Umair Haque opened up a thread on his HBR site back in August (yup, I am a little late to the game on this one but I think it is still very relevant) entitled “Overinnovation”.

His main argument: innovation and sustainability are at odds (or are they).

He suggests this is something to chew on and I agree.  That statement is one that I am sure could spur debate for weeks, months and even years but I’ll simply talk about it for about 700 words or so.

Here is the premise in Haque’s words:

Innovation is premised on force-feeding people more junk; on fueling artificial needs for super-size meals, Hummers, and a new pair of sweatshop-produced fast-fashion jeans every weekend.

Sustainability, on the other hand, is premised on helping people finally step off that creaking treadmill of consumption.

Is sustainability the long-overdue nemesis of the innovation fever that’s gripped boardrooms for the last decade – and led to a banal consumptionscape of gewgaw-filled warehouses littering asset-stripped suburbs? Conversely, is sustainability just a crutch for players – like Wal-Mart -can’t innovate in the first place?

Or can sustainability drive a better kind of innovation?

(Some of the comments on his post are fantastic so I highly suggest reading them.)

I think Haque is a bit harsh in his description of innovation as “force-feeding people more junk” (although some innovations do lead to that conclusion).  I think, when done well, innovation looks to do something better, more efficiently and more inexpensively than it was done before and those things, generally, sit well with sustainability.

One of the commenters suggested that what Haque really should have used for terminology was bad-capitalism versus good-capitalism.  I believe what the commenter meant by this was simply that innovation and sustainability should never be at odds when compensation and motivations are pointed toward the larger good, as they should be.  This is probably true and it suggests that innovation isn’t at odds with sustainability at all.  In fact, innovation should drive sustainability when practiced in a system that values the right things.

It really comes down to what people value.

We are starting to see innovation and sustainability come into closer alignment as people begin to realize that our current system can’t work forever. Consumerism is simply unsustainable.

Due to this shift in consumer’s values we have seen a lot of innovative business models emerge. In fact, while they are innovative, some of them just seem, well, pretty basic.

One of the most interesting models to emerge is to turn a product into a service.  This model has been best employed by larger product based companies looking to provide a more sustainable service to their customers and it yields a recurring revenue stream to the business, which is a nice bonus.  The idea can be summed up in this example:

Say you are Carrier and you make air conditioning units.  When you make these A/Cs you aren’t incentivised to make an A/C that lasts forever.  If you did that than a customer would buy once and never buy again and that doesn’t make for a long lasting business.  So what you do is you build an inexpensive A/C that will break after a certain number of years so that the consumer will have to come buy a new A/C on a fairly regular basis. (In fact, it is known that some product companies actually do design in failure points for their products to ensure consumers need to continually repurchase.)

With the innovative move-a-product-to-a-service model Carrier would charge their customers for “air conditioning services” where they would sign a contract with the customer that stated Carrier would keep the customers air at X degrees Fahrenheit for $X per year, month, etc. Now that the cost of of the actual A/C unit (and the power to operate it) falls to Carrier they are incentivised to build the longest lasting most energy efficient A/C they can in order to lower their cost to provide the air conditioning service to their customers.

The longer lasting more efficient A/Cs are better for everyone since Carrier ends up with a nice recurring revenue stream, the customer can focus on their business and not their air conditioning units and the environment ends up with fewer broken A/Cs in landfills and less toxic freon floating around.

At the end of the day, when incentives are aligned properly, innovation and sustainbility should walk hand in hand.  They should never be at odds and, if they ever are, there are probably higher level systemic things that need changing.

Andrew Lahde, manager of Lahde Capital (a small hedge fund in California), announced he is shutting down his fund.  He broke on to the scene in a big way earlier this year after his fund, only one year old at this point, returned ~866% betting on the subprime collapse.

The returns are one thing to be amazed about but his goodbye letter is truly something that will give you a jolt.  While I do think he goes a little off the edge here and there I do think that there are some interesting ideas scattered throughout the short letter that are worth thinking about. At the very least this is a smart guy who now knows what he wants in life and has realigned his priorities and I say good for him.

Here is the letter in full (via FT Alphaville and Portfolio.com).  Lahde surely knows how to go out with a bang, that’s for sure! (via The Big Picture)

Dear Investor:

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,

Andrew Lahde

When Manufactured Landscapes came up as a suggested film on Netflix I was immediately intrigued. What was this film about I wondered. So I took a look at the description and found that it was a documentary that focused on the work of Canadian photographer Edward Burtynsky.

Burtynsky has been photographing what he calls “manufactured landscapes” for over twenty years and his work is, quite frankly, breathtaking.

It all started with a missed direction on the highway that landed Burtynsky at a strip mining operation. This got him thinking of not only what a great photograph the mine would make but also about the harm we were doing to the planet. It was then that he set off to document, through fantastic photographs, what we as humans have done and are doing to our home.

What is great about Burtynsky though is the fact that his photographs don’t hammer you over the head with their environmental message. It is a very subtle message that you begin to realize only after looking at the photographs for a while. At first the photos simply look like interesting pieces of art but then, all of a sudden, you realize what you are really looking at and you have to take a step back and think.

If you’re not sure a whole film about Burtynsky’s work is for you I would suggest checking out his TED talk. I think you’ll be captivated by it and by his work.

Looking at a massive pile of tires or a sea of used electronics through the lens of Edward Burtynsky really makes you think about our impact on this planet. I hope you will check out the movie, Burtynsky’s work and his TED talk because I believe it will open your eyes.

I had the pleasure of meeting Brian Ellison the other day. Brian is one of the co-founders of Death’s Door Spirits. Death’s Door is actually a side gig for him. When he is not creating sustainable spirits Brian actually works on economic positioning and regional sustainability in various areas of the country with a focus on the upper midwest.

So, why am I talking about a small vodka and gin distiller? Because the vodka and gin Death’s Door produces is sustaintable. They actually farm all of their wheat on Washington Island which is an island in Lake Michigan off the Wisconsin coast.

The story of how this small distillery came to be is a funny one. The founders, who had a small B&B on the island where cooking classes were taught, thought they should grow something on the land. They settled on wheat and hired some local farmers to grow it for them promising to buy any output those farmers could produce.

Over time the output became larger and larger and soon hit 100 acres. Not knowing what to do with all of that wheat the founders had a discussion. Initially they thought they would make sustainable flour from it but that idea just didn’t stick.

Then the light bulbs went off. Vodka and gin would be a good use for the wheat and the specialty market for those products was on the rise. Dealth’s Door Spirits was born then and there.

The spirits these guys produce are clearly artisan quality. I am not a big vodka guy and certainly not a gin guy (I favor craft brewed beers – they are my drink of choice) but let me tell you that this vodka is very good. I had a small sampling of it and was blown away by the smoothness and flavor. This is the only vodka I have ever really enjoyed on its own (as in not as part of a cocktail).

So, if you are a cocktail person, vodka on the rocks guy and sustainability fan give Death’s Door a try. You won’t be disappointed by the product and you’ll know that you are helping to get the planet back in order in a small way.

Updated on 2/15/08

As can be seen throughout the posts on this blog I have begun to look deeper into environmental issues, sustainable businesses and business practices over the past year. While I am admittedly new to the topic and still have a lot to learn I have picked up a lot fairly quickly and have had a lot of interesting ideas pop up.

In fact, I picked up another interesting idea while hanging out with a friend of mine last weekend. The topic of sustainability came up during our conversation and we started talking about business models around sustainability.

My friend brought up a great point and that was that current product based companies interests are not aligned with those of the environment.

As seen in the Story of Stuff, product companies want to design products that won’t last forever so consumers will buy more. In fact, product companies try to figure out how short of a life span products can have where the companies brand remains in tact and consumers will go out and purchase another one of their products (disclaimer: not all product companies work this way of course).

So how do we get the interests of product companies and the environment aligned? The answer is simple:

Selling services not products.

Update: Selling services instead of products is called “servicing” in green business circles.

For example Carrier – the A/C manufacturers – could do deals where they charge monthly/yearly for air conditioning services. They install and maintain the equipment and agree to keep your air at x temperature for $x per month/year.

This creates a situation in which Carrier wants to build better products that have a very long usable life and products that are super efficient since Carrier assumes the capital costs and costs to run the machines. Pretty interesting, right?

Update: The A/C idea was originally brought up in the book Green to Gold:

By offering “a service instead of a product, a company profits by reducing its use of materials and energy, and providing that service at the lowest cost possible. Lovins argues, for instance, that air conditioner manufacturers should offer cooling as a service – not AC units as a product – so they’d have an incentive to make the systems highly energy efficient. In some green business circles, the idea of recasting a product as a service, often called “servicing,” is the holy grail of environmental innovation.”

I have heard of a company employing a similar type of service model for carpet as well. This company has a carpet system that consists of a number of squares that link together. When a high traffic area is worn out, they simply come into the building, pull up the affected squares, replace them and recycle the old squares. In this situation the company does not charge for the carpet itself, they charge for the service (floor covering services) which causes them to want to create very durable and reusable products.

Update: The company is called InterfaceFLOR and more info can be found on their site.

There are many other product businesses that could employ a similar service model rather easily (in the scheme of things) by figuring out the costs and creating a pricing situation that makes sense for them and for the consumer.

What other industries do you think could employ a “service” makeover?

Update: I have a lot to learn and a lot more to read on this subject. If you are interested in reading and learning more as well please check out the comment on this post left by Peter Christensen as he outlines the best reads for the topic of green business.

My friend Matt Jaunich just watched The Story of Stuff and wrote up a quick response to it in the form of an idea for a new retail experience.

Here is the idea he brings into the fold in his own words:

Imagine a new retail experience, where negative externalities from consumption are minimized, and mitigated by labeling and pricing. For example, instead of individually packaged 1/2 and one gallon milk containers, there could be big milk dispensers, where you can fill up your own plastic milk container over and over and over again. Ditto with cereal dispensers, where you use the same packaging week after week, and any other individually packaged product, for that matter.

Also, the carbon emissions from the production and transportation of products from the factories to the store are estimated, printed on the packaging, and a carbon offset is calculated into the purchase price.

The first piece of this idea is very interesting. I hadn’t thought of something like this before. What form would it take?

Would it be a new retail store/chain that operates this way or would it be more of a product that one could sell to the likes of Wal-Mart and other large chains?

Building and distributing the dispensers could be a very interesting company. Building the stores themselves could be interesting as well although you would be in direct competition with the big box guys and most likely have a higher price point. To get it to work you would probably need to locate in cities and in upper class suburbs (i.e. take the Whole Foods approach).

The second piece of Matt’s idea is something I have actually thought a lot about but have yet to write about on this site and that is creating tags for products that have a carbon emissions listing on them.

Of course gathering accurate data on that wouldn’t be easy due to a lot of products visiting multiple production facilities and getting shipped far and wide before entering the the store and ultimately the consumers hands. However, it isn’t impossible.

I think the business that could form around the carbon emissions idea looks like this:

You have a data gathering business that becomes a standards board in a sense. Companies then pay this business to tag their items with the proper carbon emissions info.

Perhaps to start the info could be more like the “whole grain” ratings in that there are simply a few “grades” (excellent source of whole grain, good source of whole grain, etc.). These handful of ratings work well and are great marketing pieces for the companies who get “certified” which means they would probably actually pay you to essentially regulate them.

What do all of you think?

A friend of mine just sent me a link to a video called “The Story of Stuff” which she thought I would like based on my environmental interests and my love of the book Simple Prosperity. Well, she was right. I loved the video and I think some of you may as well. Check out the excerpt below and if you enjoy it please head to the Story of Stuff website to watch the whole 20 minute video. It’s really worth the time. The video is also a nice primer to some of the ideas found in Simple Prosperity.