Business Plan
November 2015
This document is strictly confidential and proprietary. Please do not distribute, copy, or forward without the express permission of the Safire team. This document must be returned upon request.
TABLE OF CONTENTS
EXECUTIVE SUMMARY 3
1. GENERAL COMPANY DESCRIPTION 4
1.1 Opportunity
1.2 Environmental Issues
1.3 Company Description and Vision
2 Management and Organization 5
2.1 Management Team
2.2 Mentors
2.3 Hiring Plan
3 Product/Services 6
3.1 Technical Description
3.2 Intellectual Properties
3.3 Prior Art and Competitors
3.4 Business Model
3.5 Distribution Model
3.6 Value Proposition
3.7 Barriers to Entry
3.8 Quality Control
4 Target Market Analysis 11
4.1 Choice of Target Market
4.2 Market Size
4.3 Customer Persona
5 Marketing, Sales, and Distribution 12
5.1 Marketing Strategy
5.2 Pricing
5.3 Cost of Customer Acquisition
5.4 Sourcing and Distribution Plan
5.5 Distribution Strategy
6 Financial Information 15
6.1 Current Sales Figures
6.2 Assumptions
6.3 Cluster P&L Projections: Base Case
6.4 Cluster P&L Projections: Sensitivity
6.5 Cash Flow Projections: Base Case
6.6 Cash Flow Projections: Sensitivity
6.7 Financing Strategy
7 Implementation Plan 18
7.1 Pilot Project
7.2 Local Partnerships
7.3 Expansion Plan
8 Impacts 20
9 Policy and Legal Considerations 20
EXECUTIVE SUMMARY
Safire is a for-profit company that represents a process and distribution model to produce and sell low-cost biomass-derived solid fuel in remote areas. Currently, most of the biomass waste (farm/agricultural) that exists in remote areas cannot be economically converted into useful commodities. As a result, most farmers simply burn the post-harvest biomass waste in open air because there is little economic value in it. We have developed a low-cost, decentralized, and patent-pending system that is able to economically convert the biomass waste on-site, cut down the transportation and processing costs, and bring the fuel to those who are willing to pay, therefore harnessing the potential of a US$120 billion/year worldwide opportunity.
We create a new agricultural waste value chain, and the new values from this chain are distributed to the company, the farmers (biomass providers), as well as our customers (fuel consumers). Safire generates a return by selling the solid fuel product at a margin above the costs of procuring and processing the feedstock. Farmers earn 5-10% more income by converting and selling their biomass waste to us rather than burning it. Fuel users will find our product attractive, because it will save them 20% in cooking expenditure, while still ensuring good cooking quality and experience.
Safire’s business model consists of the following components. Firstly, we recruit and train farmers to process their agricultural waste for delivery to Safire as a feedstock. Farmers in our network receive royalty-free licensing right to replicate and operate our low-cost reactors for their own use. Secondly, we set up a network of community-based production facilities to convert processed biomass into a low-cost, high-quality, and safe fuel product using our proprietary recipes. Thirdly, we distribute the branded fuel product to customers via existing community kiosks.
We have set up our pilot operation in Kenya, and then will expand to other suitable areas throughout the world where Safire’s ability to produce at a low scale with low capital investment provides a decisive advantage and execution efficiency over alternative technologies that require larger-scale production, higher start-up costs as well as more immense transportation overhead associated with moving bulky raw biomass.
Our team combines the rigors of MIT engineering and business fundamentals, with extensive in-country experience and cultural familiarity in Kenya, our pilot country. Kevin Kung is an MIT PhD candidate on biomass conversion and combustion engineering, and has spent four years developing Safire technologies. Tom Osborn grew up in rural Kenya, and witnessed first-hand the challenges of biomass waste and fuel shortage in his ancestral village. Francisco Mejia is a Harvard Kennedy School/MIT Sloan MBA candidate with 7 years as project manager with the UN’s refugee agency. Aura Castillo is an MIT Sloan MBA and Supply Chain Management student, with extensive experience in supply chain operations and management. The team has set up 2 prior companies in Kenya before, and cumulatively lived for more than 25 years there. The management team is also assisted by a network of senior Kenyan mentors with deep experience with navigating the politics, regulations, business, and start-up ecosystem in-country.
In our pilot operation, we have already installed more than 150 low-cost reactors, most of which self-funded by the farming communities. We have sold more than 12,000 bags of fuel, growing from monthly sales revenue of $20 to $900+ in merely five months. Our product has been certified by the Kenyan government.
We are currently seeking US$150,000 in non-dilutive funding in order to establish an initial set of four community-based operations elsewhere in Kenya by the end of 2016, reaching a production capacity of 1,200 tons/year. Thereafter, our expansion in Kenya can be completely financed using the profits generated from these operations. An investment made today will see a 12x net present value return in company valuation. As we demonstrate our business case in Kenya by Year 4, we will seek a round of equity investment for faster scale-up to other countries.
1. GENERAL COMPANY DESCRIPTION
1.1. Opportunity
Biomass waste is defined as the post-harvest residues generated in farms and agricultural processing mills, and occasionally, from forestry (chips and other woody residues). It is typically fibrous and homogeneous in nature, but different batches of biomass waste can exhibit drastic variability in moisture, bulk density, and other characteristics. Some common types of biomass are shown in the figure below.
It is common practice in many parts of the world for farmers to simply burn biomass waste in the open air. It is estimated that about 3 billion metric tons of biomass is set alight each year worldwide (Abelson). The reason for this rampant burning is that, beside using some small amounts of biomass waste as a natural fertilizer in the field, post-harvest biomass waste has virtually no economic value for many farmers, and is viewed as a nuisance.
In recent years, people have started to see biomass waste as a source of economic value. Indeed, there are many existing technologies and projects—such as pelletization, gasification, briquetting, anaerobic digestion (biodigesters), and organic composting—that convert biomass waste into either fuel or other marketable commodities. However, one of the fundamental challenges that all these technologies face is that various types of biomass in rural farms do not always present themselves in satisfactory quality (e.g. moisture content, bulk density) to be economically converted. The second major challenge is that most technologies have a minimally economic scale of operation. Thus, it is necessary to transport loose or wet biomass waste from afar, which is highly expensive. For these two reasons, most biomass conversion projects have remained small-scale and local, while vast swathes of remote biomass waste remains inaccessible. It is estimated that the unused/inaccessible biomass waste in Sub-Saharan Africa (SSA) and India amounts to 10 exajoules/year, enough to supply 18% of the total primary energy needs of 2.5 billion people in both sub-continents (Stecher et al., 2013). This is equivalent to a missed opportunity of US$120 billion/year.
1.2. Environmental Issues
In addition to the missed economic opportunities, burning the inaccessible biomass described above also has negative non-monetary consequences, because its disposal—often by open-air burning or decomposition—creates serious environmental and health issues. A recent Stanford study demonstrated that burning inaccessible biomass contributes to 18% of global anthropogenic CO2 emissions. Furthermore, uncontrolled biomass fires also produce high levels of toxic organic pollutants, such as polycyclic aromatic hydrocarbons, and are the cause of 5-10% of air pollution mortalities worldwide (Jacobson, 2014).
1.3. Company Description and Vision
Safire is a for-profit company (Delaware C Corp) with multiple social and environmental missions. Our pilot biomass conversion project is being implemented in Kenya (with a Kenya-based subsidiary private limited company), but we are a global company with scale-up applicability in many countries.
We facilitate the cost-effective conversion inaccessible/rural biomass into valuable solid fuel using three innovations. Firstly, we represent a series of low-cost, small-scale reactors and recipes (proprietary and/or patent-protected) that enable decentralized biomass waste conversion/densification on-site in the farms, in contrast to the costly status quo of transporting raw, untreated biomass waste over long distances to a centralized biomass processing technology. Secondly, our process immediately upgrades the quality and shelf life of biomass, making it denser and more resistant against moisture attacks. Finally, our hub-and-spoke distribution system opens up new markets in remote areas. We enable rural farmers royalty-free license to operate our technology to convert their own farm waste into a densified product that they can sell to us, and then we process the densified product using our recipes into a low-cost, safe, certified, and branded solid fuel. In essence, our distribution system connects rural farmers with waste with eager fuel consumers, and by virtue of creating value from a prior waste, Safire brings additional income and/or saving to all stakeholders in the value chain including the company itself.
2. MANAGEMENT AND ORGANIZATION
2.1. Management Team
The founding team has combined the following industry experience: (a) 7 years of running businesses in the emerging markets, (b) 5 years of rural agricultural management, (c) 4 years of scientific research and technical development the core company processes, (d) 30+ years of cumulative work experience in Kenya, our first pilot country, and (e) 7 years of experience in project management and monitoring.
/ Kevin Kung is a current MIT PhD student. His current PhD study focuses on optimizing biomass conversion and combustion processes, done under the MIT Reacting Gas Dynamics Lab and MIT-Tata Center for Technology and Design. In addition, Kevin has entrepreneurial experience in Kenya, having run a company that sold more than one million mosquito coils locally. For the past 4 years, Kevin contributed to the design and development of Safire’s low-cost reactors and processes./ Zach Cohen has worked as a strategy consultant at Cartesian. He has prior foundation experience at the Walton Family Foundation, as well as experience in emerging markets including Kenya. He graduated with an MBA degree from MIT in 2013.
/ Francisco Mejia is a Harvard Kennedy School and MIT Sloan joint candidate. Before MIT, he has worked for 7 years as a project manager with the UN’s refugee agency in Africa, Asia, and Latin America, including some time spent living in Kenya. Francisco is responsible for Safire’s financial accounting and fundraising efforts.
/ Aura Castillo is an MIT Sloan MBA and Supply Chain Management student. Before MIT, she has extensive experience working with supply chain and logistics in both developing and developed countries, in particular, in the chemical and the agricultural sectors. Aura takes charge of Safire’s business and distribution strategy.
2.2. Mentors
We currently also have the following board of advisors based in Kenya, our pilot country:
Muga Wycliffe is a senior editor and journalist at The Nairobi Star. He has written extensively about issues related to global health and renewable energy in East Africa, and has been serving as an advisor to other renewable energy start-ups in Kenya, including Sanergy. / Eric Mwandia is a senior businessman in Kenya. He serves as the Chairman of Kenya Airports Parking Services (KAPS) Holdings Ltd., as well as the Business Director of Azicon Ltd. He advises the Safire team on corporate strategy. / Professor Kamau Gachigi teaches in the Mechanical Engineering Department at the University of Nairobi, and is the Director of Nairobi Science and Technology Park. His research interest involves low-cost biomass conversion technologies. He is Safire team’s local technical advisor.2.3 Hiring Plan
Currently, we have 4 co-founders, as well as a full-time staff of 4 people in Kenya handling our first pilot operation. As we expand the number of our community-based operations, we will typically hire 4 workers and one supervisor from the local community per new operation. We also engage one short-term technical consultant related to the maintenance of our equipment. Our expansion plan, as well as the budget of these new hires is included in the operating costs of each production plant as calculated later. At the company level, within the next 12 months, we will also bring onboard a full-time engineer and a quality control specialist in Kenya to coordinate and handle the quality- and technical-related issues in the different operations.
3. PRODUCT/SERVICES
In this section, we first describe our process and its uniqueness compared to competitors. We then describe how the technology fits into our business model in order to formulate our value proposition in the agricultural waste chain.
3.1. Technical Description
We have pioneered a process for the low-cost thermochemical densification of biomass at source (i.e. at the level of distributed small-holding rural farms where biomass waste originates), without the input of additional heat/energy (i.e. autothermal process).
Thermochemical densification of biomass is a process whereby biomass is heated at an elevated temperature (between 200-600°C) in controlled oxygen environments. This results in a form of densified biofuel that has many advantages. Compared to combusting biomass directly (such as firewood or organic waste), densification results not only in less emissions (e.g. particulates) and thus better health outcomes (Pentananunt et al., 1990), but also in a higher energy density and burning efficiency, shelf life, and transportability (Acharjee et al., 2011). This makes it much more economically feasible to source and sell biomass-based commodities in a decentralized manner, opening up new rural areas of biomass that previously has been deemed too remote to serve as economical fuel. Compared to wood-derived charcoal, thermally treated biofuel is much more environmentally friendly as its production does not rely on deforestation. Compared to waste-derived biogas, thermally treated briquettes are simpler to package and market and involve lower risks of domestic fires (Verhoeff et al., 2011).
At such treatment temperatures, the smoke-producing volatiles are driven out of the biomass and combusted, thereby eliminating concerns about toxic smoke emissions when the solid fuel is later combusted. Because the combustion of smoke and other volatile gases during thermochemical treatment can provide the heat to drive the heat requirements of the treatment process itself, our reactors do not require external source of fuel/heat to run themselves.