Analysis of BioDiesel Incorporated Business Plan

Analysis of BioDiesel Incorporated Business Plan Abstract Biodiesel is a fuel comprised of mono-alkyl esters of long chain fatty acids derived from vegetable oils or animal fats, designated B100, and meeting the requirements of ASTM D 6751. This is a standard set by the standards organization ASTM International. The production of BioDiesel had experienced a significant growth spurt over the past four years. BioDiesel Incorporated is attempting to capture a segment of this growth spurt. Currently, the United States has “115 biodiesel production companies throughout 39 of the 50 states” (U.S. Energy Information Administration, 2013) that are competing for the market. BioDiesel Incorporated has identified a global need for a biodiesel products and has proposed a cooperative business model that will attempt to control the raw material cost. This cooperative will utilize materials its members to produce the biodiesel at a more affordable production cost. This study will explore BioDiesel Incorporated’s business opportunities, market drivers, and the business strategy, financial needs for this type of start-up, and what the distribution channels are. Each of the components are essential establishing a good footing for BioDiesel Incorporated. This study will conclude with recommendations and steps that could be required to move this business concept forward to become a successful competitor in a market that continually grows exponentially since Congress passed legislation; Energy Policy Act of 1992 and Energy Policy Act of 2005.

Analysis of BioDiesel Incorporated Business Plan

BioDiesel Incorporated was established to capitalize on the emerging market of biodiesel. The founders want to create a producer’s cooperative that what enlist the members to produce the raw materials; which would reduce the production cost of biodiesel. Additionally, the capital equipment that is required for production of the biodiesel would be shared and spread over the membership of the cooperative. Another facet of the business strategy is incorporating the distribution channels. BioDiesel would distribute the biodiesel utilizing the existing infrastructure that is currently being used by the fossil fuels. Business opportunities are generated from an individual’s “attitude and perspective because inspiration is everywhere” (Nota Bene Consulting, 2014). The global society has influences or clues to great ideas but an individual has to be receptive to see or hear them. The founders of BioDiesel, Josh, Hannah, and Matthew, were listening to the clues from the energy markets by being perspective to the dependences of fossil fuels from other countries. This dependency drives the cost per gallon of fossil fuels and depletes the world’s natural resources. Each of them, through their research project, was able to identify the challenges and opportunities that the energy consumers are facing as the extraction of the fossil fuels are damaging the environment. Listening to the clues and influence are only the beginning of great ideas, these qualities need to be infused with management experience from this industry to ensure BioDiesel Incorporated starts off on a solid foundation. Like all start-ups, BioDiesel, will need to harness the management experience of the three founders. The key factors for any start-up are management quality of the founders and their “earlier experience in the industry, as well as the timeliness of the new technology innovation” (Technology Ventures: From Idea to Enterprise, 2014, p. 159). This experience would appear to be minimal due their current position as an undergraduate. This inexperience could be an obstacle to BioDiesel; however if the three founders were able to recruit an expert from the industry and leverage their experience to help guide them through the start-up phase, this could avoid challenges from potential investors. Additionally, utilizing an expert from the renewable energy markets will help the entrepreneurs understand the market drivers for this industry. Identifying and monitoring the key market drivers of a business is critical to integrating the new business opportunity and boosting the profitability of the new business. These key business market driver are something that has a major impact on the performance of the specific business success. The market drivers that BioDiesel will need to understand are wide in nature; which will make it more critical to the success. Biodiesel markets can be grouped into three categories: security, economy, and environment. Each of these categories can be divided in to a public and private components. Understanding all these “factors, a firm seeks to increase its efficient use of investments and reduce its operating costs” (Technology Ventures: From Idea to Enterprise, 2014, p. 382). Examples of these markets would include the Department of Defense (DOD) from the public sectors. The DOD uses some “300,000 barrels of oil a day (~5 billion gallons per year)” (Duff, 2013, p. 22). This is 80% of the federal government's total fuel usage. Understanding the market driver will help develop a distribution process for the completed product. Utilizing distribution channels such as using the existing infrastructure as it was proposed by BioDiesel is the most cost effective effort, however this approach creates additional changes for BioDiesel. The potential growth be adding bioenergy to an infrastructure that is already hampered by the energy demands will “likely to exceed the combined capacity of current agricultural and energy supply chains, including grain, petroleum, and coal” (Richard, 2010). BioDiesel will need to establish a supply chain model that will support the bioenergy industry. This supply chain model will allow BioDiesel to monitor the supply channels and any potential risk from these supplier within BioDiesel’s supply network. Supply chain models can be defined as an integrated process in which a “number of various business entities work together in an effort” (Beamon, 1998). Manufacturers’ partner with third-party distribution companies, providing wholesale product that is then bought by retailers and other end users. This model is still valuable and widely used today. Biodiesel distribution system has largely followed the “same model as petroleum-based fuels” (Carpenter, 2013), so leveraging the existing local infrastructure would make the most sense for BioDiese Incorporated. Once BioDiesel creates a supply chain map to outline the distribution channels, the opportunities for understanding what drive the markets will help direct the founders in to the most profitable markets. BioDiesel Incorporate failed to capture an adequate sense of the market drivers that are key to ensuring the company’s success. The founders of BioDiesel did not incorporate the various markets that are found in the renewable energy sector. This oversight will not allow the company to tap in to a market that could potentially be used to sustain the company. Additionally, this oversight does not allow the founders to understand the regulation that is enforced by the U.S Department of Energy. A failure in not following Federal regulation may result in shutting down the company before it get started. BioDiesel Incorporated can implement four “competitive capabilities: low cost, high quality, speed, and flexibility” (Technology Ventures: From Idea to Enterprise, 2014, p. 331) that could be explained by the business strategy. Each of these points are the key tenants for any company; large or small. Quality is a measure of a product or process that usually includes performance and reliability of that product or process. Performance is a measurement to which a product or process can meet or exceed certain functional features. Reliability is a measurement of how long a product or process performs before it fails. On-time delivery speed measures the pace of lead time, on-time delivery, and product development. Flexibility is a measurement of a company’s ability to react to the customer’s needs quickly. All of these goals need to be achieved while operating with the additional goal of meeting Federal regulations. Each of these management components of BioDiesel will have an impact on the fiscal pofile of the company. This fiscal profile will be influenced by the type if financing that BioDiesel will pursue. Investing risk capital is a basic members’ responsibility of a cooperative. The initial investment requires equity capital. BioDiesels’ members would will utilize equity capital, which represents the investment in ownership through purchase of the equipment for the company, from the membership of the framers to establish the initial seed capital for building out the facility to produce the biodiesel for production. Unfortunately, the “equity investment required to build a biofuel plant is typically greatly disproportionate” (Canadian Co-operative Association, 2007) to the net returns available to farmers producing the biodiesel. The US Department of Agriculture recognizes the disproportionate nature of a cooperative and has passed “legislation, Farm Credit Act of 1971” (Rapp & Ely, 2010), which defines a cooperative that is eligible to borrow from the banks for cooperatives in the Farm Credit System and the conditions the cooperative must meet. BioDiesel Incorporate has several challenges that they will face when attempting to generate the funds from equity capital due to the cost of the equipment. Additionally, BioDiesel will have to overcome significant flaws that were identified within the business strategy prior to seeking debit capital from investors. BioDiesel Incorporated business strategy plan had three major finding that would need to be address prior to presenting to potential investors. The first major finding from the business strategy is the lack of market research. The founders have highlighted the background of the technology and what the challenges is that the founders want to mitigate; however there is no evidence in the business strategy to indicate what market BioDiesel wants exploit or operate in. The second major flaw is the business strategy plan does not identify how many members’ are going to be in the cooperative. The strategy needs to identify the member threshold to determine what the breaking point for cost of the raw material would be. The third finding from the business strategy is the lack of experience from the energy industry. The business strategy needs to incorporate the level and quality the management experience within the bioenergy markets. Investors’ want to have that assurance that this new venture will have a profitable payoff and financial growth. Conclusion The three founders of BioDiesel Incorporated have a good opportunity to exploit a new emerging technology of biodiesel. The technology involved in the development of biodiesel has been on a rapid growth curve for the past three years. BioDiesel can capitalize on the boom to the industry and make a difference for the world’s environment. Based on the major finding with their proposal, BioDiesel would need to correct those recommendation in order promote their chance of success in this fast growing industry. The nest step that BioDiesel would need to pursue would be securing the initial investment for the development of the facility the will produce the biodiesel. This segment of BioDiesel effort in creating the cooperative would require enlisting enough members and putting together the board that would make the decisions for the cooperative. This study has indicated that BioDiesel is still several months if not years away before the cooperative would be able to begin production of biodiesel for retail purposes.

References

Beamon, B. M. (1998). Supply Chain Design and Analysis: Models and Methods. International Journal of Production Economics, 55(3), pp. 281-294. Canadian Co-operative Association. (2007). Guide to Starting a Biofuel Co-operative. Carpenter, G. (2013, July 10). Expanding Distribution Channels by Thinking Outside the Box. Retrieved from Biodiesel Magazine: https://www.biodieselmagazine.com/articles/9216/expanding-distribution-channels-by-thinking-outside-the-box Duff, B. (2013). MARKET DRIVERS FOR BIOFUELS. 3rd Annual MSW to Biofuels, (p. 57). Orlando. Nota Bene Consulting. (2014). Where do Great Ideas Come From? Retrieved from Nota Bene Consulting: https://www.notabenemarketing.com/great-ideas Rapp, G., & Ely, G. (2010). How to Start a Cooperative. Washington DC: United States Department of Agriculture. Richard, T. L. (2010). Challenges in Scaling Up Biofuels Infrastructure. Science AAAS. Technology Ventures: From Idea to Enterprise. (2014). McGraw-Hill Create. U.S. Energy Information Administration. (2013, Decmeber). Monthly Biodiesel Production Report. Washington DC.

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