Growing a Green Business

It’s happened before: A few scribbles on a cocktail napkin–be they product blueprints, song lyrics, or business plans–have proved to be million-dollar ideas. Bianca and Michael Alexander, who hatched their own business idea on a flight home from their honeymoon four years ago, are hoping for the same sort of fairy-tale success.

After spending time in Hong Kong, Thailand, and Bali, they jotted down their ideas about creating a television program that would focus on the environment and promote a green lifestyle.

Their brainstorming would ultimately become Conscious Planet Media Inc. The business offers a weekly broadband television program via Conscious LivingTV.com, as well as green event planning and consulting. Together the Alexanders produce five- to seven-minute segments on practical, everyday subjects such as home décor, fitness, organic food, and travel–all, of course, eco-friendly.

“We also carry forward the spirit of ‘green’ by seeking to collaborate, and not compete, with like-minded businesses that are doing great things for the world,” says Bianca, “often by showcasing them on our show.”

Now totally immersed in a green lifestyle, that wasn’t always the case for Bianca. A lawyer with a degree from the University of Virginia, she only started thinking about the environment after meeting Michael at a party in Hollywood Hills, California, in 2001. His green experience extends back to the early ’90s when, after graduating from the University of California at Davis with an economics degree, he worked as a distributor of eco-friendly household products.

The Alexanders are just two of the entrepreneurs–motivated by some mixture of idealism and capitalism–in the ongoing explosion of green businesses. It’s a boom that’s fueled by 100 million or more consumers who make purchases guided by health and environmental concerns every year. Overall, the green economy is worth more than $209 billion annually and is expected to reach $1 trillion by 2020, according to The LOHAS Journal, which tracks green economic trends.

With all that said, what exactly constitutes a “green” business is open to interpretation. “At one time, the perception of what ‘green’ meant only fit certain niche businesses such as recycling and alternative energy,” says George Brooks Jr., the publisher of Nxt Horizon magazine, an online minority business publication based in Phoenix. “But we are in a wholly new time.” Companies that offer green products and services–such as those that build pollution fighting into their business plans–are all responding to a rapidly growing demand.

Driven by the high cost of oil, global warming, and growing health consciousness, the green economy is powering everything from organic food companies to socially responsible investments. Witness that environmentally safe products such as recycled paper towels and all-natural laundry detergent are becoming supermarket staples. What’s more, the green building industry is on course to grow as much as fourfold, to $38 billion by 2010, according to the McGraw-Hill Residential Green Building SmartMarket Report. And sales of organic foods are expected to grow 18% annually from 2008 to 2010, according to the Organic Trade Association.

For entrepreneurs and would-be entrepreneurs, opportunity is virtually pounding on the door, says Joel Makower, a consultant on green business practices and the executive editor of GreenBiz.com, which provides business and environmental news, tools, and resources. “We are at a really early stage in this,” Makower says.

Identifying an Opportunity
One of the biggest questions is how to find a niche within the green economy. The truth, green entrepreneurs say, is that there is such broad demand from consumers, businesses, and government agencies that the biggest challenge now may be whittling down the list.

Indeed, experts say just about any kind of business can be re-envisioned as one that is more environmentally friendly. Consider a greened-up version of a Main Street business such as a dry cleaner, a printer, or a hardware store. How about an environmentally friendly travel agency or landscaping firm? The beauty of the green movement is that the grassroots demand is already there, waiting to be harnessed, says Michel Gelobter, founder and CEO of Cooler Inc., based in Oakland, California.

It was just last summer that Gelobter launched his business with $350,000 from angel investors. The former head of Redefining Progress, a nonprofit sustainability think tank, Gelobter knew that nearly 40% of every American’s carbon dioxide emissions come not from, say, heating a home, but from the manufacture of goods and the delivery of services the consumer buys. Sensing an opportunity, Gelobter, 46, jumped to the private sector to create a virtual shopping mall where participating retailers pay for carbon offsets.

Gelobter’s company operates the online retail hub ClimateCooler.com. On the site, visitors can shop at more than 350 Internet stores, among them Circuit City, eBay, and Macy’s. Buying products on the site does not cost consumers any extra, but retailers selling through the site pay, on average, a 6% premium on an item’s cost to Cooler Inc.–which in turn invests a significant portion of that premium toward renewable energy and pollution prevention projects to offset the greenhouse gases produced by the manufacture of the purchased item. The projects are approved by well-known environmental organizations such as Environmental Defense and the Natural Resources Defense Council.

One such project is Holsum Dairies, a Wisconsin dairy farm that captures the greenhouse gas methane from livestock manure and converts it to fuel, Gelobter explains. Cooler Inc. also consults with businesses to figure out how to reduce or eliminate their global warming impact.

Gelobter expects annual revenues at his three-employee business to jump from $1 million to as much as $45 million within five years. His revenue projection is based on a goal of driving 0.2% of U.S. consumer spending through his business within five years.

Determining a Target Market
While Gelobter is betting much of his business on individual consumers, there is a great case to be made for targeting businesses as customers. “For the most part, the most robust market now is the b-to-b market,” says GreenBiz.com’s Makower. “Companies and institutions increasingly have self-imposed mandates to be greener and cleaner.”

Target Corp., for instance, has its own environmental services group that’s charged with setting environmental goals for the company–Target recycles hundreds of millions of pounds each year of cardboard, shrink-wrap, and other plastic. Xerox Corp. last year announced that in four years, it had exceeded its goal of reducing its greenhouse gas emissions by 10%, actually achieving an 18% cut in emissions. The commitment seems to be here to stay. black enterprise surveyed the Websites of the 20 largest corporations in the country and found that 14 had a reference to the environment or sustainability on their home page.

The business-to-business market is not driven just by the desire of corporations to be good citizens, of course, it’s also about the bottom line. Wal-Mart Stores’ well-publicized drive to make its 7,200 trucks more fuel-efficient is saving the company tens of millions of dollars a year in fuel costs.

Claude Kennard understands that corporate self-interest. The 59-year-old alumnus of British oil producer BP p.l.c. is now the president and owner of Metal Alloy Reclaimers Inc., a Cleveland-based recycling firm focused on oil refineries.

The business, known as Metaloy, earned revenues of $1.2 million last year by helping refineries recycle materials used in the process of turning oil into gasoline and other end products. Its research and financial support have resulted i
n two spinoff businesses since 2004: MCAT Services, which processes waste material for reuse by refineries around the world, and MAR Systems, which uses a refinery byproduct to remove hazardous metals from water and industrial waste streams.

Kennard hopes that the desire of refineries to economize through recycling will help lift MCAT Services, which nabbed its first customer, Sunoco Inc., late last year. And the water purification firm, MAR Systems, is working with the Environmental Protecton Agency on technology to help provide municipalities with cleaner water and potentially boost the company’s business, he says.

Indeed it’s also important for business owners to recognize that state and local governments are among the most promising institutional buyers of green products and services. For instance, Phoenix’s City Council gave the green light for its procurement officials to systematically shift the products and services it buys to environmentally friendly ones. “We are completely reorganizing our purchasing around sustainability,” says Darice Ellis, an environmental quality specialist. “We are going to go contract by contract to incorporate green requirements.”

Coveted government contracts are typically locked up for years by incumbent firms. But in all of the supplier contracts that Phoenix evaluated by late last year, Ellis says that half the vendors would have to be replaced because they did not offer a green version of their office products, pesticides, janitorial supplies, or other goods.

With a five-year transition plan to green procurement, Phoenix’s program is an excellent example of how the green movement is opening doors for minority-owned firms. Even as it looks for green suppliers, the city is applying its pre-existing incentives to attract minority-owned contractors. Such businesses can place bids that are as much as 5% higher than their rivals and still win contracts, explains Elizabeth Paulus, Phoenix’s environmental program specialist. “We want to get the best priced green products and to expand our diversity efforts at the same time,” she says.

The historical moment should not be underestimated, says Brooks of Nxt Horizon magazine. “Minority businesses, if they are proactive, can use green to level the playing field,” he says. “This will not last forever, but the door is now wide open for small minority-owned businesses.” Brooks considers the cause so important that he joined with the Arizona Minority Business Enterprise Center and others to organize an inaugural Minority Green Business Conference at Arizona State University in January. The event, which drew 138 business leaders, explored green business opportunities as well as the case for businesses adopting environmentally friendly operating models in order to reduce costs. Brooks says that they are planning a second such conference in Phoenix in June–at a bigger venue because the first time around they ran out of room.

Preparing for Launch
Many successful green entrepreneurs have found that their personal social concerns can point the way to a successful business venture. “If you’re feeling a certain way, or passionate about a certain issue,” says Bianca Alexander, “recognize that it’s probably because there’s a greater need in society for it, and, as a result, that’s where the business opportunity lies.”

Still, you should be prepared for some possible road bumps. Witness that initially the Alexanders found they were ahead of their time. It was in the summer of 2005 when the couple began to shop their idea for green programming around Hollywood, meeting with production companies, show runners, agents–as many people as they could. But the interest level was “slim to none,” says Michael. “Intellectually they got it, but Hollywood is full of some of the most creative and alternately, the least creative people there are.” The problem, he says, was that their idea wasn’t hot at the time and didn’t fit within a proven formula of what’s worked in the past.

This was in their first year of marriage, and the couple was already at a crossroads. Bianca had left a job as an attorney with Paramount Pictures to open her own entertainment law firm in 2002, and the couple was now operating Conscious Consulting Inc., which targeted companies offering eco-friendly goods and services. Unfortunately, the consulting firm lost its biggest client that same year.

It was a confluence of events that prompted the couple to relocate to Sedona, Arizona. There, in the process of sorting out what their next step would be, the Alexanders began volunteering for various community boards and Bianca started to appear as a “conscious living” and green expert on local TV stations. Ever the entrepreneurs, they started to think about how to generate revenue from producing the segments and in time drew corporate backers, such as Safeway and its line of O Organics products.

Yet the Alexanders soon faced a dilemma: Should they stick with a reliable source of revenue and shape their green messages to fall in line with a sponsor’s interests, or should they create their own media outlet in order to have editorial independence? A desire for greater control led the Alexanders to invest $220,000 of their savings to launch ConsciousLivingTV.com.

Their online video programming now has a distribution network that’s capable of reach

ing more than 72 million independent viewers every month. They started by focusing on creating the content and, with multiple syndication deals underway, are now in the process of attracting advertising support. While they stress that their business is focused on sustainability rather than profitability, the Alexanders project revenues of $75,000 in the second quarter of this year. What’s more, with the expansion of their content–they aim to produce a daily 30-minute show by early 2009–the couple hopes to grow quarterly revenues to $250,000 by the end of the year. The Alexanders project that their business will become profitable in the fourth quarter of this year.

While your personal coffers may not allow you to independently finance your startup, there are many sources of funding that have popped up alongside the growing number of green businesses. One example is the San Francisco-based Investors’ Circle, www.investorscircle.net. The 16-year-old social venture capital intermediary, made up of wealthy individuals, professional venture capitalists, and others, has channeled $120 million specifically toward green startups since its founding.

Even mainstream sources of capital are increasingly open to funding environmentally friendly startups, particularly technology or Internet-based ones. “Most major venture capital firms have either a dedicated fund for green and clean technologies, or someone on the staff is the go-to green expert,” says green business consultant Makower.

Building a Network
An essential part of launching any business and keeping it afloat is tapping into the knowledge of others in the field. As the movement to provide green products and services gains momentum, support networks for entrepreneurs have steadily taken shape. Environmental advocacy organizations such as Co-op America, www.coopamerica.org; Conscious Wave Inc., www.lohas.com; and the Social Impact Leadership Council, www.silcnetwork.com, maintain that collaborative efforts among socially responsible business leaders are an essential component to addressing global warming.

These groups not only connect green businesses with their peers, but they provide strategic information about everything from market opportunities to finance. What’s more, their business-owner members tend to be uncommonly supportive of each other, says Deborah Nelson, executive director of another such organization, Social Venture Network, www.svn.org. “Members share common values, so they really talk openly about what works,” says Nelso
n, whose group is an association of socially responsible business leaders, investors, and entrepreneurs.

Tolulope Ilesanmi, a Nigerian who emigrated to Canada in 2003, says his membership in the Social Venture Network has paid off through the mentoring and moral support he has received from fellow entrepreneurs. “Having a business with a conscience is not very common,” he says. “One needs a lot of support.”

Ilesanmi has an M.B.A. from McGill University in Montreal, but his business model could not be simpler: He cleans buildings. The founder of Zenith Cleaners in Montreal says that he uses environmentally friendly supplies more because of a personal belief system than a business strategy. “We don’t need to be green to get business,” he says. “But the fact is that we get a lot of business by being green.” Though he says eco-friendliness also has a growing appeal in Canada, and it’s a part of the company’s marketing materials, it’s not front-and-center because Ilesanmi says he wants the business to be known for its quality service and not be perceived as largely promoting a cause.

While the 10-employee company does clean individual homes, “bulk” customers are its bread and butter. Ilesanmi and his wife and business partner, Idironke Oyekanle, have come a long way since 2004, when they started the business by literally carrying mops and other supplies from building to building. Zenith’s annual revenues are approaching $250,000, and are on pace to grow at least 50% annually over the next three years. In fact, says Ilesanmi, the only reason the business is not growing faster is that it can’t find high-quality, long-term hires fast enough.

While there is real money to be made in green businesses, it’s the rare entrepreneur who is not also driven by idealism. As humble a business as Zenith Cleaners may be, its people- and environmentally friendly products are part of a philosophy of caring for the planet and its inhabitants, says Ilesanmi.

It was the death of Ilesanmi’s brother several years ago, from asthma, that got the future entrepreneur thinking about his own legacy. “I started to think about endings, and wanting to do something that would outlast me,” he says. “I decided I don’t want to be caught dead doing something that doesn’t have any meaning.”

As children, Kermit the Frog sang to us all that “it’s not easy being green.” Well, it’s easier if you can speak the lingo. Here are a few terms worth knowing:

• Carbon footprint: A measure of the impact human activities have on the environment, as calculated by the amount of greenhouse gases produced. Your personal footprint is likely to be dominated by transportation.
• Carbon offset: Credits purchased by individuals and companies to offset their contributions to global warming. The market for carbon offsets is estimated to be $100 million annually and growing fast.
• Fair trade: Signifies that goods meet certain standards related to social and environmental considerations, such as fair payment for producers.
• Gray water: Accounting for 50% to 80% of residential waste water, it is produced by washing dishes, laundry, and showering. Gray water can be used for landscape irrigation and other uses, although regulations vary by jurisdiction.
• Green-collar job: A popular term in this presidential election cycle, it describes a position that involves products or services relating to clean energy or environmental concerns more broadly.
• Greenhouse gases: A combination of water vapor, carbon dioxide, methane, nitrous oxide, and ozone that all contribute to global warming. These gases come from both human activity and natural sources.
• LEED standards: An acronym for Leadership in Energy and Environment Design–a set of national standards for green building and construction created by the U.S. Green Building Council. LEED Certification ensures that a building is environmentally safe and responsible.
• LOHAS: An acronym for Lifestyles of Health and Sustainability that refers to a segment of consumers focused on healthy lifestyles, the environment, and sustainable living. It’s a market segment estimated to be worth approximately $209 billion in annual sales.
• Organic: This term refers to the way agricultural products are grown and processed. This includes how they are produced, distributed, and sold e.g., without pesticides or chemical fertilizers.
• Sustainability: Describes the ability to meet present needs without impairing the ability of future generations to meet their own needs. A sustainable process can be carried out repeatedly without negative environmental effects.

 

Green, Greener, Greenest
While there’s no precise definition of what constitutes a green business, the Center for Small Business and the Environment segments the green economy into the following industries. Here’s a snapshot of some of the areas you might want to look into.

• Recycling: With an annual payroll of $37 billion, the recycling industry employs more than 1.1 million people in more than 56,000 reuse and recycling establishments.
• Environmental clean-up: Encompassing measures such as waste water treatment and air pollution control, it was a $231 billion industry in 2003.
• Green lifestyle: Estimates show that some 100 million consumers make purchases guided by health and environmental concerns every year.
• Ecotourism: Ecotourism, or travel where the environment and local community benefit, is among the fastest growing travel trends–estimated to be a $77 billion market.
• Renewable energy: Also called “clean energy,” sources such as biofuels, wind power, solar power, and fuel cells are estimated to expand from $55.4 billion in 2006 to more than $226.5 billion within a decade.
• Energy efficiency: Businesses that focus on the development of energy-efficient products and services. One key area of growth: The registration of new commercial hybrid vehicles rose 1,000% between 2003 and 2007.
• Organic agriculture: Perhaps you’ve begun to pick up a few organic items in the supermarket. Sales are expected to grow 18% annually from 2008 to 2010.
• Green building: From commercial sites to residential condos, the green building industry is projected to grow as much as fourfold, to $38 billion by 2010.
• Land conservation: Measures to protect land as parks and open space often generate huge economic benefits for the local community, such as the opening of Chicago’s Millennium Park in July 2004–which features two pavilions that convert solar energy into electricity.