The Next Big Thing
Move aside, tree huggers. More and more hardheaded entrepreneurs are tapping into the growing green market.

(Illustration: Brian Stauffer)

By Cait Murphy

It's 2040, and America's corporate titans have convened for a conference boondoggle to compare net worth and catch up on the latest gossip. A mellow Bill Gates presides over it all with the kindly mien of an elderly uncle. But tech is not the star of the show. No, that guy chugging a brew was one of the first entrepreneurs to invest in fuel cells, the very ones that are used in every American car and that now constitute a multibillion-dollar industry. The lanky woman dancing on the deck, which is made of recycled plastic bags, is a much-feared solar baron. The burly guy with the bulging biceps? He's made a fortune in real estate, building environmentally certified houses and condominiums. And the rude guest sniffing the food runs a chain of organic supermarkets that has Wal-Mart seriously concerned. The big economic winners of the past few decades, it turns out, have been those who decided that green is good--and a good way to get rich.

This scenario is fiction, of course, but not quite a fantasy. After years--in some cases, decades--of searching, businesspeople have finally discovered the existence of a green market. And it is growing, in some sectors phenomenally. Sales of organic foods are increasing 20% a year; the federal government's General Services Administration is requiring all new buildings it authorizes to be energy-efficient; the sale of hybrid cars has cruised from zero to 36,000 in just a few years; and the share of venture capital going to green-energy technologies has tripled since 1999.

What's more, we appear to be at the beginning of a major cultural shift--the kind that could finally make green businesses viable in the mass market in the next decade or so. The war in Iraq has put the spotlight once again on our fossil fuel crutch. Even some conservatives are raising concerns about global warming. Large corporations like General Electric are investing in wind power. Fuel cells have become a hot technology among Silicon Valley entrepreneurs. President Bush wants to allocate $1.2 billion to develop hydrogen-powered cars. And more than a dozen states are requiring utilities to increase their supply of green power. (Fifteen percent of Illinois's power will come from renewable resources by 2020.)

But let's not get too carried away. Last year Americans bought almost 17 million cars; 99.8% of them were not hybrids. Venture capitalists are happy to answer phone calls from green inventors, but green energy accounts for only 2.3% of investments, according to Joel Mackower, co-founder of Oakland-based Clean Edge Technology, an investing consultant. Yes, the green market exists; no, it won't make you a millionaire overnight.

Market-research types like to talk about the "production-diffusion S curve." That is the idea that a successful product starts slowly, and after it secures itself in the market, sales begin to accelerate. A few green products, such as organic foods, have hit the accelerator; many more are still in the slow-growth stage and may never crawl out. Businesspeople who can identify the green products that are most likely to go from niche to mainstream to mass consumption--well, they just might be invited to that bigwig cocktail party in 2040.

How to get there? By being at least as good at business as you are committed to the environment. (To see 14 entrepreneurs who are doing just that, see their profiles, Here Comes the Gold Rush.) The U.S. market is very tough on products that are clean and green but that fail in regard to price, quality, or convenience. Even a company that prides itself on its green ethos, such as New Belgium Brewing Co. in Colorado, got rid of its water-saving urinals because--to put it bluntly--they reeked. If even the greenest companies won't make that kind of sacrifice, it's a safe bet that customers won't either. "If you look at the green consumer," says environmental-marketing consultant Jacquelyn Ottman, the "consumer part is more important than the green part. People buy laundry detergent to get their clothes clean, not to save the planet." The trick is, if you can clean people's clothes and the world at the same time, you'll have a real competitive edge.

That view is confirmed by an annual survey of green attitudes conducted by the market researchers at RoperASW. Their findings: About 9% of Americans are "true-blue greens"; they are the most likely to "walk their environmental talk." Another 6% are "greenback greens"; they are folks who are likely to buy green but not at the expense of comfort or convenience (only a quarter of them bother to recycle). Another 31% are "sprouts"; they go back and forth on green issues. And the rest don't really care. All told, only about one in five Americans participates in some form of environmental activity, ranging from recycling to donating money. The message, then, is that for business to make money out of greenery requires a steely-eyed recognition of reality--that people do not and will not weigh the social, ethical, and environmental consequences of every purchasing decision.

Need more evidence? The Toronto-based International Institute for Sustainable Development figures that no more than 2% of North American consumers are "deep green"--that is, willing to seek out and pay for environmentally superior products. If that seems low, it's because you've probably seen surveys (much loved by green groups) in which people announce they'd be willing to pay more for green products. About half of all respondents told that to RoperASW, for example, when they were asked about purchasing cars, power, homes, and appliances. How to explain the disparity? Not to put too fine a point on it, but those respondents are lying.

Take a look at power. More than 300 utilities in 32 states now offer "green pricing." In those programs consumers can decide to have some or all of the power they pay for generated by renewable technologies such as wind, landfill gas, geothermal, hydropower, solar, and biomass. For about $21 a month--about the price of a Starbucks Frappuccino once a week--an average American home could green its entire power supply.

Nearly half of all electric consumers have access to such programs, says Lori Bird, senior energy analyst at the National Renewable Energy Laboratory, but only about 425,000 have signed up. That's less than 1%. The most successful utility, Moorhead Public Service in Minnesota, has enrolled almost 6% (Minnesota always seems to be first in these things). Green pricing is new and hasn't been marketed particularly well. Still, it's hard to look at this example and conclude that there exists a huge market, clamoring for the opportunity to spring for greenery.

The key for green entrepreneurs, then, is not to rely on consumer virtue but to compete on price and quality. For instance, Philadelphia's White Dog Cafe is about as green as it gets, running tours to local farms and taking care to source its products from responsible vendors. But at heart the White Dog is about serving good food. Only after delivering on its core product can it sell environmentalism as an added value. Green entrepreneurs are most successful not when they get people with a tortured social conscience to buy but when they also sell to those who don't really give a damn--and that requires getting the price down.