Bioenergy PROFITS Principles: “You Cannot Be Everything For Everyone”
YOU CANNOT BE EVERYTHING FOR EVERYONE….
What is growth in your industry? For most, it is expansion, profitability or some other measures indicating success. There is usually risk taking involved and the expectation is that this risk will reap rewards in the near future.
Position Only For Growth is essential to growing any business, and it catapults you to create opportunities for boosting and sustaining profitable growth. Like a game of dominoes, when a company positions for growth, it begins a cascading chain reaction throughout the company. Ideally, all functions within the company begin to take actions to support the company’s positioning – whether it is a new strategy or a launch of a new product. It is an exciting time filled with energy, hope and promise.
Some of the actions to take when you Position Only for Growth are:
- Be different and unique
- Define your business model
- Demonstrate growth and evolution
- Seek out and influence funding support
- Ask penetrating questions
Be different and unique
Positioning your company, especially towards a new approach, is expensive and time consuming. To be effective, you need to align your people, your strategies and your processes with market and customer needs. Therefore, it makes sense only to reposition when you have evidence that the repositioning will result in expansion and/or profitability.
PetroAlgae is the example we continue to use to illustrate best practices in the biofuels industry. PetroAlgae’s leadership team believed and continues to believe so strongly in its business model and its ability to go to market successfully, that positioning for growth is a natural evolution in its journey towards its commercialization process.
PetroAlgae positions itself around its mission:
“To dramatically alter the global energy landscape through large-scale replacement of petroleum while creating a new source of food for the world.”
This certainly is a dramatic, yet clear statement and PetroAlgae aspires
to be the global leader in creating renewable biomass. Renewable fuels require biomass feedstock (made from plants). No conventional source has been able to yield a sufficient commercial supply. PetroAlgae has broken the biomass bottleneck with micro crops. PetroAlgae focuses on commercialization of micro crops today – something new, different and ahead of its competitors.
The company strives to be strong with economics of scale using micro crops as feedstocks as the viable and efficient fuel solution (88% of the economic value of biodiesel is the feedstock). With growth modules proven at full scale, along with standard equipment used in the construction of bioreactors and processing plants, in addition to productive use of non-agricultural and marginal land, PetroAlgae produces a highly scaleable and cost effective system.
Although it already brings to market, a platform that works, PetroAlgae is always on the lookout for optimal solutions that may evolve. Its company leaders accept the reality that they cannot be everything to everyone. Yet PetroAlgae’s reputation in the industry is that of first adopter for commercializing micro crops as feasible biofuels and protein food. The company has stated that the chemical composition of the proteins has a high enough value that it can nearly cover the cost of the facility investment and that the protein side and fuel sales provide the remainder of the cost coverage plus profit. The company continues to confirm that its system is cost competitive today with $70 per barrel for oil.
Define your business model
Customers must make sense of your business model prior to committing to purchasing your product. A customer, generally a refinery or manufacturer, wants to follow logical steps towards using your product to become more profitable and answer the difficult questions of feasibility. Though your company may believe their strategy is risk free and may even be willing to bet the farm on a few risks, the market and your customers do not have your faith in your business. This is primarily because you know your company and its ability to execute its strategies. The market does not have the first hand knowledge that you do. So – it is your first priority to help them view the company from your perspective. You must be able to address any concerns and objections that surface for your existing and potential customers. And you must have success stories that validate your credibility.
PetroAlgae is a first adopter. It is the first company in its industry that focuses on commercializing today. A few years ago, the company discovered that renewable energy was an unmet need for producing renewable fuels which include diesel fuel, jet fuel and gasoline.
The company leaders made the decision to focus on micro crops, while most other producer companies focused on macro crops. Macro crops generally fall short in the areas of pricing, fuel vs. food controversies, limits for supply and limits for resource efficiency (i.e. land, energy, and water).
As a result of PetroAlgae’s willingness to take on risk, though it appeared a calculated risk to its leaders, PetroAlgae launched its business platform in 2006. The company invested additional tens of millions of dollars to produce a commercial-scale demonstration facility. The operating pilot facility provides sample proof of plans for the sales pipeline. This pipeline suggests target sales assumptions for the next five years with significant upside and commercial deployment ready to go in 2009 at the 20 acre customer demonstration facility in Fellsmere, Florida.
PetroAlgae began to merge its technical discipline along with commercialization. This included integrating physics, light management and biochemistry. As it focused more on commercialization, the actual ability to commercialize began to take place. The company evolved to optimizing solutions for customers rather than merely singularly focusing on technology.
Today, PetroAlgae builds world class solutions and licenses its technology to national oil companies, global companies, refineries and to those companies interested in CO2 migration. There is interest around the globe.
PetroAlgae views its business model for licensing as low risk. Its highly productive crop management process uses existing micro-crop strains with proven yields of biomass and protein per acre. Each licensee is promised the potential to produce 1.5 million barrels of transportation fuel per year or the equivalent of 1.4 billion miles for a single truck. Price assumptions are targeted at a discount to existing price points. The licensee pays all capital expenditures for the technology it utilizes and provides the CO2, land and water it uses.
Licenses are on a per unit basis, generally 5000 hectares per unit. The unit produces approximately 250 – 350 thousand metric tons of bio-crude/unit/year and approximately 90 – 120 thousand metric tons of protein/unit/year. The IRR for the licensee is highly profitable with high operating margins and rapid payback on capital investment. PetroAlgae believes it is selling a low risk path to market strength in what can be a high risk, emerging industry. It states it is selling the tools that will allow producers to operate with maximum efficiency in a price-sensitive, competitive environment. At this point, PetroAlgae’s direction and claims appear factual.
In March, 2009, the company announced that GTB Power Enterprise of California signed a licensing agreement to use PetroAlgae technology to build and operate 10 facilities to grow algae for oil and biomass in China, Taiwan and on the Japanese island of Yonaguni.
PetroAlgae’s lead in the market is based on feasibility. With some prestigious awards such as the Sustainable Biofuels Technology Award winner in the Technology Supplier category at the 2009 World Biofuels Markets in Brussels, the featured cover story in TIME magazine’s “How to Win the War on Global Warming” and an Emmy Award winner, the company gained credibility. The company was selected to participate in the “Faces of Climate Change Campaign” in June, 2008 by the Environmental Defense and the Florida Wildlife Federation. PetroAlgae is becoming a well-known star in its industry.
PetroAlgae’s business model excludes reliance on government subsidies. It wants to be known for funding its own technologies that work as the company continuously improves its processes using best practices.
Labs within the Kennedy Space Center is one way the company continues to improve its processes, research best practices and utilize state of the art technology. PetroAlgae strives towards innovation and testing and revising current strategies. The result is an innovative and evolving company.
Demonstrate growth and evolution
Customers want to know that you have successfully moved from Point A to Point B. This demonstrates your ability to accomplish your goals and execute your strategy. To the marketplace, your goals need to primarily point towards financial successes. If you are in a scientific industry, your scientific technology platform must also demonstrate progressive optimization.
PetroAlgae moved from a research and development model into its current market focus on commercialization. Its end to end model is market driven with multiple by products which include proteins. Its platform includes growing and harvesting varieties of micro crops (approximately 150 varieties) that are drop-in fuels to existing refineries and infrastructures, with by products that become part of a commercially valuable food for animals and humans simultaneously. Yet this takes lots of money to finance.
Seek out and influence funding support
Potential funding sources start out with information needs that are similar to customers and the general marketplace. Your business model must make sense. Customers must perceive risks as minimal – or they will not make a purchasing decision. An added requirement for influencing funding sources is for the funding source to perceive a relatively fast return on their investment.
In January, 2009, PetroAlgae closed on a US $10 million capital raise through the sale of approximately 3.2 million of newly-issued shares of common stock to two existing investors. These investors already had a positive experience with PetroAlgae and were still hanging in with them.
The company said that the proceeds from the stock sale will be used to help finance the commercial launch of PetroAlgae’s biodiesel product derived from algae.
“As a result, 2009 could represent the breakthrough year not only for PetroAlgae but for the entire biodiesel and alternative energy markets. We are pleased to be able to position PetroAlgae at the forefront of these emerging markets and look forward to providing our shareholders, employees and customers with our detailed commercialization strategy in the weeks ahead,” said Dr. John Scott, chairman of the board of PetroAlgae.
Ask penetrating questions
Based on the previous discussion of customers, the general market and potential funding sources, it is wise for you to ask the penetrating questions before your stakeholders approach you. Anticipate their concerns. This is similar to any sales pitch. Know who your stakeholders are, address their pain, their concerns and then demonstrate what’s in it for them when they purchase your product.
PetroAlgae is able to answer the questions that position it for future growth vis a vie the current market needs. PetroAlgae’s marketing literature supports the penetrating questions and subsequent answers.
The market needs are clear and so are PetroAlgae’s responses.
PetroAlgae focuses on scalable algae production that is economically viable.
PetroAlgae focuses on intensive CO2 consumption and creating clean fuel.
PetroAlgae focuses on creating a sustainable resource that does not compete with the food supply.
The biofuel feedstock that PetroAlgae utilizes is economically viable and the company does not rely on subsidies. PetroAlgae chose micro crops over macro crops for efficiency, quantity grown per acre and economic feasibility. It is able to create its solution effectively using the physics of light management, combined with biochemistry.
As you consider whether to position your company for growth, ask yourself the following questions:
- How do you define sustainable growth and profitability for your industry?
- Do you know the value of your business for your customers?
- What are the ways your company operates efficiently? Inefficiently?
- How has your company evolved to competitive market shifts?
Today’s topic, Position Only for Growth, is one of the seven Bioenergy PROFITS Principles. This series highlights proven principles to running your business more effectively (from the newly released book, Run Your Business Like a Fortune 100: 7 Principles for Boosting PROFITS, by Rosalie Lober, Ph.D.) and illustrates key points of the successful company, PetroAlgae, specializing in advanced technologies to produce oil and animal feed from algae.
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