Our economy is intrinsicially extractive. Every year we make more stuff, we consume more energy, the planet gets sicker.
For my entire life "growth" has meant "more". More volume, more market, more share. The route to business success was to produce more. Daring to question this fundamental was heresy.
Consumer led is a myth, volume is all production push
I know first hand the stress of a volume obsessed organisation. For a few years I was responsible for the sales numbers at a big car company. That car company wanted to be "Number One" (aka bigger than Toyota).
Every year we would set a target based on a heady cocktail of analysis, ambition and wishful thinking. That target drove production numbers.
Except it didn't. The relationship between market forecast and production was the other way round. The market was a function of production numbers.
It worked like this. We'd all guess what the market was going to be. Generally "last year + X%". Then we'd decide what market share we were going to take. Generally "last year + Y%". Then we'd end up with a production number and voila.
The cars would get produced. And what gets produced gets sold. Always.
Somehow. That's the market.
The sale might not be a "good" sale in the sense that we had to pull some tricks to get the vehicles accepted by the buyer. Occasionally the sale wasn't a "sale" at all. More an internal stock movement for the sake of numbers. December was always very busy (looking right at you Tesla. I wrote that playbook)
The difference between a good year and a bad year was how much we had to push in order to make the numbers.
We're writing cheques the planet can't cash
As I got into brand world and then sustainability world I realised that production push is at the heart of how we are screwing up the planet.
"More" has become the only way to grow. And since 1970 we've been taking more out of the planet than can be sustained.
Our material footprint is larger than ever. We don't see this because "materials" don't feature in our numbers. In the past 6 years we've consumed more resources than we did in the entire 20th Century. Every year since 2012 we've consumed more in 12 months than we did since the dawn of humanity to 1950.
'More' is addictive
For anyone in business right now "more" is the only game in town. Nobody ever asks "how do we make and sell less stuff?". It's the Voldemort of topics.
But it's a discussion that needs to be had by every business on the planet. And the good news is that - in reality - "less" might actually be not just better for the planet, but also better for business.
If we're going to fix the planet we need to define a new game. And that means redefining value in order to unhook ourselves from volume.
'More' is a waste of resources, it's bad business
We make too many things. More things than people need.
Most cars stand idle 95% of the time. When they are moving, they mostly have only one person in them. Much of the time that they are on the move they are circling around looking for somewhere to park.
We say we have a housing shortage in the UK yet 1m homes stand empty. Our new housing targets don't recognise retrofitting offices as homes. We are wasting carbon we've already put into the built environment.
Clothing companies make double the amount per person compared to the 1970s. 16KGs of new clothes for every man, woman and child on the planet, every year. 110 billion items. Most of it isn't worn. Tonnes of it goes to landfill.
Which is a shame because all of that growth, every bit of it, was in synthetic fibres. (More on this here "Clothing's opioid problem")
We make 23 billion pairs of trainers every year. And send 22 billion to landfill.
Even music suffers with this non-useful consumption. Of the 185 million tracks on streaming services 46 million have never been listened to, by anyone, ever.
Something is very wrong. We're making more than people can consume. We're wasting vast amounts of materials and energy making all the stuff. And then we're spending precious time and resources in businesses trying to push the stuff out. The planet suffers. Business suffers. And people suffer - it is stressful being inside a company pushing volume. And nobody is ever, ever happy, even when all the targets are hit.
We make too much. But we don't have any playbook for making less.
So how do we get off this addiction?
The clothing example highlights one of the big problems we've got ourselves into. If we were to maintain volumes but switch out of synthetics the effect would be to put even more massive and destructive pressure on nature.
From our work in Mongolia we see first hand what happens when single commodity, volume unconstrained supply chains penetrate the landscape. Too many animals (50m too many), overgrazing, desertification.
As Textile Exchange says in the Future of Synthetics :
"....a total shift away from synthetics to land-based raw materials – particularly at current production rates – could lead to an overreliance on and depletion of natural ecosystems."
(my italics)
So the first step in fixing clothing is reducing volume. Probably back to 8KGs per head or less. So a 50% across the board reduction in volume.
Until that happens the clothing sector hasn't got a prayer in meeting its environmental ambitions.
But even talking about volume reduction is a no-no. Everyone knows it's the problem but nobody says it. (Out loud).
It's really hard. It would involve an upending of supply chains and a transition that would take at least 3 years.
But it's got to happen. My hunch is that the small but growing number of eco-aware brands that are more of the pioneers in this space will grasp this mantle pretty soon.
This is the trap we are in. Every supply chain in every sector is geared to current volumes. Halving clothing production or halving car production overnight would wreak havoc on workforces and livelihoods. Conversely swapping all the volume for "green" volume would wreak havoc on ecosystems - whether it's lithium or natural fibres.
We can't reduce volumes without screwing up people, we can't keep the volumes without screwing up the planet.
So the transition has to be planned and managed. At the heart of it is a new way to create value. Once that's in place then volume reduction becomes possible.
The revolution is coming. It may already be here.
A new value system.
There is a fundamental change coming to every business, everywhere, in how wealth is created and how value gets assessed. Over the next 4 to 5 years there will be ever more focus on the relationship between all organisations and the planet, driven in part by ground-breaking initiatives such as the Taskforce for Nature Related Financial Disclosures (TNFD) and Science Based Targets for Nature.
The upshot of this shift will be a redefining of what a business does and how it does it. There will be much more emphasis (and opportunity) at the originating end. Competitive edge will shift from the market end to the producer end.
Some of this will be slow, some will be fast. But already there is a growing cohort of brands that are pioneers of the new way of doing things.
At the heart of the shift is a fundamental change in how businesses create value. Out go business models built on extraction, in come business models built on planet friendly value creation.
This is overturning centuries of orthodoxy on how to grow.
Wine - lots to like
It's hard to find any sector that has contracted. But one has and it's thriving. Wine is a product that clearly is dependent on agriculture as well as consumption. Overproduction destroys margins. Underproduction drives up prices.
Overall hectares have decreased (mostly driven by EU action) and overall volumes have decreased. Wine is very useful glimpse into a different kind of value model.
In wine there is more or less an inverse relationship between volume growth and profit growth. Attempts to introduce commodity, economy of scale practices to wine have tended to produce high volumes, low prices, big distribution costs, and massive volatility and flaky profits. Essentially there are two markets - a volume/commodity one which is cutthroat, and a storied, explorer one which is where all the margins are. Commodity wine is 70% of the volume (and the cost) but only 30% of the revenue; story wine is 30% of the volume for 70% of the revenue.
The better you are at being in synch with nature and the land, the more likely your wine will be valued. Of course there are still massive distribution challenges but the 'value' of wine is decoupled from volume maximisation in a way that points to a different form of value for business.
So what does a new value creation system look like?
I've been working on this shift in some form or another for the past few years. At its heart is an alignment between our instinctive, intuitive sense of value and how we think about and measure economic value.
Economics doesn't like intangible, context specific concept. But this new system is all about recognising and amplifying new forms of wealth.
Some of the key learnings from my journey:
Nature wealth 1
At Good Growth we've worked with herder groups on shifting their volumes of livestock to be in synch with nature. The income uplift from this comes initially from two sources - one off livestock sales, and over time multi-fibre revenue streams. Basically at present only cashmere is valued by brands - and even then only selectively. So all the other animals (that are critical for the diversity of the system) get ignored. The sheep, the camels, the horses etc. In total only 5% of the fibre weight generates 95% of their income right now.
It's early days but this year one group reduced numbers by 40% and at the same time doubled their income. We may not be able to replicate that everywhere but "more from less" is a really exciting path to pursue.
Nature wealth 2
The Landbanking Group are working on a plan to turn nature (more specifically nature uplift) into a fiduciary grade asset class that can be recognised on the balance sheet. This is much needed as currently our system only recognises natural value by ripping it out. There is a good (hour long) video of Martin Stuchtey discussing this. Worth your time.
Nature wealth 3
If Nature can be on the balance sheet then actions and investments for nature could yield very high returns on investment. Here are two examples:
Regenerative sheep wool - South Gobi sheep wool is so cheap it has scarcely any financial value. Moving it around costs much more than the value of the wool as seen through conventional supply chains.
But....seen through the landscape lens there's a different story. It hasn't rained in the Gobi for 2 years or more. Food is scarce. Any weather events (and there are many) mean that additional fodder needs to be shipped in from elsewhere.
Sheep wool is an excellent moisture retainer (and natural fertiliser) and can be used to stimulate grass growth in the area. Harvesting all the sheep wool and putting it in bags doesn't cost much at all - maybe $10k, maybe less - but the ecosystem payoff is huge. If tiny landscape investments like this could be recognised as generating "nature uplift" then we have something that begins to mirror and work with nature and diversity.
Horsehair - Mongolian horses are not pets. They roam the rangeland and have very strong opinions. The herders love them and they occupy a special place in the culture. For years horse tail fibre has been used to make the iconic Mongolian horsehair fiddle which you'll see in traditional form as well as "let's rock" form with people like the Hu. (Volume up, headbanging mode engaged).
Horsehair as a fabric (horsehair canvas is used to make high end men's suits - it's the inner lining) more or less became a China monopoly after the collapse of the Soviet Union. Chinese horsehair is gathered not from live horses but as a slaughterhouse by-product.
Gathering horsehair tail from live and feisty horses is no easy feat. But each horse is worth three goats so the income is pivotal in enabling livestock reduction. Furthermore a luxury suit made from live and loved horses is a lot better story than a luxury suit made from synthetics.
$80k buys enough horsehair for 12,000 Italian men's suits. (There's other stuff that goes into the suit). So relatively speaking a tiny financial outlay generates a huge nature return (not to mention the cultural payoff).
Origin value - the thing that makes wine work is origin value. Cheese is similar. Knowing where it comes from, and knowing some of the story, adds to the value of the product. I saw this first hand when we did the strategy for Teliani Valley.
That clothing doesn't celebrate and amplify origin value is a mystery to me. There's a lot about the factory but nothing about the fibre. This is a missed opportunity on a grand scale.
But it's not just clothing. It turns out that materials that we take for granted, like sand and glass, also have massive origin value potential.
A long time ago factories helped to disconnect us further from nature and places. Origin stories and origin value can help reconnect us. (But an origin value supply chain looks very different from a volume maximisation one).
Connection/Identity Value - this is where brand strategy has largely failed. Brands build strong connections between people and things - landscapes, places, products, other people. It feels good and reaffirming to make a choice that connects us more.
That connection value has an economic value - but it is context specific and can't be easily measured. But it's there. But requires left field thinking to recognise it.
In Real Estate the new developer Biograpi shunned the orthodoxies of Tbilisi's apartment market with its focus solely on $ per square meter to speak more directly to the communities and stories that for Georgians are at the heart of home. Instead of a purely space maximisation approach each development is built around an origin story and designed to foster connection. The company put the soul back into development - and the one thing Georgians love is soul. The company - a new entrant - gained a massive advantage in a very undifferentiated market.
A collaborative endeavour
It is not the fault of people who work in companies that we are in this mess. The prevailing and powerful economic system that has done so much for us has run out of steam and needs rewiring. It's a system issue.
But they absolutely can help in working with us to define new ways to create value. If we can make more money whilst making less stuff we will have made the breakthrough that the planet needs.