Inspiring Sustainable Living

Unilever is a strategic Limited Partner in the current Physic Ventures fund.  We invest capital on behalf of our strategic partners and work with them to add growth resources to our portfolio companies.  Unilever is a global consumer products company with over $60 billion in annual revenues from food, beverage, home and personal care brands that are used by more than 2 billion consumers every day in over 180 countries.  Unilever is also a global leader in sustainability.  Last year Unilever published its ambitious Sustainable Living Plan which aims to double Unilever’s revenues by 2020 while simultaneously halving its environmental impact.

This Sustainable Living Plan has two components.  The first is to make each product more sustainable by greening supply chains, manufacturing processes and distribution networks.  The second goal is to reduce the environmental impact of consumers using Unilever’s products.  For a consumer goods company, it is this consumer usage which has the greatest environmental impact.  For example, the carbon emissions and water usage from taking a shower with Dove shampoo or doing laundry with Persil detergent are far greater than the environmental impact of manufacturing those products.

Changing the way consumers select and use products turns out to be more challenging than greening the production of those products, so Unilever has been doing a lot of research into this consumer behavior.  This week Unilever released a new report on how Unilever plans to inspire its consumers to adopt more sustainable practices while using its products. They have identified 5 keys to inspiring sustainability: make sustainability habitual, provide consumers with sustainability information, make sustainability rewarding, make it desirable, and make it easy.  Here’s a short video summarizing Unilever’s approach:

At Physic Ventures, we have developed a Network Innovation model that uses the insights developed by our strategic partners to inform our investment practice.  We provide reciprocal insights to our strategic partners by sharing the technologies, services, and business models in which we are evaluating an investment.  Once Physic has invested in a company, we work to facilitate partnerships with our strategic partners, like Unilever, to accelerate the growth of that portfolio company and help our strategic partners achieve their growth and sustainability goals.  Unilever’s recent report on how to Inspire Sustainable Living provides two great examples of how this Network Innovation Model works.

In 2009, Physic invested in GoodGuide, the leading source of information on how the health, environmental and social performance of products aligns with consumers’ preferences and values.  GoodGuide is delivering on Unilever’s finding that consumers make more sustainable choices when they understand the sustainability benefits of the products they are choosing.  GoodGuide is also helping CPG companies understand which sustainability values are the most important to consumers.

Another Physic investment that was influenced by our discussions with Unilever’s sustainability team was our investment in Recyclebank.  Earlier this year, we identified Recyclebank as the leading company providing consumer rewards for taking a broad range of every day green actions. This approach perfectly aligns with Unilever’s finding that rewarding sustainable choices helps reinforce those behaviors.  Since completing our investment in Recyclebank, Physic was delighted to help facilitate a partnership between Recyclebank and Unilever based on Recyclebank’s rewards service.

In addition to these two examples of Physic portfolio companies that are now working with Unilever, Physic has recently made a number of other sustainability investments where our investment thesis was based on similar themes to Unilever’s plan to Inspire Sustainable Living.  For example, our investments in companies such as EnergyHubGazelle, and WaterSmart all align with the themes of making sustainability habitual, desirable, easy, and rewarding.  As I have discussed in previous posts, we believe these are enduring themes that can harness the technology of social connectivity, mobile access to information and collaborative consumption to help us all adopt more sustainable lifestyles.

Collaborative Consumption and the Power of We

I recently discovered an excellent new book by Rachel Botsman and Roo Rogers, entitled What’s Mine is Yours. Reading this book gave me one of those rare “Aha” moments when someone succinctly summarizes a number of trends that I’ve been observing into an elegant thesis. The subject of Rachel and Roo’s book is an emerging class of business models collectively called Collaborative Consumption. The authors identify three sub-classes of collaborative consumption:

1. Product Service Systems

These are businesses that provide consumers with the benefit of using a product without needing to own the product outright. Current high profile examples of such product service systems are ZipCar, Netflix and RentTheRunway, which allow consumers to drive cars, watch DVDs and wear designer clothes, without needing to own any of them. While these examples are all relatively new, the concept of a product service system has much older roots. The classic example that I learned in business school was Interface Carpet, as discussed in Paul Hawken’s seminal book, Natural Capitalism.

2. Redistribution Markets

These are services that efficiently enable the redistribution of used goods from where they are not needed to where they are. The classic examples of redistribution markets are EBay and Craigslist. Recently, a number of new companies have been established to provide redistribution services for a specific product category, such as ThredUp which is developing a children’s clothes redistribution service, and one of our own portfolio companies, Gazelle, which redistributes used consumer electronics.

3. Collaborative Lifestyles

These companies help people exchange and utilize underutilized assets such as time, space, skills, and money. The highest profile example of a collaborative lifestyle company is Airbnb, which provides a market for people to rent their spare rooms to travelers looking for an alternative to a hotel room. Another wonderful example is the British company LandShare which connects people with spare land to people looking for land to farm.

The common technologies that enable these three collaborative consumption business models are online social media and mobile apps. The companies use these tools to build efficient, trust based marketplaces that match consumers who want to share resources and exchange goods. They also use they power of social proof and social trust to give consumers comfort that they can collaborate and exchange with people who they’ve only ever met online.

The Collective Power of We

At Physic Ventures, one of the key themes in our Sustainable Living investment practice is “Resource Efficiency”, or as it’s commonly known, the 3Rs of Reduce, Reuse, and Recycle. We have invested in EnergyHub, which helps consumers reduce their energy consumption, WaterSmart, which helps consumers reduce their water consumption, Gazelle, which enables the re-use of consumer electronics, and RecycleBank, which incentivizes consumers to recycle.

The component that most struck me about the collaborative consumption model is that the services provided by these new companies all require a network of users to be successful. Unlike the original 3Rs of Reduce, Reuse, and Recycle, which are mostly individual behaviors, collaborative consumption models rely on the positive impact of collective behavior. This is an extremely powerful trend that we are beginning to invest behind at Physic Ventures and we refer to as the transition from Me to We.

The success of this new generation of Collaborative Consumption business models suggests that consumers are increasingly looking to adopt products and services that not only benefit “Me”, but also benefit the collective “We”. Data from our resource efficiency companies, EnergyHub and WaterSmart show that consumers will adopt new services and behaviors if they save them money. RecycleBank has demonstrated that adoption of positive impact actions can be further accelerated by the use of rewards and incentives. However, where these companies really begin to gain traction with consumers is when they show their users the positive impact of their collective actions.

RecycleBank reports the tons of landfill avoided by a community using their service. EnergyHub and WaterSmart report the tons of carbon and gallons of water saved by the communities using their services. It is this collective positive impact that most excites their users and demonstrates the power of these collaborative behaviors. I’m excited that we’re rapidly transitioning from an era when only “Me”-type business models were successful to a new era where “We” models lead the way. Rachel and Roo’s book is an excellent primer on this brave new collaborative world.