Activists and industry

For many people, the combination of activists and industry brings to mind images of protestors chanting while marching with signs and banners in front of a company’s store, headquarters or production facility. For others, it suggests the maneuverings of shareholder activists—equity stakeholders using their investments to pressure a company’s management into some form of policy change.

What it might not evoke is visions of support, cooperation or collaboration.

Activism: Fertile ground for market entry

Despite the classic story of activists being at odds with corporations, the success of many of today’s modern industries and markets was predicated on these political and social change agents’ efforts. For example, in parts of the U.S., early support for wind energy came from environmental activists, who laid much of the groundwork to develop the regulatory structures and social acceptance needed to support renewable energy proliferation. The first voter-approved renewable portfolio standard (RPS)—which mandates a specified percentage of electricity production from renewable sources—passed in 2004 in Colorado, largely due to the efforts of environmental activist organizations and renewable energy enthusiasts. That law, Amendment 37, was instrumental in creating a market for wind energy in the state.More recently, environmental groups have thrown their support behind electric vehicles. In 2013, the Sierra Club launched a national campaign aimed at educating consumers and encouraging electric vehicle purchases.

On a local level in Detroit, the efforts of the Detroit Black Community Food Security Network (DBCFSN), along with other local community groups, have laid the groundwork for a growing market for sustainable, just and locally sourced food products in the city.
Strong values usually are the driving force behind this activism. When groups choose to back a new product or service, it is generally because they view it as alleviating a social and/or environmental problem. In the aforementioned cases, renewable energy offered a more environmentally sustainable alternative to fossil-fuel-based electricity production. Electric vehicles were the answer to pollution concerns tied to traditional combustion engine automobiles. And local, good food served as a more environmentally and socially just alternative to traditional agriculture and mass food production.

Because activists like these build the social support necessary for their championed products and services to flourish, their values are often embedded in the industries that emerge around them. Early entrants embed these values into who they are and what they do. These emergent industries often enjoy a “halo effect” whereby companies are perceived to share the same values as the activists, but later entrants to the industry may not fully enact these values.

Potential pitfalls of activist-supported markets

For many established companies and aspiring entrepreneurs, activist-supported industries and markets offer attractive investment opportunities. They often come with a passionate, engaged and vocal community of support, which can be both time-consuming and costly to develop organically.

But this activist support is not unconditional, and firm managers and entrepreneurs would be wise to avoid taking it for granted or underestimating its importance to a company’s success. Below are some tips for managers and entrepreneurs looking to enter activist-backed industries.

  • Understand the local non-market environment. Although an industry may be characterized as supported by a particular group of activists nationally, reality can differ greatly at the regional level. For example, wind energy’s success is often attributed to the work of environmental activists, as was the case in Colorado. But in Texas, consumer rights groups were important in securing legislative support for wind farms. At an even more micro level, the local food market in Detroit is closely tied to activism in the city’s black community, whereas Ann Arbor’s local food scene has tighter ties to environmentalism. Failing to understand the goals and values of a market’s activist backers can lead to strategic business choices that jeopardize their support.
  • Embrace and embody the industry’s values. For later entrants into an activist-backed industry, the decision to enter may be based more on economic potential than identification with the activist’s goals and values. When companies fail to sufficiently demonstrate their commitment to the underlying motivation that spurred the industry or market’s initial rise, they can find themselves the targets of the very activists that originally supported the industry. For example, in Palm Springs, Calif., in the 1980s, tax incentives led to a wind energy boom—with numerous investors entering the industry for the tax write-off. As a result, many of the area’s new wind farms featured shoddy construction, with some becoming a physical hazard. The local community revolted, and a local newspaper editorial called for the removal of companies that did not exhibit a “moral commitment” to solving U.S. energy problems. Failure to adhere to the values of an activist-supported market can prove disastrous for new entrants.
  • Partner with local actors to build credibility. Even after doing research, and embracing and embodying the market’s core values, the company may not be viewed as an authentic new entrant in some activist-backed markets. This may be especially true for new products or services that alleviate social issues linked to a specific group of people or community. In these cases, firms that are not founded by members of these groups run the risk of being labeled as “outsiders” that are not authentic and do not have the community’s best interests in mind. For example, several young University of Michigan graduates from Ann Arbor have started local food organizations in Detroit. For some in the Detroit local food community, these new ventures lack authenticity because the people who started them came from outside the city. The new organizations that have most successfully overcome this liability have invested in developing deep and genuine ties within the local community. For new entrants to similar activist-backed industries, one way of developing credibility is to partner with a local organization—but such partnerships must be substantive and fair. Anything less may be considered further evidence of inauthenticity.

Activists and industries can support each other in meaningful ways, but they need to evaluate each other’s goals and values. The best opportunities for cooperation will be found where interests genuinely intersect.