Startup Game Changers are not simply those who disrupt the existing market. They are more and more entrepreneurs who want the present business status quo to change. They want business life to be inherently different, responding the needs and aspirations of all the stakeholders, not simply the owners or the customers. These social activists and social entrepreneurs are the darlings of the tech and environmental press. They have names like Yves Chouinard (Patagonia), the late Ray Anderson (Interface), Seth Goldman (Honest Tea), Muhammad Yunnus (Grameen Bank), or Jeffrey Hollender (7th Generation). But now there are thousands of men and women starting businesses, that do not attract the word ‘social’ before their enterprise. They are just doing business differently because they believe the old way is failing us.
They are almost the polar opposite of the shareholder activists who want business to change from being concerned about the wider world in which business operates – the way that the majority of big public corporations behave today. The shareholder activist wants companies to act simply in the interests of the shareholder. These people, like Carl Ichan, used to be called corporate raiders, but they now cloak themselves as being interested in all the shareholders, not just themselves. In essence, though they are not interested in sustainability, except in the very immediate term; that business will last long enough for them to profit. In this way, Carl Ichan wants Apple to distribute much of its retained cash to shareholders now, with scant consideration for what that may mean to the longer term strategies of the company. In this of course he’s abetted by the short-termism of the stock market.
Entrepreneurs Seeing Differently
In his book, Worthless, Impossible and Stupid: How Contrarian Entrepreneurs Create and Capture Extraordinary Value, Daniel Eisenberg gives the example of Local Motors, founded by Jay Rogers. The company leads next-generation crowd-powered automotive design, manufacturing and technology, to enable the creation of game-changing vehicles. Through open-source principles, Local Motors aims to help solve local problems, locally; makes transportation more sustainable, globally; and delivers, through distributed manufacturing, innovative co-created vehicles and components with designers, fabricators, engineers and enthusiasts from around the world.
Yellow Leaf Hammocks was launched at the end of 2011 in San Francisco. It’s a B Corporation dedicated to creating artisan weaving jobs for the bottom one per cent. The company’s vision is for people to make everyday choices that create positive change in the world and a happier lifestyle for themselves. Yellow Leaf Hammocks are 100% handcrafted by hill-tribe artisans in rural Thailand. Founders Joe Demin and Rachel Connors say the company is “not a charity, but an empowering community transformation.” In 2013, Kiva and Yellow Leaf Hammocks entered into a new partnership. Now, weavers are able to plan their family budgets for 6-12 months and apportion their work and income across that time period. Kiva lenders’ funds help artisans buy the raw materials they use to make hammocks and help Yellow Leaf expand to meet wholesale orders and offer more weaving jobs.
In both these examples of startup game changers, the object of their endeavors is to share value.
Raiders Extract Cash, Do Not Share Value
In contrast to the Local Motors and Yellow Leaf Hammocks, the new ‘barbarians’ seem intent on extracting cash from their shareholdings, whther in the form of share buy-backs or bumping up the short-term price of their targets’ equity. The game-changing entrepreneurs on the other hand are motivated in large part by changing the world and sharing value. The $4 trillion of cash held on then balance sheets of American firms at the present time is a tempting meal. But eating the whole crop now will certainly lead to famine later. These two faces of US capitalism are in such stark contrast that it’s almost impossible to imagine them cohabiting.
However, both brands of activist do cohabit. It is sad to remember the entreprenurial beginnings of Apple or the other meals causing the shareholder activists to slather at the mouth. This leads to a big ethical question about the startup dream of ultimately launching an IPO.
Is there a clash between corporate sustainability and the very notion of the joint stock company? The joint stock company was originally conceived as a way to share investment cost and limit risk. Now we have a situation where all shareholders are not in the same community, despite investing in the same stock. It is true that the exposure to financial risk is not equal, but all shareholders entrust the company’s operation to the managers. When the big raiders aim their proxy weapons at the management, they take it upon themselves to represent people whose voices cannot be heard.