By Joel Makower, Published November 3, 2008
[Editor's note: This exclusive excerpt from Joel Makower's new book, "Strategies for the Green Economy", offers a look at just a few of the innovative companies and thinkers that are emerging in the new green economy, changing the way industry creates everything from clothing to housing to solar energy. You can read a previous excerpt here.]
The advent of the green economy coincides with a new era for entrepreneurism. Unlike, say, Ben & Jerry's, today's promising young green companies are less likely to be influenced by the war than the Web. Today's entrepreneur has been chastened and emboldened by the successes – and excesses – of the Internet revolution. Indeed, many green-economy entrepreneurs are dot-com refugees, flush with cash, connections, and a can-do mind-set. They bring their innovations in business strategy, such as the notion of turning products into services, of customers as "members," of networks as marketplaces.
One of countless examples is SolarCity, founded by Lyndon and Peter Rive, two brothers who previously started a software company they sold to Dell. The Silicon Valley company became a fast-growing phenomenon by creating a residential solar purchasing program that encouraged neighbors to join together to receive special group pricing incentives on solar installations.
It's a classic dot-com play: Break through the barriers of the incumbent business mind-set, in this case by using the power of human networks to do viral marketing on the company's behalf, thereby short-circuiting the marketing and sales cycles. SolarCity has attracted major investors, including Elon Musk, the brains behind PayPal. And then there's Sungevity, another solar company, this one founded by two brothers-in-arms, Danny Kennedy and J.P. Ross, both ex-Greenpeace activists turned solar entrepreneurs. Their company similarly brings dot-com smarts to the relatively staid world of solar energy. It works like this: Simply enter your address on Sungevity's Web site. Within 24 hours (more or less), you'll get a complete analysis of your home's solar potential, including a proposal for three different types of solar systems and a picture of what your house will look like with each. You'll also get complete financial analyses of the three systems, a contract, and all the paperwork.
All this used to take at least two site visits, usually over several weeks. Sungevity uses Web and mapping technology (similar to Google Earth) to calculate your home's solar profile – how much sunlight it gets, whether that sunlight is shaded in ways that negatively affect its exposure to the sun, and other factors – and automates a heretofore heavily manual, paper-based process. Such a smart, automated system seems like a no-brainer – but then again, no one has done it previously.
Another smart, automated player is mkDesigns, founded by Michelle Kaufman, an architect who previously worked with Frank Gehry and Michael Graves – renowned architects known for out-of-the-box thinking. The company has created affordable prefabricated green housing that breaks the mold for how people think about either. mkDesigns creates custom homes built in factories, which sounds like an oxymoron but actually makes a lot of sense. By building the core of each home in a controlled factory environment, the company is able to reduce costs, improve quality, and take advantage of economies of scale. On site, the homes are customized – they can be one story or many, small or large, even sizable multifamily structures. You'd never know their factory origins.
However, Kaufman's process reduces waste by up to 75 percent and allows her to bake into her designs an ever-increasing number of green aspects, from materials and finishes to solar panels and energy-monitoring devices. Customers can design their homes online, even downloading software that allows them to "walk through" their designed homes and change specifications in real time. mkDesigns has attracted awards, venture capital funding, and some of the brightest minds in the building industry, all hoping to scale up the company to offer affordable green housing solutions globally.
The new business models don't always work. Consider Nau, Inc., a designer and marketer of outdoor clothing, based in Portland, Oregon. Comprised of refugees from Nike, Patagonia, and other companies, Nau was built from the ground up as a firm that would do things differently and sustainably. It began with the company's mission statement: "To combine the generosity of the human spirit and the power of technology with business innovation to increase shareholder equity, protect the environment, enhance social justice, and provide humanitarian relief worldwide."
Its operation encompassed a range of innovations, including direct distribution, in which it would control its products from concept and design through marketing and sales; an online-offline "Webfront" sales model, in which customers could try on Nau products in stores and either buy them on the spot or, for a 10 percent discount, purchase them online; and customer-directed giving, in which every customer at the time of sale is offered the opportunity to select the nonprofit group of his or her choice to receive Nau's 5 percent contribution of sales.
Nau's vision and values were a great example for companies positioning themselves for the green economy. Notice that I said were. The company lasted only a year, the victim of a challenging financial climate in which to raise working capital. (The Nau brand was eventually acquired by another company.) Even in its demise, it was heralded as "the best kind of failure," in the words of Worldchanging.com's executive editor, Alex Steffen. He called it "a smart, creative, energized bunch of people who saw something wrong with the world, thought they saw how to do something better instead, and went for it with everything they had. In the process, Nau has prepared the ground for a whole crop of innovations and new thinking."
One of Nau's innovations was its messaging. "We are not just looking to make some new clothes," it stated. "We are aiming to redefine what it means to be successful." It communicated clearly, cleverly, and compellingly a deep sense of values without hitting you over the head with its progressiveness. (It evokes one of my favorite company taglines, that of Bronx-based Greystone Bakery, founded by astrophysicist turned Zen Buddhist priest, Bernard Glassman. Founded in the early 1980s, Greystone Bakery hires anyone, including former drug addicts and prisoners, providing training, child care, and counseling, as well as meaningful work. This profitable company, which sells baked goods to some of New York's finest restaurants, proclaims, "We don't hire people to bake brownies. We bake brownies to hire people." Clear, clever, compelling.)
Start-ups with baked-in environmental or socially responsible missions aren't exactly new, but the newest breed is doing more than merely "greening up" a conventional product or service. In some cases, these companies are innovating on not just what they sell but also on the entire value chain.
Consider Shai Agassi. In 2007, the 40-year-old Israeli native left his job as the president of the Products and Technology Group at enterprise software giant SAP to pursue a bold and audacious vision – to convert an entire country to electric cars powered by batteries that get their energy from renewable energy sources, employing a smart electric recharge grid that covers the entire country. Dubbed Project Better Place, the company began its life with a business plan that called for deploying a vast system of recharging and battery-swapping stations so that they are nearly as ubiquitous as gas stations.
By early 2008, Agassi not only had secured $200 million in venture capital but also had signed the government of Israel and the automaker Renault-Nissan as partners. At the launch event in January of that year, Agassi stood next to Israel Prime Minister Ehud Olmert and Renault-Nissan CEO Carlos Ghosn and explained his vision: "If we can provide the drivers an enjoyable car, that costs less but drives better, a country can build a virtual oil field – one that works forever, but leaves no footprint on the environment. Such a virtual oil field is more natural than the holes we have been digging into the earth to fuel our addiction to oil." Since then, Nissan announced that it will build, in large volumes, the electric cars for Israel and then to go into other countries and cities that adopt Agassi's vision.
We'll see whether Agassi's vision gets traction, but it's hard to ignore the size and scope of the plan. And it shows how small players with big visions can be competitive in mature markets, such as automobiles, in part by changing the rules of the game, much as their dotcom forebears did a decade earlier.
Or consider the founder of SunEdison, Jigar Shah, yet another entrepreneur who has helped change the business model for solar energy. He started with a basic premise – the idea of turning free energy from the sun into electricity. This has long been simple and undeniably compelling, but the promise is clouded by a myriad of barriers. The technology is costly relative to conventional electricity and is complicated to install, especially in an existing home. The industry has yet to come up with a truly plug-and-play model roughly equivalent to buying satellite TV, in which a truck pulls up and installs a complete system in a few hours. Instead, solar energy is much more like home remodeling, requiring planning, drawings, and multiple players, often taking weeks.
Perhaps the biggest barrier is the fact that most people – whether homeowners or business owners – aren't accustomed to owning their means of electricity generation. That is, we're used to buying electricity as a service, not a product. We don't even want electricity per se so much as the services electricity provides – lights, television, cold beer, and warm showers. Most consumers and companies lack the capital budgets to pay solar energy's substantial installation costs. Government subsidies, where they're available, can help, but only somewhat. Buying even a small solar system can require outlays of thousands of dollars.
There's also the issue of reliability. Owning a solar energy system means that you're responsible for it. Warranties help, but they don't necessarily guarantee against the system malfunctioning or ceasing to work altogether. Again, this is not the case with conventional electricity, which is maintained by the local utility.
So how do you make solar affordable? One way is to transform it from a product into a service – selling solar energy instead of solar systems. Enter Shah, who left BP Solar in 2003 to start the company. Under his scheme, SunEdison finances, installs, owns, operates, and insures solar panels and systems on a customer's roof. In return, customers sign purchasing contracts that lock in the current price for as long as 20 years, creating a steady revenue stream for SunEdison.
Customers get electricity at a fixed cost on a long-term basis, something few traditional energy utilities can offer. The company's focus began with commercial industrial rooftops – Wal-Mart hired the company to put solar panels on the roofs of several of its stores – but since has expanded into constructing utility-scale solar installations. The business model Shah pioneered is now being copied by other firms.
Of course, this isn't just an opportunity for little guys hoping to get big. Many of the world's biggest companies are innovating around green and clean technologies, sometimes investing significant sums with no immediate expectation of returns. They know that the markets for cleaner, greener products, processes, and services will come and that they will not necessarily be small, niche markets. They also understand the importance of having good stories to tell investors, employees, activists, the media, and others about the company's commitment to a better future and a cleaner world. A few of them will set the standard by which the rest of the business world – and all of us – will play. Many others will follow.
A growing number of green-economy entrepreneurs are to be found in China, India, and other developing markets. China's richest woman, Zhang Yin, owner of Nine Dragons Paper in south China's Guangdong Province, made her estimated $3 billion fortune recycling scrap paper imported from the United States. At the other end of the scale are countless entrepreneurs throughout India, Africa, and Latin America who are similarly turning waste into industrial feedstocks or deploying small-scale solar or other renewable-energy technologies at the village level to bring lighting, refrigeration, sanitation, and telecommunications to millions who lack them. The profits from such enterprises transcend financial remuneration.
So who will win in the green economy? Will large companies be the only ones with sufficient scale to move the needle on climate change and other problems or – as with computers and Web technologies – will audacious newcomers and small-scale social entrepreneurs trump experienced but stodgy incumbents?
No one really knows, of course. Because the green economy includes the full spectrum of products and services – and the transformation of existing business processes and models as well as the creation of new, breakthrough ones – there likely will be room for everyone to play. But success will require innovative thinking, a firm understanding of the marketplace, a willingness to create new models, and more than a little patience.
Joel Makower is executive editor of GreenBiz.com.
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