While much business planning advice is applicable to all businesses, the innovative nature of sustainable enterprises makes paying attention to the basics even more important. This article outlines the basics of business planning and highlights items of special relevance to social and environmental entrepreneurs.
Basic business planning consists of devising an integrated financial strategy and target for commercializing products and services. Among the "musts" are:
- A clear, tightly written statement of purpose;
- A well-defined sense of where the company should be in one, two and five years;
- Defining features of the business;
- A thorough description of the market, including necessary market research and analysis. This will also involve an evaluation of competitors in the same and related markets;
- Details of the production, distribution and sales systems;
- Development plans for a management team which fills all the roles needed to convert the business opportunity identified into a commercial success;
- Precise costing and pricing, including source costing, internal budgeting and pricing for the market place;
- Detailed cash flow and financial projections over a three- to five-year period;
- A description of planned financing vehicles and the structure of the investment offering.
The entrepreneur will also need to attract various advisors (board members and experts) and enter into a range of agreements with individuals and other organizations (e.g., suppliers, sales agents, brokers etc.) that round out the firm's capacity to seek capital and achieve the enterprise's business plan.
The sustainable enterprise that does not adhere to the tried and true rules of business planning will find it nearly impossible to obtain funds from capital markets.
Understanding your markets
Markets for sustainable enterprises (environmental and otherwise) are relatively new and, in many cases, nascent. Many are also global. To reassure the investor that markets for the products/services exist or can be developed successfully, entrepreneurs should:
- Be able to describe and document existing markets for their products/services and how these markets will grow in the future. Trend projections are very important.
- Explain how they will enter the global market place (perhaps through targeted markets) to create economies of scale. This may involve alliances and joint ventures with other firms.
- Incorporate into their business plans marketing activities that will nurture the market and help it grow.
Strategies for Sustainable Businesses
The "first mover" company in any particular product category can often select the environmental attributes it wants to offer and mold consumer expectations so that future competitors must play by the rules established. If your company is not the "first mover" then market research is essential to understand the competition that exists in the marketplace.
Companies can assume the mantle of being sustainability leaders without being completely sustainable. They need only be sincere and sustainable in at least a few substantial ways. Companies can retain market leadership by introducing incremental improvements over time, a strategy sometimes called "greening as we go".
Companies can often create an effective presence in environmental and social markets by putting a number of improvements into a new (or refurbished) product or product line. As improvements are perfected and their consumer appeal tested, the "spearhead" line's sustainability attributes can be cost-effectively incorporated into the company's other product lines. Consumers interested in sustainable products love this approach.
Barriers to competitors' market entry can be erected in the course of establishing a sustainable product. This leadership position can be protected for months or years. Barriers prevent competitor imitation and allow the leader to reap above average returns. Barriers may include patents, distribution rights, and demanding product standards.
Many companies find that an environmentally-improved product, positioned for green-conscious youth, can renew an aging brand. This is important, especially for companies that sell primarily to the aging baby boomer generation. The green improvements of a youth line can also be readily applied to adult product lines.
Manufacturers of products traditionally sold to men can increase sales by marketing green improvements to women. Greener female consumers are increasingly buying items like automobiles and paints and actually purchase the bulk of men's cologne and apparel.
Green market success can be enhanced by tying a product's environmental attributes and message to the life style affinities of target consumers. Millions of hikers, for example, care about protecting wild lands; boaters are concerned about clean lakes and streams; mothers worry about their children's health. Thus, a water sport product manufactured in a way that reduces water pollution carries an innate appeal to many boaters, while green household cleaners that substitute safe ingredients for dangerous chemicals tend to appeal to mothers.
The sustainable enterprise respects the environment by minimizing energy and materials use and by reducing waste generation. These practices reduce the firm's operating costs and liability exposure.
Sustainable entrepreneurs should emphasize these advantages in their business plans by:
- Highlighting the cost reductions, in budgets and cash flow, that are achieved by employing responsible environmental practices;
- Noting practices that will insulate the company against future cost increases (e.g., waste disposal levies or oil prices);
- Explaining that liability risks are reduced by responsible environmental practices.
The nub of the message is that sustainable entrepreneurs can place themselves in a stronger position to raise capital by ensuring that their business plans highlight and incorporate the emerging markets from which the business will profit , the technological solutions the company offers to environmental problems, and the sustainable manner in which the company operates.
The environmental problems that confront the world, from climate change to toxic waste to ozone depletion, are sometimes directly addressed by technological solutions offered by sustainable enterprises. This fact must be communicated to investors. Capital markets are generally not well informed about the scale of environmental degradation and such drivers as global environmental agreements . The economic benefits of technologies such as wind turbines, which are rapidly becoming more competitive, are not often well known to investors.
Sustainable entrepreneurs should:
- Clearly link their technologies and the market potential for their products or services to existing environmental problems and note these relationships in their business plans.
- Quantify the environmental and cost savings their technologies can offer customers;
- Identify the ways their technologies reduce environmental liability and create a cleaner environmental profile for their customers.
The sustainable entrepreneur will find technology a powerful card to play when seeking investment. It has two potentially strong suits:
- When the technology's key selling feature is cost savings, the investor readily understands and appreciates the potential demand and return;
- When there is an opportunity to finance "first on the street" technology, the investor may appreciate getting first dibs.
Key Resources for Business Planning, Marketing and Financing on the Entrepreneur's Toolkit
- Start a Social Enterprise
- Find help for your project?
- Research your markets
- Write a Business Plan
- Raise money for your sustainble enterprise
- Write a fundraising letter
- Develop your business through networking