VENTURE OUT !

By Steve Rice

Back in December 1996, I wrote one of my first op-ed pieces as a guest columnist for Environmental Solutions magazine. Its main point was that to be successful in the environmental market, business and marketing executives needed to become more knowledgeable about environmental issues, trends and markets. In turn, however, environmental professionals also needed to convert their ‘eco-speak’ to ‘biz-speak’, learn about creating added customer value and become familiar with business and financial decision-making processes.

Looking back at that column almost four years later, I see that to achieve a long-term, sustainable difference, many environmental professionals still need to venture out from their eco-worlds and more fully integrate with businesses, markets and customers.

Clearly, there are encouraging signs of success. Witness the veritable explosion of recent successes with the development of fuel cells and certain alternate energy technologies and products. Success stories in these and other areas are presented throughout SustainableBusiness.com and other magazines. There is also the recently announced $5.5 million investment in SealTech LLC (Parsippany, NJ) by the Sustainable Jobs Fund. Natural Logic has recently completed its next stage of investment, as has Blue292 ($25 million), Complient Corporation ($46 million) and Powerspan ($21 million).

There have also been a number of business missteps by companies like Seventh Generation, Deja Shoe and Foxfire Cotton and gargantuan investment losses from now-defunct firms like Molten Metal, Verde.com and, more recently, Kafus. Many innovative plastics recycling ventures, including BASF’s novel urethane foam recovery unit, have been shut down. Two firms, Real Goods and Green Mountain Energy (formerly GreenMountain.com) have held on due to timely and significant investment from Whole Foods (and subsequently Gaiam.com) and BP Amoco, respectively.

Despite the burgeoning interest and activity in sustainable living and businesses since that 1996 column, I have met many bright entrepreneurs with innovative environmental or sustainability technologies. Virtually all of them continue to struggle to obtain the investment they need to expand the business into one that can provide significant progress toward sustainability to anything more than only a small number of local or regional customers.

So, what can they do to improve their chances for evolving from a struggling startup to a full-fledged businesses employing significant numbers of workers at robust wages and helping individuals and other companies make their transition toward sustainability?

In a nutshell, it goes back to that 1996 column. They must venture out and both learn AND practice business management techniques. I don’t know how many I have talked with lately that continue to rely solely on their scientific expertise and technology, often neglecting the importance of the business management aspect. They often lack substantive market research and/or a comprehensible, believable business plan.

Any worthwhile advice and lists of “dos” and “don’t dos” could (and often do) fill volumes of books, reports, tapes and seminars. Owning to space limitations, here is a condensed list of the critical factors that I’ve found so often lacking in the business opportunities presented to me lately:

1. Recognize the four characteristics of the environmental technology marketplace. Investors are reluctant to invest in environmental technology because of four inherent characteristics: a) small markets, b) low barriers to entry, c) more commodity than proprietary and d) often subject to unexpected regulatory change.

2. Admit that it is a business. Investors don’t put money into ideas; they invest in businesses. The opportunity MUST be positioned as a business opportunity; the environmental or sustainable aspect is at best a secondary issue to them. Promote that aspect a) only as an ‘added bonus’ and b) only to those funders interested in those aspects.

3. Organize your management team. The management of a business is more important than either its concept or its technology. One generic ‘rule of thumb’ I keep hearing is that investors consider the business management team for 60% of their decision, the overall concept and idea for 30% and the financials for only 10%. The basis for this ratio is that where an excellent management team can make even a mediocre concept work, a weak management team won’t be able to make even an excellent concept work.

4. Have an insightful business plan.This is the tool that will sell your opportunity; don’t try to save time or money here. It must both educate and entice. Have it prepared and reviewed by knowledgeable and trustworthy people. Also, if appropriate, include an investors’ exit strategy.

5. Focus your investment search on the right type of investor.Should you target investment banks, venture capital groups and funds, or individual “angels” for investment interest? Each has different interests and are interested in different types of business opportunities.

6. Determine the current stage of the business. Is it a ‘startup/seed’, ‘early’ or ‘expansion’? Again, different investor types and individuals focus their efforts at different stages of business investments.

7. Invest your heart, soul and pocketbook in the venture.If you haven’t, why should they? Worthy investors will want to see what they are getting into and with whom; be prepared to divulge personal, operational and technological information. If you were being asked to give $1 million or more of your money, wouldn’t you want to know that type of information before writing the check?

8. Network and seek advice. One never knows when a conversation or inquiry will lead to success. The US Small Business Administration provides a wealth of information, as do universities and technology incubators. Most importantly, talk with potential investors and participate in investor forums. Ask questions and seek input. The person you talk to next may be the one who is interested in your type of business opportunity!

Will successful implementation of all these factors ensure success? Absolutely not – there are always the ‘random acts of accidental situations’ beyond anyone’s ability to predict. An excellent book on this situation is The Tipping Point, by Malcolm Gladwell. These factors will, however, greatly increase the chances of success for the entrepreneurs, the investors, and the marketplace.

The greater the number of significant financial successes that can be demonstrated, the greater the receptiveness the investment community will have toward investing in such business opportunities. For this to happen, environmental and sustainability professionals still need to increase their business management capabilities. And THAT’S the ‘bottom line’.