Tony’s tacos are greener than the chiles! http://tinyurl.com/67q4zd

I really like reading new Public Profiles when they post at the EcoSector Portal.

Twitter’s 140 character limit inspired me to start writing little “elevator pitches” about these neat ecopreneurs so you can get the maximum cool factor in the minimum number of words.

You can share my fun via EcoSector’s Twitter site.

Also, thanks to a nifty integration by Alex King, these “tweets” will show up automatically at this blog - example.

Sorensen’s “bubble pump” flows your solar shower without electric power: http://tinyurl.com/62hgbu

Here’s a nit-picky issue that makes a huge difference for the potential success of a green start-up business.

A common mistake of first time green entrepreneurs is to price their goods and services based on “mark-up” instead of “profit-margin”. The fact is, a 50% “mark-up” is a lot less money than a 50% “profit margin”.

Let’s look at the difference…

Profit Margin is calculated as a percentage of the sale price. So, if you make a 50% profit margin on a $100 sale, your profit is $50 and your cost to produce the product or service is $50.

Mark-up is added to the cost to produce your product or service. If we were to price the same item mentioned above with a 50% mark-up, we’d add 50% of the production cost, or $25, to that cost to get the final price of $75.

In the mark-up example, the profit is only $25 on the total sale of $75, which is equal to a profit margin of only 33%.

Using mark-up to instead of profit margin can lead to chronic underpricing of goods and services which makes it much harder to succeed in business.

Also, investors consider profit margin, not mark-up, when judging the financial potential of a business, so it’s important to align your business processes to the interests of investors from the start. Even if you don’t plan to seek outside capital, you’re still the primary investor in your green company, so do right for yourself.

Here is how to calculate the price your product or service using the profit margin approach:

Take the cost to produce your product or service and divide it by the desired profit margin to get the sale price. Using our same example item, divide the production cost of $50 by 50% or 0.5 and you’ll get the sale price of $100 with a 50% profit magin.

this is cool - Zach turns sewer grease to fuel: http://tinyurl.com/63jqmm

When most people think of investment products, they think of stocks, bonds, and mutual funds they can buy from a stock broker. For people interested in the green economy, it is crucial to understand that these “retail” products represent only a small fragment of the range of investment types.

This chart shows the full range of equity type investment products that match the stage of development of a green business, or most any business for that matter:

More and more people are interested in green investing for its potential to shift today’s environmentally destructive paradigms, and to produce the kinds of enormous gains possible in a rapidly expanding new sector. However, as you can see, the earliest-stage investments most likely to create this paradigm shift and produce super-sized profits also hold the most financial risk. Or do they?

When financial risk is defined in conventional terms, early stage investing is indeed too risky for most people. Those of us who think environmentally, however, tend to consider a wider range of risks. To us, destruction of the biosphere is a risk that makes traditional financial risk seem small by comparison.

Yet, in our daily actions, we are also bound by today’s societal norms. Try as we may, we continue to adhere to “the system” in one way or another. Most of us can’t afford to risk our financial status in society to invest for a better future. This has left the field of funding green startups to a small group of super-rich venture capital investors (see article from Jul-Aug Fast Company). Unfortunately, as wealthy as they are, the combined assets of these new “green angels” are quite small compared to the billions and billions of investment dollars needed to address today’s most pressing challenges in a timely fashion.

What is the answer?

Fortunately, there are many ways to reduce the risk of early-stage green investing to make it more suitable for the vast numbers of potential green-minded investors in the general market. This opens the possibility of mobilizing far more money for early-stage environmental business strategies. U.S. green consumers alone control an estimated $2 trillion to $4 trillion of investment assets. A lot of that can be brought into play if the public can be presented with properly-designed, early-stage green investment products.

Unfortunately, thanks to financial laws designed to make markets safe for average investors, creating these mass-market early-stage green investment products is a complex and expensive process. Today, no such investment products exist in the marketplace. Earlier this year, Iron Leaf Capital canceled their initial public offering after spending nearly $1 million to develop what would have been the first green start-up fund for the general public.

This is not what you think.

You are the entrepreneurial genius. Yes, everyone thinks you’re a nut, but I’m talking about a different nut.

In entrepreneur-speak, your “nut” is what it costs to pay all your life expenses each month, including the cost of launching your start-up business.

Ask yourself, do you have a regular inflow that matches your monthly outflow without needing to raise investment capital?

Some charismatic people can raise capital to cover their nut. I’ve done that. There’s a lot of risk in that, I discovered. If your sales projections don’t pan out, you’ll run out of monthly cashflow for your basic life expenses. This is stressful, and can block you from realizing your big-picture goals.

A wise entrepreneur once advised me that a good business should generate positive cash flow from the very first day. If you heed this advice in designing your business strategy, you’ll cover your “nut”, and go on to build your genius business with the minimum amount of friction.

Ask Mark

Previously posted at GreenOptions.com

Recently, I wrote about the financial ROI of Green Investing. Let’s drill down further…

In finance, an investment is a “thing” you buy with money for the purpose of getting both getting your money back, and getting more money in the form of “interest”, “capital appreciation” or both. This “thing” is a piece of paper called an Investment Product, also known as a Security.

The sale of securities is one of the most highly regulated industries in the U.S. The government agency in charge of these regulations is called the Securities and Exchange Commission (SEC).

The two main types of securities are Equity and Debt.

When you buy an “equity” investment product, you are purchasing a share of ownership in something. Let’s say you and a friend want to buy a rental property, and you agree to split the purchase cost, the ownership, and the profits 50/50. You then hold 50% of the equity in that property. The agreement you write up spelling out this ownership agreement is a type of equity security. Wall Street stocks are another form of equity security.

If instead, a bank loans you money to buy the property, you have actually sold the bank a debt security. The bank provides you with an amount of money, and you agree to pay them a certain amount of Interest plus pay back the original money (principal) over time.

In debt securities, the “buyer” of the debt product (in this case, the bank) doesn’t own the underlying asset, be it a company, property, etc. However, debt securities are often “secured” by the right of the lender to take property away from the borrower should the borrower fail to pay back the interest and the principal. Some debts are secured, and some are unsecured, and this factor influences the risk/reward picture. Wall Street bonds are another form of debt security.

Previously published at GreenOptions.com

To prime the pump on this “Dear Abbey” style ecopreneur coaching column, I’d like to start with some actual consulting projects, with enough changes to protect the client.

A few years ago I got a call from a cool green company that already had good sales, about $1 million a year. Problem was, their cash flow was “upside down” - they were trying to cover current expenses with money they wouldn’t get until later. They wanted me to help raise money to cover the gap.

At first, it seemed they were all set to receive some financing. I had a lender in mind who specialized in high-risk loans to green enterprises. All the lender needed to start the approval process was an up to date financial report. But as I started interviewing the principles, I learned that the company’s financial books were several months behind. Sadly, even weeks and months later, this situation persisted, making it impossible for the firm to make effective requests for money from anyone other than family members.

Two Lessons:

1. Keeping books doesn’t generate sales, so it’s so easy to just let it slide. It’s kind of like doing the dishes. You can’t escape from this task if you want to grow a business that complies with government laws and/or you may someday wish to seek outside investment capital from most types of investors and lenders. Not keeping your books up to date at least once a month is a false economy.

   The seemingly negative pressure caused by reorienting your business around keeping your books current can lead to many other positive improvements transformations in your company.
2. The next, even tougher lesson is to reorient your business and sales model toward a “pay me first” approach. If this client had done this from the beginning, they would not have needed to raise a “bridge” investment.Out of the deep desire to make a sale (a.k.a., “desperation”), new entrepreneurs often give the buyer terms that make it very difficult to complete the work.
   
Ecopreneurs bring something of especially high value to the world. It’s okay to ask for enough money up front to run your show efficiently. Losing a customer that isn’t willing to be a real partner in your success is really no loss at all.

In my own operations, I avoid any sale that could possibly result in the need to collect money later for work done now. Whenever I’ve broken that rule, I’ve ended up wasting countless unpaid hours trying to rectify the situation.

In short, drop desperation as a point of view and keep your cash flow right side up from your first sale onwards.

Submit your questions or topics to me via email.

Originally posted at GreenOptions.com.

In my last post, I talked about the ecological and social outcomes one might wish to support via green investing. But what about the financial return on investment (ROI)?

Financial ROI (profit) is vital to green investing. This can sound jarring to green-minded folks because for quite a long time, the profits of most businesses have come at the expense of human and ecological health. Yet the underlying system holds much promise. I’m seeing a new generation of green businesses that align profits and green objectives to create powerful engines for economic transformation. These businesses are building the reality envisioned by a previous generation of green non-profit leaders.

Financial ROI is important because it impacts the rate and scale at which this new reality can unfold.

Let’s say two companies are offering comparable solutions to protecting native forest habitat. The company with the higher ROI will most likely have the financial capacity to scale-up their solution, resulting in more forests being protected per investment dollar.

ABC’s: What is Financial ROI?

Financial ROI describes the comparative monetary return of different investments. For example, a bank certificate of deposit paying 4% annual interest will return $4.00 of profit for each $100.00 invested.

In the stock market, the term “price to earnings ratio”, or “P/E” for short, provides a shorthand description of this relationship between the amount invested and the ROI. In the bank CD example, you would have to pay $100.00 (the price) to get $4.00 of earnings (a.k.a. “profits”), or a P/E of 25. All traded stocks are rated by a “trailing P/E” — the current price divided by the previous 12 months’ earnings.

To a green investor, the combination of green values, social values, and the financial ROI, come together to make the complete case for making a particular investment.

Previously published at GreenOptions.com