Reinventing the Wheel
Green Innovation and Profitability Working Hand-in-Hand
By Alan Tratner & Craig Allen
Much has been written about the perceived and real benefits of green innovation and invention. Ideally, to be both environmentally and financially successful, products need to offer a triple benefit—to the environment, the consumer, and the producer. There has been an interesting and instructive evolution of the marketing of green products over the past two decades, during which time consumer attitudes and behavior have shifted from purchase decisions based on packaging claiming environmental benefits, to a focus on real benefits, including positive environmental benefits, and direct consumer benefits. The direct consumer benefits include greater quality and durability, ease of repair, upgradability, and reduced costs of use, such as lower energy consumption.
Michael Porter and Claas van der Linde in their article, “Toward a New Conception of the Environment-Competitiveness Relationship,” outlined the win-win proposition in The Journal of Economic Perspectives, (no. 4, Fall 1995), stating that environmental regulation could drive innovation by making industry aware of and willing to exploit otherwise missed opportunities (also known as the Porter Hypothesis). They claimed that increased environmental regulation would result in environmental benefits and increased competitiveness. But is regulation enough to drive the necessary level of green innovation, not only to sustain the movement towards more environmentally friendly products, but also to support the many companies that have entered the green space and that have been responsible for the successes to-date?
It is unlikely that a large enough percentage of the U.S. population will be willing to pay a premium price for a product that offers no direct consumer benefits and instead, only claims to be green—good for the environment in some way that does not directly benefit the consumer and likely is not visible to the consumer. In other words, simply putting a green label on a product and charging a premium price, even if the claims are legitimate, is simply not enough.
Today, businesses must do more—they must offer products that are truly green and that provide measurable, direct benefits to the consumer. Further, while producing the “win-win” for the consumer, they must also produce a win-win for themselves—produce green products and be competitive, including being financially competitive with companies that do not offer green products, and therefore do not incur the added costs associated with green products.
New terms such as “upcycle” reflect converting recycled, reusable items and waste to higher value products and often saving energy and resources compared to using virgin or dwindling, costly, or politically risky materials. Green innovators that can find ways to use waste materials to create economically viable products that meet the above-mentioned criteria of generating a triple benefit—environment, consumer, and producer—and possibly partnering with larger companies, can bridge the historical gap between green products and competitiveness.
In their book “Innovation and Technological Change: An International Comparison, Zoltán Acs and David Audretsch found that large firms are more innovative in capital-intensive markets because they have the financial resources to pursue product innovation, while smaller firms tend to benefit from markets that are more competitive. Smaller firms can react faster to change because they have less bureaucracy, a higher commitment from management, more exposure to competition, higher R&D efficiency, and niche strategies. Combining these findings with the need to offer direct consumer benefits and to be competitive, those operating smaller firms should recognize the need to focus on markets where they have the greatest chances for success. In the strictest sense, this would seem to indicate that smaller firms should only play in their own sand boxes rather than going to the beach.
An interesting trend that has developed due to the severity of the recent recession is the willingness of U.S. companies to not only partner, but to actively seek opportunities to find innovative solutions to drive new revenues from new sources. The result has been that smaller companies now have access to many of the same resources that the larger companies have exclusively enjoyed in the past. For example, many manufacturing companies with significant investments in capital equipment are looking for partnering opportunities with very small, innovative, green product companies to use their excess capacity at very affordable, and therefore competitive rates. This means that, for the first time, the smallest companies can enter markets previously requiring heavy upfront capital investments, avoiding not only the financial requirements of this equipment, but also the time to locate and build facilities, train employees, inventory raw materials, etc.
Alan Tratner is the President of Green2Gold,a non-profit catalyst for sustainable, green inventors rapidly commercializing eureka moments into viable, successful businesses headquartered in Santa Barbara, California. 805/879.1729, Green2Gold.org
Craig Allen is a Senior Consultant at SMG Business Plans, a consulting firm specializing in the process of developing complete entrepreneur packages for funding sources, including business plans, executive summaries, slide presentations, private placement memoranda (PPMs), marketing plans, and valuations. 281/398.0555 smgbusinessplans.com
