Envirofit Case Study | Nonprofit Organization | Profit (Accounting)

Memorandum Date: 2/20/12 To: Envirofit Founders: Nathan Lorenz, Tim Bauer, Paul Hudnut, Bryan Willson Subject: Analysis of current

state of the Envirofit International venture for 2-cycle retrofit Introduction: Envirofit International appears to have found a significant, under-served market in providing cost effective solutions to the growing needs of the 2-stroke engine users in developing countries: the classic example, but not limited to, the tricycle taxis of the Philippines. The ability to provide a solution that allows users to decrease fuel consumption (i.e. increasing profits), while meeting the growing body of government restrictions, and with the additional benefit of reducing pollution is indeed a significant innovation. That said, there a few significant challenges your team needs to address before your concept can become a viable business. Analysis: The most pressing decision facing the team is related to funding, or more accurately to decide on what kind of business model to implement: as a not-for-profit or for-profit organization.  The for-profit business model is seen as a much more efficient configuration that can consistently turn out the widgets, distribute them, and make a profit. Decision-making is centralized and therefore efficient. This efficiency often translates in to greater access to financial markets, thereby providing a more likely consistent source of funding.  In the nonprofit sector, the business is designed specifically to meet all of the criteria of their "multiple bottom-lines”, even those not necessarily related to business-like values such as measurements of profit. Yet nonprofits often must include multiple players in decision-making, it is more difficult to de-emphasize one bottom line priority over another to expedite decision making. Funding for non-profits is not as assured as for-profit enterprises, and nonprofits must meet complex reporting standards set by funding sources and government. Recommendation: I would strongly urge you to configure Envirofit as a for-profit company. Centralizing your decision making ability and the greater access to capital will increase your chances of success; and therefor ensuring your company’s goals and inertia stay on track. This does not prevent for-profits to meet desired outputs related to humanitarian purposes, such as Envirofit’s desire to meet social and environmental objectives, but it does allow the freedom of the organization to prioritize objectives for the efficiency of the operation. A secondary issue, not a decision but an action, is developing the key partnerships required. Envirofit cannot move forward looking for funding, whether for-profit or non-profit, without key agreements in place, such as a solid licensing agreement with Orbital Engine Corp, and the backing of local groups such as the TODA’s. These agreements are key to moving this business forward and I do not foresee any funding becoming available until there is sufficient agreement of the key partners. Key supplier relationships also cannot be overlooked, but are secondary. A key to Enviroft’s success will be cost efficient production and distribution of all components.

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 Orbital Engine Corp * technology licensing  TODAs * champion Envirofit technology  Key Suppliers are TBD

 Cost effective manufacturing and distribution

 OEC patent  Local TODA leadership  Funding for low income 2 cycle engine owners     Conversion kit Cost of Installation Cost of Distribution Ability to train/instruct for long term maintenance

 Increased fuel efficiency  increased profits or lower operating costs  Lower pollution  cleaner air for everyone, including taxi drivers, and indirectly lower medical costs  Lower gas consumption  lower gas costs? (supply vs demand)

 Self service with local community (e.g. local business group) support

 ALL 2 stroke gas engine users * 3rd work taxi drivers * snow mobile owners * small motorcycle owners

 Local business groups  Local gvt authorities  Decreased COGS * decreased gas costs * decreased gvt noncompliance fines * decreased gas costs (s-vs-d)  Decreased medical costs

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