Deal Radar 2010: Nautilus Environmental

Nautilus Environmental is an environmental consulting and testing firm that specializes in toxicology, biology, and ecology and integrating its understanding of those areas with chemistry and hydrology to answer questions with a science-based approach. Says founder Marilyn O’Neill, “We are very much applied scientists and work predominantly where land touches water – streams, oceans, estuaries, rivers.” The company aims to take a broad, multi-disciplinary perspective and thinks that this approach strengthens its science, adds value, and moves the field forward. Collectively, the laboratory and consulting divisions offer a bridge between laboratory tests and real-world conditions that ensures accurate and useful interpretation and application of environmental data.

O’Neill founded Nautilus in 2004 after fourteen years as a scientist and manager at large environmental firms. The firm she was working for was bought by a larger firm with a “command and control” culture that O’Neill disliked. But she remained at the company, working such long hours that her boyfriend issued an ultimatum: try to work less or break up. She “stubbornly chose the job demands I didn’t even enjoy so much anymore” (although she later saved the relationship) and was eventually forced to take six weeks off owing to health problems. Determined to create a more balanced life, she returned to her company and offered to buy her departments. The answer was a dismissive “no,” so O’Neill resigned to start Nautilus. The company is headquartered in San Diego, with a group in Tacoma, Washington, and a licensed sister firm now owned by an employee group in British Columbia, Canada.

According to Environmental Business International, the overall environmental testing and analytical market is estimated at $1.9 billion but is dominated by chemistry rather than biology, so most estimates are not applicable to Nautilus’s tiny segment. Based on the number and size of firms doing related work on the laboratory side on the West Coast, O’Neill estimates a total revenue of those activities of about $50 million in the west and more in the eastern United States. The consulting side is enormous and includes areas well beyond the company’s targeted niche.

The testing component of Nautilus’s work (about 70% of revenue) works on a unit-based pricing model. The consulting practice is based on a typical time and material basis.

Geographically, Nautilus focuses on the western United States and Canada including Alaska; areas on the East Coast are serviced by larger firms with whom the company has partnerships or with regulatory compliance drivers that support specific technical pockets of expertise. Nautilus’s other large geographic focus is the Pacific Rim: Hong Kong, Hawaii, Guam, and many smaller islands with U.S. Navy activities.

In terms of client sector, Nautilus starts with permitted entities to evaluate the compliance market (e.g. NPDES permit holders); agencies with strong support for woman-owned, small business enterprises such as federal agencies; utilities and transportation in California; large ports and harbors; environmental firms; and universities with complimentary technical focus. In light of the oil spill in the Gulf of Mexico, Nautilus is seeing an increase in requests to evaluate products for EPA NCP compliance and approval for use in the gulf.

The company maintains a diverse base of more than 200 clients which breaks down as follows:

• 50% municipal (Port of Los Angeles and Long Beach, Port of Seattle; cities throughout California, Washington, Idaho, and Alaska; utilities such as Pacific Gas & Electric; regulatory agencies such as Washington Department of Ecology
• 40% commercial (environmental engineering firms such as MACTEC, Geosyntec, AECOM; analytical chemistry labs including ALS and EMAX; shipping industry leaders including BAE Systems and General Dynamics; energy sector and oil & gas firms – Kinder Morgan, Chevron Texaco, ExxonMobil; and specialty practices with site-specific issues like the Kona Blue fishery in Hawaii
• 5% federal government (U.S. Navy, U.S. Marine Corps, United States Geological Survey)
• 5% academic institutions (University of California system, Scripps Research Institute, University of San Diego)

As part of a 50,000-person firm prior to forming Nautilus, O’Neill felt somewhat at a competitive disadvantage with a niche technical offering that could have served its competitors, most of whom did not have Nautilus’s specialized knowledge and laboratory facilities. Some partnered with Nautilus and some viewed it as a competitor. O’Neill believes that the company’s biggest advantage continues to be the way it thinks about projects and the depth of technical knowledge it offers in a very specific area of environmental toxicology. Its services are almost always complementary rather than competitive.

Nautilus began with $902,000 in annual revenue. In 2009, revenue was $3.1 million, but the company lost money for the first time ever since many projects were put on hold. O’Neill says that 2010 has been the best year ever thus far at $1.13 million in revenue through April, with net of nearly $166,000 with strong backlog and capitalization.

Nautilus was initially funded with equity from O’Neill’s house and two friends in commodities futures. These investors also allowed O’Neill access to a large home equity line of credit (HELOC) for additional AR funding needs as the company grew. Once the company had a profitable performance history, it obtained a AR-based line of credit from a small community bank. This was insufficient, and Nautilus continued to use its investors’ HELOC as well as O’Neill’s. On March 1, 2010, Nautilus closed on $709,000 in SBA 7a working capital funding.

The next step is to form an LLC to purchase a building for the operation, and Nautilus will be putting out an offering for additional investors. It has $100,000 secured of the $300,000 it anticipates needing and two additional interested parties at $50,000 each. The company is looking for investors who want long-term steady returns rather than a liquidity event.

Nautilus’s growth strategy encompasses focusing on how it adds value to a situation, program, project, or approach; trying not to over-structure beyond what’s required for consistency; staying nimble and flexible; maintaining its position on the leading technical edge; and treating people and its relationships well, both internally and externally.

O’Neill plans to give employees greater control and greater stakes so that she can pursue other interests, especially mentoring women who want to create their own businesses, but she does not anticipate an exit. She likes the model of licensed sister firms because she thinks it keeps the company strong while empowering employees. “I didn’t choose this path for material gain; I wanted first, my freedom, and second, not to waste the potential I saw in others and myself,” she says.

Recommended Reading
From Greenpeace To Green Power: Sungevity CEO Danny Kennedy
Mompreneur Stories: Personal Fulfillment
Real Life Entrepreneur: Marilyn O’ Neill of Nautilus Environmental

This segment is a part in the series : Deal Radar 2010