Americans' ideal home size, which peaked at 2,400 square feet a few years ago, has fallen to 2,000 square feet, the first decline since the 1950s, according to the real estate website Trulia. Thirty-six percent of homeowners expect their next residence to be smaller than their present one, a survey by Better Homes and Gardens found. And the U.S. green building market will expand from $71.1 billion today to $173.5 billion in 2015, according to EL Insights, a trade publication.

The Inspiration: Bill Haney is an entrepreneur with a string of environmentally themed businesses under his belt. Maura McCarthy is a former VC who in the mid-2000s was researching clean technologies. The pair met at a health care nonprofit and discussed doing something related to green building. "There was a lot of talk at the time about ethanol and solar energy," says McCarthy. "But there wasn't enough of a consumer focus."

The Business: Blu Homes, based in Waltham, Massachusetts, Manufactures and erects aesthetically pleasing, eco-friendly modular homes that start at 750 square feet. The structures fold so they can be transported on ordinary trucks.

How It Got Started: After locating a professor at the Rhode Island School of Design who was interested in the future of housing, Haney underwrote a two-year graduate seminar on the subject. "We looked at what characteristics would allow houses to be more economical, healthier to live in, require lower maintenance, and be expandable to accommodate home offices and multigenerational living," says Haney. The answer: modular homes.

But Haney and McCarthy had two big problems to solve before they could move forward. First, the cost of transporting a house is so high that most modular housing companies don't service customers who are more than 300 miles from their factories. Plus, erecting a traditional modular house requires a general contractor working on-site for five or six months. The pair solved both problems by collaborating with a graduate student at the Massachusetts Institute of Technology -- now a Blu Homes employee -- on the design of structures with steel frames that fold up like origami so they can be cheaply moved cross-country on a flatbed truck. Blu Homes employees unfold the houses on-site, which takes eight days or less. "Our big 'aha' was, 'Holy crap -- we don't need 30 factories,'" says McCarthy. "We can serve a 5,000-mile geography with just one or two or three."

Real estate industry research indicates that more than half of homeowners concerned about their families' health will pay a premium for an eco-friendly home. So McCarthy and Haney targeted markets by mapping, for example, Prius sales and Whole Foods stores. The homes sell from about $80,000 for a one-bedroom to $450,000 for a high-end luxury home.

The Result: Blu Homes, which has about 50 employees, sold eight houses last year and expects to sell 20 this year, which is about how many it can make. Although the company has its eye on the residential market, last year it sold four homes to TBS, for use by the cast and crew of Lopez Tonight, and one to HomeGoods, which moved it to six locations in seven days for a traveling home show. The U.S. military also has expressed interest.