F u l l T i m e M B A C o m p a n y P r o j e c t A u g u s t 3 1 2 0 1 7 U n i v e r s i t e i t V a n A m s t e r d a m
MBA Company Project
Joao Carvalho
Developing a business pitch to a Brazilian startup
August
17
08
Fall
Abstract
Many Startups1 begin their journey with a well-defined business proposal, and throughout their establishment process, seek to develop a solution, service or product to meet the needs of a certain target customer. In this case the business is designed before the company has completely developed its main product.
Other Startups ascend through the result of academic research, in which a scientific solution is developed, a product is created, and only later the business plan is thought and structured so that the product is monetized, and the company is inserted in the market.
The company, object of this project, is in a moment of transition, starting from a period of scientific and technical development, and currently moving towards a phase of business plan definition, and strategic structuring to enter the B2B2 market.
This project was developed for a Startup that fits in the second case, and was intended to help its highly regarded technical staff to develop a
Business Pitch Deck3 aimed at enticing Investors. The result of this project is a business pitch deck that is currently being used by the company to present the business and showcase its market potential to attract investment funds. 1 Startup: a company that is in the first stage of its operations. Due to limited revenue or high costs, most of these small-scale operations are not sustainable in the long term without additional funding from venture capitalists. (Investopedia.com) 2 B2B: Business to business, when one business has its main operations with another business. 3 Business Pitch Deck: is a brief presentation, used to provide your audience (investors) with
Table of Contents
1
Introduction ... 3
1.1 Company background ... 3 1.2 The Industry Background ... 4 1.3 The Case Overview ... 4 1.4 The Research Question & Approach ... 62
The business plan & the business pitch deck ... 6
2.1 What is a business plan? ... 6 2.2 What are the elements of a business plan? ... 7 2.3 From a business plan towards a business pitch deck ... 10 2.4 What are the essentials of a business pitch deck? ... 11 2.4.1 Introduction ... 12 2.4.2 Team ... 12 2.4.3 The Problem ... 13 2.4.4 Solution ... 14 2.4.5 Product ... 15 2.4.6 Market, Validation & Traction ... 16 2.4.7 Competition ... 16 2.4.8 Revenue Model ... 16 2.4.9 Financial/ Projections ... 173
Data Gathering ... 18
4
Data Analysis and Application to compose the Pitch Deck 19
4.1.1 Introduction ... 20 4.1.2 The Problem ... 23 4.1.3 Solution ... 28 4.1.4 Product ... 29 4.1.5 Market, Validation & Traction ... 30 4.1.6 Team ... 34 4.1.7 Competition ... 35 4.1.8 Revenue Model ... 37 4.1.9 Financial/ Projections ... 385
Conclusions and Developments after the presentation of
the new “Pitch Deck” ... 38
6
The Resulting Pitch Deck ... 39
7
Bibliography ... 51
1 Introduction
1.1 Company background
AIMIRIM is a Brazilian technology-based company, founded by four PhD Engineers, which in the recent years has been developing modern engineering techniques, employing computational fluid mechanics, and supported by high-performance computing systems, to be applied to industrial processes. Therefore, the company is inserted in the B2B system, and its main focus is the industrial market.
Since its formation, AIMIRIM has been working in partnership with leading Brazilian universities on research projects to develop software capable of serving the industrial sector.
Over the years, the company developed singular numerical techniques, which made its software possible to accurately simulate fluid flows in complex geometries, biphasic flows with high degree of detail, iterative fluid structure, reactive flows, among others.
This learning process, and gradual improvement of techniques culminated on AIMIRIM developing an innovative software, called OPPER, which presents peculiar scientific characteristics that are difficult to find in existing numerical tools in the market today. OPPER has a disruptive potential for the industrial control and automation market. Therefore, AIMIRIM has an innovative product that can be adapted to the needs of diverse industrial plant and has strong market potential. However, the company needs to develop a business plan and strategy to reach customers, as well as raising funds to finance marketing & sales investment.
1.2 The Industry Background
The Brazilian Industry is relatively new compared to other developed countries. Only in 1930 the national industry began to solidify and improve its structure supported by Government inducements.
Currently Brazil is considered one of the most industrialized underdeveloped countries in the world, but only 13% of its GDP comes from the industrial sector, and the country occupies only the 29th position in the 2016 Global Manufacturing Ranking4.
The Brazilian Industry generally operates with low efficiency, what is most prominent in the Agribusiness. Brazilian Industry has a strong need for increasing efficiency and improving its processes, due to outdated equipment, and poorly designed production lines with limited control and automation capabilities.
In this context, AIMIRIM positioned its business to develop hardware coupled to own software, which is designed to alleviate problems of low efficiency in industrial equipment. AIMIRIM solution is integrated to the operational center of the industrial equipment and programmed to undertake the supervisory control.
1.3 The Case Overview
AIMIRIM, the subject of analysis on this company project, has a strong Research & Development team composed of PhDs in engineering, with extensive technical experience, and accountable to develop an innovative product with plenty potential for the Brazilian market.Over the last two years, AIMIRIM founders have been trying to introduce the company into the market, and sell their products and solutions for industries in the Southeast region of Brazil.
Currently, AIMIRIM has two active clients, in the Agribusiness: Soybean processing, and Ethanol manufacturer.
However, in order to structure a good sales plan and provide traction to the business, expanding its area of operation and reaching a greater number of customers, the company needs capital investors.
Last year, the company has been involved in conversations with investment funds in an attempt to attract a partner to the business, and despite Investors evident interest in AIMIRIM’s technology, negotiations have not further continued.
The complexity of the technology developed, and the difficulty of the company's founders to present the company's business model in a clear and informative manner, is the main reason Investors have to not evolve negotiations with AIMIRIM, despite Interest in the technology and its outstanding potential.
Therefore, AIMIRIM founders acknowledge the need to develop an informative business model that results in the production of an attractive business pitch deck for Investors.
As mentioned earlier, the founders of the company have a technical background, and have no education in business administration, which makes it difficult to draft a business plan in the format requested by venture capital funds.
In addition, just like any other startup, AIMIRIM has few resources available, which prevents the company from investing in a specialized consulting firm to develop a business plan, and then prepare a business pitch deck in the required formats.
Thus, this company project is oriented to understand the criteria and formats in the elaboration of a business pitch deck, explaining the process of data collection and research, and finally presenting the document created for the company.
1.4 The Research Question & Approach
The latter conducts this research project to answer what disciplines and information comprise a business plan, then to determine which of these parts are essential for a business pitch deck, and finally to develop the deck for AIMIRIM.2 The business plan & the business pitch deck
2.1 What is a business plan?
Investopedia defines business plan as a “written document that
describes in detail how a business, usually a new one, is going to achieve its goals”5. The firm’s management usually prepares a business plan targeting internal or external audience – depending on the audience and the intended purpose, the document can take different shapes and contain different information – to guide the entrepreneur thinking, improve management teams’ alignment, and back its pitch to potential investors, promoting investment capital, respectively.
Most startups are challenged to manage its limited resources. Decision-making often considers allocation of resources to execute indispensable activities. Elaborating a business plan takes time and demands involvement of company’s key people. Whether the entrepreneur is doing it himself, who has not necessarily the knowledge to accurately execute it, or hiring a specialized consulter, the business plan comes at a cost.
A quick online visit to entrepreneurship’ forums is enough to find floods of questions regarding the true necessity of elaborating a business plan for a startup. Whether there is no consensus, there is one compelling reason to spend resources preparing the document: Obtaining funding requires a formal business plan.
2.2 What are the elements of a business plan?
Institutional investors – venture capitalists and banks – and most angel investors will require a business plan. Thus, entrepreneurs employ their best efforts to develop an outstanding plan and earn investment funds. Problem arises when the business plan attempts to encompass more information than the necessary, losing focus. Entrepreneurs trying to impress investors risk overdoing the document and the result is a massive deck with 40-50 pages of wrong assumptions, overestimated market growth, and obviously biased financial forecasts that will backfire.
Practitioners even say that business plans that are too long and too detailed have lower chances of being read, and may even reduce credibility – as a result, business plans today, must have fewer but relevant information, and reliable financials.
In order to get the necessary investment for the startup, the entrepreneur will need to draft a business plan that describe the company accurately and attractively. The following paragraphs expose what a winning business plan should contain, according to specialists. William Bygrave, opponent to the need of a formal business plan, says that a plan should not be longer than twenty pages, the shorter the better the chance of the plan being read by investors. He adds that the entrepreneur should not assigns more than five pages to financials forecasting, and definitely not having any numbers you can’t explain instantaneously.
Guy Kawasaky, a well-known practitioner on the startup ecosystem, is a bit more extreme and says that a business plan should not be longer than ten to twenty pages, and advices the entrepreneur to not get obsessed with the financial forecasts – which should be one page long – that are result of little more than guess work. He says that the process of drafting the business plan should be seen as a valuable opportunity to
get your team on the same page.
Anthony Tjan goes further and concludes his article saying that passion and purpose for the startup is more important than filling worksheets for a business plan. Nevertheless, he offers five designing points for a more useful and practical planning process: 1. Identify and clearly articulate your Heart and purpose; 2. The team is more important than any idea or plan; 3. Think big, start small, then scale or fail fast; 4. Focus on a well-defined market sub-segment or niche; 5. Understand your business model. Other two classic articles are completely dedicated to offer outlines for a winning business plan: (a) How to write a winning business plan, written by David E. Gumpert; and (b) How to write a great business plan, written by William A. Sahlman.
Although these articles resemble the idea of the old-fashioned classic business plan, they are still full of valuable information.
(a) How to write a winning business plan:
Gumpert says that the subject of a business plan is a constantly transforming and changing, it is not static, but still the plan should strive to present and justify the “resource requirements, marketing decisions, financial projections, production demands, and personnel needs in a logical and convincing fashion”. (Gumpert, 1985)
The author alerts that entrepreneurs often disregard the three fundamentals:
1. The market – including both existing and prospective clients, customers, and users of the planned product or service.
2. The investors – whether of financial or other resources. 3. The producer – whether the entrepreneur or the inventor.
(b) How to write a great business plan:
According to Sahlman, a business plan should include numbers – market projections and financials – but not more than enough to show the startup’s team has done some research on the key drivers of the business.
Sahlman observes that he does not have the intention to provide a “winning” formula; instead he proposes a framework that, in his words, “systematically assesses the four interdependent critical factors to every startup”. (Sahlman, 2009) So, in order to speak the investors’ language, the entrepreneur should base his business plan on the following framework: 1. The People – key internal and external people and partners, such as lawyers, accountants and suppliers.
2. The Opportunity – the business, customer, product/service, opportunities and threats.
3. The Context – illustrate the big picture of factors that are not in control of the startup, such as: regulatory, demographic trends, and market tendencies.
4. Risk and Reward – evaluation of potential problems and advantages, and how the startup is ready to respond.
Although researches diverge on the best format of a business plan, and some even think they are not crucial, business plans show no sign of extinction and they still contain the same basic elements they always have: (1) Executive summary; (2) Marketing plan; (3) Management team; (4) Financials.
2.3 From a business plan towards a business pitch deck
Often the terms business plan and business pitch are used in a variety of ways and out of the correct context, the latter is a relatively modern term. The business pitch deck should be a summary, or shortened version of the business plan, especially prepared to present the business, and attractively sell the business idea to investors.
A business pitch is a speech of approximately thirty minutes, usually in person, to present the business. Typically, the speech is supported by a slide presentation, commonly known as a pitch deck, prepared in a software like PowerPoint, KeyNote, Prezi, among others.
When liaising with investment funds, the pitch deck is usually sent at the beginning of the process, but ideally the entrepreneur gives the presentation with a voice over, so that he can convey the message in a convincing way, and elucidate any queries that may arise.
The business plan is not sent early in the process. When the investor is caught by the business pitch and understands that the startup has investment potential, the assessment phase will advance to a more detailed analysis of the business, which would require the submission of a business plan to the investment fund.
Typically, the entrepreneur first develops the business plan, on a process that demands deep strategic analysis of the business and market, and which will later be a basis for the developing the pitch deck. However, in our case, AIMIRIM does not have a business plan prepared and we will have to develop the business pitch deck directly, which will require executing a topline strategic business analysis.
2.4 What are the essentials of a business pitch deck?
The business pitch deck is possibly the most important document the entrepreneur will produce at the beginning of the company's trajectory. This document will be responsible for communicating the first impression of the company, and attract investors’ attention. The entrepreneur must demonstrate, through the pitch deck, having business knowledge, market and customers’ need insights, which are essences to convey confidence to investors.
In addition to the document and its content, another important point to consider is the tone of voice of the presentation, the energy and passion placed by the entrepreneur when presenting the company and its business idea are essential to capture the attention of the investor. We will not address this issue in the elaboration of this paper; the focus will be exclusively on the development of the content of the business pitch
deck.
It is worth remarking that there is no formula for a perfect pitch deck. However, some fundamental information must be present in the document to answer some typical investors’ questions.
Following we present the main required sections of a business pitch
deck.
2.4.1 Introduction
These slides capture the essence of the company story, covering a short and inspirational description of the company and its vision. In short, should attempt to brief the investor on what is the company about, and why the company exists.
Some authors says the entrepreneur should create a compelling tag line, of 7 to 10 words, that is clear, self explanatory, provocative, and incite the reader.
Additionally, it is indicated that the pitch deck presents the general context of the industry, and the profile of the targeted customer (the latter point can be approached alternatively in "2.4.3 The Problem" section of the document). 2.4.2 Team Despite the acknowledged importance of having a good product, and a clever business plan, it is the team behind the company that will execute this plan in practice. A perfect plan is worthless without a good team. "The team is more important than any idea, or plan." (Tjan, 2012)
Investors are keen to perceive if the management team has the knowledge, skills, dedication, and passion necessary to execute the idealized business plan.
Typically, entrepreneurs use the pitch deck to present the team on one or two slides, emphasizing the strengths and technical expertise, and also the motivation and synergy of team members skills, highlighting their commitment to the business purpose.
It is necessary to present the people behind the idea and describe the role of each of main team members. Investors will be interested to know why this is the right team to operate the business.
2.4.3 The Problem
"The Problem" is a very important topic on the business pitch deck.
Depending on the audience (investors) awareness of your company's business idea, this topic needs to be more or less detailed, demanding a larger (or smaller) portion of the presentation to educate investors on the subject addressed.
These slides have the ultimate objective to convey the target market opportunity, highlighting the problem the company tries to solve for its potential customers.
Ideally, the content will assert that customers (B2B or B2C) are currently being served with imperfect products, or that existing products do not adequately meet consumers’ needs. Furthermore, show that this inefficiency has a cost, and that your product / service offers a solution to this problem, or presents a superior alternative to the customer. Shortening, the section "The Problem" should present:
1. What problem does the company / product try to solve?
2. Demonstrate that the problem is worth solving. Does the company have a solution looking for a problem, or a problem looking for a solution?
3. Distinguish who has this problem? And if these companies have interest, or motivation to solve this problem.
The book Value Proposition Design presents a clear framework to identify the real problem to be solved for the client. (Osterwalder, 2014) Using a simple but efficient framework, the author defines the Customer Profile, which identifies the Customer Jobs, Pains, and Gains to help the entrepreneur clearly describe the problem to be solved by the company. This company project will rely on this framework (depicted on the figure below) to support the description of the problem and the needs of the client, demonstrating clearly the company’s value proposition to the Investors.
2.4.4 Solution In this section, the entrepreneur will describe how he plans to solve the problem, and demonstrate the proposed solution has fit to market, meaning that your customer will be interested in the value proposition of your product or service.
Still, this section should strive to make Investors understand the business opportunity, and establish a direct relation between the customer's need to solve the problem, and the effectiveness of solving the problem with the proposed solution.
Again, we will use as basis for this company project the outlines of the
Value Map framework proposed in the book Value Proposition Design.
Concisely, applying this framework, the entrepreneur will be able to structure the proposed solution, explaining how his product alleviates customers’ Pains and solves current problems, and ideally shortlist all benefits the product adds to client’s business.
2.4.5 Product
How does the product or service really work? In this section, the entrepreneur must present in a succinct and clear way the logic of product functionality, and what makes the product special or different from existing alternatives. Best practice is to show examples of applications.
The idea is that the entrepreneur can convince investors that they have a better and more attractive product than others in the market, and that is why the product will capture customers.
2.4.6 Market, Validation & Traction
The business pitch deck should contain an exclusive section to enlighten Investors into the company's target market. It is important that the entrepreneur demonstrates awareness of the market segment, and estimates the size of targeted market, catering for both existing and potential customers.
This section should also contain examples of real customers that validate the product potential in the market. Business in progress, or under negotiation, with results achieved, customer feedback, and numbers of prospective business help the investor estimate the business traction, and incite interest in investing in the company.
2.4.7 Competition
What are alternative solutions to the one proposed by the company? Direct and indirect competitors must be mapped so that the company knows the main risks and competitors in the market. Investors will be interested in knowing the risks and opportunities that come from the competitors' analysis.
To a certain extent, competitors’ analysis also demonstrates the market penetrability of the product. Supposing some competitor has market traction, it might mean a positive sign, because despite the difficulty of competing for market share, it also implies that the market exists, and hence the product may find adopters among customers. Acknowledging that creating a new market is not an easy task. 2.4.8 Revenue Model Several Revenue Model definitions are used by different experts, some more complex and comprehensive, evaluating all aspects of the business model, as proposed by the Business Model Canvas framework. In the other hand, some authors describe it simpler and focused on how the company monetizes the idea or product.
Business Review, ponders the different perspectives among experts. For purposes of this research project, and construction of the document for AIMIRIM, it makes sense to use this section to answer the following question:
"A good business model, according to Peter Drucker, should answer a fundamental question: How does the company make money in this business?" (Ovans, 2015) 2.4.9 Financial/ Projections Provide a budget forecast for a period of three to five years, not only for Sales and Revenues, but also for other key indicators, such as number of clients reached, expected market share, operating costs, among others. In order to build a financial forecast, it is important that the entrepreneur identifies the numbers that are most predictable, such as fixed and variable costs, for the key areas such as production costs, marketing and sales expenses, and finally by calculating its margins per unit.
Sales forecasting, defining the right pricing strategy and estimating market share is more difficult, and demands market research support. Especially for a startup these numbers are hard to get, which makes many experts say that financial predictions are not more than "guessing work".
The truth is that unless the startup is already on a more advanced stage of go-to market, with some customers already captured, or even working in a consolidated market, the numbers and projections will not be very accurate.
Nevertheless, the financial forecast exercise will give the entrepreneur more accurate knowledge of his own business and profit outlooks, as well as to increase the credibility with his potential investor who will appreciate that the entrepreneur understands the financial metrics and
how to operate the business. Finally, as Gartner says - "no one is impressed by spreadsheets" - what will excite investors, and increase your chances of getting funded, is the work behind the spreadsheet. (Gartner, 2006)
3 Data Gathering
Developing an effective pitch deck requires reliable information, and qualitative and quantitative data. Typically, this information would be compiled into the business plan and easily accessed in this single document. However, as mentioned earlier, AIMIRIM does not have a formal defined business plan, requiring all information to be collected and manipulated in order to compose the important documents as abovementioned for the pitch deck. The data collection, in the research project developed for AIMIRIM, was carried out jointly with the CEO (Chief Executive Officer) of the company, so that all relevant (operational and financial) and necessary information were fully made available for the purposes of this project. Some sections that had not been developed by the company were then worked together with the management team and the CEO so that the material presented herein is truly representative and consistent with the company's objectives. All information exhibited in this project was collected from reliable sources across company areas to complete the
pitch deck.
The development of the company project accounted for all sub-items mentioned in section 2.4 What are the Essentials of the Business Pitch
Deck. The basis for developing the pitch deck was discussed with
company’s team members to increase the assertiveness of the document, and the data presented here.
4 Data Analysis and Application to compose the Pitch
Deck
Considering the national industry's value chain, AIMIRIM provides engineering solutions to the domestic industry. All sectors of the national industry, which have some kind of automation in their production process (e.g.: Agroindustry, Mining, Oil & Gas, etc.), are potential markets for AIMIRIM.
However, due to company’s geographic location (located in the state of
Minas Gerais, Southeastern of Brazil) and characteristics of the local
market, AIMIRIM's decided to focus on the Agroindustry and its ramifications.
The decision is also supported by the fact that Agroindustry is the strongest industry in the Brazilian economy. Even in a period of economic crisis, Agroindustry is the only industry to have a steady grow and continue investing in technological development.
Recently the company has developed solutions for Data Center Providers, which buildings usually demands large and sophisticated HVAC (Heating, Ventilation and Air Conditioning) facilities for environment temperature control.
Data Centers is a growing market globally (mainly in the USA and Europe), and AIMIRIM's new focus to meet future demand in the Brazilian market.
The technology developed by AIMIRIM and deployed in its product (OPPER), can meet the two different applications, with low need for reprogramming and customization, demanding some minor adjustments in design and hardware, which can be performed in-house by the company's engineering team.
That said, the project portrayed here was based on these two target markets - Agribusiness and Data Centers - to support the analysis
The following sections were developed following the same logic and explanation presented in chapter 2.4 What are the Essentials of a
Business Pitch Deck?
During the development of the project, continual discussions and interactions necessary to develop the material of this study culminated on strategic planning to position the company in the market.
4.1.1 Introduction
The first challenge when starting the company project was to really understand what AIMIRIM does, to untangle the complicated technical documents, and to understand the technological terms used by the company’s team to explain the product and the solutions offered.
When questioning the team about what solution AIMIRIM offers to customers, the answers always converged to complex explanations with sophisticated hi-tech & engineering terms, trying to rationalize how the product operates and its curious characteristics, but overly complicated for someone not so familiar with the subject, and the Industry. After gathering some information with the team, we prepared a section with the CEO to identify practical points related to the solution offered by AIMIRIM and how the company could be described in a short and inspiring way to potential investors without overloading them with technical terms.
In this sense, we have reached a compelling tag line that provides an overview of AIMIRIM's activities, and is intended to incite the interest of Investors in progress to read the document.
"We develop artificial intelligence combining engineering & software power to make industry and data centers more efficient"
In addition, it is recommended that the pitch deck present in the
While relying on common sense, and focusing on trends that are already consolidated in today's industry, we have defined six macro trends that outline the context of Brazilian industry, and serve as a basis for introducing throughout the document the product offered by AIMIRIM.
(1) High competition squeezing profit margin - In a historic moment
in which competition is fierce, and most products are commoditized, the use of new manufacture technologies is a competitive advantage, even if temporary.
(2) Operations pressured to reduce costs & increase efficiency -
Reduce production costs, and increase the efficiency of industrial sites, are part of the operational objectives of companies that want to compete in the market. Solutions and products, such as OPPER offered by AIMIRIM, that act in this direction will be easier to penetrate the current market.
(3) Trade-off between processes' cost & quality - Most solutions
available on the market obey a direct relationship between cost and quality. Thus, by striving to reduce operating costs, many companies end up reducing the manufacture quality.
Solutions such as AIMIRIM's OPPER, which provide a reduction in operating costs, and at the same time positively impact the quality of the production process, have great market potential and are usually of interest to Investors. (4) High electricity costs due to shortage of natural resources - Brazil has about 75% of the energy generated by hydroelectric plants. 6 6 U.S. Energy Information Administration
Recently, Brazil went through a long drought period, and consequently suffered shortage of energy supply. The country faced blackouts that demanded government action to ration energy supply.
Obviously, energy prices have risen, and this has directly impacted production cost of Brazilian industries, as well as the operational cost of Data Center Providers.
This point is important in explaining AIMIRIM’s business opportunity, and how OPPER can help its customers reduce energy consumption and operating costs. We will further explore this point later when explaining the product and solution offered by AIMIRIM.
(5) Society & Governmental pressure to increase environment consciousness – Reducing the energy and fuel consumption used in the
industry is, besides a cost reduction measure, a hot topic for Corporate Governance of global companies.
The Government, through tax incentives, law enforcements, and legal restrictions, has increasingly put pressure on industries to seek cleaner solutions and reduce the consumption of fossil fuels.
(6) Industrial equipment & processes are inefficient – Brazilian
Industries operates largely with low efficiency. The national industries that offer the best-applied technologies are Oil & Gas and Aviation (Petrobras and EMBRAER).
As previously mentioned, AIMIRIM's is focusing on the Agribusiness industry (specifically in industrial boiler equipment) and Data Centers
Although AIMIRIM product has a wide range of applications, the selection of these two target markets is due to the fact that the results achieved by the technology are more significant for customers and easier to recognize. OPPER acts directly to improve the operational efficiency of the industrial equipment mentioned above.
In short, AIMIRIM offers its clients the following opportunities: (1) to improve the quality of operational processes and outputs; (2) increase the efficiency of equipment and processes; (3) reduce energy usage and/ or fuel consumption; (4) reduce operating costs. 4.1.2 The Problem As mentioned before, the main problem that AIMIRIM tries to solve with its OPPER product is the inefficiency of two devices. It is necessary to recognize, however, the need to segment customers in order to analyze the problem to be solved in a more precise way. Despite the problem of equipment inefficiency being common to different customers, this problem happens in different ways depending on the industry and on the equipment in question.
AIMIRIM understands that strategically positioning itself to support these two types of customers, the company achieves an important condition of competitive advantage.
Hereafter, we will analyze the "Problem" from two perspectives: 1.Agribusiness Industries; and 2.Data Centers Providers.
1. Agribusiness Industries:
The Customer
For this type of customer, the quality and costs of manufacturing process are essential to the performance of the business. Industrial processes are very diverse, but often have one thing in common; they have a steam generation system – industrial boiler. Approximately 37% of the fossil fuel burned in the industry is destined for the production of steam through industrial boilers. Fossil fuel consumption to steam production in the USA industry: • Food processing (57%) • Pulp and paper (81%) • Chemicals (42%) • Petroleum refining (23%) • Primary metals (10%) Industrial boilers are present in a large part of the Agribusiness sites, and demand considerable great amount of fuel, and an improvement in efficiency in the industrial boiler is translated into a representative reduction of direct costs for the client.
The Problem
Industrial Boilers are adjusted to produce steam at defined parameters, in accordance with the needs of the manufacturing process in question. The steam produced must comply with parameters of temperature, pressure and volume.
However, Industrial Boilers operate in a static setup, and constant changes in the environment and in the inputs conditions cause disturbances in the operation, causing the equipment to work constantly above or below the optimum set point.
When the boiler operates above the set point, excess fuel is being burned. When the equipment operates below the optimum set point, lower quality steam is produced.
So, we can define the Customer Job for the Agribusiness Industry: Reduce operational variability of Industrial Boilers.
The Pains
In order to complete the definition of the Problem faced by this customer segment, we will continue to follow the framework presented by Alex Osterwalder, to help define the Customer Pains.
Industrial boilers mostly have static automation control, which relies on human judgment (operators, technicians and engineers) to constantly adjust their parameters.
It turns out that technicians and engineers specialized in this type of processes are scarce and represent a high cost to operations. In addition, to achieve a more efficient operation a large number of adjustments would be required throughout the day, yet, due to the long time needed to analyze, calculate and adjust, it is practically impossible to be executed by a person.
The operational fluctuation of the equipment around the set point causes excessive consumption of fuel, resulting in waste and costs. Besides, the fact the industrial boiler will be producing steam out of ideal specification, harming the quality of the manufacturing process.
2. Data Centers Providers
The Customer
Currently, around 50% of the energy consumed by a Data Center building is demanded by the central refrigeration system (air conditioning), which is meant to keep the equipment rooms at an ideal temperature for the correct operation of the data center infrastructure. Data Center companies use an energy efficiency index called PUE (Power Usage Effectiveness). The PUE is the ratio of the total power consumed by the infrastructure installation (refrigeration, lighting, etc.) divided by the electricity consumed by the IT equipment.
Refrigeration equipment is the biggest energy consumer in a Data Center. The best PUE is as close to 1.0 as possible.
Power Usage Effectiveness (PUE) in different countries: • Brazil = 2.4
• US & Europe = 1.5 • Facebook = 1.07
The greatest challenge for Data Center companies is to reduce energy costs in order to gain price competitiveness. Since energy costs are the biggest responsible for operational cost and directly impact their ability to compete for better prices, and achieve better profit margins than competitors.
Brazilian Data Centers are far from equating to the energy efficiency of the most modern companies in the USA and Europe. The Brazilian market for Data Centers shows a lot of room for improvement (aiming to achieve better energy efficiency) and AIMIRIM has the technology capable of assisting Data Center Providers in this challenge.
The Problem
The equipment used by Data Centers (servers and modem racks, processors, CPUs, etc.) needs to be cooled and maintained at an ideal operating temperature to improve performance, reduce failure occurrences, and increase equipment lifetime.
The background temperature must be maintained at an optimal level. However, the air conditioning system operates within a widespread temperature range hovering above and below the optimum.
When the temperature is on the upper limit, the risk of failure of the electronic components increases. When the temperature is below the setup point, it means that the cooling system is consuming more energy than necessary, consequently accumulating waste and cost.
Hence, we can define the Customer Job for Data Center Suppliers: Reduce operations variability of Air Conditioning Systems.
The Pains
The central air conditioning automation & control systems, available on the market, do not consider multiple machines working in parallel and how they influence each other on the overall performance of the refrigeration system. In addition, the automation system is static, and does not dynamically correct process disturbances (e.g.: load variations of racks).
The latter causes the cooling systems to incur in unnecessary operational cost. When the temperature is below the required, it means that the equipment is consuming more energy than necessary (waste and cost). Similarly, when the temperature is above ideal, there is a greater risk of electronic components failure, thus intensification for maintenance interventions.
Although the solution (OPPER) is applicable to a wide range of equipment and processes, AIMIRIM is targeting the abovementioned
processes (i.e.: Industrial Boilers and Data Centers Refrigeration Systems) that are significant for client’s business models - because of potentially higher cost savings. AIMIRIM understands that Data Centers represent a future demand, and a steep growing market, and because customers are tech consciousness they may be early adopters of company’s solution (OPPER). 4.1.3 Solution
AIMIRIM engineers developed an algorithm to simulate Artificial Intelligence that enables software to read and predict the behavior of automated machines. The algorithm goes embedded in a single board computer. This software coupled to hardware solution is called OPPER and it is the outstanding AIMIRIM product.
OPPER is plugged in the machines’ automation control line through the network configuration, which identifies operational errors, calculate and readjust the equipment setup to compensate the errors, while the software learn with the errors becoming more intelligent, and making faster decisions.
AIMIRIM uses its simulator software, and statistics analysis, to accurately forecast machine’s efficiency improvements, and advises client on how much they can expect to save in cash due to increase in equipment's efficiency.
In short, AIMIRIM proposes a solution that uses Artificial Intelligence to dynamically and continuously read, calculate and automatically adjust the parameters of the equipment uninterrupted (24 hours a day, 7 days a week).
Due to the ability to supervise the operation of the equipment and adjust automatically as necessary, OPPER reduces the operational variability, and the machine works closer to the optimum set point. The result is higher efficiency and quality improvements, besides reducing
fuel and/or energy consumption.
It is worth remembering that the solution presented fits the purpose to solve the customers problems, as identified in item 4.1.2 The Problem:
1. Agribusiness Industry: Reduce operational variability of Industrial
Boilers.
2. Industry Data Center Providers: Reduce operations variability of Air
Conditioning Systems.
Besides solving customers’ problem listed above, OPPER also delivers
Gains that should be mentioned in order to illustrate the advantages of
employing AIMIRIM solution.
• Reduces waste – Because the equipment will start working closer to the set point, it will spend less fuel or electricity to run.
• Less labor & maintenance intensive – Dynamic automation demands less supervision and human interface. Equipment runs smoothly demanding less maintenance.
• Reduces costs – Less fuel, less electricity, less supervision, potential to demand less maintenance intervention.
4.1.4 Product
The product description and features were very well prepared by the company and required little or no amendment to be included in the
pitch deck document.
The material transcribed here was provided by the company in the form of a technical document used to present the product to potential customers, the work done in this section was limited to adjustments and format the content in pitch deck template.
The resulted slides can be verified on the chapter 6.Resulting Pitch Deck, containing:
• Following description of the product and its particularities when compared to the few competitive products in the market, in the slide: "What is unique about OPPER?”
• Simplified and visual description of how OPPER is installed in the industrial boiler control line: "How to install OPPER in an
Industry"
• Finally, a slide summarizing OPPER installation method in Data Center refrigeration systems: "How to install OPPER in a Data
Center"
4.1.5 Market, Validation & Traction
AIMIRIM had no formal market research and strategic survey of potential clients to serve as the base date for the development of this research project.
Unlike the North American business landscape, where the amount of information available is abundant, most of time free and comprehensive, providing a sufficient database for the development of an initial strategic plan. The Brazilian industry is still deficient in a comprehensive database, and most of the relevant data demands heavy financial investment to gain access.
Thus, during the development of this in-company project, it was also necessary to develop a basic mapping of potential clients, through a high level desktop research, and estimate the size and value of AIMIRIM's target market.
4.1.5.1 Market Size
We focus the market research in two areas: (1) Industrial Boilers - in Agribusiness: restricting the survey to medium and large companies, which represents AIMIRIM potential clients; and (2) Data Centers Providers: established in Brazil.
For the purpose of exploring opportunities for international expansion in the long term, we have also computed the number of Data Centers Providers in the USA and Europe, which are the most developed market with the largest number of companies in this industry.
(1) Number of Industrial Boilers:
The survey was deployed in conjunction with AIMIRIM's engineering team, accounted in total for 685 potential customers. Each client represents an Agribusiness site, which encompasses a steam boiler. It is true that in some specific plants one can have more than one boiler installed, but for practical purposes of research, it was considered a conservative number of one boiler per industry.
Below table presents the breakdown of the boilers by region, boiler capacity, and type of industry within the industry:
• Ethanol production facilities: total of 438 boilers, being 202 in the state of Sao Paulo, 41 in Minas Gerais, and 33 in the state of Goias. Total estimated: R$272.5 million.
• Grain processing facilities: a total of 87 boilers. Total estimated: R$94 million.
• Food processing plants: In all, 160 industrial boilers were registered. Total Estimated: R$19.2 million
Considering that these are conservative numbers, we used the quantities and different existing types of boilers to estimate the financial
value of the market for AIMIRIM. Industrial Boilers applied to Agribusiness accounts for a total market value of R$385.6 million. (2) Data Centers Providers: To estimate the size of the Data Center Providers market in Brazil and the US and European markets, we used the online platform Data Center
Map7, which has an updated guide to the global leading data center
enterprises in the market.
Based on this data, we have summed up 49 Data Center projects in Brazil that may be potential clients for AIMIRIM, and accounts for a total market value of R$22.7 million. To illustrate long-term possibilities, and to enlighten the steep growth of this market, we also present the current number of Data Centers in the USA (total of 1674), and in Europe (total of 1093). Future forward, a later stage of international expansion could represent company insertion on a market valued around R$1,280 million. 7 Data Center Map, can be found at http://www.datacentermap.com
4.1.5.2 Validation & Traction
Although AIMIRIM is a young company, that only recent entered the market, the company has already been able to validate its business model with an important player in the Brazilian market, proving the functionality of its product (OPPER) and the market Fit to the offered value proposition.
This successful case is important for AIMIRIM to showcase its product (OPPER) and helps corroborate the Fit to market. The OPPER solved the Customer Job delivering the promised results. The following paragraphs will present practical data of this business case that was used to compose the "Pitch Deck" and show OPPER potential for value creation. Business Case AIMIRIM is currently working in a partnership with a domestic company (Algar Agro) to test and implement OPPER in its industrial facilities. The first test was implemented in 2016, when OPPER was installed in the industrial boiler and achieved encouraging results: • 59% less variability of steam pressure, representing improvement in the productive process. • 7.5% less fuel spent to run the Industrial Boiler, or 223 tons of fuel saved every month. This fuel economy is cumulative over the operating months, resulting in a total savings of R$321,000 in the first year of installation.
It is worth mentioning that in July 2017 AIMIRIM was able to sign another outstanding contract for installation of OPPER in industrial boilers of a large multinational company that operates in the area of Ethanol production in Brazil.
Although AIMIRIM has still not been able to sign a contract with any Data Center Provider, the company is currently moving ahead in negotiations.
The company's engineers designed the integrated multi-OPPER solution that is ready to service Data Centers. AIMIRIM estimates that the solution employed will reduce the power consumption of the air conditioning system by approximately 15% (number based on computer simulation applied to real case numbers), accounting for energy cost savings of R$0.5 million per year of operation. It is safe to say that the company has market potential and its solution is validated, at least for the Industrial Boilers niche, which is the one with greatest market traction at the moment. 4.1.6 Team As mentioned earlier, the team is perhaps the most important point to be presented on the pitch deck, as it is the team that will be responsible for making the business plan a reality. Investors are mindful that the startup team must have the knowledge, skills, dedication, and passion for the business, which are necessary to execute the idealized business plan.
During the development of this paper, we experienced the application process for private investment funds, and a recurrent requirement in the application process was to detail the composition of the team, and to provide documents that prove its experience and background, in order to admit the startup in the selective process.
The composition of the team is presented below:
The four owners of AIMIRIM were also the ones responsible for developing the technology used in their OPPER product.
Two members are PhDs with relevant technical expertise to continue developing new technologies leading the Research & Development department of the company. They are also responsible and capable for customizing the software for application in new situations, when necessary.
Another member has more hands-on experience in industrial facilities being responsible for the management of Operations, leading the field installation team in clients’ facilities.
Finally, the current CEO, who in addition to actively participate in the development of technology, also has commercial experience, and accumulates the role of Sales Manager responsible for prospecting new business.
The team's organizational chart, containing the main functions, is presented succinctly in the pitch deck. Nevertheless, when presenting the pitch deck to the investors, the CEO should guarantee that the necessary emphasis on this topic is given, clarifying any strategic human resource, and team composition related matter. 4.1.7 Competition Major technology companies stand out as global competitors. Although these companies do not have currently this technology yet, they do have the capacity to develop them and enter the market in the medium to long term.
Specifically in the area of industrial automation, there are two possibilities to solve the problem of low industrial efficiency. One approach is the classic line-knit automation control in which Accenture is the market leader.
The other approach, the one used by AIMIRIM, is more advanced and uses artificial intelligence, and there is no consolidated company that dominates this technology. Currently, only two startups use this technology, one being AIMIRIM, the other being iSystems, the main competitor in the Brazilian market. However, iSystem does not dominate all the technologies that AIMIRIM offers, and it has a less complete product. The following table compares both companies and product features.
The product offered by AIMIRIM (OPPER) is more complete than the competition, and that its product competitive advantage is difficult to be copied, since it demands expensive investment in research and development. AIMIRIM has intellectual property over the software developed by the company, and used to equip OPPER.
4.1.8 Revenue Model
The product developed by AIMIRIM is new to market and is being introduced in an industrial engineering. This market is quite conservative and often averse to new technologies that are not proven to be mature and functional, as risks of operating failures can cause serious financial losses.
AIMIRIM needs to develop a strategy that facilitates first contact with customers, offering opportunity to previous test and compile evidence that the solution offered really works.
This process of insertion of new technologies in the market is easier for companies already consolidated and renowned, and that have an extensive portfolio of clients that prove the effectiveness of the solution employed.
AIMIRIM is a startup that offers a new product on the market, and therefore faces difficulties in gaining access and building a reputation and trust with new customers.
In addition, investments in improvements in industrial lines usually need to be approved in the companies' annual investment plan. Thus, AIMIRIM's potential customers do not represent a conventional sales method, demanding a long period of negotiations and planning until the sale is really consolidated.
Therefore, AIMIRIM had to develop an unusual Revenue Model, but necessary, that aims to increase the chances of selling its products, and ultimately creates a bond of trust between the client and the company. Ideally, the time between the first commercial contact and the effective sales is reduced.
The sale process is done in four steps:
1. Analysis (5-15 days) - AIMIRIM check out how much we can reduce costs in the client's operation, due to fuel / energy savings. 2. Commissioning (15-45 days) - AIMIRIM install OPPER in your
equipment and validate the previous cost reduction calculations. 3. Test (3 months) - AIMIRIM allows the customer to test the
product and prove the effectiveness for three months, before the billing is confirmed.
4. Sale is consolidated.
In general, the Revenue Model is based on the success of the product application on the customer's machine. AIMIRIM analyzes the customer's equipment, and calculates the potential for consumption reduction. The proposal is then prepared for AIMIRIM to charge 50% of the cost reduction of the client, computed in the first year of installation. After the first year, AIMIRIM charges only 5% of the cost savings for extended warranty and remote technical support, when needed.
A very positive and attractive point of the Revenue Model deployed by AIMIRIM is that the resulting six-month payback time is shorter than most technology investments applied to the industry, and this makes the product very attractive to customers and therefore to investors. 4.1.9 Financial/ Projections
5 Conclusions and Developments after the presentation of
the new “Pitch Deck”
6 The Resulting Pitch Deck
After compiling the data, and structuring the information in a format suitable for the construction of the target document of this company project, the activities focused on designing the slides for the Pitch Deck. The objective was to produce a presentation with relevant, direct and clear content that elucidates the technical applications of the OPPER, and presents the company in a modern and attractive, but professional, format for the potential Investors.
The resulting document, Pitch Deck is demonstrated in the slides attached on the following pages.
