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It’s Not All Roses for Small Green Businesses

I recently wrote a post about how businesses can have a green agenda, promote reusing and recycling, and still grow and make a profit. I want to start this post with a clothing company named Patagonia. Patagonia’s mantra is “Reduce, Repair, Reuse, Recycle,” and they act on it. They “reduce” by making very durable clothes that can last a lifetime, and they “reuse and recycle” by teaming up with eBay to allow their customers to resell used Patagonia products.

Patagonia is just one example of a major trend that is taking the business world by storm. Just like individuals, organizations are becoming more committed to reducing the impact they have on the environment—they’re becoming more sustainable. Global management consulting firm Accenture conducted a survey among 250 senior executives that revealed that most of them believe sustainability is vital, and sometimes crucial, to business success. The survey shows that the business world’s perceptions regarding sustainability have changed; sustainability has broken free from the realm of regulatory pressure and reputation management, and is now being viewed by business leaders as an investment that is vital to their growth and central to their business.

The post I mentioned earlier was titled “It Can Be Easy Being Green,” and for Patagonia it seems like it is, but it isn’t for everybody. Building a business with sustainability at its core has become more common in recent years, but it is still new and evolving. Small business owner Tom Szaky, who writes for the New York Times, talks about all the challenges he is going through as the owner of a small and green business. Szaky owns TerraCycle, a company that is aimed at turning the world’s waste into new products. They started out selling worm waste as premium fertilizer (and they still do), but today their primary business is collecting waste such as plastic bags, yogurt cups and energy bar wrappers and turning it into kites, pencil cases, notebooks and so on. Here are some of the challenges his company was faced with:

First, if you are a venture-backed company, like TerraCycle and many others, your investors expect you to be profitable. However, because of the huge growth potential and limited competition green businesses have in the current market, business owners are sometimes put in a hard position—their investors want to see profits yesterday, but they want to invest as much as possible in revenue growth and hardly demonstrate any profitability (at least in the first few years). Tom’s experience teaches us that the priority should be investing every spare dollar above some minimum threshold of profit into growth.

Second, the average consumer is not willing to pay more for a green product. During the recent economic downturn, green product sales went down significantly. It seems that most consumers view buying green products as a luxury, and when times are hard, they cut back on them. Tom divides green consumers into two groups: a small minority of “dark-green” consumers, who are willing to pay more and buy green products even when money is tight, and a large majority of “light-green” consumers, who choose to buy green if they can but are not committed to the cause. If you are a small sustainable business looking to grow, appealing only to “dark-green” consumers is not enough. The name of the game in this case is pricing—small green businesses need to work as hard as they can to offer a competitive price point in order to attract “light-green” consumer as well.

Last, but definitely not least, when deciding whether to sell their products at small independent stores or big-box retailers, many business owners are faced with some hard questions. Small independent stores have some advantages; they care about green issues, and they often offer a nicer store setting, better customer service and hard-to-find products. If you decide to go with them, their great customer experience can rub off on your brand (what is called the “halo effect” in organizational psychology) and improve how consumers view it. Going with big box retailers may hurt your business because consumers might view the move as your selling out on your green values. Yet, going with them has one huge advantage that cannot be ignored, and that is scale. Most customers prefer going to large chain stores because they offer a greater variety at cheaper prices. TerraCycle decided to go with the big retailers for two reasons: they wanted to go global, and they believed they could have a larger impact on the environment by reaching out to as many people as possible. On this issue, there are no quick answers. At the end of the day, each business owner needs to decide which distribution channel would benefit his brand and business the most.

These are a few of the challenges small and green businesses are faced with. However, different sustainable businesses face different challenges, and the list is long. One thing is clear, though; the green business movement is where entrepreneurs can put to great use their creativity and ambition in order to better themselves, society and the environment.

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It Can Be Easy Being Green

Going Green In Your Business To Save Greens
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