Recession Proof Your Green Business
There’s been a lot of talk recently, as the country slides into recession, about the impact this will have on innovation.
Will companies pull back from risky projects? Or will they re-jigger their efforts to support products that thrive in a recession…new or not.
Suddenly, innovation has a bull’s-eye on its back. As the recession debate shifts from “what if” to “how long,” claims a recent article in Business Week on the world’s most innovative companies.
Green entrepreneurs have no choice. Innovation is why they are in business. But, what strategies make the most sense for eco-friendly businesses facing a not-so-friendly economy?
Professor Scott Shane, writes about Four Mistakes Entrepreneurs Make in a Recession. How do these apply to green businesses?
1.Failing to take advantage of decreasing costs. Most businesses are both suppliers and customers at the same time. When demand slackens, your suppliers are hurting too. So often you can strike a better deal to cut your costs by paying your suppliers less or hiring better people at a lower cost.
Understanding this basic concept and being willing to bargain with your suppliers holds true for eco entrepreneurs too. But, because we often have few suppliers from which to choose recessionary times are those when it is important to evaluate the health of those suppliers and either seek out new ones or consolidate your business with the strongest.
2. Thinking the only way to increase demand is to cut price. Price cuts aren’t the only way to stimulate demand, and they aren’t the best approach for entrepreneurs. On average, entrepreneurs are more successful when they compete on service, quality, or something other than price.
Price cutting is a strategy that works best in a very competitive environment when there are easily substitutable products. That’s not often the situation in which a green entrepreneur finds him or herself. On the other hand, there is a “tipping point” a price at which a consumer won’t pay more for a better quality or greener product. That point may be dropping in your product category so it’s worth doing some research to see at what price the consumer isn’t willing to pay to go green.
3. Failing to recognize increased competition. In a recession, competition accelerates because more businesses are chasing less total demand. In addition, when unemployment rises, people start businesses …further increasing competition. So the need to have a competitive advantage is even more important in a recession than in a booming economy.
Recessions are well known as a time when down sized executives and laid off workers start businesses. Green is hot so many of those companies will be selling eco friendly products. Just as competition increases from large mainstream companies, it is also increasing from small start-ups. This is the time to ensure that you have a strong unique positioning and are promoting that differentiation at every opportunity.
4. Forgetting that some products, or even whole businesses, are counter cyclical. When customers cut back on their spending, they often substitute one product for another. For instance, in a recession, people might cut back the number of steak dinners that they eat out. But, … increase their purchase of cheaper foods, like pasta, making pasta a counter cyclical product. So, entrepreneurs need to avoid assuming that demand for everything goes down in a recession.
Many green products should actually do very well during this downturn. Though you may have been promoting your company’s products as eco friendly if they are also money saving, now is the time to emphasize that benefit. Products and services that are both are sure winners in this economy.
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Get Advice on Founding and Funding a Green/Clean Technology Business
Photo Courtesy: aturkus on Flickr under Creative Commons License
Awesome post, it’s been on my mind lately, how best to answer the potential objections, reasons why not to take on my services. Makes sense, really. Thanks.
As this recession slips slowly into a depression, with inflation, high fuel prices, unemployment and political confusion, the general population won’t be able to be sold on altruistic notions of ‘green’. A more practical ‘all natural’ and ‘less processed hence cheaper’ notion might be more effective. The customer doesn’t die from these kind of times, they do go through a paradigm shift and interpreting the new paradigm will be the key to the dilemma.
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Interesting,
Having been in the environmental green home business for years, before it was fashionable, no doubt, people are more concerned than ever about the environment, but cost is also always a concern.
Having seen it all, and being that we are in a recession, a breat away from depression, I don’t think many will be thinking about anything that does not save money, no matter how green it may be, most are more interested in saving the green.
I specialize in recession proof businesses having been through a prior recession, and I know what will happen this time around, in fact, it is already happening, sales are off across the board, no one is safe, so time to buckle up and start working smart.
With banking collapse, no mortgages being approved, no matter how good your credit, time to look at private funding solutions and alternatives to bank approvals. In combining gree with saving green, survival is possible.
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