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Amin Ladki

201302288
INDE 412 Midterm
1. The key factors that the founders of Biodiesel Incorporated will have to
analyze on whether or not their business opportunity is viable are the
following:
Knowledge, Experience of the founders:
The three founders have a wide range of knowledge to bring to the potential
business, however they might be missing a chemical engineer/scientist to
work on the production of the oil:
a. Joshua has a background in business and, one, can assume
that he would work on the logistics of the company. The
logistics would include setting up the distribution channels as
well as taking care of sales.
b. Hannah has a background in agricultural economics. As a
result, her job would, most likely, entail deciding on which
agricultural coops to target for materials and on an economic
plan for the future of biodiesel fuel.
c. Matthew is finishing his degree in mechanical engineering
and should be put in charge of making the diesel fuel work in
pre-existing diesel engines. As well as the technical aspect of
extracting the oil from the collected biomass.
What the founders have in knowledge they, unfortunately, lack in experience.
Two of the founders have yet to finish their undergraduate degrees while the
third is working towards his masters. They would be trying to become a part
of a $89-billion-dollar industry, and, as a result, would need, in my opinion,
help of a person or a group of people that have experience in the relevant
industries.
Resources: The resources available for a business are usually split up
into three major categories being:
(a) Human Resources:
(b) Financial Resources: By relying on the agriculture coops Biodiesel
Incorporated will not have to worry too much about either since the
coops account for over 2 million jobs1 as well as $89 million.
(c) Material Resources: One of the agricultural outputs that can be
used to extract oil is corn. There are currently 96,000,000 acres of
and reserved for corn in the USA alone, and the expected annual
Ethanol yield per acre is 462 gallons2. Corn alone would be able to
satisfy the forecasted demand of 200 million gallons. So one could
assume that Biodiesel will never have an issue gathering supplies
for their operations.
Return on investment and risk: According to chapter 7 of Byerss book
the value of any venture, V, is given by the formula:
V=U-R where U is the upside of the venture, the risk adjusted
constant and R regret. For a venture to be attractive V has to be
greater than zero. To estimate the regret of the founder one can find
the average salary of the jobs that the finders can potentially find.
Mechanical Engineers have an average salary of $87,140 in the USA 3,
the average salary of MBA graduates UC Davis is $112,895 4, and that
of an agricultural economist is $99,1805.
The of this venture is relatively high since, according to Byers, trying
to enter the energy industry is an example of an industry where there
is a limitless range of possible outcomes. Therefore, the founders
should try to have an annual return of more than a relatively high
multiple $300,000(Assuming all profits will be split equally.)
Legal boundaries: The energy industry is one that is heavily regulated
and funded. This could create barriers for Biodiesel to enter the
market.
Differentiability and Positioning: A major factor on the feasibility of a
business is if there is a market segment that is willing to pay for the
product or service. Since the forecasted demand of biodiesel fuel is
200 million gallons, one can assume that there is a segment of the
market that is willing to pay for biodiesel fuel. They are differentiated
from the rest of the energy sector since, unlike fossil fuels, biodiesel
has lower emissions and costs less than regular fuel.
2. While the customer segment is not explicitly stated in the case it can be
assumed that, from the information presented, that the customer segment
would be anyone who uses diesel fuel for power. Nowadays consumers are
as socially aware as theyve ever been and as a result they have started
caring about the environment and the world they will leave behind. This is
where Biodiesel Inc. comes in. With diesel being cheaper than regular fuel its
an attractive option for people who want to save money. However, the
emissions of a diesel engine are incredibly high and they are no longer a
viable option for someone who cares about the environment, Biodiesel Inc.
makes diesel engines attractive again reducing the pain point of increased
emissions.
3. The main drivers that the founders of Biodiesel Inc. should research and be
aware of are
Laws and regulations: Governments becoming more responsible for
the environment has led to more restrictions on the emissions of both
diesel and regular engines. The people at Biodiesel Inc. should be
aware of all the restrictions and any upcoming changes.
Materials: as biodiesel fuel demand increases the demand for the raw
materials needed for the production of the oil will also increase. The
founders should keep an eye on significant changes in the price of the
material and react accordingly.
Electric motors: As people have been looking for more
environmentally friendly solutions to their vehicle needs the number
of electric cars in circulation has increased. Electric cars will be one of
the main indirect competitors of biodiesel fuel.
Coop decision makers: A change in the decision makers of a coop could
create problems for Biodiesel Inc. as the new decision makers change
the strategy of the coop.
4. The plan that the founders came up with has some flaws the most glaring of
which are
The high barrier to entry: In an industry with multiple multibillion dollar
companies its going to be very tough for a group of 3 students to
build both the type of company and customer base that could compete
with the huge players already in market.
independence of each coop: Every coop is an independent entity and it
will be very difficult to coordinate a proper strategy between all of
them. Also, rural communities might be skeptical of inexperienced
students advising them on how to grow/change their already thriving
businesses.
Lack of patents: Since the founders havent come up with a new way
to create biofuel and are instead already known practices they are
unable to put a patent on their idea and, as a result, it could be stolen
by a bigger company that would require less of the farmers.
Low to no marketing
5. I believe that the best way for Biodiesel Incorporated to raise funding would
be through either capital funds for environmentally aware shareholders or
through government grants. The capital funds could be raised from the coops
that Biodiesel Inc. would be working with and giving them a relative say
depending on the % of the company they have purchased.
6. The best way for Biodiesel Inc. to go about solving the issue of their
distribution channels is, in my opinion, to use both wholesalers. Using
wholesalers allows for both efficient and high-volume sales, however, an
issue that may arise is that it there is now way for Biodiesel to build a
relationship with retailers and as a result there is little to no brand loyalty to
both the retailers and customers which could lead to a loss in business to
competitors. To solve this issue the founders could try and push the retailers
while still maintaining wholesaler distribution, this can be done if they were to
approach retailers directly and interested retailers would purchase the fuel
through the partner wholesalers.
7. For the business to be viable I believe that the founders should do some of
the following:
Hire a chemical engineer: the knowledge on the extraction of oil from
crops is something that the group is currently missing and hiring a
chemical engineer would remedy that.
Hire an experienced CEO/upper management: similarly, to the issue of
the lack of knowledge the group is lacking in any type of experience in
dealing within the energy industry. By hiring an experienced CEO, they
would be able to overcome some of the growing pains and learning
curve that will come with working in the real world.
Partner with an established wholesaler of fuel. The energy industry in
the US is a multi-trillion-dollar industry and, as a result, the ability of a
new company to infiltrate the industry is incredibly hard. By partnering
with an established wholesaler Biodiesel Inc. will have access to the
sort of infrastructure required to distribute their product to a large
number of people.

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N.p., n.d. Web. 06 Nov. 2016.
2. Hofstrand D. (2009). Brazils Ethanol Industry. Ag Decision
Maker, Iowa State
University, http://www.extension.iastate.edu/agdm/
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Report, n.d. Web. 06 Nov. 2016. <http://money.usnews.com/careers/best-
jobs/mechanical-engineer/salary>.
4. "Proven Placement Success - UC Davis Graduate School of
Management." Placement Report. N.p., n.d. Web. 06 Nov. 2016.
<http://gsm.ucdavis.edu/placement-report>.
5. "Agricultural Economist: Job Description, Duties and Salary." Study.com.
N.p., n.d. Web. 06 Nov. 2016.
<http://study.com/articles/Agricultural_Economist_Job_Description_Dutie
s_and_Salary.html>.