Measuring Success
A sustainable entrepreneur defines success by achieving a balance between financial profitability, positive social impact, and environmental stewardship. It involves measuring success not only in terms of financial performance but also in terms of the positive change created for people and the planet. A sustainable entrepreneur strives for long-term viability while prioritizing ethical business practices, social responsibility, and environmental sustainability.
Source: Schaltegger, S., & Wagner, M. (2011). Sustainable entrepreneurship and sustainability innovation: categories and interactions. Business Strategy and the Environment, 20(4), 222-237. doi:10.1002/bse.682
In the context of sustainable entrepreneurship, several essential aspects shape the financial and impact dimensions of a venture. Let’s explore these aspects: cost structure, revenue streams, subsidization, eco-social costs, and eco-social benefits.
Cost Structure
Definition: Cost structure
Cost structure refers to the types and relative proportions of fixed costs and variable costs that a business incurs.
Source: Cost structure definition — AccountingTools. (2023, January 22). AccountingTools.https://www.accountingtools.com/articles/what-is-cost-structure.html
Cost structure refers to the various expenses incurred in running a sustainable business. This includes costs associated with sourcing sustainable materials, implementing eco-friendly practices, and ensuring fair wages for workers. Sustainable entrepreneurs carefully consider their cost structure to align with their values and impact goals, seeking ways to optimize resources while minimizing negative environmental and social impacts.
Revenue Streams
Definition: Revenue Streams
Revenue streams are the sources of revenues or incomes for a company or a business, including projects, sales of services and products, revenues from financing or recurring revenues, etc.
Source: Thakur, M. (2023, July 5). Revenue streams. EDUCBA. https://www.educba.com/revenue-streams/
Revenue streams are the different sources of income for a sustainable venture. While traditional revenue streams are present, sustainable entrepreneurs also explore innovative models that align with their mission. This could include revenue generated through eco-friendly product sales, partnerships with like-minded organizations, or even impact investments. Diversifying revenue streams allows sustainable entrepreneurs to create sustainable financial models and drive their mission forward.
Subsidization
Definition: Subsidy
A subsidy is a benefit given to an individual, business, or institution, usually by the government. It can be direct (such as cash payments) or indirect (such as tax breaks). The subsidy is typically given to remove some type of burden, and it is often considered to be in the overall interest of the public, given to promote a social good or an economic policy.
Source: Scott, G. (2005, June 28). Subsidy. Investopedia. https://www.investopedia.com/terms/s/subsidy.asp
Subsidization plays a crucial role in supporting sustainable entrepreneurship. It involves accessing funding or support from external sources, such as grants, impact investors, or government programs. Subsidization can provide the necessary resources to fuel growth, develop sustainable solutions, and overcome initial financial barriers. It enables sustainable entrepreneurs to focus on long-term impact rather than being solely driven by immediate profitability.
Eco-social Costs and Benefits
Definition: Eco-social Costs and Benefits
Social Benefits/Costs are beneficial or detrimental impacts on people resulting from a company’s activities. For instance, purchasing some automated machines generates a social benefit in terms of occupation at the supplier but it will reduce the number of employees needed at the buyer.
Environmental Benefits/Costs are beneficial or detrimental impacts on the natural environment resulting from a company’s activities. For instance, deciding to generate electricity using solar energy has environmental benefits compared to other sources but still has a cost in terms of producing and transporting the materials.
Source: Zaffonato, N. (2019, December 25). Social & environmental benefits/costs. Biz Shakalaka. https://www.bizshakalaka.com/home/business-model-canvas/bmc-01-framework-2/bmc-01-10-social-environmental-cost-benefits/
Eco-social costs and benefits refer to the environmental and social impacts generated by a venture. Sustainable entrepreneurs recognize that their actions have consequences beyond financial considerations. They assess the eco-social costs of their operations, such as carbon emissions or social inequalities, and work towards minimizing or mitigating these costs. Simultaneously, they strive to maximize eco-social benefits, such as positive environmental stewardship, community empowerment, and inclusive practices.
This short video provides examples of social costs and benefits:
Enhance Tuition. (2017, November 1). Social costs and benefits. YouTube. https://youtu.be/t4g3NGTphPg
To measure the success and impact of a sustainable business solution, various approaches and metrics come into play. These include traditional financial indicators like return on investment (ROI) and profitability, but they also encompass non-financial indicators such as carbon footprint reduction, social impact assessment, or stakeholder satisfaction. By adopting a multi-dimensional measurement framework, sustainable entrepreneurs can comprehensively evaluate their performance and ensure that their ventures create positive change across multiple dimensions.
Ultimately, the positive changes a sustainable venture brings to society and the environment are its core purpose. By addressing social and environmental challenges, sustainable entrepreneurs strive to create a more equitable, inclusive, and sustainable world. Their ventures can contribute to poverty alleviation, resource conservation, environmental restoration, and social empowerment.
Knowledge Check!
Resources
- Chomsky, R. (2023, August 20). Measuring sustainability in business. Sustainable Review. https://sustainablereview.com/measuring-sustainability-in-business/
- Garg, V. (2022, June 18). Cost structure. WallStreetMojo. https://www.wallstreetmojo.com/cost-structure/
- Roomi, M. A., Saiz-Alvarez, J. M., & Coduras, A. (2021). Measuring sustainable entrepreneurship and eco-innovation: A methodological proposal for the global entrepreneurship monitor (GEM). Sustainability, 13(7), 4056. https://doi.org/10.3390/su13074056
Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost.
Source: https://www.investopedia.com/terms/r/returnoninvestment.asp
Social impact assessment (SIA) is a methodology to review the social effects of infrastructure projects and other development interventions.
Source: https://en.wikipedia.org/wiki/Social_impact_assessment
