The drivers for entry into the green building industry differ between startups and established companies diversifying into the field, according to a study led by the University of Colorado.
Sociocultural norms and movements — such as Sierra Club activity in a community or a local culture’s emphasis on environmental sustainability — motivate entrepreneurs to launch green building businesses, according to the study.
However, economic conditions and governmental policies — such as requiring public utilities to adopt a percentage of their energy generation from renewable resources — prompt existing firms to throw their hats into the green building ring.
“What’s interesting is that we often think of these federal and state policies as driving opportunity for entrepreneurs and creating new jobs,” said Jeff York, assistant professor of management and entrepreneurism at CU-Boulder’s Leeds School of Business, and lead author of the study. “It turns out we find no significant relationship between policies or economic conditions and entrepreneurial entry.”
Examples of green building businesses looked at in the study include LED lighting and low-volatile organic compound paint manufacturing and sales.
In one part of the study, appearing online this month in the Strategic Management Journal, the authors looked state by state at the quantity of entry in the green building industry from 2000 to 2007 by newcomer businesses and incumbent companies. They measured the entry activity using GreenSpec, a directory of green building products and suppliers published annually by BuildingGreen, a nonprofit organization.
They then analyzed state-by-state green building entry activity against local economic conditions, policies, social movement activities and social norms.
“While we found that policies and healthy economic conditions — representing safe opportunities for growth in sales and purchasing power — drove significant entry by the incumbent firms, activity by social movement organizations promoting green building was a strong predictor of entry by the entrepreneurs,” said York.
York says the findings can mean pros and cons for entrepreneurial enterprises.
“Entrepreneurs could perhaps pick a spot in the green building industry free of incumbent competitors who aren’t attuned to the sociocultural environment,” said York. “They also can receive positive emotional feedback that helps give them greater resilience and perseverance. But these reinforcements could be misleading if it turns out the economics just aren’t there.”
York says the findings also could suggest that policymakers need to realign their focus.
“If we’re really looking to get entrepreneurial startups going, perhaps our energy is better spent trying to impact social norms and the way individuals in a region perceive environmental issues rather than putting economic policies in place,” he said.
Michael Lenox of the University of Virginia’s Darden Graduate School of Business co-authored the study.
York, also a faculty affiliate at the Leeds School’s Center for Education on Social Responsibility, says these findings may lead to future studies on the effects of different reasons for green business entry and survival rates related to the varying drivers.