By Biofuels Digest columnist Dr. Rosalie Lober
Many people become entrepreneurs and start their own companies because of the 'freedom' they desire. Others, who do not want the responsibility of company ownership, yet crave the idea of a small, congenial environment, also choose to work in small companies. These companies promise to fulfill an easy flowing work environment without the bureaucracy and tedious approval layers of larger corporations.
In the biofuels arena, as in other smaller enterprises, less financial resources and fewer expert functions result in a 'commercialization challenge' after the research and electronic drawings and renditions of what could be, reach the economy of scalability phase. In your kitchen, preparing a dinner for twenty may not require more time than cooking for twelve. However, in your business, this difference very likely requires more demands on farmers, producers and transport agreements.
Your innovative biofuels company requires Flexibility. The types of flexibility we address here require two types of actions that may sometimes seem to be in conflict:
- Design flexible financial strategies
- Design structured processes
"Flexibility is a creative flow and is not encumbered by rules…There is a lack of control and discipline. Things organize naturally, without effort. New ideas surface. People build on each other's thoughts and adapt to the current reality. Creativity has free reign." Some of these definitions sound almost romantic, This may be surprising, considering they evolved in a discussion in a business class.
Design flexible financial strategies
To be effective, there must be some structure when practicing flexibility. Yet not one person in the business class included the words processes, discipline, boundaries or planning in their definition. Unbounded, uncontrolled and undisciplined flexibility is not flexibility at all. It is chaos. Anyone who works for any company for any length of time can cite many examples of the phenomenon I'll call 'flexibility chaos.'
Saavy early-stage companies piece together unique funding strategies and forge powerful partnerships to reach their goals. The 'Valley of Death', the between the time a startup settles on a technical approach and commercializes a pilot project is the 'do or die' time for a biofuels business.
A new startup must keep ahead of the competition. Fortunately, the government and your competition want success and growth in the biofuels industry too. The Environmental Protection Agency proposed the Renewable Fuel Standard (RFS) and approved production of cellulosic biofuels starting in 2010, growing to 16 billion gallons by 2022 (more than 10 percent of the transportation fuel pool).
To achieve that high hurdle, biofuels related companies must execute their technologies into the commercialization phase. Lab successes can be obliterated in this phase by the competitive realities of the commercialization/scalability process.
Clarify your priorities and goals
It is critical to determine your priorities and goals. Do you want to build, own, operate, manufacture or sell your technology? Do you want to license, purchase enzymes, partner with growers, become a strategic partner? Qteros, for example, chose to consolidate the processes for separating sugars from biomass and fermentation. Their enzyme demonstrates the ability to reduce bioprocessing costs by 40 percent, through decreased capital and process outlays. This is where they choose to focus their energy.
Funding
Loan vehicles to fund and build demonstration plants are difficult to find, especially since the summer of 2008. The most profitable companies piece together a conglomerate of companies, many of whom are their own investors. This is a creative method for reducing risk along the value chain. It also creates independence and equity stakes for owners who do not want to be beholden to potential investors. Commitment is high in these companies.
And, once a company demonstrates success, finding funding becomes much easier. "We have actually been able to accelerate everything we've done because we've had good partners," says Verenium's CEO, William Baum. Verenium partnered with BP to become Vercipia Biofuels, with the goal of producing 36 million gallons of cellulosic ethanol by 2012 in its commercial pilot. Partnerships also create operational as well as financial opportunities. Vercipia is taking advantage of a Florida Farm to Fuel grant, and it was the first cellulosic project selected under the U.S. Energy Department's Title XVII loan guarantee program for innovative technology.
Creating alliances and partnerships aligns your product with producers. David Steward of Citrus Energy, Inc. has an alliance with Southern Gardens Citrus to obtain citrus peels for a time in the future when he will obtain funding for commercialization. Lining up alliances in advance of production ensures that commercialization can begin as soon as the funds arrive.
Mitigate risks
Jim Imbler, CEO and President of ZeaChem talks about risk mitigation. "Anticipating and alleviating risk whenever possible is the winning strategy for this successful CEO and his company. As global competitive pressure increases and product life cycles compress, companies are trying to shorten product development cycle times. Product development cycle times increase with increased product complexity and with product newness.
Other factors effecting financial flexibility
Some of the other important factors that determine how successful companies create their funding strategy include determining priorities for capital efficiency, time to market, exit prospects, competitive landscape, industry expectations, market conditions, policy/regulatory environment, geographic location and other investors.
Design structured processes
From new business starts to product development in large companies, chaos can reign across a range of business situations. For some companies, order may organically evolve from experience and the repetition of repeated work procedures. Creating order varies for each company and depends upon projects and expertise. Many times functions do not work together. Finance doesn't consult with marketing about pricing. Operations may not communicate with sales. Salespeople are out in the field making promises to customers without engineering or operations validating the probability of delivering on those promises.
Making it up as you go along, without coordination among the moving parts of the business, what some may call "flexibility," is a recipe for disaster.
How can your management team develop creative, adaptive and thoughtful responses to new circumstances? How can you alleviate most of the chaos in your business? A well-engineered process can address potential chaos and provide the knowledge that offers direction. Knowing what's expected can help you sail through unexpected market shifts may disrupt that frequently interrupt well-designed strategies. It is always important to have a plan. Yet, it's important to maintain flexibility and not always regiment your business to strictly follow every detail of your plan. It is not a contradiction to say that a well-designed plan with specific details reminds you where you are going and demonstrates a well-grounded thinking process and still remain receptive and open to changing your plan based on market conditions and customer needs.
Flexibility is one of the Bioenergy PROFITS Principles, highlighted in Dr. Rosalie Lober's, newly released book, Run Your Business like a Fortune 100: 7 Principles for Boosting PROFITS. Learn here, how you can apply some of the best practices and proven principles of successful biofuels companies for running your business most effectively in this current world of climate change and renewable energy.
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