From the April 2007 issue of Entrepreneur

For Bob Chandler, entrepreneurship and the environment go hand in hand. As co-owners of McCracken Building LLC, Chandler, 36, his business partner Matt Patton, 37, and four other partners outfitted their Eugene, Oregon, building with at least $60,000 in direct energy-saving measures. The upgrades to the three-story warehouse, which houses Chandler and Patton's 8-year-old snowboard, skateboard and surf equipment company, Tactics Boardshop, go above and beyond Oregon's standard building codes. McCracken installed ultra-efficient, compact fluorescent lighting, including outdoor lighting that runs on a timer. Skylights were added on the top floor to lower total energy usage.

The changes don't stop there: McCracken upgraded to double-pane windows with high-performance glazing that help keep the heat in during Eugene's dark, cold winters and keep sunlight out on long summer days when temperatures get into the 90s. A much more energy-efficient heating, air-conditioning and ventilation system was added, and motion sensors throughout the 27,000-square-foot building's common areas turn lights on and off as Tactics' 22 employees come and go. McCracken also added a bioswell, a natural rainwater drainage system that keeps run-off out of storm drains and away from local rivers. "I was always curious what we could do to lower our impact [on the environment]," Chandler says, "and, of course, at the same time, hopefully save money--or at least not cost the company too much money in making those choices."

As we celebrate the 37th Earth Day this month, there's a renewed emphasis on energy conservation and growing evidence that an eco-conscious mind-set is not only good for the environment, but also good for business. Consider Wal-Mart, which is installing freezers with energy-saving LED lights in its new Wal-Mart and Sam's Club locations. And a November 2006 McKinsey Global Institute study found that companies and households could slow the yearly growth rate in worldwide energy demand more than 50 percent by 2020 through increased energy efficiency.

Companies like McCracken have been the exception rather than the rule, however, because the upfront financial costs of energy conservation have outweighed the long-term benefits for many entrepreneurs. But the days of cheap power are over: The average price for industrial electricity use increased 9.1 percent between 2004 and 2005 to 5.73 cents per kilowatt hour, the largest percentage increase within the industrial, commercial and residential sectors in 10 years, according to statistics from the U.S. Department of Energy.

Crude oil prices could decline to $55 a barrel this year, but prices will generally stay a bit higher due to OPEC's recent activity in managing output, predicts Paul Flemming, director of the power and gas practice at Energy Security Analysis Inc., a Wakefield, Massachusetts, company that forecasts energy prices for its clients, which range from large companies and electrical utilities to universities. According to Flemming, the price of oil isn't "going to go to $30 [a barrel]. It's going to stay strong."

Powering Through It
By incorporating alternative energy sources such as solar and wind power, not only are you doing something good for the environment, but you are also locking in your energy costs for decades to come because you're no longer subject to fuel price increases, says Michael Eckhart, president of solar power consulting firm Solar International Management and president of the American Council on Renewable Energy, a Washington, DC, organization focused on the adoption of renewable energy technologies. "If you're heating your building with solar heaters, you know what your cost is 20 years from today because the equipment is installed," he says. "If you continue [using] natural gas, you don't know what your future costs are." He adds that solar power typically offers a payback within six months to three years.

In fact, with the right upgrades, the typical small business can cut its energy bill up to 30 percent and see a payback on the investment within three years, says Jerry Lawson, national manager of Energy Star Small Business in Washington, DC, a voluntary EPA program that helps businesses increase their energy efficiency. Replacing old-fashioned T12 lighting systems with more modern T8 or T5 systems, for example, saves energy, and the quality of light is better. "The more efficiency you can afford, the more it pays you back," Lawson says. In 2005, Americans saved $12 billion in energy costs by using efficient Energy Star-certified products.

Nationally, there are now more than 600 utilities offering "green power"--electricity generated from the sun, wind and biomass matter such as plants--which end users can buy as a percentage of their total energy costs. Still, renewable energy constitutes a paltry 6 percent of total U.S. energy use, according to the U.S. Energy Information Administration. Part of the problem lies in current energy policies that focus on consumption instead of conservation. Congress, meanwhile, has failed to mandate any federal standards for renewable energy production. At least 20 states have filled the void by requiring local utilities to produce renewable forms of energy.

In addition to renewable energy options, local utilities offer incentives to companies that make efficiency upgrades. McCracken received a cash incentive from its local electrical utility, Eugene Water & Electric Board, after it upgraded to energy-efficient systems and electrical fixtures. In addition, EWEB paid for one-third of a $6,400 energy efficiency analysis that a Eugene engineering firm performed on the building before the renovations. McCracken also qualified for a business energy tax credit through the Oregon Department of Energy that provides tax incentives to companies that surpass state requirements. "The combined payback period was under 10 years for the investment, and that was before any of the added incentives," Chandler says. "So right there, that was a no-brainer." The investments have been in line with the operating costs the company expected, powering Tactics' 2006 sales to $3.5 million. "We're coming in right where we wanted to be," Chandler says. "The whole building is performing very well."

Checking into the incentives your state and local utility provide companies for energy efficiency upgrades is a smart move, because most states offer these. (Check out the Database of State Incentives for Renewables & Efficiency's website at to find out what types of incentives your state provides.) Over the past 15 years, efficiency programs sponsored by electrical utilities have saved enough electricity to power almost 69 million homes for one year, according to the Edison Electric Institute, an association for U.S. electric companies whose website (www.eei.org) posts information about each state's energy efficiency programs and incentives.

Rising to the Challenge

Miami Beach, Florida, restaurateur Sylvano Carrara was getting an electric shock every time he opened his energy bill. In October 2005, he paid $2,500 in natural gas and electricity costs to power his 1,600-square-foot Italian restaurant, Sylvano Restaurant and Bar, located just five blocks from the ocean in touristy, sweltering South Beach, Florida. "That's a lot of money," says Carrara, 45, who estimates energy costs him half as much as his rent each month.

A year and a half ago, Carrara called his electrical utility, Florida Power and Light, and requested a free energy audit of the restaurant's electrical system and usage patterns. An FPL energy specialist came in and used various tools to gauge the restaurant's air-conditioning system, lighting and kitchen equipment to see how the 20-employee business could lower its energy bills.

FPL recommended that Carrara buy a more efficient AC unit and install compact fluorescent lighting that uses less electricity. Carrara had just installed new lights, however, and a new AC system would have cost at least $4,000--not including business that would be lost during the renovation. Energy efficiency wasn't the first thing on his mind, or the salesperson's mind for that matter, the first time he shopped for lighting. "If the [salesperson] can tell me, 'If you use these lights, you'll save money in the long run because you'll consume less electricity,' then I definitely would have considered buying the more expensive lights," says Carrara, whose restaurant had sales of $1.3 million for 2006. "But you're lucky enough if [the salesperson] knows how the lamp works."

These days, Carrara turns off the lights in the restaurant during the day and leaves only some air conditioning on in the kitchen overnight so the high humidity doesn't damage the food and refrigerators.

Carrara's story is one example of the challenges facing business owners when it comes to energy conservation. The energy issue is complex, and it's easy to bypass the $20 energy-efficient fluorescent light bulb for the $2 pack of traditional incandescent bulbs. Of course, for some, it's even easier to do nothing at all.

Chandler thinks business owners have to start factoring energy costs into their leasing decisions and making energy efficiency a negotiating tool. "It's going to be incumbent upon small-business owners to take [energy usage] into consideration when they're looking at space and say, 'With all things being equal, how can I work with the owner of this building in terms of energy conservation so it can be a win-win for both of us?'" Chandler says. "But unless small-business owners [bring] this to the forefront of their minds in contemplating a space, it's probably not going to happen anytime soon."

Entrepreneurs who make energy-efficient products, meanwhile, face their own challenges. The production tax credit for wind power has expired three times in recent years. These kinds of stops and starts in the U.S. renewable energy market have slowed adoption of energy-saving alternatives compared to some European countries. "If you've got a booming market in Germany for solar and a struggling market in the U.S., then you're selling product in Germany, and you're frustrated that there's not a better market right here at home," Eckhart says. He predicts healthy sales for solar power this year thanks to a new 30 percent federal tax credit for companies that install solar power by December 2008. "The question is, Does it continue, or because [there is] a two-year sunset on that incentive, does the market crater in two years?"

Meanwhile, as this year's Earth Day comes and goes, entrepreneurs like Chandler ponder the positive impact their growing companies can have on the environment. This year, Tactics plans to join One Percent for the Planet, a group whose members contribute one percent of their annual sales to environmental groups. "That is going to be a big step," Chandler says. "The more companies can think outside of next quarter's earnings, the better it would be not only for the planet, but probably also for [the entrepreneurs] in the long run, whatever company they're building."

Test Your E-Q
What's your energy quotient? Find out with this quiz.
(Hint: The more you answer "no," the more energy-efficient practices could benefit you.)

  • I know what kind of fluorescent lighting my business has and how efficient it is overall.
  • I read more than the total due on my electrical bill. I want to know what everything means, and I've called my utility when I don't understand a certain item.
  • I've contacted my electrical utility to see if they'll conduct a free energy audit of my company's energy usage.
  • I've asked the owner of my building about a tenant improvement allowance so I can make some efficiency upgrades over the next year.
  • My company has made at least one energy efficiency upgrade in the past 12 months.
  • I look for products that conserve energy and I am willing to spend slightly more for energy-efficient models.
  • It bothers me when people leave equipment running that isn't being used.
  • Energy efficiency is a driving factor in my leasing decisions; I'll only rent a space if the landlord has taken steps toward conservation or offers a tenant allowance for energy efficiency upgrades.
  • I've invested in a programmable thermostat that keeps the temperature constant and automatically turns down the heat or air conditioner overnight.
  • I've posted a company energy usage policy in my workplace that tells employees when to shut off lights and equipment, and how the thermostat should be set. I want my employees to take energy conservation very seriously, and I reward them for their efforts.
Chris Penttila is Entrepreneur's "Smart Moves" columnist