Assessing Profitability and Environmental Impact of Cleantech Start-up Business Models: A Monte Carlo Simulation

Abstract

The clean technology (cleantech) industry is an exponentially growing sector aimed at producing sustainable products of services that are good for the environment. While these start-ups are producing cutting-edge research with real-world implications, their path to financial and environmental success is tenuous and heavily dependent on their choice of business model. Due to high uncertainty in parameter values and variables pertinent to decision-making, stimulation analyses need to be performed to discuss such choices. We construct a Monte Carlo simulation to evaluate and compare the financial and environmental outcomes of two competing business models: a Business Owned and Operated (B.O.O.) model and a licensing model. The results showed that while a licensing model consistently delivered more environmental benefit, it was also 10% less profitable than a B.O.O. model at their expected values. The analysis identified three main decision points for cleantech start-ups with varying levels of compromise between financial and environmental outcomes. The simulation model is easily adjustable for future cleantech decision-makers, allowing them to choose the right business model and increase their chances of financial and environmental success.