[Stoves] Distributive business models [was scoping out a practical solid fuel stove igniter - fire piston ....and other kind of plunge]

[James F. Hensel]

>
> [I'd like to plunge into something else with you through:  I want to
explore the business model for the diffusion of the briquette technology
with you, as an experienced businessman. Frankly, we are off into uncharted
waters in developing the "private entrepreneurship locally--information
exchange globally" model I was talking about. It makes sense and its
working in a general sort of way for many of us in our own network but
there are no embedded processes set up yet to really make it acceptable and
comfortable to many who enter the briquette activity. It needs to be fine
tuned with more experience in the commercial world.]



Richard, It was nice to meet you at Stove Camp last week.



My business experience is in developed countries so you have to temper my
thoughts with lack of practical developing world business experience (other
than a couple of stove building excursions to Guatemala and a couple of
home building trips to Mexico).  Well I did try to build an aluminum
smelter in Venezuela, but while Venezuela is not exactly the developing
world is still has some latent attributes.



That being said, I do have some general business thoughts.



   1. To state the obvious, stoves are a capital item (should last 10
   years) and fuel is an expense item (consumable).
   2. These require two different marketing models.
      1. Selling stoves requires occasional interactions with lots of
      unique customers.  Selling fuel requires frequent interactions with the
      same customers.
      2. The fuel maker needs to keep a few customers always happy.  The
      stove manufacturer has to find a new customer for every sale.
      3. The market area for a stove producer is likely much larger than
      for each individual fuel producer.
      4. The value of each stove transaction (and the sales effort it can
      support) is much greater than a fuel transaction.
      5. The value density of a stove ($/kg of weight) is much higher than
      for fuel, especially briquettes.  This value density supports higher
      freight distances than with briquettes.  The briquettes can be
economically
      transported only a short distance where as you can support longer freight
      routes and costs for the stoves.
      6. On a continuum, the briquette maker has a much lower barrier of
      entry than a metal stove maker.  I would put the ceramic stove maker some
      where in the middle between the two.  That is not to diminish
the skill it
      takes to make consistent quality briquettes, but it is a fact
that the cost
      to set up and operate a briquette business is much lower than a
steel stove
      maker.  I realize that the barrier to entry for a subsistence farmer to
      become a briquette maker may be quite high, but compared to starting a
      steel stove manufacturer, the briquette maker barrier is very low.
      7. There is another way to look at the barrier to entry.  The capital
      cost that needs to be recovered with briquette making is quite
low and the
      capital cost for steel stove making is much higher.  The higher
the capital
      cost, the more sales are required to support the expenditure.  That is to
      say the scale of the business to be successful is directly
proportional to
      its capital needs.  Businesses with larger capital needs need to
be bigger
      businesses whereas businesses with modest capital needs can be (but don’t
      necessarily have to be) modest businesses.
      8. These thoughts invariably lead one to a local model for briquettes
      and a regional model for stoves.  Of course local and regional are
      relative.  If one briquetting machine can support an owner and three
      workers in a village of 50 families then that is local for that
business.
      If the metal workshop needs to turn out 20 stoves a week to pay for the
      capital deployed, then depending on the uptake of the stoves (market
      penetration) and life expectancy of the stove, the market area
may be 100 –
      200 times as many households as you would sell to in a year to
support the
      business.  Of course if you can monopolize the market then it takes fewer
      households to make your sales.
      9. Just because a local model works for briquettes a regional model
      is not precluded.  It does however indicate that the regional
producer that
      is selling against local producers will have to have a cost
structure that
      is competitive with the local producer (including freight).  If the local
      producer has free inputs, no equipment other than a press and no rent or
      utilities, then the regional producer will have to manage his or
her costs
      very tightly to match those low input costs.  Sooo, I would think the
      regional briquette producer would need to be competing against more
      expensive fuels rather than other local producers.  So this might work in
      the city where the freight cost for a local producer may be too high to
      compete.  Especially if the raw material was already trucked to
the city as
      part of a processing step for some crop.  Think coir or rice
husks.  But I
      am under the impression that urbanization and folks striving for
modernity
      (whatever that is) want cleaner fuels and even though you and I know that
      these briquette fuels can be burned cleanly, the consumer may be jaded
      toward thinking LPG is the fuel of their future aspirations.  I lack of
      local knowledge to say much more.
      10. But I will say that same aspirational barrier may make it hard
      for a solid fuel stove manufacturer to sell in the city.  Have to think
      more about this.  In the end it is all about what can someone
afford and it
      is possible solid fuel stoves and fuel are affordable and LPG is not.
   3. Your distributed model for briquette making makes a lot of economic
   development sense to me.  You have a very resilient network – “they are all
   too small to fail” to paraphrase a line from [almost post] modernity! But
   there is more.  These distributed small businesses are likely immune from
   regional players competing on their turf.   These small businesses will
   always have a zero freight cost advantage plus low overhead.  Further, all
   of these village businesses are not in competition with one another so they
   should be willing to follow an open source model.  I suppose the trick is
   how to accelerate the adoption of this model.  It would be worth another
   discussion if that is the question.  It is not clear to me what the
   barriers to entry are against this model other than capital.
   4. I believe the notion that to make a stove competitively priced, it
   needs to be made in country (maybe even locally) with local labor and
   materials.  I think the ceramic stove is the clear winner in this race.  We
   just need to find one that “works” in each locale.  To the extent the
   imported inputs can be minimized along with minimized freight costs, the
   cost of the stove will be more affordable for the local population.
   5. My worry about ceramic stoves is that they all just look like a chunk
   of clay to the uninformed.  So it will be easy for knockoffs to enter the
   marketplace.  These knockoffs are likely to sour the marketplace as they
   won’t work very well and taint the stoves that are actually made with
   purpose and imbedded technology.  Jed’s stove at Stove Camp was a perfect
   example.  It looked like a ceramic rocket stove.  But in fact it had
   preheating, radial primary and secondary air inlets and much more.  But is
   the craftsman who knocks it off going to know that, or care, and more
   importantly is the consumer going to know the difference.  Of course many
   products look the same and work entirely differently.  The key is in the
   marketing so that the consumer knows the difference.  I think a regional
   stove maker could help make that distinction clear.



All for now,



Jim Hensel

Portland, Oregon
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