Case Study for Final Exam

Part A: Case Study: TURNING A GREEN IDEA INTO A GREEN BUSINESS – GREEN CABS
(Answer all three questions. Each answer should not exceed two pages)

Green Cabs is an environmentally friendly taxi company in New Zealand which was founded in late 2007 by Callum Brown and three other partners. Green Cabs now operates a multi-million dollar business in three main centres of New Zealand – Auckland, Wellington and Christchurch. The company is also contemplating expanding into other areas with its distinctive bright green taxis. Callum Brown is the primary inspiration behind Green Cabs. However, you could argue that Al Gore provided the initial spark for Callum to start thinking about being more environmentally conscious personally. Callum is in his 30s and has spent 10 years working in information technology for various government departments and private sector companies as a business analyst. He grew up close to nature and enjoyed activities such as surfing and tramping. All these things kept Callum close to nature. Despite his love affair with nature, Callum was quite sceptical of climate change. He explains: I thought – how can you tell that there is global warming when we’ve only been taking recordings on temperature for the past whatever, how many years. Hence, it could be seen as fairly surprising that Callum founded a green business!

This personal awakening was a direct result of watching Al Gore’s documentary, An Inconvenient Truth. Little did he know at this stage that a major business opportunity would come from his new environmental consciousness. The impetus for the business idea came when Callum was at work. He travelled extensively for work and consequently found himself catching a lot of taxis. It was on one such overnight trip to Auckland that he became aware of the huge amount of carbon emissions he was generating through travel. He elaborates: I sat there watching all the taxis come and drop people off and thought about the emissions and everything they were producing; there’s got to be a better way than this. Why is there no eco-friendly option and that was the light bulb moment, and saying, ah, why not?

Following this light bulb moment, Callum contacted a former colleague who was also a taxi driver. Together the pair set about establishing an environmentally conscious taxi service with two other partners. They struck the New Zealand taxi industry at what they called a lucky time. The government had just tightened legislation to make it consistent for all operators. The Land and Transport Authority was supportive and helpful in making sure everything the emerging Green Cabs did was in line with the new legislation. The Authority too was excited by what Green Cabs was hoping to achieve. Once started, Green Cabs experienced rapid growth and within six months had approximately 85 cabs and self-employed drivers and employed 15 support staff (mostly in its 24-hour call centre). Callum never had aspirations to become an entrepreneur, nor any experience in business ownership, but his extensive work background as a business analyst made him feel he was well equipped to investigate whether the Green Cabs idea would be successful. In fact, prior to coming up with the business idea Callum felt afraid of the risk involved in having his own business. However, once he had the idea, these risks vanished: I was so passionate about Green Cabs, once I had the idea, there were no perceivable risks for me. That was how strong the drive was to do it . . . It’s like I’ve never doubted for a moment that Green Cabs was going to succeed. It has. Any concerns Callum had about risk were dissipated when he took on a number of business partners to share the risk. These business partners all understood and were sympathetic to the worsening state of the environment and to Callum’s vision for the company. Callum’s vision resulted in a company which entered the taxi industry with the goal of achieving much more than a traditional taxi firm. Green Cabs wanted to force change, to preserve the environment and inform the public about climate change. This meant a whole new way of thinking about business and the principles of the business founders were intertwined with the business model. Green Cabs offers the same basic service as any other taxi company. The key difference is that it is an environmentally conscious company. The main means of the company being environmentally friendly is that its vehicles are hybrids (Toyota Prius). There are substantially fewer ongoing running costs in providing the service. Green Cabs passes these savings onto consumers and is therefore able to offer considerably lower prices than its competitors. It already is forcing change in the taxi industry with many competitors rapidly switching to hybrids because they can see they will save on emissions and fuel costs.

The difference between these competitors and Green Cabs is that those changing due to lower running costs do not necessarily have environmental concerns at the forefront of their decision making as does Green Cabs. Indeed, sceptics could argue that the competition is switching because it is losing market share to Green Cabs and is attempting to imitate the service. Therefore, Green Cabs has been successful in changing behaviour in the industry to being more environmentally friendly, but this has come at a cost to the business, as Callum explains: I have had such an impact on the market that I had planned, that they (competitors) are now switching. Now, from an environmental point of view, it’s fantastic that I could have that impact, but from a business point of view it’s not good. However, competitors are still failing to offset their carbon emissions whereas Green Cabs prides itself on being carbon neutral. To achieve this Green Cabs drives only the Toyota Prius, the car it considers to be the best option for lessening the impact on the environment. The remainder of its carbon emissions are ‘paid for’ by providing funding for trees to be planted (predominantly in the developing world). Green Cabs donates to ‘Trees for the Future’, an organisation that has already organised the planting of 50 million trees, which retrieve approximately a million tonnes of carbon from the atmosphere annually (www.greencabs.co.nz). Green Cabs also ‘pays off’ its carbon debt prior to its accrual. That is, it calculates its future carbon footprint (down to the number of squares of toilet paper used) for the next year and funds the planting of sufficient trees to offset this before it emits the carbon. Although this is one of the key environmental strategies Green Cabs carries out, it actually is sceptical of buying carbon credits. This is because this carbon strategy essentially dispatches the problem to someone else; it does not help reduce the carbon in the atmosphere. As such, Green Cabs aims to both reduce carbon and offset before it accumulates.

The business model of Green Cabs is based on the premise that the customer has a greater connection with the product or service. By using Green Cabs customers will feel part of a greater commitment to the environment and they will choose Green Cabs product over the competitors. As Callum notes, the business model is win-win for both consumers and the environment: It is cheaper, it’s eco-friendly, it’s quieter, you’ve got a pleasant driver, we do a whole lot of feel good stuff as well. Give me a reason why you wouldn’t take a Green Cab.
Green Cabs target market is the corporate sector and government departments. However, they pay tribute to the ‘grassroots’ support they have received. This is from people who have seen what Green Cabs are doing and even if their company has no agreement with Green Cabs, when they take a taxi they want it to be a Green Cab. Callum has also noted that younger people are more environmentally aware and appreciate the choice they are being offered in Green Cabs. One future development is for Green Cabs to install roof signs on their vehicles to promote the environment. These will not be advertising signs for businesses but to say something individuals can do for the environment. Green Cabs intend to use advertising space on their vehicles to promote the environment, not fizzy drinks or the like!

FINDING BALANCE BETWEEN THE ENVIRONMENT AND PROFIT
‘For me anyway, it’s not just about turning a profit.’ – Callum Brown

Finding a balance between profit and the environment can be a difficult one. To be successful in Callum’s view, you have to understand and have faith that doing things and sticking closely to the set of values that the company started with is what is going to bring success. Too much compromise for business then you will compromise the overall success of the business. The business might still be profitable but will not captivate the public into changing their behaviour regarding the environment. These environmental values are held firm by Green Cabs and are an underlying part of their distinctive business model. Callum elaborates:
If we compromise on those values then that put us at risk of just being like any other taxi company out there and doesn’t set us apart. Following through on their commitment to the environment easy for Green Cabs and they suggest that other should look at the environment differently in their businesses. For example, Callum is frustrated by talk about how much it costs to offset carbon emissions. He suggests people fail to see that the whole process is a cost saving exercise. In becoming sustainable, businesses look at ways of reducing electricity, travel and so forth. All of these areas can reduce a company’s carbon footprint while also reducing their overall costs.

Their commitment to the environment is one side of the equation in Green Cab’s business model. The business must be sustainable and there are investors, franchisees and employees who expect returns from their input into the business. Callum is conscious of this need to make a profit, but he has some boundaries: I want to make some money but at the end of the day, I don’t even need a million dollars a year to live on . . . I really like my life in New Zealand, I like the things that I do and the things that I do don’t cost a lot of money. Callum has found that as the business has grown, more investors (such as potential franchisees) are becoming better aligned with his personal views on the environment. However, that is not necessarily the case for all employees of the company, as Callum notes: I have people working for me who don’t have necessarily the same value set. I mean they’ve got good values and wouldn’t be here if they didn’t but to the degree where mine are – no, they’re not anywhere near there.

In April 2009, Green Cabs has grown to 16 employees and 104 drivers. The business has many opportunities to grow their business into other location and other services (e.g. courier services). As the business continues to grow Green Cabs are looking towards carbon neutral certification, and implementing ISO 14001 and 14064 certifications. The ongoing financial success of the company is also attracting more interest from other investors who are not necessarily focused primarily on the environment, but see Green Cabs as a solid investment opportunity.