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Do You Need To Be Green?


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Karin de Gier hasn't always been green. In 2001 she founded San Francisco-based Zwanette Design to produce cabinets, tables, and other custom-made furniture. As she learned more about woodworking, de Gier also learned more about toxic glues, sustainable forestry, and green building principles. De Gier, now 45, soon realized green building was in line with her own values. Out went the toxic glues. In came bamboo, fiberboard, and woods certified by the Forestry Stewardship Council as harvested from sustainably managed forests. And although de Gier had to jack up prices 30% to cover her higher materials costs, orders for her two-employee, $100,000 shop doubled last year, to 15. ``There are some very motivated and committed customers out there,'' says de Gier.

Those committed customers are encouraging companies of all stripes to go green. And for good reason: The Organic Trade Assn. says sales of organic foods, now about $14 billion and 2.5% of the market for food, are expected to expand by 20% annually over the next few years. Green building is forecast to grow from a $7.4 billion market last year to $38 billion in 2010, according to the National Association of Home Builders. While each industry is affected in its own unique way and at a different rate, it's clear that for many, green business is a huge opportunity. But is it one your company should tackle?

That's a timely question, and answering it has probably never been trickier. Historically, sporting the green label has helped some small companies gain traction in a crowded market. It has allowed them to charge a premium for their products, often one as high as 20% to 30%. Those hefty markups are one reason many green companies have been profitable: A 2003 report by McKinsey & Co. found a portfolio of green and socially responsible companies returned between 5% and 14% annually in a 10-year period.

That's likely to change as more big players enter the market, bringing competitors to sectors that haven't encountered them. The enviable markups that have allowed small companies to become both green and profitable may become as endangered as the spotted owl. The onslaught has already started. France's Group Danone took majority control of organic yogurt pioneer Stonyfield Farms in 2003, and Colgate-Palmolive purchased Tom's of Maine in March of this year. Also in March, mega-retailer Wal-Mart Stores said it plans to double the number of organic foods it carries, to 400, and to ``democratize'' organic food by selling it at lower prices than are now readily available. ``Larger producers will aim for volume, pushing organic to the mainstream. That means pricing pressure and prices coming down,'' says John Stayton, co-founder and director of the Green MBA program at San Francisco's New College of California. ``There will be winners and losers, the losers being those smaller companies that can't compete with larger producers.''

Of course, the reach of the green movement may well be determined by just how far prices fall, something that is still uncertain. ``Consumers are driven by time and money,'' says Harry Balzer, vice-president of the NPD Group, a consumer research firm based in Port Washington, N.Y. ``The wheels of permanent change are ease and convenience, which organic doesn't seem to offer over nonorganic products, and low cost. If the prices don't come down, it will remain a niche.''

All of which makes the decision of whether to go green more difficult than ever. First, you've got to figure out what being green actually means in your industry. Since the movement began in the 1970s with a handful of farmers eschewing chemical pesticides, green has been commonly understood as products made with organic ingredients. But the term refers to processes, too: using fewer natural resources and less energy. Increasingly, green companies have a socially responsible agenda as well, paying living wages, supporting minority groups or workers in less developed countries, and becoming active in their own communities.

Then decide what green means to your business. If you have a services company, being green will most likely mean reexamining the way you do business rather than changing the service you provide. If you decide to make a green product, you'll need to address not only costs--they'll likely go up--and marketing, but also credibility.

BABY STEPS

Going green doesn't have to involve an all-out change in philosophy. There's a lot to be said for taking baby steps and observing how they affect your business, your customers, and your employees. Carol Cone, chairman of Boston-based Cone Inc., which links companies with appropriate causes, recommends that entrepreneurs look at greening their operations before they think about changing any product, especially those that are successful. ``Try lessening the impact of your packaging,'' she says. Are you shipping your product in a box within a box, as Wal-Mart recently asked its suppliers to stop doing? That's easy enough to fix. ``Lessen your energy use,'' she suggests. Maybe you could switch at least partly to wind or solar power or a greener manufacturing process. A volunteer program that meshes with your company's goals might be another tack, says Jacquelyn Ottman, founder of J. Ottman Consulting in New York, which specializes in green product marketing. And make sure to promote your achievements on your Web site and to your staff. ``Your employees, especially if they're young, want to know about it,'' says Cone. That goes double for potential recruits.

Another way to green your operations is to reconsider your wage structure and benefits. Joshua Scott Onysko, founder of Pangea Organics, a Boulder (Colo.) company that manufactured and sold $3 million of ``ecocentric body care'' products in 2005, pays each of his 15 workers at least $12.75 an hour. That's more than $6 above the minimum wage, but it's what Onysko considers to be a living wage in his area. Mark Inman's $3.5 million, Sebastopol (Calif.) organic coffee company, Taylor Maid Farms, works with coffee farmers to help them maintain organic methods, and also invests in schools and clinics for the workers, all of which adds about 10 cents to each pound of coffee it sells. Health insurance for Inman's 15 employees is fully paid by the company--workers don't shell out for co-payments or contribute to premiums. ``If you claim to be a green company, you have to act like one,'' says Inman.

Next is the tougher part: figuring out if you need a green product. Here, the circumstances of your individual business and industry loom even larger. Beyond food, industries that are seeing a lot of green players include body care, building, clothing, home furnishings, and, of course, energy. Start with a market analysis, suggests Ottman.``Are your customers interested in buying green? Are your competitors already offering green products, and if so, what can you offer that is distinct from theirs?'' It's also worth asking if a greener product will make your customers more loyal.

COST ANALYSIS

One way to hedge your bets is to think about applying green principles to new products, even if your core brand doesn't change. ``If you are not in the green business, it is still a rapidly growing marketplace and you should get into it,'' says Gifford Pinchot, president of the Bainbridge Graduate Institute in Bainbridge Island, Wash., which offers an MBA in sustainable business. (He shares his name with his grandfather, an early conservationist.) ``It would be foolish not to have organic items in your product line. You will want to be ready and in position with a brand that has green as one of its features.''

Any such effort has to start with a close look at expenses, because launching a green business or product generally costs more than taking the road more traveled. The main reason: higher materials costs. An 8-ft.-by-4-ft. sheet of the bamboo used by Zwanette Designs costs $179, vs. $120 for a sheet of maple. The coffee and teas Taylor Maid buys have been certified organic by the USDA from small farms and cooperatives in El Salvador, Nicaragua, and other countries, and cost about $1.95 a pound, says President and CEO Inman. That compares with 35 cents from big suppliers that sell to Maxwell House and the like. Pangea makes a soap that is 38% Tunisian olive oil, packed in recycled egg cartons that cost 18 cents each. Plain old paper packaging or a box costs about 5 cents a pop.

For the time being, consumers seem willing to cover those higher costs. Taylor Maid coffee retails online for $9.75 for 10 oz., vs. $6.50 a pound for Maxwell House. And Pangea's soap sells--quite well--for $6.99 a bar.

As the novelty of green products wears off, it's going to get tougher to cover those costs. Using green strategies to keep costs down will reinforce your eco-cred. Inman found it was cheaper to pack his organic coffee in refillable steel cans than in the paper bags that are the industry norm. And he worked with a partner to design a coffee roaster that uses 85% less fuel than traditional ones.

Pangea's Onysko limits advertising to a single ad in a local magazine. Instead, he relies on word of mouth, helped by some Web-savvy marketing, and posts on a variety of blogs of interest to his likely buyers. When a blogger on treehugger.com recently complained that it was impossible to find products that are both green and affordable, Onysko answered with a post explaining why his products cost more than many drugstore brands. Then he offered readers a chance to try his products at half price for a week.

CLEVER MARKETING

As green products proliferate, such innovative marketing will be key to attracting consumers' attention. One hurdle is overcoming the long-held perception that green means shoddy. Early organic products were often considered of lesser quality, says Ottman, and among a wide swath of consumers ``that stigma still exists.'' Further, consumers have had enough gloom-and-doom messages. ``Consumers want upbeat messages,'' says Ottman. ``They don't want to hear about how the planet is going to hell in a handbasket.''

The challenge is to create a brand consumers will buy whether or not it is good for the environment. ``If you have an idea for an alternative to cotton shirts, make sure it is fashionable first and the green aspect is second or third down the list,'' says Sonora Beam, co-founder and creative director of Digital Hive Ecological Design, a green consulting firm in San Francisco. Many people are buying green products not because it's the right thing to do, says Beam, ``but because they look or taste good.''

So in 2003, when Jason, 36, and Kimberly Graham-Nye, 35, introduced to the U.S. a biodegradable, flushable diaper that had been sold in Australia, they were careful not to call it an eco-diaper, which they thought sounded preachy and boring. Instead, they called it gDiapers. Yes, the gDiapers box is made of recyclable cardboard and features the words ``for a healthy planet,'' but the ``g'' in the name is intentionally ambiguous. ``It could mean anything, like groovy,'' says Jason Graham-Nye. ``It has a fashion element to it.''

A FOOT IN THE DOOR

Getting an organic product into stores isn't necessarily any easier than getting placement for a traditional product. As with any new item, finding slots in mass-market grocery chains can be difficult as well as costly, and many supermarket chains are producing their own green labels. Whole Foods Market, the nation's largest organic retailer, is, not surprisingly, a tough sell. So Onysko's strategy is to target specialty stores and consumers for whom Pangea is already an established organic brand. Last year about 20% of Pangea's sales came through spas.

Taylor Maid sells largely in independent specialty food stores such as New York's Dean & Deluca. But hotels, restaurants, and cafes, says Inman, ``are the more direct, fresher channel to expose consumers to the brand.'' His coffee is available in upscale hotels such as Shutters in Los Angeles and in trendy wine-country restaurants in northern California. Nongrocery retail sales made up 35% of last year's revenues. And Inman recently landed $1 million in financing from private investors to roll out a chain of Taylor Maid cafes. ``The goal is to be the green version of Peet's coffee,'' says Inman. He plans to use green building materials and solar and wind power and to sell a variety of organic food.

Onysko also envisions increasing his sales efforts in Australia, Europe, and the Middle East. The next step could be to launch his own stores, possibly day spas where his products will be available, he says. ``We are trying to build ourselves into a multinational without selling out to one.'' One green customer at a time.

By Ernest Beck


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