12 Sep The Ecosystem Profit Model
September 12, 2023
The “Ecosystem” concept has become increasingly popular in the technology industry, referring to:
“A network of diverse entities that come together to spur innovation and drive go-to-market in the tech environment pertaining to products and services delivered in an integrated and sustainable manner”
The concept has been widely adopted based on its ability to create differentiation, efficient growth and superior customer experiences. And while we’ve written dozens of articles explaining why business ecosystems and partnership-led strategies create value for companies, we haven’t spent a lot of time focused on the social and natural ecosystems in which business ecosystems operate.
It’s obvious why this is so important in 2023. While profitability growth may be the North Star for investors, the board, and the C-suite (in that order), such bottom line profit models have wrought havoc on society and the environment. The last 150 years of technological and business advances have created species threatening impacts in both social and natural ecosystems. The impending and on-going climate collapse alone is enough of a threat to suggest that metrics like growth in profitability should be revisited if business is to become a force for good.
Beyond the Bottom Line
Today there is widespread awareness in the industry that we have to move beyond a single focus on the bottom line. Three metrics categories are emerging for investors, boards and C-Suites that reflect this evolution, including:
-The Triple Bottom Line (TBL) – A framework that measures corporate sustainability. It was introduced by John Elkington in the mid-1990s and incorporates social and environmental factors in addition to financial performance. The TBL framework revolves around three interrelated dimensions: people, planet, and profit. This approach encourages businesses to consider their social and environmental impact alongside their financial performance, thus promoting a more sustainable and balanced form of capitalism.
-Conscious Capitalism – A framework that emphasizes the importance of creating value for all stakeholders, including employees, customers, suppliers, investors, and the community. It was introduced by Muhammad Yunus in the mid-1990s when he set up a program in Bangladesh offering micro-loans to poverty-stricken individuals and families. This “socially conscious capitalist enterprise” won him the Nobel Peace Prize in 1995 and sparked a global shift towards sustainability in business.
-Environmental, Social, and Governance (ESG) criteria – A set of standards for a company’s operations that socially conscious investors use to screen potential investments. ESG criteria are used to assess a company’s overall impact on society and the environment. ESG investing has become increasingly popular in recent years as investors seek to align their investments with their values.
All of these are having an impact but, in our view, they haven’t displaced the predominance of profitability growth as the only thing that ‘really matters’. For business to become a definitive force for good, we need to do better and substantially extend our economic preoccupation to include a Social, Economic, and Natural Systems (SENS) Model.
The True Value of Business
Why do businesses exist? A common definition is:
“To create and bring to market products and services that address unmet needs and serve exciting or brand new consumer (B2C) or business (B2B) markets. And in doing so, to create a return on invested capital that attracts investments of time and money.”
This seems pretty straight forward until we unpack the word “serve”, which begs the question “to serve whom and measured by what?”
In our view, for most businesses the answer is to serve selfish interests, without concern for the downstream impacts that result in exploitative or extractive business practices; these are impacts that harm most constituents and really don’t enhance or sustain life or the planet.
You might think, “I can take pride in the productive outcomes that my business customers derive from using my employers’ tech”. But, do your customers’ customers make products and services that enhance and sustain life? The answer to that question will be no because most businesses are either entirely or mostly exploitative and extractive.
Ecosystem Conscious Business
What if businesses became aware of the fact that they always exist within Social, Economic and Natural Systems (SENS). What if they were truly measured based on their ultimate impact and the imperative of enhancing and sustaining life?
Fundamental to this understanding is the realization that making money makes no ‘cents’ unless it‘s grounded in the realization that making money (economics) can only be life enhancing if it also serves the Social and Natural Ecosystems in which a business operates.
Even the most utilitarian thinker (who doesn’t think about the ethics of enhancing and sustaining life) would agree that business and economic prosperity is a function of the sustainability of its profit stream. We believe that without managing a business across the SENS model, it’s impossible to ensure sustainable economic growth.
As more and more businesses adopt Ecosystem Consciousness, grounded in sustainability and ethics, those businesses who don’t will lose the loyalty of customers, suppliers, and employees and find economic sustainability even harder to achieve.
The Ecosystem Profit Model
Any serious investor, entrepreneur or executive who is still reading is now asking the obvious question, how will we measure success if growth in profitability (which is easy to measure because it ignores so many things) is not the true North Star?
This is where this essay moves from the pragmatic to the aspirational, and from the concrete to the theoretical. We have to start somewhere if we want the SENS Model to get past the window dressing of ESG and other prevailing sustainability models.
We came up with some measures to start the conversation of how one can measure businesses operating within the SENS model to enhance and sustain life. SENS-able businesses need to meet the following tests:
-Value-focused. Each member, subsystem and system in the ecosystem is dedicated to thrive while and by supporting the well-being of the whole. The primary value add input is love and caring and the output is well being measured by diversity, equity, nature nurturing, adaptability, and resourcefulness.
-Diverse. The ecosystem is diverse and welcoming of new members, systems and subsystems.
-Equitable. Equal opportunity for all members to Be, Belong and Become.
-Nature Nurturing. Addresses the needs of the social and natural ecosystems sustainability metrics in which the business operates.
-Accountable. Each system and subsystem in the Ecosystem understands and fulfills its role. Each member, subsystem and system accurately accounts for their value contribution and value retraction.
-Adaptable. Capable of introducing new members, systems, and subsystems and adapting the roles each plays to enhance and sustain life.
-Resourceful. Capable of attracting and sustaining the needed resources (e.g., capital).
In reading this, you might hope that someone else takes it on, because you have to go to work, make money, support a family, build a nest egg, etc. and that there’s no room for SENS. While it’s certainly true that we all need to focus on ‘me and mine’ stuff, we also need to ask how each of us can contribute to enhancing and sustaining life. It’s important not to turn away from individual responsibility. As an ancient scholar once asked “If not you, then who? If not now, when?”