Case Study #4: The Enlightened M.B.A.
The Start-up: GreenPrint
The Founder: Hayden Hamilton
The business proposition: Software that reduces printer waste by eliminating pages in a printer queue that have only a footnote or a banner ad on them and can strip out all images from a print job. The corporate product costs $70 per user; a stripped-down consumer version retails for $35. Besides good environmental stewardship, the company promises users that GreenPrint will pay for itself in eight months through lower paper and ink spending--at a time when ink can cost as much per ounce as a 1988 Chateau Lafite-Rothschild.
The founder: Hayden Hamilton loves the outdoors. He spent his first year out of college trekking around Nepal. After graduating from Oxford's Saïd Business School, he worked at Ford (NYSE:F), where he saw just how much paper a big corporation uses. That gave him the idea for GreenPrint. Though he is 30, this is his fourth start-up. His most recent company, which imports pharmaceuticals from the Far East, grosses $700,000 a year, but Hamilton has given up day-to-day management.
No. of full-time employees: 4
Capital raised to date: $200,000 from savings and from friends and family. GreenPrint is now trying to raise $250,000 to $500,000.
Market potential: Depends on whether you think of GreenPrint as software or a green product or both. According to the research firm IDC, worldwide software spending will reach $327 billion by 2010, increasing at a compound annual rate of 7.5 percent over five years. In terms of green products, consumers spend $157 billion a year on sustainable and ecological products, according to Lifestyles of Health and Sustainability, an advocacy group.
2006: $47,000 (actual)
2007: $10 million
2008: $30 million
Cash-flow picture: GreenPrint's ability to break even on a cash-flow basis hinges on landing two corporate sales, which could bring in close to $5 million each, Hamilton says. Currently, the company is conducting free trials at 22 corporations. Hamilton says a small deal with a major financial institution is as good as done, but he isn't ready to announce it yet.
Competition: A San Francisco company called FinePrint sells a similar application starting at $50 per user. When asked by a reader to compare the two programs in The Wall Street Journal, tech columnist Walter S. Mossberg called FinePrint "a niche product for a class of user willing to invest time and effort" while "GreenPrint is for mainstream users who want to save both paper and time."
Growth strategy: Partnerships could provide the breakthrough for which Hamilton is looking. Three printer manufacturers are testing programs in which they bundle GreenPrint with their products. Hamilton is also talking with two office supply stores about handing out trial CDs. In the meantime, consumer sales are providing a stream of much-needed revenue. A version of the product that can be downloaded online has sold about 2,000 copies at $35, for $70,000 in revenue.
Challenges: As with any company that is trying to create a whole new category, GreenPrint has to convince buyers that they need a product they've never heard of. Without heavy marketing, "I don't see the home-user market exploding," Hamilton says. "People don't go into Office Depot looking for software that will save you toner and ink and paper." Plus, Hamilton is eschewing an on-the-shelf offering for now: Packaging a paper-saving product in a disposable cardboard box seems hypocritical.
On the corporate side, once one large company signs with GreenPrint, Hamilton thinks his sales cycle will improve dramatically. "We've got, now, about 1.5 million potential license sales," he says. "It's just a matter of closing those deals."
Opportunities: The interest in ecofriendly products is, if anything, stronger overseas. Hamilton is pursuing deals with software makers in Asia and Europe. They would create and support local language editions of GreenPrint and would pay GreenPrint a percentage of sales.
What You Can Learn From GreenPrint
- If you're going after corporate business, be prepared to endure a long sales cycle.
- Packaging green products poses a creative challenge.
- Work with partners to enter overseas markets.
Advice from Tim Gill of Quark
Starting a company was a way for me to avoid looking for a job, because I hated interviewing. I launched Quark with $2,000 from my parents. Sales allowed me to pay them back in about two weeks and actually begin making a living. The general plan for the business was to sell products and make a profit. And then sell more products. I know there are businesses that don't operate that way, but I've never understood how you can run at a long-term loss.
Pricing is very important in the software world, and GreenPrint's pricing isn't making much sense to me. At the time when we launched QuarkXPress, our first major desktop publishing software, Aldus, our main competitor, billed its product as "publishing for the rest of us." Well, at trade shows, the people I talked to were all in the professional publishing industry. I thought that they clearly wanted a high-end product. But if we created what we said was a high-end product and then we charged less than Aldus, our pricing would undermine our message. So I set our price $100 higher than theirs.
At a $35 price point, GreenPrint may find it very hard to make money in the consumer market. To recover a $35 cost, a consumer has to save about 3,500 sheets or seven reams of paper over the life of the product, assuming a sheet of paper costs a penny. And that's not allocating any cost to the time it takes to install the software. I probably don't print 3,500 sheets in a typical year, let alone waste that many pages. Why would I need this software? The corporate pricing is an even bigger problem. Corporations buy in bulk, so they are going to want their per-station price to be less than the consumer price, not double it. If they aren't getting a discount, they're asking what's going on. If GreenPrint offers a ton more features in the corporate version, perhaps they could charge a higher price.
GreenPrint must remember that there's a huge difference between what people say they are going to buy and what they actually do buy. The percentage of companies that succeed in high tech is really small because there's a difference between what the entrepreneur thinks is cool and what lots of people think is cool. I've created several products where customers initially told me, oh yes, I'll buy lots of these and then they only order two copies. That's the problem when you're selling to corporate America. The person doing the product evaluation is often a technical person. They may really like a piece of software, but when it comes to deploying it en masse, they will have to offer their bosses a lot of justifications for why it makes sense financially.
The sustainability pitch might work to an extent, but I think most companies will do a back-of-the-napkin analysis and say, you know, we could take this money and donate it to an environmental organization, and it'll probably do us more good than saving x reams of paper.
There are two common mistakes entrepreneurs make. They sometimes design products that even a simple analysis says, this isn't going to fly, yet they're brittle about changing it or even dumping it if no one's buying it. The other mistake entrepreneurs make is giving up too soon. GreenPrint's got a very hard row to hoe. But I would love to be proved wrong.
Back to Hayden Hamilton for some final thoughts:
"On the consumer side, it's not the price of paper but the price of ink that matters. By our calculations, ink can cost as much as $1 a page when you're printing images, so you only need to save 35 pages for the software to pay for itself.
"As for corporate software, we offer volume discounts or you can pay a percentage of the license fee up front and the rest as you realize the savings. And our corporate version does have extra features; it lets you observe printing habits throughout the organization. Organizations have been thrilled. They can put actual figures in their corporate sustainability reports on how many trees they're saving."