This is “Limits of Always Focusing on Doing the Right Thing”, section 7.6 from the book Sustainable Business Cases (v. 1.0).
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Andrew Kellar’s priority to always do the right thing for the environment and people had implications. As Andrew describes it, “I think my biggest mistake was I stayed so focused on the environmental and social mission of Simply Green, that I failed to stay focused equally on the fundamentals of the business. And the fundamental are the numbers, the profits and the losses and the working capital to operate the business. I didn’t do my homework. I didn’t have the resources that I needed to effectively sustain the business.”
Working Capital and Keeping the Business Ongoing
Working capital measures how much in liquid (readily available) financial assets an organization has available to fund and build its operation. The number can be positive or negative, depending on how much the organization is growing relative to revenue collection and the debt the organization is carrying. In general, companies that have a lot of working capital will be more successful since they can expand and improve their operations. Companies with negative working capital may lack the funds necessary for growth.
In particular Andrew neglected his need for capital and adequate cash resources (cash flow). He did not adequately anticipate the implications of different potential scenarios beyond his control, such as what if oil went to $4 and then down to $2 or by growing to one thousand customers, how was he going to manage $300,000 in accounts receivable over thirty days? He did not think through these potential scenarios, and he did not have the adequate financial resources on hand when these happened. What he needed to have done was in the early stages have a detailed business plan with “what ifs” for different scenarios and identify risks in his operations.
For Simply Green and any other company in the energy business, price volatility is one of the biggest risks. This is a particularly significant challenge for start-up and small companies with limited financial resources and little operating reserves.
This challenge also has a potential upside for Simply Green and the renewable energy and energy efficiency industries. For example, as fuel prices were rising rapidly again in the early spring of 2011, this again raised awareness about alternative energy, which can be a positive factor for the biofuel industry. But the volatility—the up and down of oil prices—as was experienced in 2008 and again in 2011, makes it a challenging operating environment for new energy companies trying to change the industry and customer preferences.
The final challenge was personal for the entrepreneur. Life became “too crazy,” as Andrew put it, and it became increasingly difficult to satisfy both his personal and professional lives. They were no longer aligned for Andrew.
The craziness of being an entrepreneur for Andrew included being responsible for 1,500 customers who could call at any time and responsible for drivers on the road twenty hours out of the day delivering customers their fuel. He had taken only one vacation during the four years of his business start-up. And even on the very occasional days off, there was always something that had to be taken care of. As Andrew describes it, “Being the owner, you can have amazing people around you, and most time, they can take care of most of it, but there’s always something that comes through that you need to take care of. And that was the craziness, that being pulled in a lot of different directions. At times, when as a young father, you might normally like to be home, going to a baseball game with your son, going to different events with your kids, that wasn’t an option.”