<div dir="ltr"><div class="gmail_extra"><div class="gmail_quote"><blockquote class="gmail_quote" style="margin:0px 0px 0px 0.8ex;border-left-width:1px;border-left-color:rgb(204,204,204);border-left-style:solid;padding-left:1ex">
</blockquote><p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">[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.]</span></p>
<p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial"> </span></p>
<p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">Richard, It was nice to meet you at Stove Camp last week. </span></p>
<p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial"> </span></p>
<p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">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.</span></p>
<p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial"> </span></p>
<p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">That being said, I do have some general business thoughts.</span></p>
<p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial"> </span></p>
<ol style="margin-top:0in" start="1" type="1">
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">To state the
obvious, stoves are a capital item (should last 10 years) and fuel is an
expense item (consumable). </span></li>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">These require
two different marketing models. </span></li>
<ol style="margin-top:0in" start="1" type="a">
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">Selling
stoves requires occasional interactions with lots of unique customers. Selling fuel requires frequent
interactions with the same customers. </span></li>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">The fuel
maker needs to keep a few customers always happy. The stove manufacturer has to find a
new customer for every sale. </span></li>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">The market
area for a stove producer is likely much larger than for each individual
fuel producer.</span></li>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">The value of
each stove transaction (and the sales effort it can support) is much
greater than a fuel transaction.</span></li>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">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. </span></li>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">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. </span></li>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">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.</span></li>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">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. </span></li>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">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. </span></li>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">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.</span></li>
</ol>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">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. </span></li>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">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. </span></li>
<li class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">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. </span></li>
</ol>
<p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial"> </span></p>
<p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">All for now,</span></p>
<p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial"> </span></p>
<p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">Jim Hensel</span></p>
<p class="MsoNormal" style="background-image:initial;background-repeat:initial"><span style="font-family:Arial">Portland</span><span style="font-family:Arial">, Oregon</span><span style="font-family:Arial"></span></p></div>
</div></div>