Archive for the ‘Oregon’ Category

Picking up where Nau left off

Sunday’s Oregonian attempts to explain what sustainable businesses might learn from the closure of apparel maker Nau early this month. The paper draws a conclusion similar to my immediate reaction when I heard the news: that Nau’s ambition got the best of it.

The Oregonian’s assessment is too brief to be of significant value to existing or would-be green entrepreneurs. For instance, the paper responds to one of its own questions, “Is a sustainable business unsustainable?”:

Nau wasn’t around long enough to tell. And certainly, organic food companies have profited as demand increases. And renewable energy ventures — biofuel, solar power — still attract investors’ bets. “There are a lot of sustainable plays that are more capital efficient and less risky,” said David Kirkpatrick, founder of SJF Ventures, a Durham, N.C.-based firm that invests in green companies.

I’m sure the paper felt compelled to ask this question because many who heard the news of Nau are probably asking it. It would be sad indeed if people concluded from Nau’s experience that operating a business with social, environmental and profit motivations equally in mind cannot be sustained long-term. Unfortunately, the paper’s response to its question doesn’t really get at the answer.

How about we flip the question: Is an unsustainable business sustainable? Or ask it from a macro view: Can our economy continue to run indefinitely on the backs of companies whose only measurement of success is financial return?

Throughout our history as a country that’s the way business has operated. And the American economy has flourished as a result. But for how much longer can this go on? Especially as China, India and other countries look to duplicate our success.

I hope people don’t see Nau’s failed attempt at “challenging the nature of capitalism” as evidence our economic system does not need serious repair. Yes, the company’s ambition exceeded its reach. But the folks at Nau knew there’s nothing sustainable about business as usual. And we all need to pick up where they left off.

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Ambition, not patience, the operative word at Nau

I only knew my hometown sustainable clothier Nau by what I read and saw in the media. Sadly, they closed their doors so fast I didn’t have a chance to buy any of their clothes. I suspect they would have been right up my alley.

Even though I didn’t really know Nau, something about them seems very familiar: venture capital. Or more precisely, reliance on venture capital. I spent more than 20 years in high tech. Venture capital is the lifeblood of most tech startups.

Venture capital, however, is not patient capital. Most VCs are seeking to make their money back plus a handsome profit within three to five years, usually by selling to a larger company or going public. Nau had reportedly raised $34 million since its founding in 2005. Its inability to close another round of financing led the company to shut down last week.

Nau was in many ways the perfect candidate for venture capital. They had name-brand management, an incredible commitment to innovation and ambition as outsized as any venture capitalist. The media took notice. Fast Company reported in June 2007, “The business plan projects $11 million in revenue this year (2007), growing to $260 million and 150 stores by 2010.” Nau CEO Chris Van Dyke told the magazine:

“We’re challenging the nature of capitalism. We started with a clean whiteboard. We believed every single operational element in our business was an opportunity to turn traditional business notions inside out, integrating environmental, social, and economic factors. Nau represents a new form of activism: business activism.”

In the end, none of that was enough as Nau could not survive in the suddenly tight-fisted capital market. Its plan to grow to $260 million in revenue by 2010 clearly required a constant stream of capital.

Having seen this story line play out over and over in high tech (especially in the dotcom era), I’m hardly surprised by Nau’s fate. I only wish the universe would have rewarded Nau for its commitment to doing the right thing for Earth and its inhabitants.

Some day soon, I hope to be reading case studies of what the Nau founders could have been done differently. Maybe these study authors will answer the question uppermost in my mind: Should Nau have hitched its wagon to the race horse team of VCs or reined in its ambition to change the world overnight and settled into a trotting pace that could be sustained indefinitely?

Even more than financial capital, patience is in short supply in business. I understand the world needs big, audacious ideas like Nau’s to meet the urgent social and environmental needs of our time. But it seems to me there’s a lot to be said for thinking big — and starting small.

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Dick & Joe vs. Mom & Pop

“Dick vs. Joe!” the headline screamed in Sunday’s paper. As if we are supposed to care about the looming showdown in Oregon between national retail giant Dick’s Sporting Goods, Inc. and the Oregon retail fixture Joe’s Sports, Outdoor & More. Dick’s just opened a store in Portland last week, the first of perhaps 10 across the state. This could spell trouble for Joe’s, we are led to believe by The Oregonian. Coincidentally, this could also spell trouble for the newspaper if Joe’s starts advertising less because of lost sales to Dick’s, and Dick’s doesn’t make up the difference.

While the newspaper attends to the battle between big box retailers, the real victims in the retail wars are the remaining locally owned, independent sporting goods stores struggling to compete. Joe’s is not one of them. Joe’s founder Norm Daniels sold majority interest in his company last year to a private equity firm in San Francisco. The Oregonian says the firm told it a year ago “that it would sell off Joe’s in a few years.” It’s possible the next ownership group could be local, but I doubt it. The article speculated that Dick’s could buy Joe’s, although that was not considered likely. So look for Joe’s ownership to remain out of state.

Dick vs. Joe is simply a battle of two non-local chain retailers for sporting goods supremacy in Oregon. Since Joe’s got its start here, we still think of them as one of us. It would be natural to pull for them over Dick’s. But Joe’s is one of us in memory only. Joe’s majority owners are elsewhere now, and they control Joe’s future. Our choice to spend money with Joe’s may be only less bad than a decision to support Dick’s, from the standpoint of local economic benefit. Better, however, to skip both chains and shop instead at a locally owned, independent sporting goods store. That keeps more of our money in our community, instead of heading to Pittsburgh, in the case of Dick’s, or San Francisco, in the case of Joe’s. With a recession looming, this argument is stronger than ever.

Bottom line: Oregon doesn’t need Dick’s. Dick’s needs Oregon, so it can keep satisfying shareholder demand for growth. Dick’s arrival here is part of the chain retail trend so well documented by Stacy Mitchell in her book, “Big-Box Swindle”:

Consider that in 1996, the top ten retail chains accounted for a remarkable 15 percent of consumer spending. Less than a decade later, in 2005, the top ten captured nearly 30 percent of the more than $2.3 trillion that Americans spend in stores each year. Two or three corporations now dominate each retail sector. As the chains have gained market share, tens of thousands of independent businesses have disappeared.

Dick’s is hell-bent on dominating the sporting goods category and Joe’s will do all it can to protect its turf. But the story isn’t Dick vs. Joe; it’s Dick & Joe vs. Mom & Pop. Local owners of independent, usually small, stores are the big losers in the battle of big box opponents. And so are the communities that watch these stores disappear. I’ll let Stacy Mitchell have the final words:

The effect of mega-retailers on local economies does not end with shuttered local merchants and their laid-off employees. Most local retailers buy many goods and services locally: they bank at local banks, advertise in local newspapers, carry goods produced by local firms, and hire a range of professionals, from accountants to Web designers. Every dollar spent at a locally owned store sends a ripple of benefits through the local economy, supporting not only the store itself, but many other local businesses, which in turn provide jobs — often the sort of well-paid positions that form the backbone of a city’s middle class and the core of its tax base. When chains displace local merchants, all of these economic relationships are severed. Money that used to flow through the community — from a local office-supply store that hires a local accountant, who in turn uses a local bank that lends money to a new entrepreneur, who stocks up at the local office-supply store, and so on — ceases to do so.

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Oregon media fails in covering economic development

State government officials across the US love to publicize their aggressive efforts to draw outside businesses to their states. And the news media rarely fails to serve up the publicity the government desires. Case in point, The Oregonian’s headline on the front of the business section yesterday: “Governor will woo Europe for eco-friendly industry.”

Being the green guy that I am, I suppose I should be at the airport on March 29 to shout my approval to the governor before he boards the plane to Amsterdam. Sorry, no can do. I long ago reached the fed-up point with economic development strategies that favor recruitment of out-of-state businesses over cultivation of in-state entrepreneurs and businesses.

My philosophy is let’s first take care of those already here. Only after public officials and programs have exhausted efforts to help our existing firms succeed should they turn their attention to business recruitment. Research I did a year ago for an Oregon economic development organization made clear to me that the state has only scratched the surface of what it could do for existing Oregon businesses and the Oregonians who want to start companies.

Author Michael Shuman says the reason for the government bias toward recruiting big investments from outside companies has much more to do with politics than economics:

Presenting the public with one deal providing one thousand jobs seems to have greater payoffs than presenting one hundred deals with ten jobs each. Politicians would rather be photographed cutting a ribbon on page A-1 than having to schlep around to a hundred places, on a hundred different days, always for page D-6 announcements in the business section.

Of course, if the media didn’t fawn all over these large recruitment coups, our politicians might change their behavior. Reporters tend to favor one factor above all when weighing the significance of business news: what’s the impact on jobs created or lost locally or statewide. Let’s say a local firm promises to add 10 jobs this year — without public subsidy. Now along comes an out-of-state corporation that is promising 500 jobs — with public subsidy. Which announcement do you think the media will pay more attention to?

The media rarely scrutinizes the ROI of public subsidies for the recruitment of out-of-state firms to Oregon. It’s considered the cost of competing in a global economy, as if there is no alternative. Instead, when an outsider chooses Oregon over other states (or countries) the media celebrates it as affirmation of Oregon’s quality of workforce and life. The promise of hundreds of jobs is all that matters; not whether those jobs actually are produced and at what cost to the taxpayer.

When Dell Computer without warning closed its call center in Roseburg (Douglas County) last August and laid off 220 employees, The Oregonian reported:

Douglas County’s economy went into steep decline along with the timber industry in the 1990s, so Dell’s call center was especially welcome when it opened in 2002. Economic development officials helped lure the computer retailer with state tax breaks worth $250,000, and with $2 million worth of employee training funds largely from private organizations.

Dell’s departure presented a perfect opportunity for the paper to investigate the wisdom of showering tax breaks on outside firms, especially mega-corporations like Dell. But no such report followed.

The media is failing the citizenry and the businesses that were started and grown in Oregon. At the very least, reporters need to examine closely what public officials are doing on behalf of Oregon-based businesses and entrepreneurs and weigh that against the investments in external recruitment. In other words, stop the puff pieces on the governor’s overseas junkets and ribbon-cutting ceremonies. And start asking whether any of it really makes a difference.

If not, we have thousands of homegrown businesses in Oregon that could use the governor’s attention and support. You know, the ones that don’t demand tax breaks to do business here.

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Making the wrong argument for sustainability

Call me a hopeless idealist, but I happen to believe we need no other motivation for living more sustainably than simply doing the right thing. I’m no fan of leading with competitive, economic or profit-based appeals when arguing for sustainability, as The Oregonian did earlier this week in their editorial, “Racing to stay ahead of the pack.”

The editors cautioned Portlanders that we can’t stop doing what has made us a world leader in sustainability because other cities worldwide are “hellbent on catching up”:

Daily we are reminded just how global, competitive and interconnected the modern economy has become. The consequence is clear: In this new world economic order, only the nimble will thrive. This fresh market reality places cities — not generally known for being light on their feet — in extreme peril. Those that have a clear sense of purpose and direction will flourish. Those lacking this trait will wilt.

Accompanying the written editorial was a cartoon of man in a meeting room pointing to a large poster of a dollar bill and telling his colleagues, “Actually there is one rather compelling ‘green argument’ for sustainability.”

The message was clear: There’s money to be made in sustainability, and if Portland loses its position as a global leader in sustainability, we will also lose out on the economic spoils that go to the victors in this race. Maybe so, but in looking at sustainability through the lens of economics we lose sight of the much greater social and moral imperatives for changing how we live.

The editors got it partially right when they concluded:

Current consumption patterns cannot endure. We all will have to use fewer resources, use them more wisely, reuse them, then recycle them. That is the core of sustainability. That is the manner of living Portland must role-model for the world.

The very fact that our global consumption patterns are unsustainable is all the motivation we need to live more sustainably. And Portland should be the role model for the world because the world desperately needs one. Period.

Let’s just keep doing the right thing. If our economy grows as a result, so be it.

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Playing with green Air Jordans in a dead-end game

Say what you will about Nike, they know how to market and sell products. And they seem to take seriously the challenge of becoming a more sustainable manufacturer. Witness the 23rd version of its most high-profile product, the Air Jordan basketball shoe. It’s said to be Nike’s “first premium product designed according to the company’s sustainable standards.”

My question for Nike, and virtually any other manufacturer, is how do you square your boundless desire for growth and its associated requirement to make and sell more products with your stated objective of reducing your environmental impact.

Isn’t it a bit like exercising madly while eating ever-increasing amounts of low-calorie foods, and still expecting to lose weight? You can only exercise so much. Meanwhile, your caloric consumption steadily increases and eventually so does your weight. At some point, you have to start eating fewer calories.

Nike, and consumer products companies like them the world over, must at some point realize that selling ever-increasing amounts of products, no matter how low-cal (green), is an environmentally dead-end game. The earth’s natural resources are finite. Using them in smaller quantities per unit ultimately changes nothing when unit volume is always increasing. And that’s to say nothing about the carbon footprint of companies like Nike that continue to expand office space, send growing numbers of employees on countless airline trips around the globe and ship their products thousands of miles from where they are manufactured to where they are consumed.

Whether Nike or anyone else wants to admit it or not, there’s nothing sustainable about an economy dependent upon growing material consumption. Something has to give. And right now, Earth is doing all the giving. You won’t hear that in the new Air Jordan commercials.

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