Why Small Businesses are Engaging Sustainability
The size of the market opportunities is driving small businesses to engage environmental sustainability, as are concerns about survival and long term success. In addition to improving profits, reducing costs and mitigating against risk, engaging sustainability affords opportunities for collaboration and innovation.
While big corporate sustainability initiatives steal headlines, the small business community is also going green. For example, operational efficiency practices are increasingly commonplace even in small companies.
The rationale for engaging sustainability is largely about meeting and anticipating consumer demand. This translates to more customers, increased sales, higher revenues and even price premiums. Sustainability contributes to the crafting of a unique selling proposition, it helps to differentiate a company from the competition, and it offers a competitive advantage. Sustainability provides a host of reputational benefits. The latter contributes to word of mouth marketing, greater trust, improved loyalty, and enhanced employee recruitment and retention.
Small businesses also need to conform to the sustainability policies of companies in their supply chains and doing so increases the prospects for successful tenders.
Economic and environmental importance
The small business sector is the driving force behind most economies and their engagement of environmental sustainability is vital to their own viability and the prospects of addressing environmental degradation and global emissions reduction. Small businesses have a major impact on our economy and the environment. So their adoption of sustainability is crucial both economically and environmentally.
According to the US Small Business Administration, small and medium-sized (SMBs) businesses collectively account for 49 percent of US employment. There are almost 28 million small businesses in the US, and businesses with 5 or fewer employees represent 88 percent of businesses in the US. In the UK, more than 99 percent of the 4.9 million registered businesses SMEs.
As reported in Entrepreneur, a 2012 Office Depot poll indicates that 61 percent of small businesses were in the process of "going greener" and 70 percent of US small businesses plan to go green within the next two years. A similar picture emerges in the UK. According to Lloyds’ 2013 survey of SMEs in the UK, a quarter of businesses viewed sustainability as their top priority in 2014, while 52 percent recognized the cost benefits of implementing sustainable business practices.
There is evidence that small businesses are adopting increasingly sustainable practices. According to a report titled, The Big Green Opportunity for Small Business in the U.S., green market segments in the US are growing fast. In fact, growth rates of green segments are outpacing conventional segments in every industry where data was collected.
"The growth in green segment market share across the economy is unprecedented and systematic it’s clear that we’re hitting the tipping points where sustainable products and services have moved from fringe alternatives to industry norms," the report said.
Although there is growing interest in sustainability, small businesses are still not engaging at the same rate as large corporations. When it comes to sustainability, there are many reasons why small businesses are not as proactive as their corporate cousins. However, this belies the fact that they are ideally suited to sustainability.
The growth in sustainability among small businesses is being driven by consumer demand. An Accenture study titled, Long-Term Growth, Short-Term Differentiation and Profits from Sustainable Products and Services, indicates that consumer demand is the salient driving force behind the transition to sustainability. Consumers want greener products and services and this is a growing trend that shows no sign of slipping.
A 2013 survey stated that 30 percent of consumers expect to increase the amount of goods and services they buy from socially responsible companies.
According to Cone Communications research conducted in 2013, 71 percent of Americans consider the environment when they shop. This is up from 66 percent in 2008.
The Big Green Opportunity report indicated that small businesses are seeing growing demand for green products and services and greater competition for green-oriented customers.
Higher revenues and competitive advantage
Sustainability generates a return on investment and offers a competitive advantage. There is now growing body of evidence that proves the bottom line benefits and competitive advantages of being environmentally sustainable. “Going green attracts customers which results in a higher revenue,” says Colin Moore. Moore has implemented an energy efficiency policy for New York Client Solutions and he actively encourages small businesses to engage environmental sustainability.
According to The Big Green Opportunity report, small businesses are engaging sustainability for more than just ethical reasons. The national survey of more than 1,300 business owners suggests there is a compelling business case for going green. The survey indicated that green offerings tend to be profitable, often more profitable, than less environmentally beneficial offerings.
The survey showed that small businesses on the front lines of these green opportunities are capturing significant market share and benefiting from operational advantages. The survey results showed that 79 percent of survey respondents strongly agreed that offering green products and services gave their business a competitive advantage. The report indicated that 70 percent of those surveyed said that others in their industries have succeeded by offering green products or services. Of these,77 percent were successful in growing sales of their own green products and services through the economic slowdown (2008-2010).
A total of 62 percent of the small businesses surveyed offer green products or services because it’s a competitive requirement in their industry. Of these, 80 percent experienced increased sales. The report also revealed that a number of industries now have green minimums that are essential to remaining competitive.
Green products and services allowed 58 percent to expand their offerings and of these, 84 percent saw increased sales. A total of 76 percent of those surveyed strongly agreed that their green products and services are profitable and 89 percent reported that their green products and services are at least as profitable as their non-green offerings. Almost one third (31 percent) reported that their green products and services are more profitable than their non-green offerings.
Customers are willing to pay more for green offerings. The Big Green Opportunity report indicates that premium pricing can be attached to a green product or service. In both survey data and interviews, green business owners reported that, where a high trust relationship develops between a conscious consumer and an authentically green business, those consumers are willing to pay a premium for truly green offerings.
While there may be additional costs associated with green products and services, there is also room for premium pricing. These price premiums equal or exceed any additional costs. The margin for green products or services is the same or better than non-green offerings.
According to an Accenture study, businesses can charge a 19 percent price premium for green products and services. A 2013 report on green consumption indicates that almost half (47 percent) of young consumers are willing to pay more for eco-friendly products.
One of the upsides of premium prices to producers is the social capital generated. In addition to “word-of-mouth” marketing, socially driven businesses can secure capital from values-driven investors and creditors.
The greener the better
"The Big Green Opportunity" report indicates that the greener you are, the more profitable you can be. Leaders of deep green businesses reported greater growth potential, higher revenue growth, and higher sales prices than their less-green peers. Deep green businesses were significantly more likely then their less-green peers to report that their customers are willing to pay more for green products and services.
Deep green businesses were significantly more likely to report a competitive advantage from their green offerings than their lighter green peers. Overall, the results show that the greener the company, the better they tended to perform and the more likely they were to reach new customers.
Leaders of deeper green businesses were able to leverage trust to expand through cross-selling. Their core customers supported faster uptake of new offerings, leading to quicker ROI and profitability.
Deep green businesses in the study were far more likely than their lighter green counterparts to agree that their existing customers continue to support them because of their green attributes.
Deep green businesses were far more likely to report strong revenue growth from their green products and services than their light green counterparts through the recession . Many of the deeper green businesses reported that they were able to build revenues through the recession due to growing consumer demand. Deep green businesses benefited from relatively low customer attrition through the downturn. They were also able to leverage their insight into methods and channels for reaching new green customers to offset turnover and the negative effects of the recession.
Although there is clearly value in going green, timing is important and there is a risk of getting too far ahead of demand when selling to mainstream markets. But as explained by Lauren Kelley Koopman, director for PwC’s Sustainable Business Solutions, "Sustainability is next-generation business thinking because it creates value, attracts customers, retains employees and improves capital and funding."
All of these factors are likely to accelerate the adoption of sustainability by the small business community.
Richard Matthews is a consultant, eco-entrepreneur, green investor and author of numerous articles on sustainable positioning, eco-economics and enviro-politics. He is the owner of The Green Market Oracle, a leading sustainable business site and one of the Web’s most comprehensive resources on the business of the environment. Find The Green Market on Facebook and follow The Green Market’s twitter feed.
Image credit: ASEES China, courtesy flickr