THE UNTOLD STORY OF ‘GREEN’ ENTREPRENEURS

image:chrisback.co.au
culled from:www.hbr.org

The history of entrepreneurs in green industries is largely unwritten, a fact that Harvard Business School business historian Geoffrey Jones is trying to remedy. In a new paper, Jones explores the edge-of-society pioneers who created the wind turbine industry. Key concepts include:

    The research looks at entrepreneurs in the fields of organic food, sustainable agriculture, natural cosmetics, the built environment, ecotourism, and waste recycling.
    The history of green entrepreneurship is largely untold, ignored by both business and environmental historians. Many still think that there were few environmental concerns or green businesses until the last decade.

In the 1920s, on pitch black nights in rural eastern Montana, the farmhouse owned by the parents of brothers Marcellus and Joe Jacobs stood out for one reason: it had light, although located far from power lines and gasoline supplies. It was a beacon in the dark that attracted farmers from miles around, who would travel to inquire how they, too, could get connected.

The Jacobs place stood out in daylight as well. Next to the house was a windmill several stories tall, designed and built by the brothers, topped with a three-bladed turbine that converted the winds sweeping off the Great Plains into electricity. The Jacobs Wind Energy Company would soon be a major player in creating machines that would electrify rural areas across America, and eventually be sold on all five continents.

    “We’ve lost the plot of these entrepreneurs and their imagination”

It was a major achievement given that the brothers Jacobs were fulltime ranchers, and only Marcellus had made it as far as a year in high school before dropping out. But their story is not an uncommon one among entrepreneurs in green industries, says Harvard Business School Professor and business historian Geoffrey Jones. He is writing a history of green-industry pioneers, a captivating collection of heads-down individualists—often "quirky eccentrics," as Jones characterizes some of them--working not to make a buck, but to make a difference in improving the environment, or in the case of Jacobs, surviving a hostile environment.

It's largely an untold history, Jones says, ignored by both business and environmental historians. Indeed, many people still think that there were few environmental concerns or green businesses until the last decade.

"We've lost the plot of these entrepreneurs and their imagination, and it's really very important to document how they emerged, often ahead of public opinion, to try and solve the emergent environmental challenges faced by our world."

In addition to studying wind pioneers and those in other alternative energy industries, Jones is reviewing the arc of entrepreneurship over the last six decades in industries including organic food, sustainable agriculture, natural cosmetics, the built environment, ecotourism, and waste recycling.

Innovators in all these industries often had one thing in common: they came from the margins of the business world and even their own societies. "In the last 60, 70 years, you see something that was primarily confined to crazies and eccentrics, merging into something that is now totally mainstream," says Jones. "It's true across all these areas."

Although Jones intends to finish a book on this era over the next couple of years, near term he is producing discussion papers in the hopes of getting feedback and more leads. The first in this series, Historical Trajectories and Corporate Competences in Wind Energy, cowritten with HBS research associate Loubna Bouamane, chronicles the emergence of the wind turbine industry.
Blowing in the wind

The wind business turns out to have several interesting features. First, it doesn't pop up where you would expect: in windy regions. "You would think the most obvious driver to wind energy would be the amount of wind that you have--wind varies quite considerably," says Jones. "But it doesn't appear to be a great driver at all."

California was a hotbed of wind turbine development in the 1970s and 80s, yet far from the list of states ranked by wind resources. Areas with huge amounts of windy accessible land, such as Texas, Montana, and Nebraska, received barely a breeze of interest from wind entrepreneurs. Yes, Denmark, a hub of innovation in the turbine business, has plenty of wind, but neighboring Sweden and Great Britain, equally windy, showed little interest in the industry for decades, and generated very few home grown entrepreneurs.

Another surprisingly small factor in the industry's development was concern about the environment and sustainable energy. Although government subsidies and other public policies helped jump start large-scale R&D in wind and other alternative energy sources in the 1970s and beyond, Jones contends that policy makers more often reacted to political motives and pressure from business interests, while couching their actions in green language. In fact, government activities such as electrification of rural America and large-scale investment in nuclear power often worked against wind power entrepreneurs.

Other factors were more in play as this industry emerged. First, it was the vision, craftsmanship, and drive of industry forerunners such as the Jacobs brothers, and Denmark's Poul la Cour. Like India's Tulsi Tanti today, but unlike most of today's leaders in wind power, these forefathers were primarily motivated by social concerns such as a desire to bring power to rural communities, increasing productivity of farmers, and raising living standards in developing areas.

    “A lot of the recent growth in green energy is far from heroic”

Public policy—no matter what the motivations—was another influential factor in the development of the wind turbine business following the oil shocks of the 1970s. Suddenly faced with the end of the cheap oil era, the United States, Denmark, and Germany made significant investments in subsidies, tax credits, and other programs to entice research and development, Jones says. California was another major player, offering wind firms fixed energy prices and guaranteed income streams for several years.

These had the effect of luring major manufacturing companies from other industries into the turbine business, motivated by visions of wind farms spotted around the world and on its oceans. Suddenly, heavy-industry giants including Mitsubishi, Siemens, and ultimately General Electric were competing to build more efficient wind farm turbines against the much smaller incumbents such as Vestas and Nordtank, which had originated as small agricultural equipment manufacturers. The industry offered few prospects now for small entrepreneurs without access to large capital resources.

"These policies transformed wind energy into lucrative opportunity," Jones and Bouamane write in their paper. Wind capacity was building around the world, but especially in California, where by 1990 over three-quarters of world wind generation capacity was installed, producing 1.1 percent of the state's electricity needs.

But there was just one not-so-tiny problem that hindered wind energy from becoming anything but a fringe producer of electricity, Jones notes. As technology industries scale up, they rely on innovation to create strategic advantage and wring out inefficiencies. But it's difficult to coax efficiencies and more productivity out of wind turbines, no matter how much money you throw at them.

"Wind energy is still evolving, but it's more about making these blades go a little bit faster and a little bit quieter," Jones says. "It's hard to imagine what a major technological breakthrough would look like. The breakthrough is more persuading people this is the right thing to do."
The modern era

As with many things, China looks to be positioning itself as a global leader in this field—it came out of nowhere last decade to rank as the country with the largest installed wind-generated electricity capacity. Although products from that country's manufacturers are often alleged to lack the quality of competitors in other countries, China has shown that it learns quickly. And, like Germany and Spain before it, it has set in place an industrial policy that favors its own companies.

This is a pattern Jones expects to see repeat itself as he continues his research into the development of green industries: a move from pioneers driven more by social issues than economic gain who build the foundations of the industry but who are ultimately weeded out by the arrival of major players from other established industries, perhaps aided by government largesse.

"A lot of the recent growth in green energy is far from heroic; it comes from governments giving favors to powerful business interests," says Jones. "In the case of China, its industrial policy aims to get a bunch of their companies ahead in a technology that is perhaps going to be central to energy supplies in the future. That's quite different from the pioneering Danish guys who were very concerned about the planet and the environment, or Jacobs who wanted to light up rural America."

Another interesting pattern he sees among turbine makers and other green entrepreneurs is that they are not randomly located. Attempts to harness wind power seemed of much more importance in some countries than in others, "a very odd pattern in the geographical locations of the firms," Jones says.

"This sparks my imagination. In the early days of organic foods in the United States there were clusters in Boulder, San Francisco, and Boston. So that's very curious. And this is a central theme of the book, that green entrepreneurs are not randomly distributed around the planet but are clustered in particular places. I'm trying to understand that."

(For a related article on "green" business pioneers from Harvard Business School, read Green Day in the HBS Alumni Bulletin.)