A lot of people have been writing analyses of their business ideas through the framework laid out in "Knowing a Winning Business Idea," so I figure I'll follow in suit because it is a useful exercise. Lately, as I have begun to talk to some experts in the field of economic development here in Pittsburgh, I am starting to realize that there are some obvious problems with my proposition, mostly from the marketing standpoint. Looking at the articles main points, this is where I think I stand:
Creating Exceptional Utility: For the most part, my product (energy/water efficient and renovated historical buildings) is a novel one because not very many people are doing this kind of work. The problem, however, is that high "utility" is not exactly what I'm offering. I'm basically offering office and living space, which a lot of other people are offering as well. The end product is indistinguishable, at least on the surface, from what other developers offer. The task, therefore, will be to market these green historic spaces to a clientele that considers both factors important or that place a high utility value on being able to save money on energy/preserve history. Society's adoption of sustainable practices in the abstract follows something of a bell curve path: there are early adopters (our target), the majority at the center of the curve who have thought about their environmental impact but haven't gotten around to changing yet, and the stragglers who are the slowest to adopt sustainable practices. The same bell curve idea would apply to people with regard to owning historic properties. The utility of my product lies with the early adopters, so I have to pitch my product to them.
Setting a Strategic Price: The actual economics of my venture are where I am the least proficient at this point and where I am just beginning my research by looking into the markets for living and office space, green buildings, etc. in Pittsburgh. One of the people I've spoken with made a pretty profound comment with regard to office space in particular in the city: "There is less than zero demand for office space in Pittsburgh. Right now there's a total glut of offices with nobody taking them." That sort of hamstrings my business plan a bit and forces me to focus more on housing, which is becoming a more viable option (an added benefit being that the more people who live in the city, the more people who need work/offices in the city). One thing I am pretty certain of, however, is that my end product is going to be more expensive than my competitors' offerings. Green construction alone costs between 2-10% (depending on the project, and it can be more) than regular construction. It all comes back really to being able to find the buyers who are willing to pay that extra bit to get what they really want.
Building a Profitable Business Model: This is where I have my venture's "backstop" component. Because it will undoubtedly be difficult to fill my renovated buildings, I plan to take advantage of certain historic preservation tax incentives and easements that should allow me to weather slow periods when tenancy is low. I'm not saying that I have to have 100% occupancy of my buildings to be profitable, but these financial benefits of historic preservation make it such that a loss will most likely be avoided. Another aspect of the business model I am looking at is the construction phase itself. I am working on getting a better grasp of how much green construction costs and, wherever possibe, I can minimize costs to get the maximum green benefit. I think, in the end, I will have to avoid certain projects where the building is in such a state of decay that the construction costs will be prohibitive.
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