The failure of Nau is a real tragedy. As part of my mourning process, I want to speculate “from the cheap seats” on why Nau failed and what we might all learn about sustainable business. By Phil Berry

While I have a lot of friends who helped build Nau, and have shared speaking panels with members of the management team on several occasions, I have no special inside knowledge here. But, having wallpapered the bathroom of a house in San Jose with worthless stock certificates from three different employers that all tanked, let’s just say I know a little something about the failure of startups.

We need to draw a distinction about the failure of Nau. It was a business failure. It was not a failure of their sustainability business model. In my opinion, it was a failure of their business plan.

Nau worked to innovate a new product concept by designing and creating products of enduring value. They created new materials and a new retail distribution model. They worked to implement an aggressive community give-back model. They worked to implement them all at once from the beginning. I think it’s valid to say all of these were integral elements of the Nau business model.

That’s what makes Nau a compelling story. I also think it’s what caused their financing problems. All of those innovations have a cost and require capital. Too much work taken on too fast? Maybe.

Obviously, more businesses than Nau didn’t foresee the coming of this enormous credit crisis. But it is also obvious that the inherent risk of a startup was compounded by a large list of new ideas intended to revolutionize the apparel business. The big, expensive agenda serves to magnify the appearance of risk in the eyes of investors. The least little thing can scare them off – and the cost of oil and the crisis in credit markets was way more than enough.

What did we learn about sustainable business? It reminded us that the same business rules and realities apply. In any startup, you don’t need to know “what is going to go wrong” to know that “something is going to go wrong.” You have budget for financial chaos in your business plan in a big way. The more aggressive your agenda – the bigger your chaos budget needs to be.

It also shows that we have made great progress in the financial markets. Nau got funded. They got funded through a higher than average number of financing rounds. The people who know business and have money recognize that sustainability is a source of business innovation and value. We also know that they will not change the rules about how risk is recognized. Screw up and they’ll still pull the plug.

We are also reminded that there are great sustainable business innovations out there yet to be developed – and that those great opportunities carry business risk along with the reward. Only those who can manage both will become the new big winners in global business.

The Nau management team and employees have collectively redefined so many “business realities” that we all owe the company and the team a lot of credit and our thanks. They moved us all along in thinking and created a great deal of social value in the process.

In the end, I just wish Nau had managed the business better and survived to give us more sustainability results.

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Phil Berry has spent the past 30 years implementing corporate sustainability and lean manufacturing programs at companies large and small, most recently for a global apparel manufacturer. He has worked with more than 400 organizations on five continents (particularly in India and southeast Asia), advising on core product design functions such as waste minimization and toxics reduction. Phil is SLM's expert-in-residence on sustainable product sourcing and innovation, as well as the host of Sustainable Sourcing Update.