From COzero to hero
The Federal Government release the details of their carbon pricing this weekend and one guy who would have cheered the Prime Minister’s decision to welsh on her promise to not introduce a carbon tax was Nick Armstrong, who actually has an up-and-coming business in line for a public listing next year.
He is the owner of the brilliantly named COzero, which actually deals in buying and selling carbon.
The business was started in 2007, initially as a social network with the purpose of aggregating capital from carbon emitters of all sizes, and channeling this capital to projects that reduce carbon emissions.
“We set up initially as an online business with a split focus on B2C and B2B,” Armstrong explains. “The business has evolved to be a purely B2B trading company with direct sales channels – our vision is to be Australia’s leading emissions trading company.”
In 2001, the Federal Government introduced Mandatory Renewable Energy Target (RET) to increase the amount of renewable energy production in Australia to five per cent by 2012. Then in 2008 this target was expanded to about 20 per cent by 2020. The mechanism the government chose to provide a financial incentive to encourage the construction of renewables was the Renewable Energy Certificate (RECs).
COzero is an aggregator of RECs from a range of generation sources such as rooftop solar, wind farms, hydro power stations, etc.
“We trade these in the secondary market, which is driven by demand from liable parties under the RET,” Armstrong explains. “The balance between supply and demand sets the price of the certificate, and there is a traded market for these certificates, similar to a stock market.”
They also aggregate carbon credits known as Certified Emission Reductions (CERs) from a range of projects in developing countries that reduce, or avoid, emissions. These CERs are used to meet targets under Emissions Trading Schemes (ETS) around the world.
How will the carbon tax affect his business?
“Domestically, the Australian government has rejected an ETS in favour of a carbon tax, which does not allow trading,” he says. “A carbon tax is in addition to the existing RET.
“Under a tax, COzero will have to look to offshore markets for demand for our product. The current proposal for a carbon tax is not only going to cause greater cost to business than an emissions trading scheme would, it means that the emerging carbon market in Australia will be forced offshore.”
On a simply competitive basis, an ETS would be better to keep the cost of going Green down, he maintains.
The pathway to this point in his entrepreneurial journey for this former Sydney University science graduate, who is now 27 years old, was typical of many business tragics who have an insatiable desire to create their own operation.
“I did bartending for five years in Sydney CBD bars, serving and meeting a great network of business people,” he points out. “ I founded several failed and successful startups, including – ‘Bite me burger Co.’, online food ordering business, Foodbyweb, EcoSolar Pty Ltd, a solar PV project developer and Greentricity.”
This latter business kicked off in 2005 and was a 100 per cent green power accredited electricity retailer and was eventually sold to the ASX listed Australian Power and Gas in October 2006.
So, as you can see, this guy has some form and it is pretty impressive, making you suspect that COzero is not a business based on a whole lot of hot air.
The turnover of the business has grown from more than $0.5 million in financial year 2008-09 to more than $150 million for the year ahead. There are COzero offices in Melbourne, Sydney and Beijing and traded volumes are expected to grow from five million tonnes CO2 equivalent (mtCO2e) in 2010 to 50mtCO2e in 2012.
Typical of the new age business, COzero is a lean operation.
“When we began the co-founders worked for close to two years without taking out any cash,” he recalls. “Now we have 12 employees – we keep staff count low by outsourcing all non-critical business processes. Keeping a small team fosters a great culture and outsourcing saves money in the long run.”
But Armstrong is not just a science nerd. He seems to be a business one as well with a strong appreciation for the make or break it issue for start-up business – cash flow.
“Our growth can be attributed to a combination of favourable government policy, an increased focus on renewable energy and reducing emissions, and our ability to rapidly change our business model as the policy environment changes,” Armstrong says. “We are cash flow fanatics, and manage to turn our cash over very quickly.
“We pay our suppliers as quickly as possible and this enables them to grow their businesses faster, contributing to our growth.”
All looks pretty rosy in the COzero garden but it hasn’t come without its challenges.
One was connected to what Armstrong calls vulture investors.
“We have had several vulture investors circle the company in the past three years, and a deal would have resulted in significant value destruction for shareholders,” he laments. “Rejecting these deals was not easy at the time, but has enabled the seed investors and key staff to retain 100 per cent equity in the company.”
“We worked to maintain shareholder support as well as trust and we rejected deals that would have been disastrous in the long run, although it was difficult to do at the time,” Armstrong admits. “We also used existing relationships rather than making new ones, leveraging off what we already had.”
He has a philosophy that works for these business issues, which simply is summed up as “never give up and separate emotional attachment from reality.”
This attitude came in handy when the COzero team knew they had to confront the fact that they had backed the wrong horse and therefore had to change mid-stream.
“In 2008 the company had to tear up our business plan and rewrite a new one,” Armstrong reveals. “We’d spent our last dollar trying to keep the previous business plan alive – emotionally it was very difficult for the co-founders to scrap a plan we fully believed in.
“When we realised that a social network was best left to Facebook, our business model changed accordingly and rather than being an intermediary, we became a principle.”
It was this realization that made the difference to COzero’s growth, showing sometimes the cash balances can actually tell an entrepreneur a story they don’t want to read, yet they refuse to read it at their peril.
Another challenge, which the company has nailed, is a bank that really believes in the business vision.
“We moved banks four times but we are now at ANZ and have a relationship manager that is a legend.”
The final wall standing in the way of business success has been that old chestnut – life-work balance and maintaining a good, healthy relationships with friends and family.
“Most people don’t understand the strain you’re under. The minute you bring work home or into your social world, relationships start to deteriorate,” Armstrong points out. “I’m still learning how to balance by trying to limit the discussion of work around friends and family. I think you have to separate work from home and play by having separate zones.”
Asked what he has learnt about growing a business, the role of managing cash was of paramount importance.
“Work out how much cash you need to succeed, and then double it,” was the tip. “Having spare cash at bank is never a bad thing while not having enough cash at bank is a disaster.”
“Don’t underestimate the power of networking,” he lectures. “When you stop meeting new people, your value as an entrepreneur decays – never be afraid to start a conversation, or stop one.”
And he re-emphasised the importance of having a strong relationship with a bank that believes in your business.
And finally he recommends getting out and seeing the world.
“Australia is a small market and a great starting platform but the real opportunities for growth are in the rapidly growing ASEAN and Chinese markets.”
On the future of the company, the COzero team are looking to the IPO in late 2012 and currently are in the process of building a board. Meanwhile, they are expanding into trading other products while continuing to pursue international growth.
Looking at what has driven Nick Armstrong pointed to a book that is one of my favourites – Outliers by Malcolm Gladwell.
"No one – not rock stars, not professional athletes, not software billionaires, and not even geniuses – ever makes it alone," Gladwell insists and for Armstrong his inspiration has been his “parents, family, teachers and all those who have given me the opportunity to be successful.”
He singles out his mentors Nick Kell of Shaw Stockbroking and Peter Gardiner of ANZ.
On what he’s learnt about leadership in developing and growing a number of successful businesses, he points to valuing good people.
“I’ve learnt to build a team of people that complement me, not clone me,” he says. “Also, I’ve developed the understanding that my team is motivated by more than cash alone.”
In 2010, he handed over the day-to-day management of the company to a professional management team, after realizing that’s not where his strengths are. David Hayes (Director Business Development) and Geoff Alexander (COO) are responsible for making sure the wheels keep turning.
If you can have objective eyes about yourself as an entrepreneur you can really come up with the critical decisions that explain why some businesses go from good to great and why most don’t.
First business: Greentricity
Career highlight: Signing our first major CER offtake deal in China (2008)
Best piece of business advice you ever got: Timing is everything.
Most frustrating part of doing business: Finding a bank that understands what you do and believes in you.
Favourite marketing technique: Guerrilla marketing
Business leader you most admire: Peter Gardiner, Director Business Origination, ANZ (previously director strategic growth markets at EY, founding director of Kudos IFS Ltd UK.)