Everyone knows that green is the way to go in business ventures these days. The problem is that many of these green business startups are struggling. Given the headline making government tax credits and subsidies for these products, how can they continue to struggle and fail? I live in an area of the country that exhibits above average support for all things eco-friendly. These eco-warriors provide enough of a market to sustain most green businesses, but not enough to allow it to thrive. How does a green business grow beyond just a grassroots movement?
I have had the pleasure of consulting for a couple of these types of companies and have seen consistency in the issues they are facing. Like many small businesses, many of these startups begin with a personal passion. I have read numerous articles that suggest building on that passion for environmentally friendly solutions by educating the public, becoming a champion for the cause, and building your company through word of mouth and networking. All of these are good points for sure, but they stop short of a few key recommendations:
- Maximize your target market
- Be innovative in business models as well as in business technology
- Don’t assume everyone shares your passion
- Make sure the business works as well as the product
It is true that in any business you need to be networking with like-minded individuals and customers. Social networking is here to stay, and there is most definitely an opportunity to build customer loyalty by make them feel included in the green movement. There is however a very large segment of the population that could care less. You should not ignore this population. In many cases this group will use your product or a competitive product just because it is the cheapest, most convenient, prettiest package or whatever.
This strategy has been employed in the fuel industry for years now. Ethanol is blended in at 10% levels and people purchase it without even thinking twice. Currently cellulosic ethanol producers are taking advantage of this blending requirement to expand their businesses and prove cellulosic ethanol as a viable fuel alternative. Don’t just focus on the customers that are willing to go out of their way to find you, target the customers that won’t even know who you are. Both segments are needed for a successful business.
Some green technologies just don’t lend themselves to drop in replacements for current technology. Solar energy has aspects of this problem. Solar panels in a large array tied to the grid can substitute for fossil, wind or nuclear power generation without the end-user noticing. However, in smaller installations like hotels and industrial facilities the end-user is often faced with a large upfront cost, and has to plan and design accordingly. There are a myriad of tax rebates, loan financing, and producer credit offers from the government that have to be managed as well.
A few intrepid installers of solar systems are providing bundled solutions in which they design the system and wade through all of the bureaucratic paperwork and provide the client with a long-term contract for power. The client gets electricity at a known rate schedule and a green image. By handling all paperwork the installer has removed a barrier for adoption of the technology and expanded their market. The installer gets a cash flow stream that is stable and reliable with backing from the government in many cases. Most entrepreneurs in green technology must be prepared to guide customers through the process of selecting green solutions. Examine this process and look for areas where you can possibly create innovative new business models that make it easier for the consumer to select your product.
Startup businesses without passionate owners stand little chance of success. In the green technology sector, passions can run deep. Many of the choices in this area can take on a moral feel. It is natural to feel that you are doing something good, and to feel frustrated when people don’t side with you just because it is the “right thing to do.” Try to avoid turning your business into the moral crusader. A green entrepreneur must walk the fine line between making people feel good about their choice and making them feel resentful of your message. To do this, you must find other ways to appeal to people beyond just the green message. Focus on quality, reliability, ease of use, and price as well as environmental impact if you want to maximize the reach of your message.
There is good evidence that biodiesel performs better than petro-diesel in lubrication or engine longevity and noise generation. These are points of differentiation that any consumer of diesel can appreciate. Look for similar opportunities in your green business. Combine these with your products stance on sustainability and you have a powerful marketing message with broad appeal.
The last, and perhaps most important, component of a green business is to make sure the business works as well as the product. Green businesses are, after all, businesses and must abide by the same rules of inventory control, profitability, cash flow, and wealth creation. You did start your business to make money right? Remember, according the SBA, 30% of small businesses fail in the first two years, and nearly half in the first five. To avoid being one of those, do the work on the financial management of the business. The business landscape is littered with the remains of great product ideas that were coupled with poor business execution. Do the marketing research, build in safety factors or cushions whenever possible, and have more than one plan. You should assemble plans for your expected outcome, a wildly successful scenario, and an underperforming scenario as well. I am sure your product is the best thing since sliced bread, but remember it took four years for sliced bread to catch on.
Green entrepreneurs would do well to remember that green businesses must still abide by the same rules as normal businesses. Having a green product does not substitute for having a solid business plan. While there are customers that will search out green products, and there are opportunities to educate people on the advantages of green products, these should only be used to augment an already sound business plan. By combining a solid business foundation with the unique marketing advantages of a green product you can produce outstanding results for your business venture.
Cameron Miller is the Vice President of Operations for a technical fiber producer where he specializes in the manufacture of heat and flame resistant products based on unique melamine chemistry. He has an undergraduate degree in Mechanical Engineering and is currently pursuing a Master’s Degree in Business Administration.