Green Business: From Niche to Mainstream
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As 21st century entrepreneurs, it is hard to imagine not building sustainability--for people, profits and the planet--into a new business plan. Sustainability and green initiatives are practically embedded in the DNA of many new ventures, with good reason. Amy Townsend, Ph.D., president of the Sustainable Development International Corp., notes, "In the current economic climate, any improvements in efficiency--energy, water, other resources--can benefit the environment and the bottom line."
It's hard to believe that before 1970, factories could legally pump toxic chemicals into the air or dump poisons into nearby waters. That is until April 22, 1970, when Senator Gaylord Nelson put out a call to Americans to start a grass-roots effort to protest the pollution generated by industry. That first Earth Day, some 20,000 people demonstrated in cities across the country. Six months later, the Environmental Protection Agency (EPA) was founded to regulate business practices that harmed the environment.
It was a small but important first step. But with or without it, 40 years ago, companies of all sizes such as Miele and Timberland--who didn't have an eco-friendly agenda on paper--had business strategies in place that included reduction of resources and recycling materials. Around them, other small ventures began marketing esoteric products for a group of consumers (formerly dubbed health nuts) who were willing to pay a premium for natural ingredients and environmentally conscious production. So began the greening of business in America.
How things have changed. Townsend points out that by 1998 the number of federal, state and local environmental regulations had grown to more than 10,000, compared to about 2,000 in 1970. Deborah Ruriani, product marketing specialist at Miele Professional observes, "The consumer is much smarter now." They're also more demanding. Analysts at Grail Research found that 93 percent of consumers feel that a company's "greenness" is at least somewhat important to their purchase decision.
Though sustainable business has obvious benefits, being green isn't always easy. From funding a startup to marketing a new eco-friendly product, here's a closer look at how the green landscape has evolved over the last 40 years.
Funding a Startup
Prior to 2000, there weren't many tax incentives for entrepreneurs to green their ventures. Now, Matt Becker, the head of BDO's Green Energy Tax Practice, says President Obama's budget proposal for 2011 includes about $40 billion in loan guarantees for innovative clean-energy programs. Funding for solar and wind development has increased 22 percent and 53 percent, respectively. New Energy Finance estimates that clean-energy companies took advantage of $96 billion in venture and private equity funding from 2002 through 2008.
But before this rush of media attention and dollars to clean tech, small-business owners like Emily Kroll were bootstrapping to produce eco-friendly goods under the radar. Kroll started making sustainable furniture in the 90s, but incentives weren't available in her industry then.
Trying to raise capital for EKLA (eklahome.com) four years ago, Kroll was turned away by several venture capitalists who said hers was a vanity project because it wasn't part of the green energy movement. Yet with home furnishings among the top grossing industries in the U.S. economy from the 90s on, Kroll was determined to continue her eco-conscious manufacturing processes. She finally found a Swedish angel investor and got a first installment of funds just as the market was sliding. "I ended up having to launch my company on a quarter of my original angel funds and $25,000 in SBA guaranteed loans."
Undaunted, Kroll supplemented her initial funding with credit cards. Now, she says, "We are the cleanest sustainable furniture manufacturer in the United States, and my business grew by 200 percent in 2009. I feel that if people are going to buy new furniture, they buy sustainable if the price is right."
Branding a Product
Organic, cruelty-free, recycled, energy-efficient and up-cycled products are ubiquitous, and their prices are now competitive with traditional goods. So shopping for anything from soap to lumber has become an exercise in eco-conscious decision making. Businesses, in turn, have had to step up branding efforts over the past decade to stand out amid a sea of green labels. "Ten years ago, it was enough for a company to say 'We care about our planet.' It was so vague," says Jim Edwards, former managing editor at Adweek. "Now consumers are educated, and companies must be accountable."
To that end, Jeffrey Swartz, CEO and president of the Timberland Company, introduced an industry-first "nutrition label" on all of its footwear boxes to give consumers information about the company's environmental footprint and a Green Index rating system to provide a measure of the environmental impact of the materials and their suppliers.
As a third-generation bootmaker, Swartz came up in a company where recycling and reusing were just part of the fabric of the business. But that conscious stewardship evolved to become synonymous with the brand. Swartz admits he's just as happy selling a line of boots made with recycled materials as he is encouraging consumers to think about how to influence positive environmental change in the marketplace.
"We've got a long way to go to get to where environmental attributes are as influential to consumers as price, performance and aesthetics," says Swartz, "but the fact that we're even having a conversation about sustainable product shows that we've come light years from where we were."
Sometimes the conversation leads to talking a customer out of a purchase. That's happened to Paul Hoffman, owner and president of Wisconsin-based planning, design and construction firm, Hoffman LLC. He's been advocating sustainable design and construction since the 90s, long before Leadership in Energy and Environmental Design became a must-have for new construction. "One of the first things we did was to make a commitment that we weren't going to do a project unless it was sustainable," explains Hoffman, who says all the firm's projects meet LEED silver standards.
With sustainability as the cornerstone, all the firm's subsequent projects and promotional materials reflected this commitment, including the planning, design and construction of Hoffman's office building in 1998. "Our own building became one of our branding pieces. It gave greater focus, commitment and consistency to our message," says Hoffman.
As the green revolution gained traction, another movement--"greenwashing"--was coming up alongside. Since the late 1970s, businesses from hotels to oil companies and toy makers have made false claims that their company or its products or services were good for the environment. And the practice continues today.
However, it's become more difficult to differentiate green fact from fiction. Grail Research indicates an average of 85 percent of consumers are unaware of or cannot recall the green initiatives of companies like Hewlett-Packard, Estee Lauder and Intel--all recognized leaders in the green revolution.
Paul McCormack, director of public relations at Miele, is not surprised, but he says over time a company's products--and their quality-- go a long way toward building a reputation that has more staying power than a green-colored logo on a bag or box. Though McCormack says the 111-year-old family-owned appliance manufacturer has always embraced sustainable practices, it never wanted to leverage them as a marketing tool. "When the greenwashing backlash came, we were glad we didn't participate," he admits, but he notes the company publishes complete details of its products' entire life cycle (from construction to disposal) on its tags and manuals.
That's wise, as 63 percent of consumers rely on product labels as their primary source of information about green companies and their products. But word-of-mouth is almost as
Tammie Umbel, CEO of Shea Terra Organics, says greenwashing is one of the biggest challenges that her 12-year-old skin-care products company continues to face. "Other companies claim to use more of a certain ingredient or are more natural. It really hurts companies like mine; [we] go to great expense to give customers the very best in natural skin care," says Umbel.
Taking a page from Estee Lauder's playbook, Umbel believes trying is believing. "Our products are so good that when people try them, they switch to our brand for its effectiveness," she says. Then they tell their friends. Umbel is taking marketing viral with a series of YouTube videos and a social media campaign--all based on the quality and efficacy of the products.
The Bottom Line
Though it's radically changed from 40 years ago, green business is here to stay. Dr. Greg Unruh, of global business at Thunderbird School of Global Management, points out how the financial collapse in 2007 demonstrates this. "While some companies did cut back, others doubled down on sustainability. Sustainability was countercyclical; some companies had figured out how to make it a business proposition. This is where the future lies."
Andrew Shapiro, founder and president of strategy and management consulting firm GreenOrder, adds, "Consumers are looking for companies to truly innovate, change their business model, influence their suppliers and market, and report every step of the way." He concludes, "There is an opportunity here to change more than light bulbs."