Will companies pull back from risky projects? Or will they re-jigger their efforts to support products that thrive in a recession…new or not.

Suddenly, innovation has a bull’s-eye on its back. As the recession debate shifts from “what if” to “how long,” claims a recent article in Business Week on the world’s most innovative companies.

Green entrepreneurs have no choice. Innovation is why they are in business. But, what strategies make the most sense for eco-friendly businesses facing a not-so-friendly economy?

Professor Scott Shane, writes about Four Mistakes Entrepreneurs Make in a Recession. How do these apply to green businesses?

1.Failing to take advantage of decreasing costs. Most businesses are both suppliers and customers at the same time. When demand slackens, your suppliers are hurting too. So often you can strike a better deal to cut your costs by paying your suppliers less or hiring better people at a lower cost.

Understanding this basic concept and being willing to bargain with your suppliers holds true for eco entrepreneurs too. But, because we often have few suppliers from which to choose recessionary times are those when it is important to evaluate the health of those suppliers and either seek out new ones or consolidate your business with the strongest.

2. Thinking the only way to increase demand is to cut price. Price cuts aren’t the only way to stimulate demand, and they aren’t the best approach for entrepreneurs. On average, entrepreneurs are more successful when they compete on service, quality, or something other than price.

Price cutting is a strategy that works best in a very competitive environment when there are easily substitutable products. That’s not often the situation in which a green entrepreneur finds him or herself. On the other hand, there is a “tipping point” a price at which a consumer won’t pay more for a better quality or greener product. That point may be dropping in your product category so it’s worth doing some research to see at what price the consumer isn’t willing to pay to go green.

3. Failing to recognize increased competition. In a recession, competition accelerates because more businesses are chasing less total demand. In addition, when unemployment rises, people start businesses …further increasing competition. So the need to have a competitive advantage is even more important in a recession than in a booming economy.

Recessions are well known as a time when down sized executives and laid off workers start businesses. Green is hot so many of those companies will be selling eco friendly products. Just as competition increases from large mainstream companies, it is also increasing from small start-ups. This is the time to ensure that you have a strong unique positioning and are promoting that differentiation at every opportunity.

4. Forgetting that some products, or even whole businesses, are counter cyclical. When customers cut back on their spending, they often substitute one product for another. For instance, in a recession, people might cut back the number of steak dinners that they eat out. But, … increase their purchase of cheaper foods, like pasta, making pasta a counter cyclical product. So, entrepreneurs need to avoid assuming that demand for everything goes down in a recession.

Many green products should actually do very well during this downturn. Though you may have been promoting your company’s products as eco friendly if they are also money saving, now is the time to emphasize that benefit. Products and services that are both are sure winners in this economy.

Related Posts:

How to Reach Green Consumers - Using Psychographics To Define Your Target Market

Consumers Say They’ll Use More Coupons. How Can Eco-Entrepreneurs Benefit?

Get Advice on Founding and Funding a Green/Clean Technology Business

Photo Courtesy: aturkus on Flickr under Creative Commons License