How Startups & Climate Tech Companies Fit Within Doughnut Economics

Background

The fifth assignment of our flagship course, Climate Change: Learning for Action, prompted our fellows to choose one of the 4 development models discussed in our class on development in the context of climate change. For their chosen model, they are asked to write a brief note on how the ideas and approach represented in that model would apply to their local context. This could be their place of
work, their neighborhood, city, economic sector, or country. They are asked:

What aspects of this particular model seem especially relevant for the context you've chosen to focus on? And what might you tweak to make it locally relevant?
If you were to try and move your context (workplace, country, etc.) toward adopting this model, what would be the steps you would need to undertake to make this happen? Try and think as concretely as you can about this. Who would you recruit to be your allies? What would be your first step?

The models examined in this assignment are:

The Sarvodaya Shramadana Movement, Sri Lanka
The Green New Deal, United States
Sustainable Development, Costa Rica
Doughnut Economics, United Kingdom

Bruno Girin, an alum from our August 2020 cohort "the Narwhals", chose the Doughnut Economics model–a framework represented by an area between two rings (hence the name "doughnut") in which an economy is considered prosperous if all 12 of its designated social foundations are met without overshooting its nine major ecological capital ceilings.

"All models resonate with me in some aspects but the one that I feel is most relevant to my context is Doughnut Economics."

Bruno's assignment

What aspects of this particular model seem especially relevant for the context you've chosen to focus on? And what might you tweak to make it locally relevant?

The model is focused on companies, so is relevant to my startup, and I can recognize a lot of what Kate Raworth says in my experience running tech startups in the United Kingdom:

Startups (and companies more generally)
How they are funded
How they operate
What they prioritize
How they interact with their communities (employees, local areas, etc)
Tech industry
How it contributes to shortfall and overshoot and how to address it
How it interacts with the community (both tech and non-tech)
Open source analogies

Move your Context (to Startups)

If you were to try and move your context (workplace, country, etc.) toward adopting this model, what would be the steps you would need to undertake to make this happen? Try and think as concretely as you can about this. Who would you recruit to be your allies? What would be your first step?

Funding models

Startups typically need an injection of capital during the early stages of operation in order to fund the research & development work that will result in a product or service that they can sell. A successful startup will eventually break even and be able to operate from their revenue. There are several funding models available to startups today, including:

Venture capital
Private investors
Public funds
Crowdfunding

The Venture Capital model to fund startups relies on the “exit”: a VC fund will give money to a startup on the understanding that a few years down the line, the company will exit, either by being sold to a larger company or, if they are really good, by going through an IPO. It’s through the exit that VC funds will earn money. This is problematic because:

The whole funding relationship is based on selling the company, not on making it sustainable and successful
In the vast majority of cases, exit occurs by selling the company to a larger company, which pushes the organization to focus on problems that are of interest to larger companies rather than what they really want to focus on
VC funds tend to have a timeline to exit which precludes building a solid company structure
Because VC funds tend to provide the majority of the funds, they can often significantly influence the way the company works and what it focuses on

Private investors tend to have a more long term view but similarly, they will only benefit when the company is sold or go through an IPO.

Public funding is usually money that is provided to companies with no strings attached. However, what a public body will fund is often contingent on complex criteria that don’t always align with the direction the company wants to take. In particular, they may have some conditions attached in regards to commercialization. Innovation funding from the UK government for instance is typically partial (up to 70%) and can only cover 100% of the costs if the innovation is not commercialized during the project itself.

Crowdfunding is one of the models with the least amount of constraints in terms of how the money is used. However, running a successful crowdfunding campaign can be hard and typically requires the company to already have a partial solution, which makes it inappropriate for early stage funding.

The current capitalist model puts a significant pressure on early stage companies to make a profit by hook or by crook. This is generally not compatible with the doughnut model. In order to create an environment that favours the creation of innovative companies that can address issues such as climate change, we need funding models that are less dependent on profitability. Public funding and crowdfunding seems like the most adapted models. In order to make this happen, the first step could be to lobby governments and other public funding bodies to allocate a larger proportion of their budget to issues like climate change.

Employees

Companies of all sizes operate thanks to their employees. They are uniquely positioned to help those employees address shortfalls:

Points to look into:

Income & work; energy, housing, water, food: offering good salaries and working hours is key to enable employees to not be affected by any of those shortfalls
Health: an employer can contribute positively to their employees’ health by offering time off for vacation and sick days. Part time positions also open up the company to people who cannot or don’t want to work full time
Gender equality + social equity: diversity in the workplace, adaptations such as job share + part-time positions
Education: ongoing training, learn on the job, contribute to education initiatives in the community
Networks: support for employees, colleagues, customers, etc.
Political voice: can companies have a political voice and lend it to their employees
Peace & justice: I have no idea

The first step as an employer is to offer employment contracts that:

Offers a good salary for the region where the employee is contracted by ensuring that salaries are at or above industry average and in all cases above the minimum liveable wage for the area
Offers good vacation and sick day allowances, including parental leave
Have a diversity policy and enforce it, work with recruitment processes that favour diversity
Includes time and funds for training and education.

Possible allies:

Other executives in the company
Recruitment agencies

What About the Tech Industry?

Tech as an enabler

Tech is often an enabler for other industries: when delivered with the end users in mind, tech enables other businesses to operate more efficiently, which in turn can enable them to do things they couldn’t do before. A typical example is a company like Zoom that enables other companies to operate remotely with less travel between offices. However, this can also sometimes enable businesses that are contributing to the overshoot or shortfall to contribute to it even more. A recent example is the controversy around Github’s contracts with ICE.

Should tech companies adopt policies to not work with companies that contribute to the problem?

Doughnut model shortfalls: social equity, political voice, peace & justice

Carbon footprint

Technology runs on servers, whether they are on premise or in the cloud. There is a growing concern that this is contributing significantly to climate change.

The consumption of servers is directly related to the complexity of the algorithms they run. In some cases, such as running climate models, it feels justified. In other cases, such as bitcoin mining, less so.

As a technologist, I feel that optimizing the algorithms we run so that they use less resources, is something that we should do by default. This implies that IT projects should include a period of optimization in their budgets, which is not always the case.

Doughnut model overshoots: climate change

Diversity in tech

Technology has a diversity problem. As explained by Anne-Marie Imafidon in the linked video, if we are to build technology for everyone, we need to have diverse tech teams so that those teams are aware of the bias in what they build and can correct it.

One way to address this is to contribute to organizations that aim to address the diversity problem, such as codebar.

As a CTO, I have also found that sometimes all it takes is a simple question. Asking recruitment agencies to provide a copy of their diversity policy before they can send candidates has proved to be a good way to signal to agencies that they have a role to play in resolving the problem, and a good way to wean out the agencies that don’t want to be part of the solution.

Doughnut model shortfalls: social equity, gender equality, networks

Open source

As mentioned by Kate Raworth in her video, open source is a very interesting model to deliver software that is in theory shielded from a number of issues from existing markets because it enables users to copy, share and modify software with limited constraints, which makes collaboration a lot easier. However, open source itself is a market with its own externalities:

Developing software takes time and effort and therefore requires funds to develop. A large number of open source business models exist, some more problematic than others.
Some software libraries are complex and struggle to find contributors. While software like Drupal that Kate Raworth mentions has a lot of contributors, others struggle. And when the project that struggles underpins key elements of most services on the internet, like OpenSSL, major issues like Heartbleed can have a significant impact. A root cause analysis of the incident showed that this critical library only has 2 permanent full time developers and that the cost of fixing the problem was probably more than US$500million.

Open source is a great model for developing software but it has externalities that need to be addressed, particularly in terms of funding and resources. This is in part due to the fact that open source software has an even more acute diversity problem than technology in general, partially because the financial constraints of working on open source software exclude already marginalised developers.

Doughnut model shortfalls: social equity, gender equality, networks, income & work

Online privacy

A number of free online services have a similar funding problem to open source and a lot of them rely on some form of the “selling users” open source business models in order to operate. Because those businesses depend on adverts, the ad industry has evolved to track users across the web in an attempt to serve very targeted ads. This in turn has led some people to develop ad blockers, which some sites are now trying to block, leading to queries such as whether it is ethical to block ads online.

One aspect of the debate that is often overlooked is the fact that people who use ad blockers don’t generally object to the ads themselves but rather to the tracking. This prompted Dutch publisher NPO to remove third-party tracking entirely and build their own contextual ad service, which counterintuitively resulted in revenue increase.

Online services could take a leaf out of the NPO book and move to contextual ads.

Doughnut model shortfalls: political voice