As I wrote in an earlier blog for ERIC, the 2000s and especially the 2010s present unrivalled opportunities for environmental entrepreneurs to develop new enterprises, goods and services, particularly in the areas of renewable energy, climate change and sustainability. There are also major opportunities to guide public, private and third sector national and international clients through the miasma of environmental laws: e.g. so as to identify the new business potential that is often generated by environmental regulation.
In this blog we look at the critical first steps – what it takes to get a new environmental business started. Having developed as well as helped a score or more green businesses to get airborne over the past twenty years or so, this blog is also spiced up with some practical lessons which I have learnt along the way.
1. The First Step
As anyone who has launched their own business will tell you, the first step (deciding and wanting to do it) is always the hardest. Great business ideas are ten a penny – but even the greatest of ideas is futile unless it is turned into something real, such as a green service which someone can buy or a green product which provides genuine benefits.
It is a truism that for every person who takes the necessary leap of faith (in themselves, their business and life partners and in the market), and sets up their own enterprise, there are dozens who will decide to play it safe, to draw back from the brink due to a lack of capital, confidence or perhaps a certain x factor.
It is important to understand that there is always a leap – the exercise of setting up a new business cannot be entirely de-risked: there is always the chance that it just might not work. This possibility can be minimised by careful business decision-making, but it cannot be eradicated.
It takes careful calculation, confidence and some bravery to decide to launch your own enterprise, especially if it is the first time that you have done it, and you are backing yourself entirely with your own money. You will most likely need some support from close friends or business allies to give you the encouragement necessary to get you under way.
It is also worth mentioning that there are countless instances in business and commerce where the originator of a breakthrough idea finds, for lack of expedition, self-belief, or perhaps a solid confidentiality agreement or sound advice from a good intellectual property lawyer, that his or her great idea has been misappropriated by a third party who has then proceeded to make a fortune from it. Nothing can be more galling than to know that hesitation held you back while someone else took away your idea – and your success. Fortune favours the bold.
2.The Importance of Sound Decision Making
It is vitally important to get each and every decision associated with the first phase of developing your new business spot on: e.g. service to be provided, selection of business partners, business structure (e.g. partnership or company), business name, business location. Each of these aspects needs to be addressed with great care and intelligence.
All decisions should be based upon sound, unhurried consideration of hard facts and information, as well as a review of all of the available options. Businesses can be doomed to failure if its initial decisions are wrong because the resulting enterprise – assuming it ever gets off the ground – may well be too weak to recover from its early mistakes. A common error is to under-estimate how long it will take for revenue to be generated (and hence the enterprise will run out of cash).
3. The Importance of People
An accountant or economist will not tell you this, but 90% of business is not about mastering your way around an excel spreadsheets – it is about understanding and working well with people: business partners, business suppliers and especially clients. A paramount business quality which the key people in the new enterprise will need is to value, inspire, give the best to and get the best from everyone around you.
Many enterprises are launched by small teams of people rather than sole operators. The reinforcement of determination and intensification of confidence which a close knit team can bring to the delivery of a shared business goal can be incredibly powerful and motivating. A lot of risk is removed from the enterprise if you have worked closely with chosen business partners before and are aware of their strengths (and weaknesses). (Belbin questionnaires (see: http://www.belbin.com) are useful sources of information to flag up perhaps less obvious working strengths and weaknesses within the proposed management team, but should not be used in isolation). For these reasons, the business that evolves from a small start-up team is one of the best routes to follow, rather than taking on everything by oneself.
Hence, when it comes to getting your business started, extra care should be taken when picking your partners (e.g. fellow managers / directors or investors). You should be looking for people with the right skills to complement (rather than duplicate) your own – people with an aptitude for hard graft and for getting things done. Someone has to lead the team, and this should be determined at a relatively early stage: it may be someone other than the “ideas” person.
Conversely, if the wrong business partners are chosen then it can be very difficult to get them removed – the cost entailed and loss of forward momentum can be fatal. Involvement of an external advisor to help you to avoid the elephant traps (as well as to locate the diamond mines) can also be highly beneficial (see below).
4. The Importance of Business Planning & Unanimity as to What Constitutes Success
Assuming that the right management team has been brought together to commercialise the great green idea and turn it into a business, the team will need to be properly incentivised so that they each earn a suitable reward if and when the venture succeeds. It is very important to identify what “success” means to each person involved in the enterprise – even at an early stage, there should be discussion concerning the exit strategy, and a consensus should be achieved so that everyone is pulling in the same direction from the very beginning.
To bring some clarity – and hopefully unanimity – to this process, it is vital to write down a plan for the business which also includes the exit strategy (e.g. with an agreed preliminary timescale for exit). Most importantly, the business plan will also demonstrate the viability (or otherwise) of the enterprise, estimating likely revenue and realistic costs, together with the impact of competitors. Template business plans can be downloaded from the web – population of the business plan is a critically important exercise which should facilitate clear thinking about the proposed enterprise, as well as providing an early test as to how well the team developing the plan can work together.
5. The View from the Boundary
There will be plenty of occasions, especially during the first few years of setting up a new green business, when the management team will benefit from some “external” input – a detached, objective, considered view from the boundary, where the entire field of play can be more easily seen. Typically this input is provided by a non-executive director or chairperson, though a consultant can also provide the service on an as and when needed basis. It is far preferable if the advisor (who may help with the business from the outset or once it has started to establish itself) has a deep understanding of the sector in which the business operates, rather than general business skills.
Here are some examples of how they can help;
a) Cutting the equity cake (as well as setting salaries) can be a very delicate exercise at the outset of the business. If this is not done right then resentment will build up which could well jeopardise the enterprise at a later stage. The use of a detached advisor to assist the team with this delicate exercise can be highly beneficial.
b) The detached advisor can help the fledging business to get started by developing important business relationships – e.g. with clients and suppliers – through high level introductions. The advisor will need to have a good business network in order to do this.
c) The b usiness will need investment to get started. The management team will pool their resources and this may be sufficient. If external investment is also needed, management should look for more than simply a cash injection – investors should bring something extra to the party, and a non executive can also be an investor in the business.
6. Other Stuff
In addition to the above suggestions, the entrepreneur and his / her management team will need to give very careful thought to their marketing strategy: businesses can hit the buffers if they aim for the wrong market, get the messages tangled, waste money on ineffective marketing campaigns and so on. Marketing skills are needed in abundance at the outset of the business.
All manner of risk factors can conspire to reduce the prospects of a new business achieving success. Some risks are obvious (flood, fire, loss of key clients, being sued by suppliers, running out of cash etc), others risks are perhaps less obvious but can be just as damaging – a fundamental change in the market, legislative change, loss of a key manager through illness etc. It helps to be aware of business risks even at the outset – and then to determine how best to deal with them, one at a time.
There is so much more to say about getting a business off the ground. If you try it and succeed it will undoubtedly be one of the proudest achievements of your life. Even if it isn’t a runaway success, at least you gave it a go. I have the greatest respect for everyone who embarks on this journey, no matter where it might lead to. If anything in this blog encourages you to try, then it was worth writing (and reading).