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Picking up the slack
05/25/2009
Kathryn Racine-Jones, with her shiny delivery trike, often loaded with crates of coffee beans, is used to getting a lot of attention. Co-founder of B-Line, an urban bike delivery company, she spends more time than your average delivery vehicle driver talking to strangers—which today includes Portland mayor Sam Adams and the owner of a local bakery.The self-financed company started by Racine-Jones and her husband Franklin less than a year ago required few capital expenses other than two electric-assisted bicycles, a couple of coolers and a rented warehouse space amounting to a total investment of about $46,000. The couple uses the trikes, which can hold up to 600 pounds each, to deliver produce, coffee or baked goods to the dense urban core where parking and traffic make deliveries more costly and energy-intensive. B-Line now has three clients, including Portland Roasting Co., Organically Grown Company and NatureBake, which is just about all the two trikes can handle.
B-line hasn’t quite figured out if its services actually cut delivery costs for companies. But it promises to help its clients meet their triple-bottom-line goals, such as lowering their carbon footprints and creating a more livable downtown by relieving congestion on the streets. With sales picking up, the couple says it plans to hire three to five additional delivery people by the end of 2009. To that end, B-Line in late April received a boost from the Multnomah-Washington Regional Investment Board when it received a $25,000 forgivable loan to create “green” jobs. They’re forgiven $5,000 for each employee they hire, up to five, over the next two years.
“When we decided a year ago to leave our day jobs and scrape together our savings for this we didn’t know the economic downturn was around the corner,” Racine-Jones says. “That said, there’s collective energy across the nation. We want to be leaders of the new economy and find a new way to do things and we feel like we’re catching that wave right now.”
It might take some time before that wave crests. With just three clients, B-Line is slowly ramping up. It plans to add a new client every other month until the end of 2009, according to Racine-Jones.
The National Bureau of Economic Research declared in December that the United States economy has officially been in a recession since December of 2007. Unemployment rates reached 8.5 percent in March, the highest in 25 years, and Oregon ranked third in the nation for joblessness at 12.1 percent. Small businesses, which have less cushion, tighter margins and less ability to predict cash flows than larger companies, are among the hardest hit. The index of small business optimism, which tracks the outlook for small business expansion, was the second lowest in the ratings’ 35-year history in March, according to the National Federation of Independent Business (NFIB).
Yet many small businesses and individuals such as the Racine-Jones’ see the downturn as an unprecedented opportunity to start a new business or reinvent an existing one. They realize their businesses thrive through innovation and won’t survive by simply hunkering down. Sustainable businesses may be especially well positioned to stand out in a crowded market, even though they often have higher costs than traditional companies, says Mark Brady, the sustainable development liaison for the Oregon Economic and Community Development Department.
“The general economy sucks. There’s no money and credit is very tight,” says Brady. “But if it’s better in one area, it’s in sustainability.”
Top concerns among small business owners include business costs, especially those that are difficult to control, such as health insurance costs and energy costs, according to research by NFIB. Companies taking a different approach to such costs, by offering incentives to encourage employee health and well-being or investing in onsite renewable energy options—or using human-powered delivery vehicles rather than gas-powered ones—are therefore better poised to handle fluctuating insurance and energy costs.
And sustainable businesses located in Portland might be in an even better spot to gain market share in an otherwise tight economy.
Even though Oregon’s economy is suffering along with the rest of the country’s, Joe Cortright, an economist with Portland-based Impresa Inc., estimates that Portlanders, who typically drive fewer miles and travel in more fuel-efficient cars, have an extra $1 billion of disposable income annually based on savings accrued from not buying as much gasoline as Americans living in similarly sized cities. Other signs, from the number of green buildings to farmers’ markets, show that Portlanders are more likely to choose locally produced sustainable products.
Eleek, a custom decorative lighting manufacturer, has seen its business plummet since the downturn virtually halted all new construction. Its business had been busy cranking out new energy-efficient light fixtures for the construction industry—the hardest hit sector in Oregon. Eleek came to a crossroads in late 2008 when its margins dwindled and the company didn’t know what kind of work it would find to fill the void, says Sattie Clark, co-owner of Eleek, which won the city’s BEST (Businesses for an Environmentally Sustainable Tomorrow) award in 2006 and has three times won a Sustainable Industries Top 10 Green Building Products award.
“It’s an extremely stressful situation for small businesses right now; it probably hits us harder,” says Clark, who also owns Oregon Wind, a renewable energy startup. “A lot are closing their doors or are worried they’re going to have to.”
To stay afloat, the company readjusted its target market from new construction and fixtures to renovations and restoration of old fixtures. They’re using more salvaged or recycled materials and have pitched their new approach to existing clients. And when all other options failed, Eleek laid off employees—a decision made more difficult by the company’s focus on social as well as environmental responsibility, Clark says.
Clark has been instrumental in helping form the Oregon Sustainable Business Alliance, which has a long-term vision that includes creating a physical space where established and emerging companies can meet, collaborate and share ideas; influencing local and state policies; and hosting events that could attract businesses from Portland and beyond.
“The more diverse you can be in these times, the easier it is to keep a consistent stream of work,” Clark says. “You have to be scrappy and innovative and do the hard thing.”
Many companies in the renewable energy and clean technology sectors are looking to the federal stimulus package for relief, says David Kenney, director of Oregon Built Environment and Sustainable Technologies (BEST) Center. About $16.8 billion was set aside in the American Recovery and Reinvestment Act of 2009 for renewable energy and energy efficiency projects and $4.5 billion for smart grid technologies. But the majority of sustainable companies don’t meet the criteria for stimulus money and they’re doing it on their own instead, bootstrapping and adopting new strategies to survive, Kenney says.
“They’re looking for ways to reduce costs without losing the core values their businesses are built around,” Kenney says. “And as times get tough, those that have differentiated themselves last when others can’t.”
Startup businesses are looking at their traditional competitors and purposely trying a different approach. TriLibrium, which calls itself Portland’s first green accounting firm, has abandoned a traditional top-down management model for a “tribal” approach. The firm founded in October 2008 has three employees and a growing list of clients in the sustainable sector.
“Every other CPA firm out there is organized in a hierarchical pyramid that’s designed to enrich the partners at the top by exploiting the employees in the middle, to suck the money out of their customers,” says the company’s founder, Brian Setzler. “We make our decisions collectively and we have a much more human feel than any other firm.”
The firm has also decided to bill by the hour, rather than a project or yearly basis, with a fee structured on the value of a given company. Small sustainable companies often have unique business needs and may take a while to become profitable, Setzler says. TriLibrium is structured so it can scale up with clients as they grow.
“I’m not an engineer who installs wind turbines, I’m an accountant, and so what can I do?” Setzler says of his decision to open his own firm. “We’re in a world in which we have to pay taxes and deal with banks. I can help businesses that are trying to do the right thing.”
Nau, a sustainable clothing company with outdoor and fashion apparel lines made of organic and recycled fabrics, is also re-examining the traditional business model for a startup. Its original venture failed last May, just 14 months after it opened. Shortly afterward, Santa Barbara-based Horny Toad bought the company and it re-launched on Nov. 1 under the same name and a different business model.
“The conventional model is you’ll go out and get funding and grow as fast as you can to return that investment,” says Jolie Giese, the company’s new general manager. “This existing crisis has caused companies to really pause and examine what is a natural form of growth.” Nau learned that lesson the hard way.
The original Nau (known by current employees as Nau 1.0) launched with an ambitious plan to design and market a green apparel line as well as open dozens of retail stores. But, recognizing the oncoming credit crisis, it only opened five stores before calling it quits.
Nau 2.0 is a “smaller, much more humble version” of the early model, says Giese. The company scrapped retail stores altogether and is instead selling its clothing wholesale to existing retailers. The brand is now carried by 10 “like-minded” retailers, including Ellie’s Eco Home Store in Boulder, Colo., and has contracts in place that would allow it to expand to 70 by Fall 2009, Giese says. Nau avoided cutting green features of its products, such as using organic cotton and recycled polyester, in spite of the higher material costs. But it has made some sacrifices in its social responsibility goals, paring its original commitment to donate 5 percent of profits to charity down to 2 percent.
END Footwear has taken Nau’s lesson to heart and is determined to grow slowly and naturally, says Andrew Estey, END’s president and CEO. He admits the company, known for its ultra-light trail running shoes, isn’t as sustainable as it would like to be eventually. END is tackling one issue at a time, starting with the materials and manufacturing process and working through to the end of products’ lifecycles. END plans to roll out a shoe-recycling program similar to Nike’s (NYSE: NKE) and is looking for a third-party certifier for its products so that customers can be assured that spent shoes don’t end up in landfills, but rather get spun into new products, Estey says.
When END launched last year it started with the goal of reducing the amount of cement in the shoes’ upper by 50 percent and ended up cutting the material by 75 percent, according to Estey, who has spent the last 15 years in the sporting goods industry. In its second-season products, which shipped in January 2009, END increased the amount of recycled materials in its shoes and cut the amount of assembly required, Estey says.
“Sustainability is about innovation. Being a young company is a slight advantage, we’re able to do this without any baggage,” Estey says “We’re starting with a blank piece of paper and defining our business model the way we want to do it.”
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