Presandado por Dr. Karl Reinhard Kolmsee General Manager / Gerente General

1. 1
IDEAS Contest: Workshop:
Business Plan – Why? How? When?
November 22nd to 24th 2010

2. 2
Agenda
 From idea to product: give the idea shape
Technological questions
Customer demand and willingness to pay
Substitutes and competing products
 Market analysis: define your playing field
customers
Competitors
suppliers
 The business plan: What is your company about:
Define the business model
Building up a business plan
Business plan for non-profit organizations
 Case Study: Biogas from organic waste

3. 3
New technologies are no new products
• What is the new technology good for? Discuss user cases in comparison
with any other technology doing the same.
• How are people supposed to use a new technology? Make sure users
can do so easily and best within there traditional processes.
• Is your product or the process to offer your service standardized?
Customers need to identify a reliable promise to always perform in a
certain way.
• Did you optimize the component list with regard to product reliability and
sourcing power? Product production is scalable with no o little variation or
tolerance from a set norm.
Ideatoproduct

4. 4
Demand needs to be transformed into
willingness to pay or a price
Only real coins sound in your pocket (Immanuel Kant)
• “Would” and “could” are no sound starting point for good business
planning.
• Make easy calculations:
• “Today people spend 100 U$ on electricity.
• Technology Beta has proven to save 10 U$ on annual electricity
spending
• Beta costs 30 U$
• Customers can recover their investment in Beta within three years.
• If customers do have the liquidity (“can afford Beta”) customers will
buy Beta.”
IdeatoProduct

5. 5
Competitors and substitutes might jeopardize
new product’s market entrance
• Are there similar products in the market that solve the problem in a similar
way.
• Are there different products in the market solving the same problem.
• How expensive are these (capex).
• How expensive are they to operate (opex).
• Compare so called total costs of purchasing (TCP).
IdeatoProduct

6. 6
Customer analysis as first step to quantify
business planning
• Who are the buyers and how many are there?
• May you differentiate different groups of buyers?
• Do different customer groups represent a variance in demand regarding
different product characteristics or a different willingness to pay (a
different price)?
• Are there buyers who can be seen as early adopters of the technology or
service? How can customers be convinced to buy your product?
• If there are few buyers or even only one buyer how strong is he with
regard to price negotiations.
MarketAnalysis

7. 7
Competitors will try to get their share of the
cake
• How many competitors (same products or substitutes) are there?
• Will there potentially new competitors if your product is successful
(barriers to entry)
• Do your competitors have any advantage? (Can you or should you copy
this?)
• How big can your share of the cake be?
MarketAnalysis

8. 8
The power of suppliers defines your margin
• How many suppliers are there for your input?
• Does the negotiation power change when growing (economics of scale)?
• Can you substitute certain components by others?
• Can you produce components yourself or build up additional suppliers?
MarketAnalysis

9. 9
The business model describes what your
company is supposed to do and how
• What are you paid for by whom? (Main sources of income)
• What drives your business, what decides whether it is at all successful,
strongly growing, shrinking? How can you influence or control these?
• What are your companies’ strength & weaknesses, what are the
opportunities & threats you face in the market (SWOT analysis) What
does this mean for your investment plan?
• What are your single most important costs components and how do these
develop over time. Is there an alternative way of sourcing and are there
any potential substitutes.
BusinessPlan

10. 10
The business plan quantifies objectives, gives
guidance and measures performance
• Profit & loss account (p&l): an overview of revenue and costs in a defined
period of time. Revenue is not the same as income, costs are not the
same as spending. Important key performance indicators are deducted
from the p&l: Gross Margin, EBITDA, EBT, Revenue Margin, Profit or
Earnings
• Cash flow statement: profit plus all costs that are no spending (like
depreciation) minus revenues that are no income. Single most important
key performance indicator is the “free cash flow from operations” (no debt
considered)
• Balance sheet: a representation of the company at a certain point of time
showing origin (liabilities) and employment (assets) of capital.
BusinessPlan

11. 11
Building up a Business Plan (1): the special
role of marketing
• Marketing spending are entering the profit & loss account as expenses
• The volume of these expenses should have a directly impact on the
revenue line. Marketing expenditures that doe not have an impact are
senseless.
• A good criteria to judge on the marketing budget is not the additional
pieces sold or revenue (which is not the same !) but the additional profit
(or if you are non profit: the additional efficiency, e.g. people served within
same budget).
• There are many ways to live with a reduced marketing budget (articles
instead of announcements, direct mailings, take advantage of existing
products / campaigns).
BusinessPlan

12. 12
Building up a Business Plan (2): financing
• Growth goes along with special financing demand. Revenues do not fully
cover working capital or investment needs.
• Sources of financing might be
Income (operative cash flow)
Shareholder loans
Suppliers “loans” (prolonged payment periods)
Debt (long or short term)
• Cash flow statement shows financing needs and potential originating of
capital.
• In the first years the cash flow statement is the single most important
economic analysis
BusinessPlan

13. 13
Business planing for Non-Profit organizations
• A company that is not thought to make profits is still a company which –
to be sustainable – follows the same fundamental rules like any other
company
• Customer definition and revenue streams might change but there is still
somebody to be convinced to pay for a service or product your company
is offering.
BusinessPlan

14. 14
Biogas from organic waste (1): Idea and
Product definition
• Biogas can be produced from organic waste like residuals from food
markets, supermarkets, restaurants, residential housing.
• The biogas technology (anaerobic digestion) is relatively easy and at low
cost to implement. Still German technology is too expensive under market
conditions. No Latin America providers for industrial plants available (if
not for CDM plants).
• Strong concerns about “new technology” and easy alternative available
(composting).
• Engineering services are not well paid for and lack scalability. Many
companies or municipalities cannot afford high one time investments.
There is private and public money available for these project – but
knowing how to get it requires expertise
• The Product: BOO (Build-own-operate) approach for organic
residuals solving the customers waste problem.
CaseStudy

15. 15
Biogas from organic waste (2): market analysis
• Currently 10 known municipal or private tenders (average 1000 t FM / d), 50
projects in process of feasibility study, new legislation expected for 2014 with
obligation for all landfills to handle organic waste. Gate fees between 2 U$ / t FM
(Peru) to 5 U$ / t FM (Brazil) show head room compared to European level.
• Energy market strongly subsidized in Argentina (0,05 U$ / m3 gas) and fully
liberalized in Chile (0,5 U$ / m3 gas) with other countries in between; all energy
prices (electricity, gas, propane gas, diesel) rising.
• Waste Treatment companies like Veolia do not consider treatment as core
competency but build up own sites on necessity if no other operator is available.
Mainly local competitors with no specific expertise in financing and no operations
track record.
• Composting companies as main competitors struggle with high transportation
costs for processed compost.
• Waste selection and waste processing technology imported from Europe with few
import licensees. Own proprietary selection and processing unit gives strong USP,
allows low cost strategy and rises market entry barriers.
CaseStudy

16. 16
Biogas from organic waste (3): business model
• NewCo is a BOO provider for anaerobic waste treatment plants.
• Revenue is generated by
Gate fees
Energy sales
Sales of organic fertilizer
• Clients are
Municipalities
Food processing industry (slaughter houses, breweries etc.)
• NewCo is successful if
It provides financing at competitive rates
It develops proprietary technology and gains price leadership
It develops expertise in energy trading and realizes synergizes between plants
• Main risks are
Expensive treatment technology for biogas residuals / new legislation with
higher requirements for treatment technology
Stuffed regional markets for organic fertilizer
CaseStudy

17. 17
Biogas from organic waste (4): from profit &
loss account to cash flow
CaseStudy
in U$ 2011 2012 2013 2014 2015
revenue 0 3.004.000 6.200.000 15.896.000 32.643.400
number of plants 2 4 10 20
electricity 960.000 2.112.000 5.676.000 12.203.400
compost 1.022.000 2.044.000 5.110.000 10.220.000
gate fee 1.022.000 2.044.000 5.110.000 10.220.000
cost -1.650.000 -2.590.700 -4.581.400 -10.303.500 -19.807.000
personal -150.000 -150.000 -200.000 -200.000 -200.000
operations -1.890.700 -3.781.400 -9.453.500 -18.907.000
R&D -1.000.000 0 0 0 0
other -500.000 -550.000 -600.000 -650.000 -700.000
EBITDA -1.650.000 413.300 1.618.600 5.592.500 12.836.400
depreciation -700.000 -2.100.000 -5.600.000 -12.600.000
EBIT -1.650.000 -286.700 -481.400 -7.500 236.400
interest 0 -280.000 -840.000 -2.240.000 -5.040.000
PROFIT -1.650.000 -566.700 -1.321.400 -2.247.500 -4.803.600
_+ depreciation 0 700.000 2.100.000 5.600.000 12.600.000
liabilities / receivables 150.200 310.000 794.800 1.632.170
free operative cash flow -1.650.000 283.500 1.088.600 4.147.300 9.428.570

18. 18
Biogas from organic waste (5): balance sheet
CaseStudy
assets liabilities
plants 7.000.000 nominal capital 10.000
earnings / losses -2.216.700
patents or others 1.000.000 equity -2.206.700
cash account 500.000 debt -10.706.700
8.500.000 -8.500.000

19. 19
Biogas from organic waste (6): conclusions
• High investment costs for proprietary technology requires solid financing
• Financing of plants either requires equity or a partner, interest “eats” up
operative margin
Financing is key for the business planning
• Markets defined by energy prices and possibility to commercialize fertilizer
Chile, Brazil or Peru preferred markets but strong local differences
• Average electricity price alone do not pay back for the plant
• Prices for compost and gate fee are volatile
High risks at current state but good outlook with increasing electricity
prices and increasing prices for gate fee
CaseStudy

20. 20
Three rules
Wrapup
• Define your product (and be aware that it adapts to a changing
market environment)
• Analyse your market (not only once but frequently)
• Build a complete and realistic business plan from the beginning and
then revise and update it regularly (e.g. quarterly)

21. 21
© Smart Utilities Solutions GmbH
Dr. Karl Reinhard Kolmsee, Managing Director
Traubinger Str. 18, 82327 Tutzing, Germany
karl.kolmsee@smart-utilities.de