than any other, shaped the twentieth century. “You can fight [the end of car ownership],” he warned, “and that will probably not turn out well. Or you can acknowledge that this is happening. This is real, serious, and going to change your world.”

The response? The room, full of incumbents from the worlds of auto dealing, parts manufacturing, insurance and regulation, was stunned into silence. Then they started a slow handclap, signaling their intense disapproval of what they were being told.

But there were one or two notable exceptions. GM president Dan Ammann was one. He promptly pulled Zimmer aside and the two agreed a US$500 million GM investment in Lyft, valuing the smaller company at US$5.5 billion. A few months later, Ammann pulled off a similar coup with Cruise, a startup building software for autonomous vehicles.

The implications of autonomous vehicles for the future of cities has only just begun to be understood. Quite apart from the safety benefits, huge areas of land could be freed up for other uses, including the sort of green space needed to cool cities in the age of accelerating climate change.

Time to Re-Think

Leaders know that the rules of the game are about to change faster than at any time in their working lives. Simply parroting the latest sustainability jargon won’t make the cut — indeed the entire Sustainability Industry must undergo a radical reinvention, involving defragmentation and re-capitalization, if it is to tackle its current weaknesses, including intense siloing, internal competition and a Babel-like confusion of terminologies.

As leaders learn to ‘Think Sustainably,’ they will also need to learn to ‘Think X,’ shorthand for ‘Think Exponential.’ In the same way that they once looked to activists and social entrepreneurs for evidence of where markets were headed, they must now engage a very different set of players.

These new players are not happy with 1% or even 10% year-on-year improvements, instead pushing towards 10X — or 10-fold — improvements over time. And in Thinking X, business leaders need to focus on four key domains where the X agenda is already playing out.

The first imperative is to ‘Think Social.’ This is not simply about embracing social media and networks, but positioning business for a world pushing from 7 billion to 10 billion people within a few short decades. This builds on the work of social entrepreneurs and intrapreneurs, and impact investors, moving us all into areas like behavioral and cultural change.

An example of an insurgent business headed in this direction is Off-Grid Electric, bringing solar electricity to poverty-stricken areas of sub-Saharan Africa. Novo Nordisk, on the other hand, is an example of a large incumbent company bringing exponential thinking to a major social problem — the rapid global spread of obesity and linked forms of chronic disease, particularly diabetes.

The second imperative is to ‘Think Lean.’ The triple bottom line agenda — now also embraced by the burgeoning global B-Corp movement — expanded the focus from eco-efficiency to new forms of value creation — and destruction. Now there is a need to pull together movements working on lean production, lean start-ups and frugal innovation, and those aiming to create new forms of efficiency across all major capitals (e.g. physical, financial, human, intellectual, social and natural capital).

An example of an incumbent business that has worked in this space for decades is Toyota. A less well-known company is Kaer, based in Singapore and operating across Asia — selling energy-efficient air-conditioning as a service.

The third imperative is to ‘Think Integrated.’ There is growing interest in Integrated Reporting, with sustainability accounting and disclosures converging with financial accounting and disclosures. But integrated accounting and reporting across multiple forms of capital are only part of the challenge. We need to evolve solutions that are integrated across — and impact — every level of the system. In tomorrow’s capitalism, this will mean seamless data flows from farms, fisheries and factories right out to the biosphere, oceans and atmosphere. The result: new forms of market intelligence that most business leaders do not yet know that they will soon find indispensable.

An example of an insurgent business headed in this direction is Tesla, with its ambitious (some say too ambitious) integration of cars, batteries, grids and solar power. But this level of ambition is going to be key in pushing towards breakthrough outcomes. Among smaller, insurgent firms we spotlight Provenance, a London-based business using Blockchain technology to track food supply chains.

The fourth imperative is to ‘Think Circular.’ Going — or thinking — in circles used to be seen as a bad thing, but now concepts like the Circular Economy and Cradle-to-Cradle Design are gaining real traction. This aspect of the Sustainability X agenda runs directly counter to the linear take-make-waste model of capitalism, but the accelerating push towards a low carbon economy — with the new emphasis on carbon productivity — will catalyze closed-loop value webs and business models.

An example of an insurgent organization headed in this direction is Carbon Nation, which has been exploring a range of potential business models for soil carbon capture, working closely with ranchers. Philips, meanwhile, is an example of a much larger business embracing the Circular Economy — and moving towards selling lumens of light rather than lighting equipment and bulbs.

Engage with Us

Any thoughts on how this might best be taken further? We have some major events coming up, including a November Breakthrough Symposium in Cambridge, UK, co-hosted with the UN Global Compact and ARM Holdings, and a Breakthrough Summit in September 2017.

Your suggestions of potential breakthrough business models and their applications would be very welcome, as would practical advice based on experience in making such business models work in the real world. For more information, please contact me by email (john@volans.com), phone (+44 207 268 0390) or Skype (johnbrettelkington).