Culture Fuels FINAL - MIT Sloan School of Managementmitsloan.mit.edu/.../documents/s-lab-projects/Culture-F… · · 2018-02-20Culture Fuels Low-cost, carbon-neutral algae oil to

15.915 Laboratory for Sustainable

Business

Algae as an industry have blossomed over the last few years. Algae is used in the nutraceuticals,

aquaculture and biofuels industries. Culture Fuels has developed a solution that it believes will

revolutionize algae production. This paper attempts to develop and present a framework whic

Culture Fuels can apply in helping it secure the right partnerships in the industry.

M.Huzaini Ghazali, Guillermo Gutierrez, Matt Harper, Junya Nishikawa, Charlotte Wang

July 18, 2011

Culture FuelsLow-cost, carbon-neutral algae oil to

revolutionize fuels and feed today

15.915 Laboratory for Sustainable Final Report

med over the last few years. Algae is used in the nutraceuticals,


revolutionize algae production. This paper attempts to develop and present a framework whic

Culture Fuels can apply in helping it secure the right partnerships in the industry.

ermo Gutierrez, Matt Harper, Junya Nishikawa, Charlotte Wang

Culture Fuels neutral algae oil to

Final Report

med over the last few years. Algae is used in the nutraceuticals,


revolutionize algae production. This paper attempts to develop and present a framework which

ermo Gutierrez, Matt Harper, Junya Nishikawa, Charlotte Wang

M.Huzaini Ghazali, Guillermo Gutierrez, Matt Harper,

1 Table of Contents

2 Executive Summary ................................

3 Background ................................

3.1 Methodology ................................

3.2 Key Questions ................................

4 Analysis (Developing the Framework)

5 The Framework ................................

5.1 Step 1: Industry concentration framework

5.2 Step 2: Value strategy framework

5.3 Step 3: Determination of optimal relationship

6 Analysis (The Framework in Action)

7 Recommendations ................................

8 Appendix ................................

8.1 Snippets of Interviews


................................................................................................

.............................................................................................................................

................................................................................................

................................................................................................

Analysis (Developing the Framework) ................................................................

.......................................................................................................................

ndustry concentration framework ................................................................

Step 2: Value strategy framework ................................................................

Step 3: Determination of optimal relationship .............................................................

Analysis (The Framework in Action) .....................................................................................

................................................................................................

...............................................................................................................................

Snippets of Interviews ................................................................................................

................................................. 3

............................. 4

................................................... 5

................................................. 6

.................................................... 6

....................... 7

..................................... 7

................................................ 11

............................. 12

..................... 13

................................................ 17

............................... 19

................................... 19

M.Huzaini Ghazali, Guillermo Gutierrez,

2 Executive Summary

The algae growing industry is an attractive industry to be in today. Biofuels in particular have

spurred an explosion of growth in the algae in

aquaculture industries also have placed a demand for the growth of algae. The algae industry is

broken into three distinct steps – the genetic design and development o

algae, the growing of the algae itself including harvesting

which is highly dependent on for which industry the algae is grown in the first place.

Culture Fuels is uniquely placed in tha

industry and is able to provide an advantage to the growth and production of algae regardless of the

types of algae used, and what the end product is supposed to be. The challenge for Culture Fuels

however, is in determining the strategy to employ when approaching either of these industries.

The intent of this paper is to develop, test and present a coherent

Culture Fuels make a determination on its entry strategy depending

We describe the thought process behind the formulation of the framework, present the framework

and describe a set of test analyses using the framework, and finally present a recommendation

regarding the test analyses specifically, and regarding the framework generally.

framework is shared here:

Concentrated market

Fragmented market

15.915 Laboratory for Sustainable Business



an explosion of growth in the algae industry. Aside from this, the nutraceuticals and


the genetic design and development of new genetically modified

algae, the growing of the algae itself including harvesting, and the post-processing done on the algae

which is highly dependent on for which industry the algae is grown in the first place.

Culture Fuels is uniquely placed in that it has a solution that fits into the second step in the



in determining the strategy to employ when approaching either of these industries.

The intent of this paper is to develop, test and present a coherent framework that would help

Culture Fuels make a determination on its entry strategy depending on the industry that is its focus



ecifically, and regarding the framework generally. A brief idea of the

Focus on value creation

Exclusive partnership

Focus on value

capture

Broad commercial

relationships

Culture Fuels



utraceuticals and


f new genetically modified

processing done on the algae

t it has a solution that fits into the second step in the



in determining the strategy to employ when approaching either of these industries.

framework that would help

n the industry that is its focus.



A brief idea of the

Culture Fuels



3 Background

As much of the original inspiration for Culture Fuels comes from the biofuels industry, most of

the background here pertains to the biofuels

energy security have prompted the United States Government to spur the development of

alternative energies, especially in the liquid fuels for transportation sector. One such action by the

Government is the Renewable Fuel Standard passed by Congress in 2007. This legislation has

brought about a flurry of activities in the development and production of transportation fuels in the

form of ethanol (primarily corn-based) and biodiesel. Various alternatives t

developed – cellulosic ethanol, waste

In 2008, fossil fuels accounted for 88% of the global primary energy consumption (Brennan and

Owende, 2010). The use of fossil fuels is now widely accepted as unsus

resources and increasing Green House Gasses (

emerged as an alternative whereby the term biofuels normally

from biological sources that can be used

part in reaching targets to replace petroleum based transportation fuels with a viable alternative,

and in reducing long-term CO2

considered carefully (Yuan et al., 2008

Biofuels development has evolv

mainly extracted from food and oil crops (viz. rapeseed oil, palm oil, sugarcane, sugar beet, wheat,

barley, maize, etc.) as well as animal fats using conventional technology (Nigam and Singh, 2010).

This type of biofuel has limited potential to

with food and fibre production.

Concerns over the sustainability of many first

land, and high water and fertiliser requirements

contributed to the development of so

production depends on consumption of

Production of second-generation biofu

conditions in emerging and developing regions.

it still competes with food crops for available land

Third-generation biofuels have now emerged and do not

of land. One example of third-generation biofuels

microalgae which are single-cell, photosynthetic organisms known for their rapid growth and high

energy content. Some algal strains are capable of doubling their mass several times per day. Biomass

doubling times during exponential growth are commonly as short as 3.5




the background here pertains to the biofuels industry. Concerns over global climate change and

prompted the United States Government to spur the development of


he Renewable Fuel Standard passed by Congress in 2007. This legislation has


based) and biodiesel. Various alternatives to these have also been

cellulosic ethanol, waste-to-fuels, and of course algae.

2008, fossil fuels accounted for 88% of the global primary energy consumption (Brennan and

Owende, 2010). The use of fossil fuels is now widely accepted as unsustainable because of

Green House Gasses (GHG) in the global environment. Biofuels

emerged as an alternative whereby the term biofuels normally refers to renewable fuels

from biological sources that can be used for heat, electricity and fuel. Biofuels could play an essential


emissions, if environmental and economic sustainability are

considered carefully (Yuan et al., 2008).

evolved over three generations. The first -generation biofuels w


as well as animal fats using conventional technology (Nigam and Singh, 2010).

ed potential to meet the overall energy demand due to

sustainability of many first-generation biofuels, including the

high water and fertiliser requirements to produce first-generation biofuels, have

of so-called second-generation biofuels. Second-generation biofuel

ption of waste residues and making use of abandoned land

generation biofuels promotes rural development and improve

conditions in emerging and developing regions. The drawback of second-generation biofuel

with food crops for available land.

generation biofuels have now emerged and do not compete with food crops

generation biofuels is algal fuel. Algal fuels are derived from

cell, photosynthetic organisms known for their rapid growth and high


doubling times during exponential growth are commonly as short as 3.5 h (Chisti, 2007).


Concerns over global climate change and

prompted the United States Government to spur the development of


he Renewable Fuel Standard passed by Congress in 2007. This legislation has


o these have also been

2008, fossil fuels accounted for 88% of the global primary energy consumption (Brennan and

because of depleting

. Biofuels have

to renewable fuels derived

r heat, electricity and fuel. Biofuels could play an essential


emissions, if environmental and economic sustainability are

generation biofuels were


as well as animal fats using conventional technology (Nigam and Singh, 2010).

due to competition

, including the use of arable

generation biofuels, have

generation biofuels

waste residues and making use of abandoned land.

rural development and improves economic

generation biofuels is that

with food crops for the use

Algal fuels are derived from

cell, photosynthetic organisms known for their rapid growth and high


histi, 2007).

M.Huzaini Ghazali, Guillermo

Clearly, Algae is a very attractive source of alternative fuels as the theoretical yields for algae far

surpasses the yields of other sources of alternative fuels. In its current form, the algae industry is

broken into three distinct areas:

1. Algae Strain Suppliers

2. Production Platform –

3. Downstream Processor

Culture Fuels has developed a superior technology in the Production Platform area that it

believes will be the key enabler to the successful commercialization and scale

industry; not just for fuels but for other applications such as nutraceuticals

water treatment.

As the algae industry is still in a state of flux, our goal is to assist Culture Fuels in developing a

strategy in entering and placement in the algae industry/market to realize its full potential.

3.1 Methodology

Our intent is to make a recommendation to Culture Fuels as to what their strategy should be for

entry into the algae production technologies market within the next two years. To do this,

• Address the questions pertaining to



Junya Nishikawa, Charlotte Wang Page 5 of 20



Algae Strain Suppliers – develop the various strains of algae to produce fuels.

platform used for the growth and harvest of algae.

Downstream Processor – harvesting and processing of algae for the end users.

oped a superior technology in the Production Platform area that it

believes will be the key enabler to the successful commercialization and scale-up of the algae

industry; not just for fuels but for other applications such as nutraceuticals, aquaculture



e a recommendation to Culture Fuels as to what their strategy should be for

entry into the algae production technologies market within the next two years. To do this,

pertaining to the strategy.

Culture Fuels


20



develop the various strains of algae to produce fuels.

harvesting and processing of algae for the end users.

oped a superior technology in the Production Platform area that it

up of the algae

, aquaculture and waste



e a recommendation to Culture Fuels as to what their strategy should be for

entry into the algae production technologies market within the next two years. To do this, we will:

Culture Fuels



• Apply a structured, analytical

• Synthesize the answers into a proposed strategy.

• Assess options for answers to the questions

• Recommend which option should be pursued

3.2 Key Questions

The key questions to be answered for Culture Fuels ar

• What are the core elements of Culture Fuels’ value proposition?

• What portion of the algae industry’s value chain is Culture Fuels best suited to capture?

• What are the strongest complements within the industry to Culture Fuels’ strengths and

goals?

• Should Culture Fuels pursue a partnership or a transactional business model?

4 Analysis (Developing the Framework)

Further evaluation of the key questions resulted in the distillation of the questions into one

fundamental question – what is the nature of the rel

with the players in the industry to be successful

up to this question, whilst the last question is simply a description of two of the possible modes of a

relationship.

To determine which mode of relationship Culture Fuels ought to adopt, we first needed to gain

an understanding of the industry in which Culture Fuels wants to operate in. We looked at the main

industries that Culture Fuels have identified as potent

number of aspects to describe these industries. We then looked at the impact of each of these

characteristics on the industry, and the relevance of those impacts on how it would steer Culture

Fuels into value creation or value capture. We have found that these identified characteristics

impact one other characteristic of the industries

We realized from this as well that a more concentrated industry would re

focus on value creation to attract and secure strategic partners in order for Culture Fuels to be

successful. In this instance, we mean creating value not just for Culture Fuels but also for the

strategic partner; this would make Cu

In a less concentrated industry however, there would be a larger number of players in the

industry. As a result, Culture Fuels’ focus ought to be on value capture where Culture Fuels will have

to position itself such that it is attractive to as many of the players as possible. The nature of these

relationships would be purely transactional.

From these observations, we have derived the framework which we will discuss below.



Apply a structured, analytical methodology to arrive at answers for each question

Synthesize the answers into a proposed strategy.

Assess options for answers to the questions.

Recommend which option should be pursued.

The key questions to be answered for Culture Fuels are:

What are the core elements of Culture Fuels’ value proposition?

What portion of the algae industry’s value chain is Culture Fuels best suited to capture?

What are the strongest complements within the industry to Culture Fuels’ strengths and

ld Culture Fuels pursue a partnership or a transactional business model?

Analysis (Developing the Framework)


what is the nature of the relationship that Culture Fuels has to develop

to be successful? The first three of the key questions merely lead




industries that Culture Fuels have identified as potential industries to participate in, and looked at a



lue creation or value capture. We have found that these identified characteristics

impact one other characteristic of the industries – the concentration of players in the industries.

We realized from this as well that a more concentrated industry would require Culture Fuels to



strategic partner; this would make Culture Fuels more attractive to partner with.



f such that it is attractive to as many of the players as possible. The nature of these

relationships would be purely transactional.


methodology to arrive at answers for each question.

What portion of the algae industry’s value chain is Culture Fuels best suited to capture?

What are the strongest complements within the industry to Culture Fuels’ strengths and


ationship that Culture Fuels has to develop

questions merely lead




ial industries to participate in, and looked at a



lue creation or value capture. We have found that these identified characteristics

the concentration of players in the industries.

quire Culture Fuels to





f such that it is attractive to as many of the players as possible. The nature of these


M.Huzaini Ghazali, Guillermo

5 The Framework

To make an objective determination of the type of relationships that Culture Fuels should

consider, our team sought to develop an analytical framework that would guide us to an appropriate

answer. The framework we developed incorporates three steps:

1. Developing a framework for cha

evaluate the industry’s long

2. Using that concentration as an indication of whether Culture Fuels should focus on

developing a high-value product which creates significant value, or a l

captures significant value; and

3. Using the split between value creation and value capture to determine what kind of

relationship Culture Fuels should pursue.

Details of each of these steps are presented in the sections that follow.

5.1 Step 1: Industry concentration framework

The goal of the industry concentration framework is to determine whether the specific industry

Culture Fuels is planning to serve is comparatively more or less concentrated. To achieve this, the

team looked at eight different aspects of the industry. These included

1. The size of the industry,

2. The industry’s regional uniformity,

3. The breadth of product produced in the industry,

4. The industry’s growth potential,

5. The strength of regulatory restrictions imposed on the industry,

6. The amount of government support available to the industry,

7. The relative maturity of industry participants, and

8. The relative maturity of technologies at play in the industry.

For each one of these characteristics, the team identified the implications for t

relative concentration. Then, two numerical values were assigned: The magnitude of influence that

this factor has on the industry’s concentration (on a 1

increases (+1) or decreases (-1) the degree o

The justification for the magnitude of influence of each of these aspects is described in the

following table.

Descriptor Influence

Current size 1




ermination of the type of relationships that Culture Fuels should


answer. The framework we developed incorporates three steps:

Developing a framework for characterizing the industry, and using that framework to

evaluate the industry’s long-run concentration;

Using that concentration as an indication of whether Culture Fuels should focus on

value product which creates significant value, or a low-cost product that

captures significant value; and

Using the split between value creation and value capture to determine what kind of

relationship Culture Fuels should pursue.

Details of each of these steps are presented in the sections that follow.

concentration framework



ferent aspects of the industry. These included

The industry’s regional uniformity,

The breadth of product produced in the industry,

The industry’s growth potential,

The strength of regulatory restrictions imposed on the industry,

The amount of government support available to the industry,

The relative maturity of industry participants, and

The relative maturity of technologies at play in the industry.

For each one of these characteristics, the team identified the implications for t


this factor has on the industry’s concentration (on a 1 – 5 scale), and whether the characteristic

1) the degree of concentration.


Influence Description

Beyond a certain point, size of the industry has only a small

impact on concentration - hence only a small increase in the

number of entrants.

Culture Fuels


20

ermination of the type of relationships that Culture Fuels should


racterizing the industry, and using that framework to

Using that concentration as an indication of whether Culture Fuels should focus on

cost product that

Using the split between value creation and value capture to determine what kind of



For each one of these characteristics, the team identified the implications for the industry’s


5 scale), and whether the characteristic


Beyond a certain point, size of the industry has only a small

hence only a small increase in the

Culture Fuels



Global Regionality 4

Product breadth 5

Growth potential 3

Regulatory restrictions 2

Government support 2

Maturity of

participants 4

Maturity of technology 3

The forces these eight industry characteristics impart on the degree

industry can be represented graphically in the following influence diagram:

Finally, combining all of these factors, the team constructed the influence table shown on the

following pages.



Products that have highly specialized regional characteristics are

unlikely to be dominated globally by a small number of firms.

Industries where there are few ultimate products are very likely

to be more concentrated.

Strong growth will attract new players hence we can expect

new entrants; however, this effect is not as strong as

regionality, breadth or maturity.

Regulatory restrictions present a barrier to entry for new firms,

which will tend to reduce concentration.

Government support will tend to give new firms incentive to

enter the industry; however, this is likely a short

not too strong.

Mature companies tend to have well established operations and

significant access to capital, yielding a strong competitive

advantage against new entrants and reducing the likelihood of

entry of new competitors.

Mature technologies tend to increase barriers to competition

for new participants, thus fewer new players enter the market

and concentration increases.

industry characteristics impart on the degree of concentration in the

industry can be represented graphically in the following influence diagram:


Products that have highly specialized regional characteristics are

unlikely to be dominated globally by a small number of firms.

are few ultimate products are very likely

Strong growth will attract new players hence we can expect

new entrants; however, this effect is not as strong as

Regulatory restrictions present a barrier to entry for new firms,

Government support will tend to give new firms incentive to

enter the industry; however, this is likely a short-run effect thus

Mature companies tend to have well established operations and

significant access to capital, yielding a strong competitive

advantage against new entrants and reducing the likelihood of

Mature technologies tend to increase barriers to competition

for new participants, thus fewer new players enter the market

of concentration in the


Characteristic

Name Overview Rank

Current size Describes the market

power of existing players. Low

Geography Determines relevance of

regional market factors. Strong

Product Breadth

Describes the

differentiation of products

within the industry

globally

Strong

Growth Potential Drives the potential of the

opportunity. Moderate

15.915 Laboratory for Sustaina


Junya Nishikawa, Charlo

Influence Outcome

Rank Value Description

Low 1

High Large in comparison to markets

for similar products.

A larger market attracts more

players, thus potentially

decreasing concentration

Low Small in comparison to markets

for similar products.

A smaller market will attract

fewer players, thus increasing

Strong 4

Regional

Industry characteristics differ

across specific regions and

industry footprint is primarily

regional.

Specific regional market

conditions will tend to decrease

Global

Industry characteristics largely

similar across different regions

and industry primarily operate

across different regions.

Homogeneous global market

conditions will tend to increase

Strong 5

High

A company needs a great

breadth of products to serve the

global market (example: Nestle)

Greater breadth of products will

tend to mean niche markets

exist for smaller players;

Low

A company needs few products

to serve a global market

(example: Exxon)

Companies that can domina

with just a few products are

more likely to become globally

Moderate 3

High

Needs to outpace the VC

expectations for the specific

markets being evaluated.

An in

growth potential naturally

appears to be a more attractive

option

entrants and tend to decrease

Low

Underperforms the VC

expectations for the specific

markets being evaluated.

New entra

emerge; industry will become

more concentrated over time.

Culture Fuels




Implication Level

A larger market attracts more

players, thus potentially

decreasing concentration.

-1

A smaller market will attract

fewer players, thus increasing

concentration.

1

Specific regional market

conditions will tend to decrease

global concentration.

-1

Homogeneous global market

conditions will tend to increase

concentration

1

Greater breadth of products will

tend to mean niche markets

exist for smaller players;

industry fragments

-1

Companies that can dominate

with just a few products are

more likely to become globally

dominant; industry

concentrates

1

An industry with a higher

growth potential naturally

appears to be a more attractive

option – which will attract new

entrants and tend to decrease

concentration.

-1

New entrants are unlikely to

emerge; industry will become

more concentrated over time.

1

Culture Fuels


Page 10 of 20 M.Huzaini Ghazali, Guillermo Gutierrez, Matt Harper,

Junya Nishikawa, Charlotte Wang

Characteristic

Name Overview Rank

Regulatory

Restrictions

Gives an indication of

what barriers there might

be in participating in the

market.

Moderate

Government

Support

Gives an indication of how

quickly new markets will

be developed, and the

potential profitability of

the opportunity.

Moderate

Relative Maturity

of Players

Determines strategy in

approaching these players. Strong

Relative maturity

of technology

Describes the degree to

which the technologies

that drive the industry are

well established

Moderate



Influence Outcome

Rank Value Description

Moderate 2

High Highly controlled with lengthy

approval processes.

Regulatory approvals act as a

barrier to entry for new and

small firms;

Low No or minimal regulatory

restrictions in place.

Without regulatory approvals,

new firms can easily enter into

concentration will increase.

Moderate 2

Incentives

Availability and scale of

incentives provided by the

Government are attractive to

investors/industry.

Government support will reduce

barriers to profitability for new

players, giving them incentives

Concentration

None

No Government support in the

form of incentives or restrictions

available.

Only those players who survive

concentration increases.

Strong 4

High

Industry players have been

operating for many years and

have already established norms

and are operating with profit.

Firms tend to become dominant

and either put others out of

business or merge over time;

concentration increases

Low

Few strong industry players exist

although there numerous

players in the industry.

Lack of strong individual

companies means new entrants

can compete comparatively

easily; concentration decreases.

Moderate 3

High

Dominant technologies have

emerged and hold a stable

position within the market

Companies with strong

ownership positions over

dominant technologies win;

conc

Low

The industry’s technological

components exhibit constant

and significant performance

increases

New entrants with technologies

offering significant market

efficiencies emerge over time;

concentration decreases.

Implication Level

Regulatory approvals act as a

barrier to entry for new and

small firms; concentration

increases.

1

Without regulatory approvals,

new firms can easily enter into

the industry and thus

concentration will increase.

-1

Government support will reduce

barriers to profitability for new

players, giving them incentives

to enter the market.

Concentration decreases.

-1

Only those players who survive

over time will remain;


1

Firms tend to become dominant

and either put others out of

business or merge over time;


1

Lack of strong individual

companies means new entrants

can compete comparatively

easily; concentration decreases.

-1

Companies with strong

ownership positions over

dominant technologies win;


1

New entrants with technologies

offering significant market

efficiencies emerge over time;

concentration decreases.

-1


5.2 Step 2: Value strategy framework

Having ascertained the degree of concentration of the various markets that Culture Fuels is

attempting to solve, we can arrive at the central thrust of our analysis. Our goal is to look at how

Culture Fuels can think about creating

attempting to serve. Essentially we considered two cases

concentrated market, and how they should approach a more fragmented market.

To start to address this market,

Managing New Venture (15.355) by Prof. Fiona Murray. This framework describes strategies that

companies should follow to be able to create value taking into account the control they might have

over their innovation, through intellectual property, and the control that powerful firms might have

over assets require to create value from your innovation.

From Murray, F. 15.355 Course Notes, Fall 2010.

Culture Fuels has a strong control over their inn

over their technology. Even though there are other companies, start ups and laboratories working in

similar technologies, we understand that Culture Fuel’s technology will be hard to replicate and that

is the comparative advantage that they have.

On the other axis, the algae industry will require significant investments from the stage of

strain to the production platform and finally to the downstream stage. This is particularly true in the

biofuels industry. Due to the capital intensive nature of the industry, we expect to that some

powerful firms will have control over specific and key assets along the value chain.




alue strategy framework



Culture Fuels can think about creating and capturing value within the three markets they are

attempting to serve. Essentially we considered two cases – how they should approach a highly

concentrated market, and how they should approach a more fragmented market.

To start to address this market, we considered the following framework presented in the class



ver their innovation, through intellectual property, and the control that powerful firms might have

over assets require to create value from your innovation.

From Murray, F. 15.355 Course Notes, Fall 2010.

Culture Fuels has a strong control over their innovation through the patents they have filed



that they have.

lgae industry will require significant investments from the stage of


. Due to the capital intensive nature of the industry, we expect to that some

powerful firms will have control over specific and key assets along the value chain.

Culture Fuels


20



and capturing value within the three markets they are

should approach a highly

we considered the following framework presented in the class



ver their innovation, through intellectual property, and the control that powerful firms might have

ovation through the patents they have filed



lgae industry will require significant investments from the stage of algae


. Due to the capital intensive nature of the industry, we expect to that some

Culture Fuels



In addition to this, we propose to analys

aquaculture and biofuels, to understand it dynamics and propose a partnership or commercial

strategy.

In this case, the framework indicates that for a highly concentrated industry where powerful

incumbents hold the key to unlocking the value in a firm’s

partnering with those incumbents. Conversely, if a firm is highly fragmented, the firm can focus

more on profit opportunities – that is, focus on directly capturing value from the products they

create.

5.3 Step 3: Determination of optimal relationship

The final step in our framework is to determine, on the basis of a focus on value creation or

value capture, what sort of commercial relationship we should pursue in each of the industries

discussed.

This determination boils down to the type of relationship that will promote each of these two

views of the value inherent in Culture Fuels’ products. In a market where they are attempting to

capture value, they will want to attempt to sell the greatest possible volume of their

series of non-exclusive commercial relationships the best alternative to achieve this end. If however

the analysis of industry concentration indicates that Culture Fuels should focus on value creation,

the company should pursue a much closer re

benefits: It will promote Culture Fuels working closely with both upstream and downstream aspects

of the algae production chain to improve their product; it will give them a good way of testing and

quickly implementing product improvements based on customer feedback. Finally, a close

relationship with a large player could promote an acquisition by that player at a later date, once

Culture Fuels’ technology has been thoroughly proven and its value fully d

In summary, then our proposal

Concentrated market

Fragmented market



In addition to this, we propose to analyse the concentration of each industry: nutraceutical



incumbents hold the key to unlocking the value in a firm’s products, that that firm should consider


that is, focus on directly capturing value from the products they

mination of optimal relationship



ls down to the type of relationship that will promote each of these two


capture value, they will want to attempt to sell the greatest possible volume of their

exclusive commercial relationships the best alternative to achieve this end. If however


the company should pursue a much closer relationship with a dominant firm. This will have three



kly implementing product improvements based on customer feedback. Finally, a close


Culture Fuels’ technology has been thoroughly proven and its value fully developed.

summary, then our proposal is as follows:

Focus on value creation

Exclusive partnership

Focus on value

capture

Broad commercial

relationships

the concentration of each industry: nutraceutical,



products, that that firm should consider


that is, focus on directly capturing value from the products they



ls down to the type of relationship that will promote each of these two


capture value, they will want to attempt to sell the greatest possible volume of their products; a

exclusive commercial relationships the best alternative to achieve this end. If however


lationship with a dominant firm. This will have three



kly implementing product improvements based on customer feedback. Finally, a close


6 Analysis (The Framework in Action)

Applying the Framework to the results of our research, we find the following results:

Metric

Size Drives the potential of

the opportunity.

Implication

Influence

1

Geography

Determines relevance

of regional market

factors.

Physical conditions

impact the

attractiveness of CF's

solution.

Level

Influence

4

Product

Breadth

Describes the

differentiation of

products within the

industry globally

Level

Influence

5

Growth

Potential

Drives the potential of

the opportunity.

Level

Influence

3




Analysis (The Framework in Action)

Applying the Framework to the results of our research, we find the following results:

Nutraceuticals Aquaculture

Implication -1 -1

Influence $86B in the US $75B in the US

1 -1

Influence

Nutraceuticals is an industry

that is not tied to an specific

site and is subject to

international trade

The aquaculture industry

varies significantly across the

world in terms of what

products and methods are

place in each country.

-1 -1

Influence

Nutraceuticals industry

produces a wide variety of

products, from dietary

supplements to

pharmaceutical-grade extracts

Aquaculture industry a wide

breadth of products, designed

to serve the variety of tastes

people have for fish.

-1 -1

Influence

Market is growing rapidly, with

many companies looking to

incorporate new nutraceuticals

constituents in processed

foods

Market likely to experience

significant growth as emerging

economies demand more

protein in their diets.

Culture Fuels




Biofuels

1

Still relatively small, but

potentially very large in the

long run.

1

The aquaculture industry

varies significantly across the

world in terms of what

products and methods are in

Biofuels as another liquid fuel

industry has a trend to

become global and we can

expect international trade,

associations and multinational

players

1

Aquaculture industry a wide

breadth of products, designed

to serve the variety of tastes

Fuels industry has

comparatively few products,

with little differentiation

across the enterprise.

-1

Market likely to experience

significant growth as emerging

economies demand more

Market is likely to experience

rapid growth due to reduced

costs, better technologies and

increasing prices of

conventional substitutes

Culture Fuels


Page 14 of 20 M.Huzaini Ghazali, Guillermo Gutierrez, Matt Harper,


Metric

Regulatory

Restrictions


what barriers there

might be in

participating in the

market.

Level

Influence

2

Government

Support


how quickly new

markets will be

developed, and the

potential profitability

of the opportunity.

Level

Influence

2

aini Ghazali, Guillermo Gutierrez, Matt Harper,



1 1

Influence

For pharmaceutical-grade

nutraceuticals, regulatory

restrictions are high; levels of

impurities, etc. are tightly

controlled.

However, though

pharmaceutical-grade is a

lucrative market on a per-unit

basis, it is smaller than the

dietary supplements market,

which is less tightly controlled.

Feed for animals that end up

feeding humans likely to be

subjected to significant

regulatory oversight.

-1 -1

Influence

Developments in the industry

have been largely driven by

consumer desires for healthier

additives in prepared foods, as

well as existing food producers

who wish to find less

expensive sources of dietary

supplements.

Governments are likely to

support aquaculture in

general, especially in

developing nations which face

shortages of, and increasing

demand for, sources of dietary

protein.

Biofuels

1

Feed for animals that end up

feeding humans likely to be

subjected to significant

Economic results of

maintaining current

restrictions on accessing

America’s federally owned

onshore and offshore energy

resources.

De-taxation of pure biofuels

used by the agriculture in its

own production cycle shall be

initiated and exposed.

1

Governments are likely to

upport aquaculture in

general, especially in

developing nations which face

shortages of, and increasing

demand for, sources of dietary

Government is likely to

support the industry for many

reasons, including the

depleting supply of fossil fuels

with renewable resources.

Metric

Relative

Maturity of

Players

Determines strategy in

approaching these

players.

Level

Influence

4

Relative

maturity of

technology

Describes the degree

to which the

technologies that drive

the industry are well

established

Level

Influence

3





-1 -1

Influence

Though there are some players

in the industry that are well

established, much of the

growth is coming from new

companies exploiting

increasingly popular products

(Omega fatty acids, etc.).

"Consumers are displaying a

preference for convenience

foods with palpable benefits",

which nutraceuticals are

serving at a progressively

greater rate (Frost & Sullivan

2009)

Players are comparatively

mature in the developed

world; however, those mature

layers remain fairly

fragmented, and there is no

reason to believe that situation

will change.

-1 1

Influence

Relatively new use of algae as

a source for nutraceuticals

supplements indicates that

many technologies are

currently at play, and that

technologies are likely to

continue to emerge as algae

becomes more dominant.

Though the aquaculture

industry itself is expanding,

technologies are

predominantly well

established, especially in the

high-value markets that

Culture Fuels can most

effectively target.

Culture Fuels




Biofuels

1

Players are comparatively

mature in the developed

world; however, those mature

layers remain fairly

fragmented, and there is no

reason to believe that situation

The market for bioplastics and

biofuels has matured

compared to companies in the

Lux Innovation Grid. Clearly

defined winners and losers

have emerged from what last

year had been a pack of largely

indistinguishable, under-

financed start-ups, Companies

that are merely treading water

today are falling behind as

increasingly dominant players

land large funding rounds,

forge corporate partnerships

or expand their production

capacity.

-1

culture

industry itself is expanding,

technologies are

predominantly well

established, especially in the

value markets that

Culture Fuels can most

Technologies are evolving

rapidly, and it remains to be

seen which will dominate.

Thus new entrants with new

technologies will continue to

enter the market, decreasing

concentration.

Culture Fuels



Our final step was to multiply the “level” by the “influence” figures for each category in each

industry, and sum the scores for each industry. The resul

following table.

Industry Influence

Current size 1

Global Regionality 4

Product breadth 5

Growth potential 3

Regulatory restrictions 2

Government support 2

Maturity of participants 4

Maturity of technology 3

Total

A simple view on the sensitivity of the

final outcome is shown here:

-10 -8 -6

-10 -8




industry, and sum the scores for each industry. The results of this exercise are shown in the

Influence Nutraceuticals Aquaculture

Level Score Level Score Level

1 -1 -1 -1 -1 1

4 1 4 -1 -4 1

5 -1 -5 -1 -5 1

3 1 3 1 3 -

2 1 2 1 2 -

2 1 2 1 2 -

4 -1 -4 -1 -4 1

3 -1 -3 1 3 -

-2 -4

A simple view on the sensitivity of the magnitude of influence that each parameter has over the

-4 -2 0 2 4

Current Size

Global Regionality

Product breadth

Growth potential

Regulatory restrictions

Government support

Maturity of participants

Maturity of technology

Nutraceuticals

-6 -4 -2 0

Current Size

Global Regionality

Product breadth

Growth potential


Government support



Aquaculture


ts of this exercise are shown in the

Biofuels

Level Score

1 1

1 4

1 5

-1 -3

-1 -2

-1 -2

1 4

-1 -3

4

ude of influence that each parameter has over the








Matt Harper, Junya Nishikawa, Charlotte Wang

Based on these results, we arrive at the following conclusions:

1. The Nutraceuticals industry is likely to remain comparatively fragmented in the long

run. This is particula

comparative immaturity of players in that industry.

2. The Aquaculture industry is also likely to remain comparatively fragmented in the long

run. This is particularly true because of the regionality i

products (breeds of fish, etc.) that industry produces.

3. The Biofuels industry, however, is likely to become highly concentrated. This is primarily

due to the homogeneity of both products and regional distribution.

7 Recommendations

As previously described, Culture Fuel

the algae production platform. Culture Fuel

low capital expenditure, compared with other tec

Culture Fuels’ technology will reduce the potential contamination compared to technologies like

open ponds. This technology will also improve the thermal control and will reduce the challenges for

scalability.

For all these reasons, Culture Fuel

in the value chain of the algae industry. The challenge

advantage that they currently have to create the

As mentioned earlier, for many reasons including a strong support from the US Federal

Government, the biofuels industry has and will have very important growth potential.

industry reveals that the several players

mature companies from the oil or others related industries, such as Exxon and UOP from Honeywell,

or new companies that are in different stage

of today, the biofuels industry is concentrated and it is not c

Current Size

Global Regionality

Product breadth

Growth potential


Government support





Matt Harper, Junya Nishikawa, Charlotte Wang Page 17 of 20

Based on these results, we arrive at the following conclusions:

The Nutraceuticals industry is likely to remain comparatively fragmented in the long

run. This is particularly true because of the broad breadth of products and the

comparative immaturity of players in that industry.

The Aquaculture industry is also likely to remain comparatively fragmented in the long

run. This is particularly true because of the regionality in that market and the breadth of

products (breeds of fish, etc.) that industry produces.

The Biofuels industry, however, is likely to become highly concentrated. This is primarily

due to the homogeneity of both products and regional distribution.

viously described, Culture Fuels’ value proposition is based on a technology innovation in

lgae production platform. Culture Fuels will enable having a high biomass density

low capital expenditure, compared with other technologies such as photo bioreactors. In addition,

technology will reduce the potential contamination compared to technologies like


For all these reasons, Culture Fuels can offer a competitive advantage to a very important stage

in the value chain of the algae industry. The challenge faced by Culture Fuels is to be able to use this

they currently have to create the most value and be able to capture that value


s industry has and will have very important growth potential.

several players in the industry can be separated in two groups: existing


different stages of development like Sapphire, Solazyme,

industry is concentrated and it is not complicated to map the industry.

0 2 4 6 8 10

Current Size

Global Regionality

Product breadth

Growth potential


Government support



Biofuels

Culture Fuels


20

The Nutraceuticals industry is likely to remain comparatively fragmented in the long

rly true because of the broad breadth of products and the

The Aquaculture industry is also likely to remain comparatively fragmented in the long

n that market and the breadth of

The Biofuels industry, however, is likely to become highly concentrated. This is primarily

a technology innovation in

having a high biomass density at a relatively

photo bioreactors. In addition,

technology will reduce the potential contamination compared to technologies like


to a very important stage

is to be able to use this

that value.


s industry has and will have very important growth potential. Viewing the

can be separated in two groups: existing


of development like Sapphire, Solazyme, LS9, etc. As

omplicated to map the industry.

10

Culture Fuels



However, as the industry is becoming more attractive

laboratories that are working on new technologies that could im

proposition and reduce the competitive advantages that

words, Culture Fuels not only should be worried about known unknowns, but mostly about

unknowns, unknowns. Therefore, our recom

defines a strategic partnership in the biofuels industry

From our analysis, we expect that

diluted industries without any major players, due to min

regionalization, among other reasons. Therefore, we do

strategic alliance with any player

participates in these industries to develop

the biofuels industry. The key for Culture Fuels here would be to establish broad relationships across

the industry to promote the sale of Culture Fuels’ solution.

On the contrary, we view that

barriers of entry or prohibitive requirements

requirements. We expect that in a medium horizon,

industry today would simply cease to exist.

would require investments that are in the range of several hundred

that it will be challenging for new st

money for projects with innovative and new technologies that still have

examples of being able to scale.

In this sense, we see a strategic value to reach

very strong balance sheet, either by themselves o

this kind of investments without any hurry. We believe that

where they can become essential for their partner, and this could be translated into a long lasting

relationship or an eventual buyout.



However, as the industry is becoming more attractive, there are many start ups and

n new technologies that could improve on Culture Fuels

competitive advantages that they are offering to the industry. In other

not only should be worried about known unknowns, but mostly about

unknowns, unknowns. Therefore, our recommendation is that Culture Fuels moves quickly and

in the biofuels industry.

From our analysis, we expect that the nutraceuticals and aquaculture industries remain as

without any major players, due to minor technological barriers of entry and

regionalization, among other reasons. Therefore, we do not see that Culture Fuels should target a

strategic alliance with any player in these industries. Of course, it is critical that Culture Fuels

develop revenues streams ahead of future revenue streams from

The key for Culture Fuels here would be to establish broad relationships across

the industry to promote the sale of Culture Fuels’ solution.

rary, we view that the biofuels industry will be highly concentrated due to several

prohibitive requirements to remain in the industry, such as intensive capital

requirements. We expect that in a medium horizon, many of the players in the biofuels algae

today would simply cease to exist. To achieve important economies of scale, algae projects

would require investments that are in the range of several hundreds of million dollars. We believe

that it will be challenging for new start ups or companies with short track records to raise this kind of

money for projects with innovative and new technologies that still have not had any concrete

In this sense, we see a strategic value to reach out to companies like Exxon and UOP that have a

very strong balance sheet, either by themselves or through their parent company, which can support

this kind of investments without any hurry. We believe that Culture Fuels should look for a scheme

essential for their partner, and this could be translated into a long lasting

relationship or an eventual buyout.

there are many start ups and

Culture Fuels’ value

they are offering to the industry. In other

not only should be worried about known unknowns, but mostly about

moves quickly and

and aquaculture industries remain as

or technological barriers of entry and

t see that Culture Fuels should target a

that Culture Fuels

ahead of future revenue streams from

The key for Culture Fuels here would be to establish broad relationships across

biofuels industry will be highly concentrated due to several

to remain in the industry, such as intensive capital

the biofuels algae

To achieve important economies of scale, algae projects

of million dollars. We believe

to raise this kind of

had any concrete

nies like Exxon and UOP that have a

their parent company, which can support

should look for a scheme

essential for their partner, and this could be translated into a long lasting

M.Huzaini Ghazali, Guille

8 Appendix

8.1 Snippets of Interviews

Technology Division of Wingate Dunross, Inc.

“So many players in that market, kind of crowded, regarding to

GM’s development…”

Sr. Analyst, Biofuels at PIRA Energy Group

“can not share much, but spending a lot of time on Algae’s development model.”

Senior Scientist at BioProcessAlgae

“can they answer the measurement of biodiesel a

marine macro-algae, on average?”

API alpha product innovation Co., Lt

“Do not believe algae!”

Founding Officer Safe Energy Association

“more government support and regulation changes are needed for biofuel. “

Culture Fuels interview – Nutraceuticals

John Helferich, Former VP-R&D

Omega oils

Good overall for skin, cardiovascular, etc.

Thinks these are being grown from algae, then oil extracted

Omegas come from algae in the first place, but

algae-eating fish.

Food grade / pharmaceutical grade Levazza

Basically highly refined, highly purified cod liver oil

Widely varying grades – from basic supplements to pharmaceutical grade




Snippets of Interviews

Technology Division of Wingate Dunross, Inc.

“So many players in that market, kind of crowded, regarding to the growth, significantly for

Sr. Analyst, Biofuels at PIRA Energy Group

“can not share much, but spending a lot of time on Algae’s development model.”

Senior Scientist at BioProcessAlgae

“can they answer the measurement of biodiesel and biogas can be produced per ton of dry

API alpha product innovation Co., Ltd

Founding Officer Safe Energy Association

“more government support and regulation changes are needed for biofuel. “

Nutraceuticals

R&D at Mars / Masterfoods USA

Good overall for skin, cardiovascular, etc.

Thinks these are being grown from algae, then oil extracted

Omegas come from algae in the first place, but work their way up into the food chain through

Food grade / pharmaceutical grade Levazza –

Basically highly refined, highly purified cod liver oil

from basic supplements to pharmaceutical grade

Culture Fuels


20

the growth, significantly for

nd biogas can be produced per ton of dry

work their way up into the food chain through

Culture Fuels



THEN: Spirulina

(Aside: Emerging research is showing that organics may be healthier because the plants are

under stress)

Natural fight against inflammation causes many diseases

Interesting supply/demand balance with products going into secondary markets

guarantee that the feed guys will always take your leftover algae bits after extracting oil? What are

the market dynamics here? How do you establish a position in industry where you have stable

demand?

Another possibility: Fertilizer value? Ash content?

Sell price per pound:

1. Pharma

2. Nutra

3. Oil

4. Feed

Chair of Nutrition Department at UC

Carageenan, Agar, Locust bean gum, Guar, Xanthan

generally from seaweed. THICKENERS. “Gelling agents”. Could be VERY HIGH VALUE.

Interesting stuff in MANY Plants. Question:

1. Can you separate it?

2. Is there enough of it?

3. Can you process it effectively?

4. Is it valuable?

“Algae has been held out as a potential superfood for a long time”

Ocean Spray: Cranberries: Polyphenols and bladder infectio

stuff = amazing cash flow. OS is a Co

Cranberry sorting: “Bounce boards”.

If you can find a combination of reactor; growing conditions and strain.

CHANGEOVER PROBLEM with react

Contamination problem – no fish eggs, birds, etc.



ide: Emerging research is showing that organics may be healthier because the plants are

Natural fight against inflammation causes many diseases

Interesting supply/demand balance with products going into secondary markets

e that the feed guys will always take your leftover algae bits after extracting oil? What are


Another possibility: Fertilizer value? Ash content?

Chair of Nutrition Department at UC-Davis

Carageenan, Agar, Locust bean gum, Guar, Xanthan – a possibility to grow in Algae? These are

generally from seaweed. THICKENERS. “Gelling agents”. Could be VERY HIGH VALUE.

sting stuff in MANY Plants. Question:

Can you process it effectively?

been held out as a potential superfood for a long time”

Ocean Spray: Cranberries: Polyphenols and bladder infection effects. Craisins + Juice + Other

stuff = amazing cash flow. OS is a Co-op; hence revenues flow through to farmers.

Cranberry sorting: “Bounce boards”.

If you can find a combination of reactor; growing conditions and strain.

CHANGEOVER PROBLEM with reactors significant.

no fish eggs, birds, etc.

ide: Emerging research is showing that organics may be healthier because the plants are

Interesting supply/demand balance with products going into secondary markets – how do you

e that the feed guys will always take your leftover algae bits after extracting oil? What are


a possibility to grow in Algae? These are

n effects. Craisins + Juice + Other

Documents

Culture Fuels FINAL - MIT Sloan School of Managementmitsloan.mit.edu/.../documents/s-lab-projects/Culture-F… · · 2018-02-20Culture Fuels Low-cost, carbon-neutral algae oil to