A Start-up’s Quest
Sustainability determination and assurance for start-ups
Student name: Philip Kuipers
Student number: 10189262
Date of Submission: 22-06-2018, Final
Study: MSc. in Business Administration
Track: Entrepreneurship and Innovation
Course: Thesis Entrepreneurship and Innovation University: University of Amsterdam
Supervisor: dr. G.T. Vinig 2nd supervisor: dr. B. Szatmari
Statement of Originality This document is written by Student Philip Kuipers who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents. Date: Signature: 22-06-2018
Table of content Page Abstract 4 1. Introduction 5 2. Theoretical framework 9 2.1 Start-ups 9 2.2 Sustainability measurement 11 2.2.1 Triple Bottom Line 11 2.3 Small organisations 15 2.3.1 Social 15 2.3.2 Environment 16 2.3.3 Economical 16 2.4 Sustainability barriers for Start-ups 17 2.5 Conceptual model 18 3. Method 19 3.1 Research design 19 3.2 Data Collection 21 3.3 Data Analyse 21 4. Results 23 4.1 Sustainability 23 4.2 Business model 25 4.3 Scale up 27 4.4 Data collection 28 4.5 Additional findings 30 4.6 Interconnectedness of findings 31 5. Discussion 33 6. Conclusion 40 7. References 42 8. Appendix 1: Approach text 45 9. Appendix 2: Interview protocol 46 10. Appendix 3: Codes overview 47 11. Appendix 4: Cross-table Analysis 48
Abstract
The basis of this research arose from the emergence of sustainable opportunities for entrepreneurs through market imperfections (Cohen & Winn, 2007). Start-ups attempt to convert these opportunities into a healthy independent company. Schick et al. (2002) investigated sustainability issues for start-ups and concluded that adopting sustainable business practises was not so straightforward. Several barriers lead to sustainability being difficult to implement in a start-up organization. Whereas large companies have many methods and measuring tools to determine and ensure their sustainability, such as the GRI guidelines, start-ups lack the necessary tools and do not have such guidelines. This research tried to answer the following answer: how do (sustainable) start-ups determine and ensure their own sustainability? In addition, this thesis aimed to investigate if there are any similarities between start-ups in relation to sustainability determination and assurance. In the theoretical framework, ‘start-up’ was defined, sustainability measurements for large and small organizations were discussed and the barriers for start-ups were identified. This reflected the scientific context of sustainability in the world of a start-up. The collection of data was done on the basis of a qualitative inductive method, in which ten sustainable start-ups were interviewed. The findings showed that start-ups determine their sustainability through an environmental, social and economic discipline. But in ensuring their sustainability, the start-ups mainly look at economic discipline and use the aspects survival and financial performance to ensure their sustainability. Apparently, it is very difficult for the start-ups to implement sustainability in their business model. Start-ups indicate that they have to scale up to become financially more independent. The financial independence provides the ability to collect data on their sustainability. To realize their sustainability goals start-ups will have to focus on growth.
1. Introduction
One of the biggest problems facing our world today is climate change. In the latest report (2014) of the Intergovernmental Panel of Climate Change (IPCC), multiple clear but disturbing facts are presented. In the report IPCC says (2014): “Human influence on the climate is clear, and recent anthropogenic emissions of greenhouse gases are the highest in history. Recent climate changes have had widespread impacts on human and natural systems”. Consequences of the human impact on the climate can be seen everywhere in the world. The atmosphere and ocean have warmed, the amounts of snow and ice have diminished and the sea level has risen. To minimize climate change, people will have to treat the earth differently, in a so-called ‘sustainable way’.
Since its inception two decades ago, ‘sustainable development’ has suffered from a proliferation of definitions, such that is has increasingly come to mean various things to many different people (Johnston et al., 2007). Johnston et al. (2007) estimate that there are currently some three hundred definitions of ‘sustainability’ and ‘sustainable development’. Among the many disciplines, the concept of sustainability is defined differently. The Brundtland commission (1987) for example, defined sustainable development as the “development, which meets the needs of current generations without compromising the ability of future generations to meet their own needs”. However, the overall goal of sustainable development is the long-term stability of the economy and environment; this is only achievable trough the integration and acknowledgement of economic, environmental, and social concerns in the decision-making process (Emas, 2015).
In the world economy, small and medium-sized enterprises (SME) play a crucial role in the functioning of societies. According to the World Bank (2017), SMEs in emerging economies account for 60% of the total employment and 40% of the national income. In the Netherlands, SMEs accounted for even more than 60% of the national income and accounted up to 70% of the employment rates (Startline MKB, 2017). With this economic activity, the SMEs have a significant impact on the environment as well. The figures range, but from 45% to 70% of the environmental degradation is the responsibility of SMEs (Ecotec, 2000; Hillary, 1995). For SMEs there are enormous opportunities to contribute to the sustainability of our economies. Yet there is little data available for SMEs and they are therefore looking for implementation tools to implement sustainability in their organizations. So, they can monitor and improve their impact (Hillary, 2004).
Larger organizations use international guidelines as a method to determine and ensure their sustainability. Every year, numerous sustainability reports of mainly large companies are
published worldwide. Kolk (2003) shows in her research that more and more companies publish a sustainability report. Sinnett et al. (2009) indicate that the incidence of assurance of sustainability reports is higher for companies with a greater need to enhance credibility. The Global Reporting Initiative (GRI) guidelines are the leading global standard for sustainability reporting. The GRI guidelines are a collection of reporting guidance documents (all of which were developed through a global, multi-stakeholder consultative process) designed to assist companies in preparing sustainability reports and Environmental, Social & Governance (ESG) disclosers (EY & BCCCC, 2013). The GRI framework can apply to any organisation that wants to use the GRI Standards to report about its economic, environmental and/or social impacts. As GRI (2016) mentions in their standards, “Sustainability reporting based on the GRI Standards should provide a balanced and reasonable representation of an organisation’s positive and negative contributions towards the goal of sustainable development”. The problem of the GRI guidelines is that, although it is designed to use in any organisation, it is mainly used by large corporations to determine their sustainability.
For SMEs it is a difficult task to formulate relevant indicators of sustainability performance. In addition, it often gets lost in the hundreds of GRI indicators that can ensure their sustainability. A lot of research has been done into building frameworks and implementation tools to make organizations more sustainable, as well for SMEs, yet there are still implementation problems (Hillary, 2004). For most start-ups, it is even more difficult to implement these frameworks or use the indicators, because they occur in new businesses. And many of these frameworks and models do not provide tools for a comprehensive sustainability evaluation and reporting system (Perrini & Tencati, 2006).
Schroeder and Denoble (2014) argue that in today’s business environment, the success of a start-up is measured by early revenue and profit. Moreover, it can be quite challenging to design an organisation that implements the triple bottom line (Schroeder & Denoble, 2014). According Schick et al. (2002), the promotion of sustainability in start-up businesses seems to be a more promising approach. New businesses have yet to develop an organisational culture, and there are opportunities for developing sustainable corporate cultures from the very beginning of a new venture. Schick et al. (2002) suggest that is should be easier to ‘infect’ founders of new businesses with the idea of sustainability. In addition, entrepreneurs who plan to create a conventional new venture also need to become aware of the opportunities that more sustainable business practises have to offer. A comprehensive sustainability orientation in start-ups could accelerate the overall process of sustainable restructuring of the commerce industry (Schick et al, 2002). Several papers indicate that more research is necessary on the
sustainability of start-ups. For example, on how to support sustainable development, how to create guidelines and methods, and the development for tools (Beresford & Saunders, 2005; Parrish, 2010; Schick et al, 2002).
From the need of start-ups to have more applicable guidelines to determine and ensure their sustainability, and the lack of scientific research on sustainability implementation for start-ups, this study poses the following question:
- How do (sustainable) start-ups determine and ensure their own sustainability?
This research tries to close the literature gap on sustainable determination for start-ups and aims to find indicators that start-ups can use to determine, ensure and measure their sustainability. On the basis of qualitative research, we try to answer the main question. The choice for qualitative research was made because this form of research is suitable for a research into a new concept (Yin, 2009). Sustainability determination for start-ups is a new concept, which was not specific previously explored. Moreover, this research uses an inductive approach, which is suitable for qualitative research. The process of induction involves drawing generalizable inferences out of observations (Bryman, 2012). Ten ‘sustainable’ start-ups will be interviewed to identify similarities in their approach towards sustainability. The participants are deliberately chosen for their attempt to make a sustainable business a success.
The sub-questions will provide the structure to this research in order to answer the main research question. In the theoretical framework, the following sub-questions will be answered:
1) What is a start-up?
2) Which sustainability indicators do large organisations use to determine their sustainability?
3) What dilemmas do start-ups have regarding sustainability?
The first sub-question is asked to define a start-up. The second sub-question places sustainability in the business context, and looks at what large organizations do to determine and ensure their sustainability at the moment. The last sub-question makes us look at the current literature of start-ups and sustainability and helps us to determine which dilemmas there are. From there, a conceptual model is presented. Next, the research method is discussed, in which the research design, data collection and the data analyses are presented
and substantiated. Because of the inductive approach of this research, sub-questions have arisen from the theoretical framework, which are then used in collecting data. On the basis of the collected data, the following sub-questions will then be answered in the results.
4) How do start-ups see sustainability?
5) Is sustainability present in the business model? 6) Does growth affect the sustainability?
7) How the start-ups measure their sustainability?
The fourth sub-question provides insight into how the start-ups define sustainability. Next, sub-question five looks at what sustainability means for the start-ups. Then, sub-question six examines the influence of economic growth. Finally, sub-question seven aims to answer whether the start-ups quantify their sustainability. After describing the results, the research will be in-depth reflected on in the discussion and an answer on the research question is given. After which it is argued how the theoretical framework relates to the results. Next, the implication value for the start-ups and necessary further research is presented. This thesis ends with a conclusion, in which the highlights of this study are concluded.
2. Theoretical framework
The theoretical framework consists of the following steps. Firstly, a start-up is defined, as it clarifies the subject that is being investigated in this research. Secondly, sustainability measurement is discussed. This provides insight into how large organizations determine and ensure their sustainability. Next, the triple bottom line is introduced, which provides the sustainability context for companies in this research. It indicates which disciplines companies influence, and which aspects are used to determine their impact. This is supported with the GRI guidelines. The GRI guidelines and its indicators show the complexity of measuring and ensuring an organisation’s sustainability. As a follow-up, we zoom in on what these GRI guidelines and indicators mean for small organizations. This emphasizes the interdisciplinarity of sustainability and provides the sustainability context for small organizations. Thirdly, an overview of the existing literature on the problems that start-ups face with sustainability is presented. This shows the dilemmas of the start-ups, and places sustainability in the start-up context. The theoretical background provides a scientific frame through which we look at the subject and allows us to collect the right data.
2.1 Start-ups
There is much discussion about the definition of a start-up. In an article of Robehmed (2013) in Forbes, several people gave different definitions of a start-up, ranging from a company working to solve a particular problem where the solution is not obvious, to the definition of a start-up being a culture. Expert Graham argues in the article that the different definitions can agree on one thing, namely that the key attribute of a start-up is the ability to grow. In addition, start-ups often create the ability to scale fast. The growth and scale-up is often independent of geographical obligations, which differentiates a start-up from a small business (Robehmed, 2013). The definition of a start-up is also often linked with new technology, but according Robehmed (2013) this does not mean that a start-up is by definition tech-oriented. The article also raises the following question: when does a company stop being a start-up?
The present study will define a start-up by looking at it from a Dutch/European point of view. This is because the start-ups and experts that will be used for this research are located and work in the Netherlands or Europe. The start-ups and experts are part of Dutch or European start-up programs and it demarcates the ‘kind of’ start-ups that are subject of this research. The scientific and possible implementation value of this research therefore, will be
for those companies that are defined as a start-up according the Dutch/European point of view.
According to the numbers of the Kamer van Koophandel (KvK), every year around 127,000 people start a business in the Netherlands. But of all those starting companies, only 0.16% is a defined by the KvK as a start-up, which are around 200 companies. The KvK (2017) defines a start-up as follows: “A company with an innovative idea that creates a scalable and repeatable product or service, manufactured by using new technology”. With scalable and repeatable, the KvK means that the product is made once and can be sold again. It is easier and cheaper not to make another product for each customer. This leads to start-ups often having the ability to grow fast, possibly exponential.
The European Commission (2016) implies that start-ups often are tech-enabled. According to the commission, start-ups in general combine fast growth, high reliance on innovation of products, processes and financing, utmost attention to new technological development and extensive use of innovative business models, and collaborative platforms. The European Commission (2016) also emphasizes the economic value of start-ups. The fast growth of start-ups creates more jobs compared to other firms (Calvino et al, 2015). Especially, start-ups that are rapidly scaling up into bigger firms form a large share of the job-creating companies. In addition, start-ups also strengthen the economy by increasing the innovation and competitiveness in the EU. Moreover, growing start-ups can also provide social benefits, including offering more flexible and modern working arrangements (EU Commission, 2016).
The European Startup Monitor (ESM) is an initiative of the German Startups Association and started with the goal to present the development and significance of start-ups and to understand European founders in 2015 (Kollmann et al., 2015). Kollmann et al. (2015) argue that building a start-up is a special form of business and defines a start up by three characteristics:
1. Start-ups are younger than 10 years
2. Start-ups feature (highly) innovative technologies and/or business models 3. Start-ups have (strive for) significant employee and/or sales growth
(Kollmann et al., 2015) Kollmann et al. (2015) conceive start-ups as “gazelle companies”, meaning growing young ventures that are built to create wealth. In addition Kollmann et al. acknowledge that the majority of the start-ups are active in digital business.
Similarities in the definitions of the KvK (2017) and Kollman et al. (2015) are the focus on growth and innovation. The KvK (2017) appoints this by using the terms “innovative ideas, scalable and repeatable”. Kollmann et al. (2015) on the other hand, use the terms “innovative technologies and/or business models”, and the “strive for growth”. The difference in the definition is that the ESM definitions includes a timeframe, “start-ups are younger than 10 years”, whereas the KvK definition does not mention a timeframe.
The present study will use Kollmann et al.'s (2015) definition for start-ups. The definition has three clear points that a young company must meet to be considered as a start-up. Besides, the ESM definition defines the kind of growth (sales/employees). Thus, when a start-up is discussed in this research, it will meet the definition of Kollmann et al. (2015).
2.2 Sustainability measurement
Sustainability is often a real challenge for today’s businesses and is often one of the most important pillars in corporate strategies. But which indicators determine the sustainability of an organisation? The definition of sustainable development by the Brundtland commission (1987) gives the possibility to different interpretations and arguments about what is (and is not) good for the long-term stability of the economy and environment. There is a difference between a company having a sustainability program and actually being sustainable. The difference is measurement. If companies and people know what their impact is, they have the ability to influence their impact and change it. The first step in measurement is to clearly define what is being measured. However, because of the broad impact of company on many aspects, is this very difficult.
2.2.1 Triple Bottom Line
In 1994, John Elkington coined the term Triple Bottom Line (TBL). The TBL is an accounting framework that incorporates three disciplines of performance: social, environmental and financial performance (Slaper & Hall, 2011). In his arricle “Towards the Sustainable Corporation: Win-Win-Win Business Strategies for Sustainable Development”, Elkington (1994) developed the foundation for the TBL, in which he argues the necessity of environmental thinking into every aspect of social, political, and economic activity. Over the years however, TBL has gotten a different definition. Zak (2015) noticed that among the different definitions, there is an emphasis on sustainable development that is not focused on only one goal. Savitz and Weber (2006) for example, define the TBL as “a method that captures the essence of sustainability by measuring the impact of an organisation’s activities
on the world, including both its profitability and shareholder values and its social, human and environmental capital”. But besides the redefinitions the bases of the TBL are social, human and environmental disciplines also known as the three P’s People, Profit, and Planet. These three aspects will be elaborated below.
People
The social discipline in the TBL is the hardest of the three disciplines to express in figures. However, the social discipline has the greatest direct impact on the people. Every organisation consists of people who they influence, and every organisation also has activities that influence people outside of the organisation. The UN (2017) defines this discipline as social sustainability, the identification and managing of business impact, both positive and negative, on people. The first five sustainable development goals (SDG) are examples of the social discipline of corporate sustainability. Organisations affect, directly or indirectly, what happens to employees, workers in the value chain, customers and local communities, and it is important to manage the impact proactively (UN, 2017). Social performances are almost certainly unique to each organisation, or at least each industry, and they are often very difficult to quantify (Hubbard, 2006).
In the GRI guidelines, the social discipline has the most aspects compared to the economic and environmental disciplines. GRI subdivided the social discipline into four sub-categories;
- Labour Practices and Decent Work - Human Rights
- Society
- Product Responsibility
The aspects for labour practises and decent work are originated from the pursuit of fair globalisation and reflect the social responsibility for employees and social development guidelines (GRI, 2017). The first aspect is labour employment, in which, relatively easy, hard numbers are discussed, for example the numbers of new hires and turnover. Other examples of aspects in labour practises and decent work are labour/management relationship, training and education, diversity and equal opportunity and equal remuneration for woman and men.
The sub-category human rights, lets organisations acknowledge the importance of these rights. The indicators require organisations to report on the implementation on the human right processes, the incidents of human right violations and the changes in stakeholder’s ability to enjoy and exercise their human rights (GRI, 2017). The indicators are
based on internationally recognized standards, with predominant influence of the United Nations Universal Declaration of Human Rights. Examples of aspects are child labour, security practises and human right grievance mechanisms (GRI, 2017).
The society sub-category consists of indicators that focus on the impacts on communities in which organisations operate, and how risks that arise from interactions with other social institutions are managed and mediated (GRI, 2017). Aspects include for example, local communities, anti-corruption and public policy. The last sub-category is product responsibility, in which the impact on customers is central. The indicators GRI assigned to this sub-category are a reflection of the organisation’s products and services that directly affect customers (GRI, 2017). In the design of products and services, organisations are expected to ensure they do not violate the health and safety of costumers. Aspects are customers health and safety, customer privacy and compliance.
Planet
The introduction of the P for Planet by Elkington (1994) emerged from the environmentalism wave in the 1970s. Elkington (1994) argued that radical changes were necessary to start the sustainable wave, and that organisations must take their environmental responsibilities. However, ‘the environment’ is also a broad concept and difficult to conceptualise. Hubbard (2006) argues that the environmental performance refers to the amount of resources organisations use in their operations, and the by-products their activities create. To measure, develop, implement and communicate the environmental policies, Hubbard (2006) identified that organisations often adopt an internationally recognized and industry certified environmental management system. These systems support organisations in setting objectives and targets for reducing environmental impacts and monitor performances against these targets (Hubbard, 2006). Additionally, Slaper and Hall (2011) argue that environmental variables should represent measurements of natural resources and reflect potential influences on its viability. Examples of potential indicators, mentioned by Slaper and Hall (2011), are air and water quality, energy consumption and solid and toxic waste.
In the GRI guidelines, the environmental discipline concerns an organisation’s impact on living and non-living natural systems (GRI, 2017). Moreover, the ecosystems of land, air and water are included as well. The organisation’s environmental performances are measured by indicators, which are then divided in inputs and outputs. Inputs are for example, materials, heating, energy and water, and outputs are for instance, emissions, waste and effluents. The environmental performances on the in- and outputs are afterwards related to biodiversity,
environmental compliance, and other relevant information, such as environmental expenditure and the impacts of products and services (GRI, 2017). Other aspects that are included in the GRI guidelines are aspects of transport, product and services. These aspects view the environmental impact by third parties as suppliers and customers.
Profit
The economic discipline is where the hard, financial numbers of an organisation are presented. Typical economic measurements are sales, profits, ROI, taxes paid and monetary flows (Savitz & Weber, 2006). Slaper and Hall (2011) state that economic variables deal with the flow of money. In addition, they look at income, expenditures and business diversity factors. But the economic discipline is wider than just the financial statement of an organisation. The impact of an organisation on its economic environment is also part of the economic discipline in the triple bottom line. Jamali (2006) mentions this wider sense as economic sustainability and says that economic sustainability is increasingly understood to refer to generating added value in a wider sense, rather than conventional financial accounting. In addition, the GRI (2017) defines the economic discipline of sustainable reporting as the organisation’s impact on the economic conditions of its stakeholders and on local, national and global economic systems.
The GRI (2017) mentions that the financial performance is fundamental to understanding an organisation and its own sustainability as well. Whereas conventional financial statements report the financial performance normally, GRI wants organisations to report on their contribution to the sustainability of a larger economic system (GRI, 2017). Examples are the flow of capital among different stakeholders and the main economic impact of organisation throughout society. Economic indicators are divided into three categories: (1) economic performance, (2) market presence and (3) indirect economic impacts. Economic performance indicators address the organisation’s direct economic impacts. Market presence indicators provide information about interaction in specific markets, and indirect economic impact indicators show the economic impact created as a result of the organisation’s activities and transactions (GRI, 2017). Table one (p.15) shows an overview of the categories and aspects in the guidelines of the GRI.
Table 1: GRI Aspects
Source: GRI (2017)
2.3 Small organisation
Based on literature research, relevant GRI indicators for small organisations will be identified. On the basis of the three disciplines: social, environmental and economic, indicators will be assigned.
2.3.1 Social
Bosma et al. (2004) conclude that a specific investment in human and social capital will substantially and significantly affect the survival, profit and employment performance of a start-up. Therefore, measuring human and social capital for a start-up has added value. In addition, Bosma et al. (2004) argue that education is an important indicator of performance. Another indicator that is relevant for start-ups is health. Start-ups are often relative small organisations in terms of employees. This has the advantages that employers can more easily
influence their employees in terms of health. Moreover, the consumer’s health can be influenced more easily, because often the organisation’s product and/or services are more flexible for possible adjustments than within large organisations (EU-OSHA, 2017). In addition, employee and consumer health is important for the growth of an organisation as well. The last social indicator identified in literature research is the community. Many start-ups are built on their community, crowd-funding for example, is often used to build a community (Galuszka & Bystrov, 2014). Thus, start-ups can really benefit of their community, and it is therefore worth measuring their impact. Hence, the three potential indicators in the social discipline are education, health and community.
2.3.2 Environment
Measuring the environmental impact an organisation has can be really hard for a small organisation. Due to globalisation, products and materials come from all over the world and are therefore hard to track down. Large organisations often outsource their life cycle assessments, as calculating their environmental impact requires complicated calculations and specific knowledge (Rolstadas et al, 2012). As Hubbart (2006) indicates, large organisations often use environmental management systems, SMEs are less active in adopting environmental management initiatives (Zhang & Bi, 2009). Many start-ups have originated by the pursuit of sustainable development, and the start-ups will undoubtedly want to contribute to a better environment. (Cohen & Winn, 2007). Roa et al. (2006) developed several environmental indicators for SMEs, those with the significant value were consumption, energy, waste and water. Looking at the GRI guidelines, the indicators water, energy usage, materials, and effluents and waste can be used as environmental indicators, which SMEs can utilize as bench marketing and monitoring tools to enhance their environmental performance (Roa et al, 2006).
2.3.3 Economic
Small organisations are very dependent on their financial performance. Gage (2012) argues that three out of the four start-ups fail in their first three years of existence. So, the survival of a start-up is only necessary to think about sustainability at all. Gonzalez (2017) defines the sustainability of a start-up by its survival. According to Gonzalez (2017), sustainability means that the organisation has survived, and its activities are continuing. An economic indicator is therefore survival. The other economic indicator is the financial performance of a start-up. All organisations seek to have positive financial returns. However,
when considering a sustainable company, the idea is that profit will assist with empowering and sustaining the community as a whole, and not simply the staff and leaders of the company (Schroeder & Denoble, 2014).
2.4 Sustainability barriers for start-ups
As mentioned before, sustainable entrepreneurship comes from imperfections in the market, and out of the aim to develop a sustainable society occur businesses opportunity (Cohen & Winn, 2007). The fact that a start-up originated from the opportunity to create a better world does not mean that this start-up is sustainable. Products have a certain impact, which ensures that choices must be made in the process of making these products in the area of sustainability. By looking at which dilemmas start-ups now have according to the literature, it is possible to place the data in the context of a start-up.
Schick et al. (2002) identified several barriers towards sustainability by eco-dedicated start-ups. Eco-dedicated start-ups are start-ups that consistently adopt environmentally friendly business practises. However, technical barriers can occur when developing their sustainable product, as these products sometimes demand specific technology. In addition, the cost associated with using or developing the specific technology strengthens the barrier. It is more difficult to get funding for this, because the risks are higher and the return on investment takes more time (Schick et al, 2002). According to Fielden et al. (2000), securing sufficient financial backing is the main barrier. In addition, Robertson et al. (2003) indicate that the lack of finance is main reason for not starting a new business. In short, access to start-up capital and funding is a problem for start-ups (Fielden et al, 2000).
Schick et al. (2002) make a distinction between different types of start-ups, namely eco-dedicated start-ups and eco-open start-ups. The first are fully equipped to solve an environmental issue, whereas the latter have operational procedures that are not designed according to environmental needs (Schick et al., 2002). In addition, Schick et al. (2002) argue that the eco-dedicated start-ups have problems by not reaching the necessary volumes to achieve competitive prices. High-volume orders are needed to achieve a more cost-efficient production and lower price. In some cases, a higher volume is also the way to become more sustainable, because the relative negative impact per product becomes smaller.
Besides the sustainability barriers mentioned above, Fielden et al. (2000) indicate two additional start-up barriers, namely a regulation and employment barrier. The regulation barrier has two sides, firstly the many rules for the use of financial resources, as a tax benefit, subsidies or fund obligation. Secondly, the specific legal requirements imposed on some
products, for example hygienic or safety regulations. This causes some start-ups to lose their time completely to bureaucracy. The employment barrier for a start-up occurs slightly further in the start-up process, when the start-ups have grown so much that the founders can no longer cope with the workload themselves. Sometimes the financial gap to pay a full salary for an employee is just too big, compared to the growth the employee brings in the beginning (Fielden et al, 2000).
The last general barrier for a sustainable start-up is the implication of sustainability in the business model. According to Bocken et al. (2013), sustainable business models capture economic, environmental and social value for a wide range of stakeholders. For start-ups, this is a barrier because they often lack the capabilities to be able to implement these values in their organization and business model.
2.5 Conceptual model
Based on the previously discussed literature, a conceptual model is made (see Figure 1: Conceptual model). Based on the literature of start-ups and sustainability, potential indicators were mapped. The conceptual model exists of three disciplines, namely social, economic and environmental. Furthermore, each discipline has its own aspects as indicators. The discussed barriers provide the context in which the start-ups operate their sustainability.
Figure 1: Conceptual model Sources Aspects Disciplines Subject Start-up sutainability Social Education Bosma et al, 2004 Health EU-OSHA, 2017 Community Galuszka & Bystrov, 2014 Environmental CO2 Roa et al, 2006 Water Roa et al, 2006 Energy Roa et al, 2006 Effluent and waste Roa et al, 2006 Economic Survival Gonzalez, 2017 Financial performance Schroeder & Denoble, 2014
3. Method
Previous studies have shown that there is a lack of practical research on sustainability implementation for start-ups (Schick et al, 2002; Cohen & Winn, 2007). Because of the open and evolving nature of the subject, this study will use a qualitative research method. Qualitative research lends itself perfectly to research a complex environment with many variables (Bryman, 2012). From the inductive approach, this empirical research attempts to create generalizable guidelines for start-ups to determine and ensure their own sustainability. In this chapter, the research design will first be explained, after which the data collection will be discussed. Finally, the data analyses will be presented.
3.1 Research design
According to Maxwell (2005), qualitative research is a continuous process, so it asks a coherent strategy to address the research question. The research strategy existed of different components and steps. A literature review was used to create a theoretical framework, with an additional conceptual model. As mentioned previously, the theoretical framework determines the context of this research. A broad scientific context has been deliberately chosen to increase the generalizability. The inductive approach gives the possibility not to use a specific theory, but to seek for generalizable guidelines from the data (Bryman, 2012). To collect the data, it was decided to question the subjects on the basis of semi-structured interviews. First the determination of the subjects (start-ups) is explained, after which the reasons why semi-structured interviews were chosen to collect the data is explained.
A number of requirements were set for the subjects to collect credible data, in order to give an answer on the main research question. In the theoretical framework, the term ‘start-up’ was defined, which was the first requirement of the subjects. In addition, the start-up had to sell a sustainable product, so they could be asked how they determine and ensure their own sustainability in the development of their product. The last requirement was that every start-up had to operate in another industry, this was done to maximize the generalizability of this research. The research groups were selected through a desktop research and approached by means of email, SMS, WhatsApp or telephone. The start-up founders were asked if they wanted to participate in this research by means of an interview, with questions about their vision on sustainability and what it means in practice for their company, what aspects of sustainability they address and interpret. In Appendix 1, the approach of the start-up founders can be seen. Approximately 40 start-ups were approached, of which 10 indicated that they
wanted to cooperate with this research. See Table 2: Overview of the participated start-ups for or an overview.
Table 2: Overview of the participated start-ups
Table 2: Overview of the participated start-ups
The method of semi-structured interviews was used for several reasons. This method gave the opportunity for the researcher to keep more of an open-mind, so concepts and theories could emerge out of the data (Bryman, 2012). Moreover, semi-structured interviews give the ability to appreciate trends and contextual conditions across the participants and were therefore well-suited to the exploration of attitudes, values, beliefs and motives of start-up founders towards sustainability (Yin, 2009; Richardson et al. 1965; Smith, 1975). Below, the research design is thematically presented in Figure 2: Research design.
Figure 2: Research design
Literature
review •• Theoretical framework Scientific context
Desktop
research •• Subject determination Start-up approach Semi structured interviews • Data collection Industry Years in existence Founders 1 Headphones 2 2 2 Pallets 3 1 3 Tents 2 2 4 Furniture design 3 3 5 Fruit 2 2 6 Moss panels 1 4 7 Coffee 2 2
8 Raw materials and basic materials 8 1
9 Clothing 1 3
3.2 Data collection
Several choices were made in order not to threaten the validity and reliability of the semi-structured interviews and increase the trustworthiness. For qualitative research Lincoln and Guba (1985) proposed the following terms; credibility, transferability, dependability and confirmability, to assessing qualitative research. The credibility parallels the internal validity. Internal validity concerns whether the researcher’s observation matches the theoretical ideas the researcher developed (Bryman, 2012). The internal validity is a strength in this study. The researcher has done extensive research on the concepts of ‘sustainability’ and ‘start-ups’, as well as an extensive desktop-research into the participants. This resulted in the ability to ask the right questions. Additionally, to measure what is needed to answer the main research question, an interview protocol was used. This ensured that all major issues were discussed in the semi-structured interviews. The interview protocol is shown in Appendix 2.
Transferability parallels the external validity. In addition, external validity refers to the degree to which findings can be generalized across social settings (Bryman, 2012). Due to the limited time to conduct this research, the participation group was relatively small, which makes this a limitation for the external validity of this research (LeCompte & Goetz, 1982). In order to increase the external validity, an explicit choice was made for a diverse research group.
Dependability refers to the reliability. LeCompte and Goetz (1982) distinguish between internal and external reliability. External reliability is the degree to which a study can be replicated. This is sometimes difficult in qualitative research as social settings change over time (Bryman, 2012). However, by clearly describing the method, replication is possible. This study clearly sets the research group at a certain life-stage, namely the start-up phase. Nevertheless, the possibility that the participated start-ups will think differently in the future about sustainability and the implementation of sustainability in their company is present. Thus, replication should be done with other participations that are in the start-up phase. Internal reliability is a limitation in this research, as one researcher held the interviews. In addition, one researcher encoded the interviews and presented the findings from these encodings. In order to increase internal reliability, the transcripts of the interviews will be available and the records are kept and can be requested.
Confirmability is also seen as the objectivity of the researcher. In spite of the fact that complete objectivity is impossible in social research, the researcher has tried in all possible ways to prevent influences of his personal values on this research.
3.3 Data Analyse
The data was analysed by following the steps of Fereday and Muir-Cochrane (2006), and supplemented with a cross-table analysis. Fereday and Muir-Cochrane (2006) created a roadmap which provides a thematic inductive approach to encoding interview transcripts. A thematic inductive approach is suitable because sustainability has many aspects for start-ups. Several recommendations on searching for themes by Ryan and Bernard (2003) were used to identify themes. Examples are repetitions of topics, transitions of topics, similarities and differences, and metaphors and analogies. The steps of Fereday and Muir-Cochrane (2006) consist of a feedback loop, that checks the themes and codes on their reliability. The interview transcripts were coded using the program NVIVO 12. From multiple coding rounds, the definitive codes were created and used to identify the themes. An overview of the definitive codes can be found in Appendix 3.
A table analysis was used to display the data from individual cases. The cross-table analysis can go beyond the single features of a case and array a whole set of features in the interviews (Yin, 2009). In addition, the cross-table analysis provided a clear overview of the representative quotes of the start-up founders and supported the reliability of the results. The cross-table analysis can be seen in Appendix 4. Finally, this research addressed new knowledge about the determination, implementation and measurement of sustainability in start-ups. The results will be described, compared, interpreted and defined. To have knowledge of a complex phenomenon, it is necessary to analyse the subject by diving into its various components.
4. Results
After transcribing the ten interviews with the founders of various start-ups, the interviews were thematically coded on the basis of the steps of Fereday and Muir-Cochrane (2006). Different themes came up in the coding process. Within each theme, the results were described, compared and defined. The five themes are sustainability, business model, scale-up, data collection and additional findings. In sustainability, the definition and approach of the founders towards sustainability is discussed. The theme business model explains the role of sustainability in the business model of the start-ups. Next, in scale-up, the link between sustainability and scale-up is described. The data collection theme explains the role of data in sustainability. In additional findings, a number of isolated findings are discussed. Finally, the interconnectedness of the findings are presented, and summarized in a schematic model (see Figure 4, p.32).
4.1 Sustainability
Because of the different backgrounds of the start-ups, they each had their own view on sustainability. Which means there are differences, but also certainly a number of remarkable similarities in their definitions of sustainability and what it means for their start-up. Firstly, all start-ups indicated the importance of sustainability. This is emphasized by the fact that ‘being unsustainable’ is of the past and that on the long-term, unsustainable activities cannot be sustained. Sustainability is a must in securing a better future.
“Not thinking about your impact is a thing of the past, in order to survive as a company, you need to look at sustainability” Source 8
“For me, I think it’s the only way to handle 8 to 9 billion people on a planet in the future” Source 6
The need for sustainability is also clearly reflected by the founders’ definitions of sustainability. The start-up founders gave a broad interpretation of sustainability, and many different aspects were combined. Their definitions focused on the future, with the aim to be less harmful or to make the world a better place for both nature and people. In short, the definitions were in line with each other, but some were more specific regarding the company’s own impact and goal. The start-ups linked their definition of sustainability to their own activities, and saw themselves as those who bring about change in the current way of doing business. They emphasized that there was a lot of talk about calling forth change, but
that nobody actually does it. This results in that the founders explicitly say that sustainability is a part of the core of their start-up, when asked what sustainability means for their start-up.
“For us, sustainability is actually our core. It is the thing that makes us unique, and where we are trying to be unique.” Source 4
Nonetheless, when making their own sustainability tangible, it becomes more difficult for the start-ups. Which causes the founders interpreted the impact of their start-up differently. In reply on, by which aspects of sustainability the start-ups determine their own impact, eight start-ups indicated that they first look at the direct and indirect environmental impact. Environmental sustainability was seen as not damaging the environment and was often translated into being less harmful to the environment as comparable companies with a similar product. A number of indicators, including CO2 footprint, water use and energy, were mentioned. But the start-ups quickly indicated that it is very difficult to measure their impact and that it takes a lot of time. After first mentioning their direct and indirect environmental impact, the start-ups mentioned social aspects as well. The social aspect of sustainability is seen as a part of sustainability that the start-ups can take with them when they are growing or when they scale-up. Social sustainability is defined as dealing well with people as an organization. This is translated as dealing with the employees, customers and other relationships well, but also with themselves. The start-ups were also very aware of their indirect social impact. For example, they make clear choices about where their basic products come from, which are often certified in the field of social factors (e.g. no child labour, normal wages and safe working conditions).
“Look, those caps have already been used and produced, so our CO2 footprint is drastically reduced because we do not use new raw materials but use existing raw materials and only melt them.”
Source 10
“Yes, it is always a consideration, and sometimes the social aspects collides with the environment view”. Source 7
Implementing the forms of sustainability, and in particular quantifying their own sustainability, appears to be very difficult for many start-ups. The main issue is the lack of sufficient financial resources. Which results in that the start-ups saying that survival is as well a aspect of sustainability. The founders point out that it is not possible to be sustainable if
your company does not survive. Moreover, they mentioned that the company’s continued existence is also a part of sustainability.
“It is just a balance, you also just have to build a company and secretly that actually comes first, because as soon as your company falls down, there is nothing at all. Surviving is also a factor in this,
and sustainability cannot be at the forefront.” Source 1
To summarise, developing a decent business model with sustainability at the forefront is important, but also very difficult for start-ups.
4.2 Business model
The start-ups saw a business model as a plan for the successful operation of a business. Although the start-ups see sustainability as their core, it appears to be very difficult to translate this into their business plan. Various reasons indicate why it is difficult to implement sustainability in their business model. The first dilemma the start-ups face, is to what extent they stick to their sustainability in the development of their product and company. A number of start-ups indicated that they did not want to make any concessions on their sustainability from the start. Others however, have indicated that they have made concessions or expect to do so, because they want to grow first. The start-ups reason differently when asked why they do, or do not want to make concessions on their sustainability. Those who do not want to make concessions, think they should stand for what they want to change or improve in their company. So, the moment they make concessions in their sustainability, they will not come across as credible. In addition, they will not place their product on the market as long as they cannot guarantee its sustainability.
“I often see that companies just start and once they have succeeded they will become more sustainable. You can also turn it around and say no we just want to be in the market only if the product
is right. Or a service that's right. That is not an easy way, but if you really want to be sustainable, that is the only right way. So, you're going to take a good look at how to solve things without making
concessions to just be less sustainable or taking the easy road.” Source 2
The start-ups that indicated that they had done, or expected to do concessions on their sustainability, gave various reasons for why they did this. As mentioned previously, the main reason was that the start-ups first wanted to grow. Other reasons were; not having the full
knowledge yet, the need for cash flow, too small of an impact to recoup the investment and the first need to survive.
“If we were to put on a 100% sustainable product now, we would be hindered in our business, because we do not yet have the knowledge to do that. And then you will not start. And keeping your company
alive is also a kind of sustainability.” Source 9
The start-ups emphatically stated the importance of a well-functioning business model for growing and surviving the start-up phase. Moreover, they indicated that their products do not sell because they are explicitly sustainable, but because they can compete with non-sustainable products on price, quality and appearance. The value of sustainability is mainly reflected in the marketing of the start-ups, in which the story about the sustainable product creates publicity, interest and brand awareness. Nevertheless, the direct communication of the sustainability of the product towards the customer is less, because the start-ups notice that the customers make their choices based on the price and quality of the product. However, sustainability is also seen as a result of a good working business model.
“The reason it going well with us is not that we offer a more sustainable product, but because it fits in the business model. And the result is then more sustainable”. Source 3
“Because sustainability in these types of products simply does not ensure their sale. That it is a nice product, a good quality product and a good price. These are the most important points for people in the
store.” Source 10
Another dilemma faced by start-ups was that sustainability makes the development of the company both easy and difficult. When developing the product and a business model, sustainability made the development more difficult. Some start-ups even indicated that it almost meant the end of their business. In order to maintain their own credibility in the field of sustainability, start-ups argued that they sometimes deliberately do not cooperate with certain parties or reject investors. Which sometimes comes at the expense of income. Nevertheless, on a number of important points, sustainability makes the development of the company easier as well. According to the start-ups, collaborations with other companies, which also have sustainable goals, are a lot easier and the companies help each other out. Being sustainable is also an advantage in getting publicity, and in telling the story about the
product. In addition, sustainability in the business model was also mentioned as a marketing tool by the start-ups.
“Because if you have the same mission, companies will help each other. If you are a Samsung you will not be immediately hopped by Apple, perhaps an extreme example, but as entrepreneurs and start-ups
we help each other and with sustainability, I think that is just a bit stronger.” Source 1
4.3 Scale-up
As mentioned in the definition of a start-up, there must be a drive for growth. Every start-up in this study certainly met this part of the definition. They called it up-scaling up. The start-ups gave several reasons why scaling up their business is so important. The economic survival of the start-up was the first reason. Some start-ups were still in the phase in which the founders cannot pay themselves yet. Others already have several employees and are working on the next step. Economic security is the first thing the start-ups want to achieve. The need for growth also comes from the sustainability goals of the start-ups. This often indicates that they want to create a movement, make people aware and take part into their sustainability story. In which they fall back on the aforementioned result that the start-ups see themselves as the one’s that bring about change. However, the problems that the start-ups address are big and they therefore have to think big.
“So you have to make it bigger to grow, the problem is too big to let it work out in small scale. We must tackle it big, and not in the end to just get rid of that food waste mountain, but to prevent it, how
can we prevent so much food being lost.” Source 5
For a number of start-ups, the focus is clearly on creating a movement. Moreover, they want to see their company as a means to realize a sustainable goal, and the product they make is a part of that movement but not necessary the sustainable solution. In the start-ups who do not have the urge for a movement, their product is central to a sustainable solution.
“So the bigger we become, the bigger our impact and actually our movement becomes, the more we can bring about sustainability.” Source 8
With up-scaling, the goal is to increase the impact of the start-up as well. However, impact is widely interpreted. The respondents mentioned economic, social and environmental impacts. The start-ups mainly mentioned the benefits of increasing their impact. For example, more
power in negotiations with manufactures, the power of public opinion (the movement) and more publicity. In addition, start-ups reasoned that up-scaling supports the possibility to make their business more sustainable, because some investments are only feasible if they are done on a larger scale. Besides, scaling up gives the financial possibility to invest in making the start-up more sustainable. In addition to becoming financially more independent as a start-up in the scale-up process, this also means a value increase of the company according to the start-ups. One that gives better opportunities to get investments form external companies or the bank.
“You also certainly need that mass to become more sustainable. Only on a large scale can you make choices that have an impact and make investments that can only be earned back on a large scale in
terms of sustainability investments.” Source 7
“And that is also the case when the idea is scalable and financially feasible, many investing companies are also interested.” Source 2
Despite the need and the stated benefits of up-scaling, the start-ups also indicated certain dilemmas of up-scaling. Especially for the start-ups where the product is part of the movement but not the solution, it gives a certain double feeling. Despite their sustainable goal, they are still producing a product that has a certain impact. They ask customers to buy a product that does not necessarily cooperate towards a less polluting world, but the start-ups indirectly try to influence the customers from which a sustainable result should come. Another dilemma that some start-ups encounter is that increasing the impact will lead to a conflict with their sustainability. The start-ups indicated that despite the will to be fully sustainable, it is not possible with the need for growth. Therefore concessions are made with regard to certain sustainability aspects.
“And I think that's important if you want to start something sustainable in general, it is still pick your battles. You cannot to do everything right in one time. We also often get the question how to
guarantee the working conditions in the factories, I don’t know to be honest.” Source 1
“We as a sustainable start-up, we also have a product. And actually, we want people to buy that, but actually we also want people to buy less products. How do we really sell that to ourselves?” Source 9
The start-ups of which a product is a direct solution to a problem do not have these dilemmas. However, they do indicate that up-scaling does require choices in the area of sustainability, because you always run into new things.
4.4 Data collection
When asked whether the start-ups measure their own sustainability, many different answers came to light. Some already did, others tried, and some had not started yet. Different reasons where indicated by the start-ups as to why they were in the relevant phases of data collection. But the start-ups all indicated that data can determine their sustainability. The data can prove the sustainability and that it is a starting point for improvement. Moreover, they all indicated that data is extremely important for the survival of their business and can be a competitive advantage. Various benefits were mentioned for creating sensible data. For example, it is possible to find a trend, recognize problems and solve them, in other words, things you would not know otherwise. Besides, it strengthens the story of the start-up.
“I think that every start-up must be very data-driven, in the beginning they have to look at how I can pull that data out of the market. How can I quantify that, can I explain it, can I measure it too and can I
also improve it?” Source 2
“The data actually determined in that sense our company, because if we cannot prove that it works, no one believes it.” Source 6
After indicating the power of data and measurements, the start-ups immediately argued that it is very difficult for them to get the right data. A tool that is often used to quantify their sustainability is a Life Cycle Analysis (LCA). However, this tool contains many uncertainties according to the start-ups as well. Many start-ups do not have the data to execute a reliable LCA or they argued that it costs a lot of money. Several start-ups that started with LCA have stopped. Other start-ups were still working with their suppliers to get the right data and some use general figures as an indication. Examples of missing data are: the footprint of a basic product, the transport impact of a component, or even their own energy use for producing their products. The start-ups have a great need for the right data and are looking for methods and models to quantify their sustainability.
“It is so difficult to measure, a few times we had a student who did such a Life Cycle analysis, and we also tried it ourselves, but it is very difficult to get the correct data.” Source 1
“But you should not underestimate that such LCA often costs a lot of money to count, and is also very difficult.” Source 4
Therefore, the start-ups look for different methods and calculations to quantify their sustainability. Some start-ups mentioned their savings from their sustainability. Examples are: savings in not making a comparable polluting product, savings in water, savings in not using new raw materials and ‘saving’ usable waste. In these methods of quantifying their sustainability, the start-ups also indicated that it often does not summarize all aspects of sustainability, but the core is less polluting. In the social aspect of sustainability, the start-ups often look for certificates. Certificates that can guarantee for example: good working conditions, no child labour or more women at work. But despite the acknowledgement of power and need for data, many start-ups are still looking for ways to measure this. In addition, they argued that their production methods have not yet been developed enough to apply a structured measurement method.
“Yes, we express our savings in figures. And also try to quantify our sustainability with this.” Source 3
“And we are really going to measure our impact. But such impact reportage is quite a big thing, and in time we really will have to do that. But now we are still developing, we are not there yet, we have to have a standard way of producing which is 100% reliable, and where no changes are needed and then
you can start measuring.” Source 10
4.5 Additional Findings
When asked how start-ups determine their sustainability and what kind of impact this has on their business model, the concept of a circular economy often came up. Some start-ups determined their sustainability on the basis of this concept. In circular economy, waste is seen as a raw material and material cycles are closed. This circular concept is therefore sustainable because there are no waste products. The start-ups are also responsible for the total life cycle of their product. This has its effects on the business model in which the start-ups eventually want to back the products they sell. It is often very difficult for the start-ups to incorporate this into their business model, and thus the implementation of sustainability is difficult. In addition, the model is focused on very specific raw material properties, so for example the start-ups cannot use some substances like glue or certain plastics because they are not
reusable. This makes the production of a circular product sometimes very difficult and not economically feasible.
“We see sustainability from the circular economy. An economy in which no waste actually exists, and cycles are closed so that fossil fuels are no longer needed.” Source 1
“If I just wanted to earn a bag of money, I would never have made skateboards and never worked with waste. We have built our product and entire production method on the circular thoughts. And yes, it
made it difficult.”Source 10
4.6 Interconnectedness of findings
The five themes that have arisen from the open inductive coding are interconnected. The various connections between the themes reflect the way start-ups determine and ensure their sustainability. As follows, the relationships will be explained and presented in a schematic model (see Figure 4, p.32). The data shows that there is a difference between how start-ups determine their sustainability and how they ensure their sustainability. The start-ups founders define sustainability from their broad definition and mention the social, environmental and economic disciplines. But when it comes to determining the start-ups own sustainability, there is a significant focus on the environmental discipline. In ensuring sustainability, it appears that the start-ups have a very difficult time quantifying the social and environmental disciplines and thus focus mainly on the economic discipline. In addition, the start-ups indicated that they are engaged with building their company, and quantifying the social and environmental discipline takes a lot of effort, time and money. Figure 3 shows the relation of sustainability determination and assurance with the social, environmental and economic disciplines.
From the economic discipline, the start-ups recognize the continuity of their business as a part of their sustainability. The survival of their business is based on a business model. In reply on, what sustainability meant for their business model, the participants indicated that implementing sustainability in the business model is difficult. The start-ups mentioned different dilemmas about the implementation of sustainability in the business model, and often saw scaling up as a solution. Increasing the impact and becoming more financially independent are the two major advantages of up-scaling according to the start-ups. Moreover, scaling up the start-up supports the sustainability of the start-up, as well the sustainability determination as the assurance. In determining sustainability, scaling up supports the extent to which other disciplines can be included in the organization's growth, and in ensuring sustainability scaling up provides the financial possibility to start quantifying the other disciplines. The start-ups indicated that collecting the relevant data is the way to ensure sustainability. Up-scaling provides the financial support to collect the right data, and the increased impact provides more relevant data. The data collection brought by up-scaling can also give the possibility to quantify the social and environmental discipline and thereby ensure the social and environmental sustainability. The dotted red line in Figure 4, as seen below, shows this.
