Making Money Opportunities

Businesses would be more interested in saving trees if money grew on them.Cross-posted from TriplePundit.

In 2009, I cofounded a company called CO2 IMPACT to develop high quality carbon offset projects in the Americas. While I have a Ph.D. in business, I have frequently been too focused on my values to justify the business case for a lower carbon footprint. I guess I care too much about what we are doing to the planet and what we are leaving behind for my son, Mateo.

Along the way, I have learned a painful lesson that hopefully can help other aspiring climate capitalists: Most people and most industries don't really care about the planet or climate change. They care about things that matter to their pocketbook or to their bottom line. I am of course exaggerating a bit as, for example, most of the Triple Pundit readers care about the environmental and social impacts of their activities, not just the financial.

Most of us noticed that Obama's recent rhetoric about energy efficiency and renewables avoided the topic of climate change altogether. This is not because Obama suddenly doesn't care about climate change. It is that he has learned what messaging works with the American people. Jobs, economy, jobs, oh yes, and did I mention jobs?

How we frame the issues and opportunities related to the low-carbon economy is incredibly important. Too many of us, myself included, wear our passion on our sleeves and focus on the wrong issues in trying to help engage a skeptical public to make the transition.

This is of course why Peter Byck developed a documentary, Carbon Nation, (which I blogged about recently), a climate change solutions movie "that doesn't even care if you believe in climate change." This is also the reason why I cowrote the forthcoming book, Climate Capitalism with Hunter Lovins. We hope that by removing the "debate" about climate change from the conversation and focusing on the profits, jobs, and economic growth that can be achieved by making the switch to a low-carbon economy, we might have more of an impact on public discourse and private action.

When CO2 IMPACT first started promoting our services to the market, our messaging focused on our ability to help companies reduce their emissions and generate extra revenue by selling the carbon offsets into the market. My opinion now is that was definitely the wrong message. We now focus on showing how companies can save money, or make more money, by engaging in energy efficiency, fuel switching, or methane capture projects. Oh yeah, and by the way, you can make some additional revenue from offsets to improve the project return on investment and grow your "green" brand at the same time.

Take our coal mine methane projects in Colombia. There have been two explosions from excessive gas in underground coal mines in Colombia this year killing 26 people. Last year, more than 200 miners were killed in similar explosions. While there are socially responsible mining companies who are absolutely concerned about the health and safety of their employees, the best arguments to get clients to embrace coal mine methane capture projects are financial. Mitigate operational risks of explosions, gain access to the methane as a cheap, green energy source, reduce their operating costs from ventilation systems (if you drain much of the gas, there is less ventilation requirements), and, oh yes, reduce their climate impact and gain additional carbon offset revenue.

Think Latin American coal mines are the only companies who care more about their bottom line than their impact on climate change? North American companies, except for a few notable exceptions, are the same way. Many recent articles in Triple Pundit have rightly recognized Walmart for its recent transition to being a climate leader. Does anyone really think that Walmart is doing this because they have suddenly become treehugging liberals? I don't think so. They are doing it because they are saving money. And lots of it. And Walmart, yes Walmart, won the Aspen Institute's 2009 Corporate Energy Efficiency Award [PDF] because of this commitment.

GE has made major efforts to promote their low-carbon green solutions. Sure they use their campaign to build their green credentials, but mostly they are doing it to generate more green bills. The Ecoimagination program is generating more than $18 billion per year in revenues for GE.

In conclusion, my point is for all of us who care about the planet and want to be part of the transition to the low-carbon economy, we need to focus more on the economy part, and slightly less on the low-carbon part. That is the fastest way to get to 350 parts per million.

Like some of you, I have an uncle who likes forwarding emails that feature quotations, random slide shows and holiday alerts. Mind you, since we have a lot of holidays and festivals in India, these emails are frequent. Still, it is fun to hear from him (mostly because I love him). Recently, he emailed me an old folk tale.

According to the story, a farmer has a donkey, which falls into a well. The donkey starts braying, forcing the farmer to look for ways to figure out what to do. His conclusion? Since the donkey is old, it’s not worth the effort to retrieve the donkey.

He starts shoveling dirt into the well. The donkey has an “oh-crikey” moment and it starts crying and creating a fuss. But then, it quiets down. With every few shovels of dirt, the donkey re-adjusts, shakes dirt off his back, and stands up. Before the farmer knew it, the donkey was out of the wall.

This old folklore has a simple lesson: When life pours dirt on you, shake it off and move forward. This lesson is particularly true for start-ups that have to face their moment of truth.

Game On

I was reminded of this story when I was transcribing my interview with Neil Young, CEO and co-founder of mobile video games start-up, ngmoco (acquired by Japan’s DeNA for $403 million.) Young and I have talked off and on, and before he sold his company, he and I discussed the change of direction he made for the company.

Neil shared with me the story of how, when facing a near impossible business environment, he had to find a new business model for his company, which started life building premium mobile games.  It sold a lot of games!

To the outside world, ngmoco was a massive success, but Young knew the harsh facts:  the games had a very short half-life and they lost money-making potential once they fell out of the top ten or after the initial couple of weeks.

Young argues that for a company making premium mobile games, the company would have to have two games in the top five paid games on the iPhone store for 365 days for the company to build a $10 million a year business.

Even if you added Android platform opportunities, ngmoco was still in a hit-driven business. With new free (and paid) apps launching every day, Young & Co. knew that it would be difficult to keep on the hit trail. Moreover, the average price of the games was decaying fast and settling at around 99 cents. The ad-based revenue stream wasn’t going to be enough, as the eCPMs were pretty low. Like the donkey, ngmoco was in a well, with no likelihood of coming out.

However, upon closer scrutiny, Young’s team realized they had a lot of games, which had very high engagement and user loyalty. “Games are not built for a fleeting moment in the charts, but are built for an (ongoing) relationship with the customer, “ he says. “The longer you can maintain that relationship, the longer the opportunity.”

Armed with this knowledge, ngmoco started the Plus+ network (its social gaming network), and embraced the Freemium model that eventually led to the company increasing its revenues and later selling out to DeNA.

All Chips In

Young isn’t the first corporate honcho who made tough decisions. Intel Corp., the company we chip-heads affectionately refer to as Chipzilla, was the proverbial donkey in the well in 1983, when it was getting killed in the market by Japanese memory chip makers.

The company had been dabbling in the microprocessor business, supplying chips to the likes of IBM, but the majority of its revenues came from the sales of memory chips, primarily dynamic random access memory (DRAM).

Andy Grove, then-president of Intel (and later its CEO and chairman) made a crucial decision: Forget the memory chips and gamble it all on becoming the single source of microprocessors for the PC industry. His decision came at a time when it wasn’t clear what PC standards were going to prevail, or if the 8086 processor was going to catch on. The rest is history.

And the Story Goes…

Richard Tedlow, a professor at Harvard, in his book, Denial: Why Business Leaders Fail to Look Facts in the Face and What To Do About It once wrote: “Denial is the unconscious calculus that if an unpleasant reality were true, it would be too terrible, so therefore cannot be true… In fact, denial might be the biggest and potentially most ruinous problem that businesses face, from start-ups to mature, powerful corporations.”

Nokia’s denial of the existence of the iPhone and the disruptive impact on its business is a good example. Young of ngmoco could have accepted the short-term success of his company, but instead he decided not to.

I have seen many a startups (and many a founder) spend most of its energies bemoaning its miseries, instead of trying to do something about it. But like the proverbial donkey, the decision is yours to make.

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