Biodiesel Incorporated Teaching Notes
The Biodiesel Incorporated case describes the process of one group’s efforts to effectively identify a business opportunity. Individual analysis and group discussion of this case are well-suited for illustrating and applying the terms and issues covered in Chapter 2 “Opportunity and the Business Summary.” Naturally, the case also allows for the discussion of additional concepts and topics, including material covered in Chapters 4, 8, 10, 17, and 18.
1) What are the key factors in determining if this is a viable business opportunity for Josh, Hannah, and Matthew?
2) What market drivers should they research and be aware of?
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Josh apparently has several management-level job offers and should consider the cost of not following along these career opportunities in his ultimate decision. He should consider using the below formula
(Y + I) – (W + R)
(which uses the variables from the EA index) to calculate the net benefits of both the proposed new venture as well as the best of Josh’s current offers. This allows for Josh to compare what he is getting for what he is giving up.
Evaluating the opportunity requires measuring the venture against 5 basic criteria seen in Table 2.11 Basic five-step process of evaluating an opportunity. In order for Biodiesel Incorporated to warrant further effort, the opportunity must be:
• Consistent with the capabilities, knowledge, and experience of the team members
• Novel, proprietary, or differentiating enough to create significant value to a customer
• Capable of attracting the necessary financial, physical, and human resources
• Able to generate a reasonable return on investment, and
• An endeavor towards which the entrepreneurial team will have commitment
Capabilities: Josh has a business background, Hannah has an agricultural economics background, and Matthew has a mechanical engineering background. This combined knowledge set appears to be the first piece of a larger puzzle of necessary capabilities.
Novelty: Biodiesel is a premium product because of its scarcity in the marketplace. Customers are currently willing to pay a premium for the product and will be more willing in the future, assuming environmental regulations become more stringent.
Resources: For any success to be achieved, the team will ultimately need to attract financing and a steady supply of raw materials and distributors. This will require recruiting talented individuals who will serve as employees, advisors and partners to provide support and access to resources that will be necessary to the venture’s growth. The group will have to ask themselves if they realistically believe they can acquire these resources.
Return: They will also have to answer whether or not they can achieve a decent return on their investment. While some of the capital deployed might be state or federal grant money or investment from firms that have strategic alignment with the opportunity, the venture must be capable of achieving a competitive risk-adjusted return. With three founders, it will be important determine each of their financial goals and be sure that their strategy and business model will be in alignment. Are they seeking, for instance, to start a mission-driven company that might grow at a slower pace but be self-funded or one that simply seeks a liquidity event with a bottom-line return in as short a time possible? Some would say that a 20% Return on Investment (ROI) would be a minimum hurdle rate for going forward.
Commitment: Perhaps the largest positive trait the three potential founders share is a shared passion for the business...