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Why Going Green Means Big Business in the Construction Industry

BY: Issie Lapowsky

From: www.inc.com

Gone are the days of green building being a niche market. Today, it's a big business that's the future of the construction industry.

Editor's Note: This article is part of Inc.'s 2014 Best Industries package. Read on, for more on the top industries for starting a business now.

Eco-friendly construction is no longer exclusively the jurisdiction of iconoclastic clients or small, hippie-run companies. As the housing market has recovered, the industry has lured talent from every sector and is now growing at a rapid clip--sealing its place on our list of the top industries of 2014. According to the U.S. Green Building Council, total revenue across the industry should grow to $245 billion by 2016.

We asked three small companies in the green construction industry how they broke into the business and what they learned along the way. Here's what they had to say:

Keep Costs Low

The first thing to know is this: No matter how good it may be for the environment, very few people are willing to "go green" if the alternative is cheaper. That's especially true in the construction industry where, for commercial buildings, traditional methods could be millions of dollars cheaper.

Ann Hand, CEO of Project Frog, learned that lesson the hard way. When she joined the company in 2009, taking over from its founders, Project Frog's iconic modular buildings only came in one shape and size and were substantially more expensive than the alternative. But, in terms of green benefits, the buildings featured plenty of natural light, which both cut down on artificial lighting and provided warmth during daytime (i.e., peak) hours. And because they were manufactured off-site they almost completely eliminated waste from the building process. What's more, they could be constructed in a matter of days.

The design earned Project Frog accolades and extensive media coverage, and the company landed deals with schools and healthcare providers.

Still, Hand had trouble scaling. "No matter how excited people were about this new green building, they'd say, 'My budget! My budget!'" she says.

So Hand scrapped the original building design and began prototyping a new model that could not only come in a variety of shapes but would actually be cheaper to build than traditional construction.

Ultimately, Project Frog's team--which consists of architects, engineers, energy specialists, and even consumer product designers--developed a system that's about 30 percent cheaper than traditional construction while also being 60 percent more energy efficient than California's stringent building codes require. In 2013, Project Frog won contracts for 25 buildings. This year, that number will increase to 40.

"We always say we're better, greener, faster, and affordable. What we're finding is affordability is really number one. Speed is number two," says Hand. "Everyone gets excited about green construction, but we have to hit on cost first, or we'r out of the game."

Follow the Money

An early pioneer of the green building industry, Robert Politzer launched GreenStreet the same year that LEED certification was born. And, as with most early adopters, it was tough getting the business off the ground. He started with a single renovation on Manhattan's aptly named Greene Street, and grew from there.

But Politzer soon realized he had an even bigger problem: As a contractor working with developers to renovate buildings, he was passing the majority of the profit on to the developers who hired him. To really thrive in this industry, he realized, he would need to become a developer, too.

That required him to deepen his financial connections, because it's tough if not impossible to get a bank loan for 100 percent of a project's costs. Typically, developers tap private equity groups. "This equity gap is what separates developers from non-developers. If you can't get extra capital, you cannot be a developer," Politzer says.

Meanwhile, to maintain cash flow, GreenStreet is continuing to build for other developers even as it works to become both a developer and a builder. "It's not easy being green," he says. "But I'm very happy to know that the struggles I went though were at least based on the future, and that this is where the industry is going. I was right about that."

Become an Expert

The trouble with the construction industry is it somehow manages to be both remarkably fragmented and dominated by a few major incumbents. In other words, it's hard for a new entrant to get noticed, let alone hired.

When Stephen Ellis and his co-founder Grant Castillow launched MyGreenBuildings, a luxury residential green building company, he started with his own home, vowing to make it the greenest home in Florida. When the renovation was complete, Ellis began to give tours to members of the community (not to mention the American Institute of Architects and local master gardeners groups)  to show off his handiwork.

"A lot of what we did to break into the marketplace was to create a marketplace," he says.

Building a name in the region was critical to the company's early success, but so was Ellis's commitment to reinvesting every penny earned back into the business. Ellis went without a salary for the first three years, instead spending that money on experienced project managers who could help establish the company's reputation for broad expertise in all things green.

"You've got to invest heavily and figure out how to have far more financial stamina than you might predict," he says. "You've got to hire the best people. Even if you can't afford them, figure out a way."

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