These founders want a more ethical company structure for startups

I’ve long argued that VCs getting excited about climate change is scary, and that the goal of a startup is to stop existing. But I haven’t been particularly successful at outlining what startup founders can actually do to build a more sustainable company in a world hurtling towards a climate crisis.

Enter Amit Paul and Nils von Heijne, who’ve spent the last few years thinking about how companies are formed and if there’s an alternative approach we could take. In their native Sweden, the duo have come up with an alternative organizational structure that aims to redefine the way we think about sustainability and regenerative business practices.

Called Regenerative and Circular Operations (RCO), this novel organizational model is not just a theoretical framework; it aims to be a practical approach to integrating sustainability at the core of operations. By weaving regenerative and circular principles into the fabric of the company structure, this model wants to set a new standard for corporate responsibility and ecological stewardship.

The framework has already received a tentative stamp of approval from Swedish authorities as the first company to incorporate this model was formed. The company, Innrwrks, was founded by Paul and von Heijne, and is trying to be the blueprint for how other startups can build on the same model.

Sweden’s tentative acceptance of the RCO model represents a step forward in the global movement towards sustainability and regenerative business practices. It provides a government-backed model that companies can look to for one approach to building more sustainable businesses.

An idea

The genesis of the RCO model can be traced back to a series of discussions between Paul and von Heijne in business school, where they explored the limitations that existing business models are burdened with when addressing pressing environmental challenges. They recognized that while there was a growing movement towards sustainability, most efforts by startups remained superficial, and failed to tackle the root causes of ecological degradation.

With a background steeped in environmental science, Paul says he has long been an advocate for practices that minimize harm to the environment and contribute to its restoration. His career has been marked by efforts to bridge the gap between environmental stewardship and profitability — he is an Environmental Defense Fund fellow, and was part of CodeGreen Solutions, which focuses on helping real estate turn down a more low-carbon path.

Meanwhile, von Heijne is a serial entrepreneur (we counted 8 co-founder titles on his LinkedIn) of a wide span of companies that coalesce on problem spaces that act as catalysts for change. He’s also an early-stage investor focusing on sustainable startups (as part of Svärd von Heijne).

“I’ve been very stuck in the culture and in the narrative in business school,” von Heijne said. “We’re here to build things and then make them scale as quickly as possible, and then somebody makes money. That’s the end of the story. Somewhere along the line, it became about something other than pleasing investors or looking as if I’m a success to other people,” he explained.

The RCO model

Paul and von Heijne told TechCrunch+ the RCO model is inspired by living systems theory, which emphasizes the importance of designing organizations to be adaptive, resilient, and capable of thriving in harmony with the natural world.

According to Paul, the RCO has three unique parts. One part is the constitution, or what the co-founders call a source code — the horizon a company’s looking at. “This horizon can never be an answer; it is a question that represents the constitution of the organization and guides us,” he explained.

The second part is an association. “The association holds and safeguards the purpose of the company and assists with keeping them on track. It can’t tell the company what to do, but in a couple of instances, it can tell the company what not to do,” he added.

The third part, which underlies the other two, is related to the lifecycle of the company. “A startup isn’t a startup forever: the startup logic has to change,” Paul pointed out. “In the beginning a startup has to acquire a ton of resources, but at some point, it’s going to start getting more complex and form structures. That’s when it becomes a ‘real company’. The third aspect of the RCO helps us think about the company as a growing and changing organism.”

By drawing parallels between natural systems and organizational structures, the RCO model advocates for businesses to emulate the resilience, adaptability and regenerative capacity of living systems. This involves creating efficient and adaptable business operations that can contribute positively to the ecosystems and communities they interact with.

The twin pillars of the RCO model are regeneration and circularity. Regeneration focuses on enhancing and restoring ecosystems, communities, and natural resources. Businesses following this framework are designed to contribute positively to the environment and go beyond sustainability to actively improve ecological health and social well-being. Circularity is the concept of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems.

Putting it into action

Implementing the RCO model requires businesses to fundamentally change how they conceptualize their role in society and the environment. This entails:

• Designing with purpose: Businesses must redefine their purpose to align with regenerative and circular principles, ensuring that every aspect of their operations contributes positively to the environment and society.
• Create holistic value: The RCO model emphasizes creating value across the economic, environmental, and social dimensions. This involves rethinking the business model to optimize for sustainability and resilience.
• Adaptive governance and leadership: The RCO model necessitates adaptive governance structures and leadership styles that are responsive to changing environmental and social conditions.
• Engagement and collaboration: Success under the RCO model relies on engaging stakeholders and fostering collaboration across sectors and industries. By working together, businesses, governments and communities can drive the transition towards regenerative and circular economies.

Technology plays a crucial role in enabling the RCO model. From advanced materials and renewable energy to digital platforms and circular economy technologies, innovation is key to putting the principles of regeneration and circularity into operation. Businesses must leverage technology to design products and services that are not only sustainable but also regenerative by nature.

The duo’s own company, Innrwrks, aims to showcase how companies can thrive economically while actively contributing to the restoration and revitalization of natural ecosystems, as well as fostering social well-being.

Not a smooth path

As you might expect, the journey toward pioneering and implementing the RCO model was fraught with numerous challenges stretching from legal hurdles to cultural resistance.

One of the foremost challenges was navigating the complex web of legal and regulatory requirements, the co-founders told TechCrunch. Corporate law is seldom equipped to accommodate business structures prioritizing environmental and social regeneration as core operational principles.

Another set of significant hurdles arose from the entrenched cultural norms and mindsets that favor traditional, linear models of operation. Convincing business leaders, investors and even consumers to embrace a model that fundamentally redefines success is work in progress.

It’s encouraging to see some countries open to change at the company structure level, but globally, it’ll likely be a steep, uphill struggle. Challenges will include entrenched business paradigms, navigating regulatory and policy hurdles, and securing the necessary investments for transition. However, these challenges also present opportunities for innovation, collaboration, and leadership.

My primary concern is whether this model introduces new risks to businesses. Early-stage startups are risky enough as they are, but if an RCO could potentially block an exit opportunity (say, if a less scrupulous company wants to buy the startup), that could prove to be a poison pill for potential VC investment.

So now what?

We’ve seen many waves of business innovations. Concepts like teal organizations and Holocracy have yielded various levels of success, but in most cases, they describe how operations work inside an organization.

The RCO wants to take similar principles and let them apply to the whole org. In the U.S., a B-corporation threads some common ground with the RCO model. But as of late 2023, there are fewer than 7,500 B-corps out there, and it’s not entirely clear whether the B-corp model can have the level of impact its idealistic backers are hoping for.

Still, here we stand at the crossroads of environmental crisis and social inequality. I’m curious if the RCO model can move the needle sufficiently to do what it aims to: Creating a more just, regenerative and circular approach to doing business.

I’m all for this approach, but to see any real change, it’ll take visionaries willing to take on an additional unknown challenge on top of the already excruciatingly hard process of starting and running a company. I know most startup founders don’t shy away from a challenge, but I fear RCO has a long and hard way ahead before it can hit its goals.