Shift Builder: our vision to tackle environmental and social global issues

We are facing social and environmental emergencies. A number of the industries integral to our economic models must undergo swift changes. Whether it be our consumption of plastic, our modes of transport, or the way the pharmaceutical industry operates, none of our current economic and consumption models are capable of addressing the social and environmental challenges of today.

Our collective of radical innovation experts has learnt a great deal by working on highly exploratory topics together with both large companies and the start-up ecosystem. We have identified these actors’ intrinsic limitations when it comes to identifying and deploying the new solutions necessary to achieve the transition to a fairer and greener world.

We would like to share our observations about these existing models, as well as propose a novel way of building the solutions ecosystems which the high environmental and social stakes call for.

What are the limitations of the models being used by existing actors to address the social and environmental emergencies we face?

What are the deficiencies of the established key players in some industries?

Growing tensions between established actors’ need to grow and the social and environmental stakes can be observed in a number of key industries. For instance, in the packaging sector the financial rationale is pushing industry leaders to sell ever more packaging units, which is at odds with the environmental imperative to reduce materials consumption.

We are fully aware that there are initiatives being launched which aim to bridge this very gap. For example, emerging accounting models, such as the CARE method, and new governance systems, such as mission-driven companies in France. However, these new frameworks appear woefully insufficient for achieving the required pace of change.

It is common knowledge that these well-established actors are structurally resistant to change. The innovation literature of the 1990s provides a comprehensive explanation of this problem. Driven by their existing customer base and their core capabilities (Leonard, 1992), industry leaders are encouraged to optimize existing products and models, instead of exploring emerging ones (Christensen, 1997). Although iterating the current model brings diminishing returns, convincing a company’s organization to develop a new model, one which would not only under-exploit its core assets, but could even cannibalize business under the existing model, is extremely difficult.

“We won’t bite the hand that feeds us.” Glass Packaging European Leader Sales Director

In our case the changes that established actors would need to make in order to tackle the social and environmental emergencies are even more radical. It’s not just about harnessing disruptive technology to develop a new product offering. Their entire business model, which, in the case of some industry leaders, is no longer aligned with the interests of humanity, must be called into question.

Given that the efficiency of big companies is structurally limited, let us instead consider actors who are more agile and innovative. When we talk about disruptive innovation (Christensen, 1997), startups often spring to mind: they are newcomers capable of giving rise to new markets and new value networks. However, upon closer inspection, the startup ecosystem is actually much more industrialized than one might expect. This endows it with an impressive capacity for delivering product innovation, but inhibits its ability to completely transform the dominant model in a given industry.

What are the shortcomings of the current startup model?

The current startup ecosystem, as well as the associated financial model, has two biases. These preclude entrepreneurs from entering cutting-edge markets, which is where many sustainable development projects can be found.

The first bias is the fixation effect (Agogué, Poirel & al, 2013). During the design reasoning stage the underlying mechanism of fixation leads us to fixate on a small subset of potential solutions. When thinking about the design of a new product, it’s difficult to come up with something that is radically different from the dominant model. For instance, when designing a new car it’s hard to conceive of a model that has neither four wheels, nor a steering wheel. This was theorized in Creativity and the Mind (Thomas, Ward & al., 1995) on the basis of an experiment conducted on Stanford students. The researchers asked the students to imagine what animals living on a planet very different to our own would be like. The suggestions the students came up with all had characteristics typical of terrestrial animals. People become fixated during the design process, and entrepreneurs are no exception.

Second, there is selection fixation within the ecosystem.

On the one hand, entrepreneurs select their landing zones according to market needs. In most industries a startup must comply with existing leaders’ unwritten rules in order to scale up. Startups will therefore adapt or re-adapt their product and business model to fit the existing mold. Open innovation in the pharmaceutical industry is an excellent example of this. It is in the interests of biotech startups to work on a piece of technology or a molecule for which there is already a market. This is the only way for them to do business with big pharmaceutical companies and benefit from the latter’s financial and industrial capacities. The same applies to a much-discussed component of the green transition: retrofitting in the automotive industry. To industrialize and comply with regulation, startups are encouraged to collaborate with established manufacturers, often signing exclusive contracts with them, because this helps them to scale up and comply with relevant regulations. Startups are thus incentivized to design solutions tailored to established manufacturers’ needs.

On the other hand, institutional investors, such as VC funds, need to secure reinsurance before they invest, which prompts them to seek out comparable metrics. Once they have a few viable projects in a given industry in their portfolio they begin looking for targets with comparable business models and metrics. So institutional investors tend to back similar projects, even though these are only a subset of any given industry. As a consequence, they contribute to selection fixation. Moreover, investment funds’ financial models are geared towards realizing the exit potential of their assets. This creates an incentive for the funds to shape startup strategy in such a way as to ensure the most profitable buyout by a big company down the line.

These two biases were illustrated by the findings of a study of the silver economy (Agogué, 2013). Among the 27 European elderly autonomy projects surveyed 74% concentrated on just one segment: elderly health monitoring.

Such a system inevitably creates unexplored areas in every industry, ones which no actor is incentivized to venture into. The startup ecosystem is not designed to fundamentally change the way a given industry operates. Nor is it in the interests of the VC funds to facilitate this change.

If there is no incentive for industry leaders to change and if the startup ecosystem is inherently biased, what can we do? What new model could we come up with?

The need for a new venture design paradigm: architects of the unknown*

As a result of the aforementioned limitations of existing models, solution ecosystems in several key industries remain unexplored and, in some instances, completely unknown.

The first challenge is to map what already exists and identify the hitherto unexplored areas to be investigated. Next, as architects we will need to design the entire new ecosystem upfront: map the actors which are needed (whether existing or yet to be created), as well as the interactions between them. If we only back fragmented initiatives, we will inevitably remain fixated on existing models.

Recent history offers several examples of large projects, often state-owned, which went through a meticulous design phase before deployment. Space exploration is a prime example: states were the first to begin working to solve major challenges, with large companies joining in at a later stage. In both cases design teams were confronted with the unknown.

Let’s take a closer look at the case of SpaceX. Seeking to disrupt the space industry, the company opted for vertical integration — 70% of the materials it uses are produced in-house. By controlling the interactions between the various blocks within the ecosystem, the SpaceX team brought us completely new technologies, such as the reusable launch vehicle. Unfortunately, the SpaceX model cannot be transposed onto every industry confronting the environmental emergencies. It is far too dependent on the will, wealth, and network of its founder to be replicated across the board.

So how can we become architects of the unknown under a decentralized system? What can we take away from SpaceX’s experience is the logic of centralizing during the ecosystem design phase. Once we move onto building and deploying the system, we will rely on decentralized actors.

Crypto enthusiasts might notice parallels with Cardano’s logic of centralizing during the infrastructure design phase. IOHK, the company behind Cardano, made the decision to imagine the whole ecosystem at scale, in particular its infrastructural components, before it deployed and decentralized.

Following this logic, we believe that addressing the considerable challenges of sustainable development requires us to first design the new ecosystems we are going to explore, just like in the space exploration example. We can then go on to decentralize their deployment, whether by creating new actors or drawing on existing ones.

The question now is how to identify what specifically is needed to put this ambition into action.

How do we build these unknown ecosystems? — The “Shift Builder” model

To tackle the major challenges thrown up by the transition to a greener and fairer world, as well as to make the idea of “architects of the unknown” more concrete, we need to harness the startup model, with its problem-centric framework and capacity for swift execution, and combine it with the design of new ecosystems on the scale of an entire industry.

It’s necessary to develop three interconnected pillars:

1/ Upstream funding capacity unrelated to large companies’ interests — crypto assets

Draw on a new community of investors, such as the crypto community (see Crypto holders: try impact investing!) in order to maintain independence from both the big players and institutional investors. Crypto investors bring a number of advantages to the table:

• Capable of taking risks on early-stage projects
• These investors are citizens first and foremost, which means they are more willing to factor extra-financial indicators, especially social and environmental ones, into their investment decision-making
• Unlike large companies, they do not feel compelled to stick to existing models

2/ Expert task forces able to think on the scale of an entire industry

• Bring together the experts and economic actors in each industry to help identify existing locks and the playgrounds worth exploring
• Work with them to design tomorrow’s solutions ecosystems and create a roadmap for deploying these
• Incentivize groups of experts to work together instead of competing with one another. Blockchain applications in finance and governance, such as staking systems and the DAO model, can help to achieve this

3/ A Venture Builder model for efficient execution, from team recruitment to acceleration

• Find the right team of entrepreneurs to implement each of the identified solutions, drawing on the practices of well-known venture studios
• Generate synergies between the different projects and highlight how they are interdependent → each project needs the others for there to be a viable market
• Accelerate project delivery in key areas: business modeling, product development, impact roadmap

These three pillars combined are what we call the “Shift Builder”. This model offers a new way of designing and building the future of key industries. What’s more is, it aligns them with the imperatives of social and environmental emergencies. In our upcoming articles we will be exploring how this model can be rolled out across specific industries.

Written by:

• Frédéric Arnoux, CEO Stim & COO Cardashift
• Colette Ménard, Co-founder @StimShift
• Yannis Baala, Impact Cardashift

(*) Agogué, Marine. “Modéliser l’effet des biais cognitifs sur les dynamiques industrielles : innovation orpheline et architecte de l’inconnu”, Ecoles des Mines, 2012