Changing the enterprise design enables startups to be more ambitious about their impact rather than their profit
There’s a revolution underway that not many are aware of. In fact, it’s always been there, just brewing beneath the surface of the mainstream.
Most conversations about building a better future end in a similar vein, it comes down to the money. And more specifically, it comes down to what money (capital) demands from operators of the economy (business leaders) that need it to fuel their companies; capital demands shareholder profit maximization, and in turn the economy demands endless growth.
In this space is where the enterprise design revolution is underway. Alternative enterprise design models enable startups to be more ambitious about their impact on the world rather than their profits. What if the power of innovation and the energy of entrepreneurs could be harnessed to fulfill the true purpose of business – to improve society and people’s lives? Why not?
In April 2022, Wicked along with DEAL organized a first-of-its-kind Enterprise Design Workshop for Finnish startups (Here is a link to the slides from that workshop for reference). Now a year and a half later, I am eager to share my thoughts on the enterprise design ideas, opportunities and challenges in Finland, which can be useful beyond our borders as well.
Figure 1. 10 impact organisations took part in the first-ever DEAL workshops in Finland April 2022
Enterprise design ideas
The work done by DEAL is influenced by author and businessperson Marjorie Kelly who conceptualized that what impact a company ultimately makes is dependent not only on their purpose, which is usually where the focus of a company begins and ends, but also on a company’s networks, governance, ownership and finance (1).
Figure 2. DEAL has incorporated the five layers of organizational design described by Marjorie Kelly, a leading theorist in generative enterprise design
DEAL has incorporated the five layers of organizational design described
by Marjorie Kelly, a leading theorist in generative enterprise design
Here are 5 concrete examples to demonstrate alternative enterprise designs in action:
Purpose / Origin by Ocean addresses a serious environmental problem, eutrophication, that no one has been able to figure out by harnessing the excess nutrients from the ocean and creating ingredients for industry. Their purpose goes beyond maximizing profits and that is obvious by embedding positive impact in the product.
Networks / Dash Coffee imports their coffee beans directly from women growers in Rwanda. Instead of going for the cheapest coffee beans irregardless of ethics they choose to support and empower a marginalized community. Their networks are feeling a positive impact and proves a commitment to their purpose.
Governance / Riversimple is not just pioneering hydrogen-powered cars. Their model of governance is “structured to represent and be relevant to society today,” just like their product. They have introduced 6 custodians - the Environment, the Customers, the Staff, the Investors and the Commercial Partners to make up their decision-making Board, but without equity rights. The Board’s duty is to pursue the Purpose while balancing and protecting the benefit streams of all six stakeholder groups, rather than maximizing the value of one. Their governance is aligned with their purpose.
Ownership / Sharetribe transitioned to steward-ownership to protect its mission and ensure the company wouldn’t be forced to exit or IPO, which is often the case with startups. Sharetribe’s Golden Share structure includes four share classes, separating economic from voting rights while enabling the company to take on growth capital (see photo). Their ownership structure is one example of the many potential models of steward-ownership.
Finance / Purpose Ventures is an impact investment fund that has created an evergreen investment vehicle, which means they do not have a fixed fund term. This structure gives flexibility to support the sustainable growth of early-stage companies. They do not take voting stock in companies and all of their investments direct towards a “structured exit.” While most funds have a predetermined fixed return rate or multiple, they do not have a set return expectation or hurdle rate on their investments. The finance that they provide is long and holistic. They enable companies to be maximally ambitious about their impact while building for long-term sustainability.
Opportunities for Finnish startup scene
Finland is well-positioned to be a pioneer of enterprise design models that enable startups to be maximally ambitious about their impact. The nation has an engaged civil society, large number of associates and cooperatives are an integral part of the Finnish economic and social landscape with a large presence in agriculture, housing and finance industries.
Steward-ownership is not commonplace despite Sharetribe demonstrating that it is possible in the Finnish jurisdiction and to generate 5x returns for their investors (2). But the veto-share model used by Sharetribe is not the only option; other models are the Double Foundation Model, Single Foundation Model and Employee-ownership trust (3).
Finland is one of most innovative countries in the world when it comes to technologies but not when it comes to enterprise design. We are just scratching the surface of the potential in Finland. The ability to innovate, existing resources and networks and strong commitment to social and environmental causes show that Finland could be pioneering in this field.
There is an opportunity to build investment vehicles, incubators and accelerators to support the emergence and growth of steward-owned startups. Public funding and non-profit organizations could support steward-owned companies with special vehicles or by supplementing investments made by the private sector and thus improving chances of success and delivering better average ROI for private investors.
Challenges for impact startups and alternative enterprise design in Finland
Finland’s strengths are also their biggest weakness. In some respects, we simply think we are better than we are, while the reality is much different.
Figure 3. Circular material use rate by EU country, 2010 and 2021
The Finnish law makes no distinction between social enterprises and other businesses. No special support is available for these companies (4). The US has the Benefit Corporation (B-Corp), the UK has the Community Interest Company (CIC) and France has the Entreprise à Mission (Mission-Driven Company).
We think we are sustainable yet we are grossly overshooting our carbon budget and other planetary boundaries according to Leeds University study (5). We think we are ahead in the circular economy yet rank 2nd to last in circular materials use in the EU (6) (See Figure left). We imagine that we are a land of social equity yet we have a strong culture of racism and a new conservative government vows to slash social welfare spending, cut immigration and tighten up citizenship rules.
In the worst case, the false perception of “goodness” can lead to complacency and failure to innovate. That would be a shame. Why not be a pioneer of enterprise design? Why not be a true leader in impact entrepreneurship?
The revolution is underway. Wicked invites you to join our 223-strong community focused on doing. “It is the best community to receive help and action in building your impact-focused company” a community member matter-of-factly states.
