12 Sep 2011  Research & Ideas

The Untold Story of ‘Green’ Entrepreneurs

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.)

About the author

Sean Silverthorne is editor-in-chief of Harvard Business School Working Knowledge.

Post A Comment





By hitting “Submit” you agree that your comment, in whole or in edited form, may be posted online. Comments are selected on the basis of relevancy and variety; not all will be posted.

 

Comments

    • Anonymous

    Asheville, North Carolina is another place focused on climate business, entrepreneurship and innovation... it is the home to the nation and the world's largest archive of climate data.

     
     
     
    • Wendy
    • Crowley Webb

    In Lackawanna, near Buffalo, NY, a former brownfield site (Bethlehem Steel) has been remediated and now is home to Steel Winds, a wind energy farm. So far migration patterns and noise have not been issues.

     
     
     
    • Paul Nicholas
    • Director, Soul-Chaplain Consultancy

    Fascinating item - thank you. Perhaps there is a sense in which we are witnessing a return to green and sustainable technologies and lifestyles.

    Some of the earliest technologies, growing out of the establishment of human settlements and the development of agricultures more sophisticated than 'slash and burn', frequently placed long term thinking and sustainability at the core of their practices - the requirements of irrigation and water supply for example. Often these practices became "enshrined" in religious codes of behaviours like the mitzvoth.

    Interesting thought that our survival may depend on returns to ancient perspectives.

     
     
     
    • Stephen Jacobs
    • Jacobs Wind Electric

    This is one of the most accurate articles on the early wind industry and entrepreneurship I have seen online. Thank you for doing the research to cut beyond the basic story coated in "green".

     
     
     
    • DeLatchico

    Oh no, not you as well. As far as I know, no wind energy competes with fossil fuel. That's the reason it was abandoned in the first place. It cannot succeed without Government subsidies - and it's so unreliable it wont' succeed with then either when the accountants get to work. Theoretically the area needed to produce meaningful power is huge; the whole thing is a fad driven, rent-seeker train wreck in slow motion. China is a supplier of turbines - not a user of turbines. For power, China uses coal. China's use of wind turbines is marketing - and of all people - you should recognize that. Distortions of basic economic drivers such as power pricing should only be done in desperation such as in wartime. Do the numbers and challenge the fads - don't fall for them.

     
     
     
    • Alex Gauntt
    • Senior Sales Manager, Vestas

    Wind really makes very good investor sense. Once these machines are built, provided they have been located correctly, they are accessing a free and abundant resource. If only governments would provide the wind industry with the same long term assurances awarded to the hydrocarbon industry, a true energy revolution would begin.

     
     
     
    • Tim Gieseke
    • President, Ag Resource Strategies

    If you would like to review EcoCommerce 101: Adding an ecological dimension to the economy, I will provide you with copy. It is based on agricultural production and how we can value (monetarily and non-monetarily) positive externalities. After I wrote it, I was able to secure an opportunity to apply it. It is scaleable and it relies on a shared governance model, which I am beginning to realize that the shared governance model may be the more valuable finding in the effort than figuring out how to value the multi-billion ecoservice industry. www.ecocommerce101.com

     
     
     
    • Joe Seydl
    • Economic Analyst, Wells Fargo

    @ DeLatchico

    I'm not sure how you can claim that China is not a user wind energy. This is from the World Wind Energy Association:

    "Again in 2011, China continues to dominate the world wind market, adding 8 GW in only 6 months, the highest number ever within the first half year. Within those 6 months, China accounted for 43 % of the world market for new wind turbines, compared with 50 % in the full year of 2010. By June 2011, China had an overall installed capacity of around 52 GW." (http://wwindea.org/home/images/stories/publications/halfyearreport2011wwea.pdf)

    So China is installing new wind energy capacity, but not using that capacity? That doesn't make a whole lot of sense.

    I agree that alternative energy cannot survive without federal subsidies. Even with federal subsidies, alternative energy cannot really compete against dirty energy. That is why a tax on dirty energy makes some sense -- that is, if you believe the long-run social ramifications of climate change outweigh the short-run costs of dirty energy taxes. This is where more concrete science is needed. I think if the verdict on climate change became more conclusive, then most rational people would be willing to make that economic-social benefit vs. cost trade-off. It would really have to be an international effort, though. This is why Kyoto was such tragedy - we had a chance to cooperatively address the problem, but instead decided to put the short-run economic costs ahead of the long-run social benefits.

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    In olden days wind energy was being used in some parts of rural India. But there doesn't seem to have been any serious thought to widen its use. By and by with the resources in use getting very dear and in short supply, alternate energy sources have to be utilized more and more. This needs great amount of innovative research as also changing mindsets as changes are not welcomed straightway. Green initiatives lead to healthier lifestyle which is an additional big plus.

     
     
     
    • DeLatchico

    Joe Seydl

    As an analyst, you have easier access to the data than me - so just a few questions: 1. In any recent year, what proportion of total energy added in China was wind turbines? 2. How many of them are actually (or will be) connected to the grid? (People do know these things). 3. How big an area would be needed to supply all current and future needs with Wind for China and USA? 4. What are the environmental impacts of mining the rare earths needed to make the turbines? 5. Given a choice would you rather live near a US coalmine or a Chinese rare earth mine and why?

     
     
     
    • Joe Seydl
    • Economic Analyst, Wells Fargo

    @Delatchico

    I get a sense that you know some of these answers.

    (1) In 2009, added wind-power capacity in China made up only 1.5 percent of the nation's total added electricity generation capacity.

    (http://www.earth-policy.org/datacenter/xls/indicator1020102.xls & http://www.chinadaily.com.cn/bizchina/2009-12/26/content_9233288.htm)

    (2) As of year-end 2010, a total of 29,560 MW of wind power was grid connected in China. This represents 3.7 percent of the installed electricity capacity in China.

    (http://www.eia.gov/countries/country-data.cfm?fips=CH & http://www.renewableenergyworld.com/rea/news/article/2011/05/the-power-grid-and-the-wind-industry-in-china-an-update)

    (3) Pass - I'm not a wind-power engineer.

    (4) Admittedly, mining for rare earth minerals is environmentally costly. But the prospects for rare earth mining are arguably better than the prospects coal mining. Below is a great article on rare earth mining in China, noting that if China were to "assess the environmental impact of past mining operations and then to plan strategies for mitigating future environmental damage, such steps would allow China to resume and perhaps ultimately to enlarge its production of the rare earth elements." Many would argue that the environmental benefits from the end products produced from rare earth minerals outweigh the mining costs, which are likely to diminish as technology and mining methods improve.

    (http://www.ensec.org/index.php?option=com_content&view=article&id=228:the-battle-over-rare-earth-metals&catid=102:issuecontent&Itemid=355)

    (5) Neither, obviously. Look, I'm not saying there are not costs associated with moving toward alternative energy now; rather, I'm saying that the short-run costs of converting pail in comparison to the long-run costs of not converting. Both coal and mineral mining are environmentally dangerous. I'm not sure which one would be safer to live next to, and I hopefully will never have to find out. But effective government institutions should do their best to make sure as few people as possible live next to mining sites - maybe this is where China's government is slipping up, I don't know.

    In general, although wind power in China makes up a very small portion of the total electricity capacity, the change in recent years has been incredible. Since 2005, the total wind capacity in China has increased nearly twentyfold. I don't know how brutal the mining costs embedded in this increase were - I don't live in China. But I do see wages and per capita out in China rising fast; I do see homeownership skyrocketing; I do see China's capital markets developing rapidly; and most important, I do see China recognizing the future for alternative energy and making investments to prepare for that future. What is the United States doing to prepare for the future?

     
     
     
    • John Airola
    • Manufacturing Engineer, Retired

    The Jacobs, in the above article, developed their wind generated electricity out of a desire/ need for electricity... not for "green" reasons. Their company expanded by filling the need/ desire of others who were in similar situations... which is the story for most capitalistic successes and entrepreneurship. "Green" ideals were not even in the thought process. Similar stories are evident in dry states like Texas where windmills were used to pump water for herds of cattle that were on ranches very far from the electric grid.

    I was just faced with a situation which is tangentially similar. My small ranch had a old water well that originally had a windmill pumping the water up 250 feet for cattle. Thirty to forty years ago, the windmill driven pump was replaced by an electric pump (I imagine because electricity was now available from the grid). The windmill remained over the well and when I purchased the ranch, it was a selling point because of the antique windmill turning in the breeze. Just last week the electric pump quit working. So, I was faced with how to repair. I opted to replace the electric pump with another because my research showed that the electric pump was more advantageous because of cost, future maintenance costs and value (wind driven pump would pump much less water per hour).

    "Green" subsidies (which are available) would have mitigated the extra initial cost... but, would have no effect on future maintenance costs nor pumping capacity.

    Desire/ Need forced the purchase... cost determined how the Desire/ Need was satisfied... "Green" played no part in the decision. Just like the Jacobs' and their customers' decisions.

     
     
     
    • DeLatchico

    Joe Seydl,

    As you are an analyst, I am really surprised you've been taken in by this; it's window dressing, greenwash marketing - just look at the numbers. It's put much better here: http://www.theaustralian.com.au/national-affairs/opinion/the-greening-of-china-a-mirage/story-e6frgd0x-1226140342005

    I've met many businessmen who travel to China - they tell me the Chinese are not the least interested in Climate Change or any of that stuff (and nor is the US EPA any more from what I'm reading).

    To me, this is another version of the dotcom boom. It's trying to pull investors in with promises - it mentions nothing about any customer benefits - 'cos there aren't any apart from from government subsidies. And the fact that many governments have fallen for this stuff and are providing subsidies should be warning enough. Now even they are finding market distortions (http://www.telegraph.co.uk/earth/energy/windpower/8770937/Wind-farm-paid-1.2-million-to-produce-no-electricity.html) and massive fraud and are winding them back; that's the last warning you're going to get.

    Two last points:

    If you want to understand this Global Warming stuff, go and review the Al Gore sites with a half critical eye. If you still believe it after that, let me know - I have a good option on the Eiffel Tower.

    You also need to appreciate that all wind farms need to be backed up by "ready to go" equivalent power sources (usually gas) - so you need to factor that into the cost as well. Very cold days are often windless days.

    Oh, and did you know they only ever produce less than 50% of theoretical output. Nobody knows what to do with the used carbon fibre blades, they are killing wildlife in a way that would get you locked up in other circumstance, many people can't live near them because of the hum - I could go on and on.

    I really advise you to look at this more critically.

     
     
     
    • Joe Seydl
    • Economic Analyst, Wells Fargo

    @DeLatchico

    I don't deny some of the stuff you mention. That Australian article is interesting, and of course a large part of the reason why China is in the game is because of the export growth opportunity.

    But this is sort of my original point: if the science were more conclusive and widely known, there would be incentives beyond just the economics. I get all of my facts on climate change from http://www.realclimate.org/, which is a climate science blog that does not have any political or media affiliations. Climate change is happening and it is man-made. Plus, if you're such a believer in efficient markets, shouldn't the fact that An Inconvenient Truth was the 6th highest selling documentary film of all time in and of itself indicate that climate change is probably not just a hoax?

    Anyways, it was good debating with you. I learned a lot and you make some good points. Thanks.

     
     
     
    • Brian Scott
    • retired

    Wind has the obvious disadvantage of not always blowing, or blowing too hard such as to necessitate shutting down the windmill. Much more advantageous is tidal power as it always will produce energy; and is less vulnerable to sabotage, war, etc. This technology will take significant R&D to establish it economically, but will pay off enormously in endless future energy.

     
     
     
    • DeLatchico

    Joe Seydl

    You said "I get all of my facts on climate change from http://www.realclimate.org/, which is a climate science blog that does not have any political or media affiliations."

    That is an activist website that advises that coal mines, oil fields and other "dirty energy" sources be sealed up and abandoned and subsidised "sustainable" technologies adapted instead. All driven by government money and research in the march to green jobs of course. It's a Malthusian view of the world, based on questionable science and anti-market motives. Go here to read further: http://en.wikipedia.org/wiki/Malthusiancatastrophe and make sure you click through to Paul R. Ehrlich http://en.wikipedia.org/wiki/PaulR._Ehrlich who is still around and is highly regarded by many.

    It's up to you where you get your information - but I advise you widen your research to take in the contrary view. You could start to have a look at "Watts up with that" that challenges these fantasies. Go here http://wattsupwiththat.com/about-wuwt/about2/ for a mixture of (real) sceptical science, economics and links to other sources.

    In the end the market will decide the way forward - like the Chinese drilling off the Florida coast where no US drilling is allowed.

    Good luck