O'Connor & Partners will focus on consulting to existing chemical manufacturers seeking to process biomass to energy and chemicals, as well as new organizations that intend to develop and/or build a bio-refinery. For the most part, the existing manufacturers are large, global chemical corporations. The newer entities are typically smaller and embrace an entrepreneurial spirit, often matching our own philosophies. We will work with any organization that hopes to accelerate commercialization of bio-refining technologies.
These are corporations that produce and/or sell commodity or specialty chemicals and fuels, polymers, and other materials. They are typically large, with annual sales ranging from several hundred million to several hundred billion dollars. Just a few examples include DuPont, GE, Dow, 3M, Shell, BP, and ExxonMobil.
Examples of recent start-ups include Arkenol (2003), PureVision (2003), Alltech (2000), and Cargill Dow LLC (formation in 1997; operational full-scale bio-refinery in 2002). This category is meant to include all start-ups over the plan, not just those that actually start up in the year indicated. Thus a 2004 start-up is included in the 2005 and 2006 years. The category is for companies who do not currently have any chemical operations.
This sector primarily covers feedstock collection (farming, transportation, and storage), which is an essential, but largely independent, component of bio-refining. Also this category includes farmer cooperatives that in the Midwest produce ethanol from corn (even though those could be also classified as small bio-refineries).
Often linked to chemical operations, utility companies define a unique sector due to the large, separate markets for electricity and power. Bio-refineries have the capability for generation of electricity through direct combustion or biomass gasification. Also the future "hydrogen economy" that is promised could be well-served by bio-refineries, which can produce clean H2 through partial oxidation and steam reforming of biomass. Or, ethanol (one of the most-abundant bio-refinery products today) can serve as a hydrogen reservoir for on-board H2 production on a fuel-cell vehicle. (Hydrogen as a fuel for fuel cells could also belong in the chemical-manufacturing category, but the common vision for H2 is similar to electricity supply networks and thus can be thought of as a utility.)
Reserved for businesses which don't fall into an obvious sector but which nevertheless have bio-refinery aspirations.
The figures in the Market Analysis table of potential customer base for bio-refining consulting services are only meant to be estimates and are not based on research. Certainly this table does not tell the entire story. No attempt is made to estimate the market value of the sectors, but they span orders of magnitude in revenue.
Aa pie chart shows the relative number of potential clients in each sector.
The growth estimates are minimal (3%) for chemical manufacturing and utilities, which is consistent with recent trends. However, even if the number of these companies does not grow much, their investment in industrial biotechnology might increase in the future, thereby representing increased real potential for O'Connor & Partners. For start-ups a more-aggressive assumption (50%) is made since it is a new industry.
These companies already use consultants and typically understand the value proposition of consulting (whether IT, engineering, or accounting). What they need to be sold on is the concept of the bio-refinery, how it fits into their existing businesses and can define new ones, and what the impacts are on long-term corporate goals (such as reduced dependence on feedstock imports). The issue here is creating need awareness. In some important cases these companies have publicly stated they are going down this path. Then their need is the time/people to devote to the necessary research projects to move faster down the path, and to confirm it is the right path for them. They understand that any bio-refinery project needs to respect economic realities, as determined by market-growth opportunities, the pool of capital available for projects, and executive strategic decisions. These chemical manufacturers will likely require very specific technical input from a firm such as O'Connor & Partners.
These companies are on board with the potential of the bio-refinery, because they (and/or their investors) have justified their starting up. They need consulting to understand how specific process options lead to different potential product distribution. Sometimes a start-up is heavy on personnel with science and engineering backgrounds who may not have appropriate business training. Other start-ups might enjoy extensive financial and management expertise, even with previous new ventures, but lack key technical experience. Even when the start-up team seems to be in balance, they often still need help managing complex projects initially.
An agricultural venture team might be heavy on farmers and others who have immense practical experience but do not always have the necessary technical or management expertise in bio-refinery. It is quite possible that this is the sector in which O'Connor & Partners can provide the highest incremental benefit. The media has recently reported that Minnesota farmer groups processing corn into ethanol suffer from inadequate technical knowledge to operate at high efficiencies. As a hypothetical example, consider a Chinese group that invented a novel way to collect rice straw in China, but they are unable to take advantage of the opportunities offered by the new industry to sell into the bio-refinery-feedstock market, in which rice straw already competes. With proper consulting, they can work with partners to move thousands of tons of rice straw daily to bio-refineries all over the world. Or, technical consulting can show them how they, too, can take part in bio-refinery rice straw to compete with, say, the furfural market (which is currently dominated by corn-cob processing in China).
Utility companies need to view bio-refining from an historical perspective of the traditional oil refinery and the chemical industry. For many reasons utilities are often across the fence from these operations, and the same benefits apply to a bio-refinery. Steam, electricity, and power needs could be supplied to a bio-refinery in the traditional sense (largely by processing coal, natural gas, or nuclear fuel), in which case the need for our consulting might be small. However, utility companies that want to utilize biomass feedstocks, to generate steam, electricity, or hydrogen, will benefit from our consulting expertise.
In terms of strategy, it is hypothesized that the chemical manufacturers and utilities probably offer more-immediate business opportunities for us than the other sectors, and thus targeting them early makes sense. These large corporations might look to us as relatively affordable, with respect to their overall budgets and business goals. On the other hand, chemical companies and utilities might have existing relationships with other firms and be more willing to use them even if bio-refining is outside the expertise of those consultancies.
The small bio-refinery start-ups are going to shape the industry, so we want to work with them. Their excitement and vision match our own aspirations. However, because they are usually cash-strapped, they might not be so willing to pay large fees even if they see the value of the work. Here our equity-pricing option comes into play. There will be similar opportunities in the agricultural sector, especially with cooperatives having dispersed ownership structures.
There are many market trends which are speeding up the emergence of the bio-refining industry. Key concepts are sustainability and the "triple bottom line" - paying attention to not only the economic but also the environmental and social aspects in all business activities.
Most companies, organizations, and individuals would probably characterize the perceived benefits of bio-refineries using at least one of the following:
These five points are closely linked to the concepts of sustainability and the triple bottom line. For long-term sustainability, using renewable resources is the only choice, since fossil fuels are essentially never replenished. As the cost of petroleum rises and that of biomass falls, biomass feedstocks can be justified on purely economic terms. Feedstock costs are a key part of any chemical operation; Dow Chemical's losses during 2001 and 2002 have been attributed largely to high feedstock costs. Many of Dow's products could be produced from biomass with proper technology (and yes, Dow would be pursued as a possible client).
In a 1978 article published in Science, DuPont provided a review of over 250 chemicals that are manufactured today from petroleum and were once manufactured from sugar. Many of these are niche chemicals with small markets and high barriers to entry. The others are comprised of commodities whose manufacturing costs are optimized by the economies of scale found in the mega-refineries of the world. In order to compete in today's marketplace with these petroleum-derived commodity chemicals, it is critical to begin with significantly lower feedstock costs. Biomass-sugar feedstocks, if the economics are attractive, would work because these same compounds have previously been derived from sugar fermentation or thermal/enzymatic conversion.
There are many products that can only be effectively made from biomass. Industrial biotechnology has developed fermentation organisms which produce high selectivities to specific products, often with preference to one racemic stereoisomer over another (important in medicines and nutrients). Traditional feedstocks and processes would be much more expensive to mimic these feats of biochemistry, if they were even possible at all. Therefore, new markets open up for development. An excellent example of the enabling nature of industrial biotechnology is with polylactide polymers made from fermenting corn sugars, by Cargill Dow LLC.
The February 3, 2003 Chemical & Engineering News magazine described a January 2003 conference called "The Third Wave in Biotechnology." Bio-refining has been coined by industry observers as the "third wave of biotechnology" after food and pharmaceutical biotechnology. Keynote speaker Rolf Bachmann, a consultant with McKinsey & Co., said a new report from his firm estimates that by 2010, biotechnology will impact about 20% of the worldwide chemical market - a $280 billion-a-year slice. "Momentum is building in the sector. Biocatalysts are becoming more stable, yields are improving, and public pressure is growing for industry to develop safe, environmentally friendly, and sustainable products." Jean-Jacques Bienaime, new CEO of Genencor International, says "There is lots of fun in health care, but for the next 20 years, in terms of value creation, it will be more exciting in industrial biotechnology."
The article gets even more to the point of O'Connor & Partners. Many speakers emphasized that, in most cases, industrial biotechnology is limited by the size and resources of companies doing the research. Development of improved processes will play an important part in propelling biotech into the traditional chemical industry, according to Larry Drumm, V.P. of business development for the Michigan Biotechnology Institute. Drumm added that long-term investment is increasingly going to the entrepreneurial companies in biotechnology. "Chemical companies will need to form partnerships with these companies or risk having to become low-cost producers of traditional materials," he said.
In terms of market sectors, the growth to $280 billion/yr would be occurring mostly in a combination of Bio-refinery start-ups, chemical manufacturing, and utilities.
Why would someone choose another consulting company over us?
In aggregate, the viability of consulting firms tracks overall economic conditions or specific industries, depending on the targeted clients. However, the success of individual firms varies widely, regardless of how an industry is doing. Word of mouth is an important device, and repeat business is crucial. Reputation is immensely important, and reputation building in fact already started with the past experiences of anyone associated with O'Connor & Partners.
Well-known management-consulting firms
Example: McKinsey, Bain, BCG, etc.
Strengths: International locations managed by partners with a high level of understanding of general business; enviable reputations which make purchase of consulting an easy decision for a manager, despite the very high prices.
Weaknesses: General business knowledge does not substitute for specific (does not) expertise; fees are extremely high, and work is generally done by very junior-level consultants even though sold by high-level partners; focus on strategy but less emphasis on implementation, which is where many does not start-ups need the most help.
Well-known technology-consulting firms
Example: A.D. Little
Strengths: International offices; specific technical knowledge and good relationships with potential client companies.
Weaknesses: Technical knowledge of the chemical and refining industries, but not necessarily the does not industries; reduced emphasis on business solutions.
Niche biotechnology consultants
Example: CEA, Inc.
Strengths: These firms have actual experience consulting to organizations that seek to commercialize industrial applications of biotechnology; they often have extensive network relationships (some of these would be good candidates for our Affiliate Network).
Weaknesses: These firms are often one-man shows which might not leverage the collective experience of a larger team of consultants; sometimes they do not have a well-developed mission and are somewhat academic in nature.
Example: Rocky Mountain Institute
Strengths: Modest fees for work performed; they have experience consulting in industrial biotechnology.
Weaknesses: Although these companies could compete for some of the business we are after, they often cannot offer the same level of does not understanding; also they are not chartered to grow as a business or be a stakeholder in the does not industry itself, which means they could view it purely as a one-time advising relationship.
Example: Companies doing the work in-house
Strengths: No incremental cost except travel; also, the general work is done by the people who are entirely responsible, and the planning is done by those who will implement.
Weaknesses: Most managers are severely overburdened already, unable to find resources in time and people to apply to opportunities; also, there is a lot of additional risk in market development done in-house from the ground up.