EnviroFit International: A Venture Adventure

Case Summary

Envirofit International is a new start-up venture proposed by a student team, namely Nathan Lorenz, Tim Bauer, Paul Hudnut and Bryan Wilson in a national business plan competition, Venture Adventure.  The team came up with a retrofit kit that can reduce emissions in dirty two-stroke carbureted motorcycle engines. This idea can decrease the disastrous air pollution that is getting worse especially in Asia cities as two-stroke motorcycles are a major means of daily transportation. Eventually, this idea evolved into a serious business plan when they have travelled to Philippines to encounter the air pollution problems by themselves.

        However, there are a few challenges that have to be overcome in order to start-up and run a successful business. Firstly, they have to come up with a business model that satisfies their triple bottom-line objectives in ‘base of pyramid’ markets. Secondly, they must find investors who are willing to invest in their product in order to produce it in a large scale and commercialize it. Even though there were a few parties who show interest, the certainty of their commitment is ambiguous. Thirdly, the high production cost of the retrofit kit must be reduced in order to increase the sales since the buying power of their potential customers are very low. The team came up with a schedule of five phases which follows a timeline. By June 2004, the team decided to produce a prototype in Manila. The second phase is in between July 2004 until March 2005 the team planned to conduct a field test. Moving on, from March 2005 until September 2006, the team has planned to find an alternative to lower the variable costs of production. The fourth phase is expected to begin in late 2006 where large-scale commercialization of the retrofit kit will be carried out. Lastly, the final phase of the business outline is to expand the business to a regional level.

Problem Statement

1. Low buying power of target customers

The initial target customers of Envirofit are the tricycle riders in Manila. Manila has over 12,000 registered two-stroked tricycles. But the drivers typically only earn about $3-$5 per day. This income is not sufficient for them to buy a retrofit kit. Moreover, they might have the fear that the installation fee of this kit might cost them a hefty sum.

        Besides, the efficiency and advantages of the retrokit is still ambiguous to the taxi drivers. Therefore, they might be hesitant to buy a product that is very expensive without having a testimony or experience from it. The taxi drivers also have a mindset that the government is the one who should invest in these kits to improve the air quality and also their health. Most of them are not willing to spend above their income.

        The best way to overcome this problem is by acquiring microfinance. Microfinance is a type of banking service, which is provided by some organizations to new entrepreneurs in order to start-up their business and to ensure the success of the particular business. A retrofit kit will cost the drivers US$220. Envirofit International should find few microfinanciers who can provide enough money to subsidize the drivers. This will lower the selling price of retrofit kit and enable the drivers to buy it. The installation fee of the kit should be accepted fully by the company itself. This is only for first few months of the sales. Once the advantages of using the retrofit kit have spread through word of mouth, many drivers will purchase it. The demand for the kit will increase.

1. High production cost

The production cost of retrofit kit is high. This is because the kit involves many components and its essential to have them all to produce it. Therefore, to produce this product in a large scale, it requires a huge sum of money. In order to build a prototype of retrofit kit, CSU alumnus has donated sufficient money. This is only for research purpose and relatively easier. But to produce it in a large scale to generate profit, Envirofit will need to find other sources.

        This problem can be solved by finding angel investors for the company. Angel investors are people who invest in a risky or new venture solely in order to help the entrepreneurs to build their business. Typically, angel investors are among family members or friends of the entrepreneurs. They can even be someone who is very interested in this retrofit idea and wanting to materialize it. Usually angel investors expect very little or none in return of the money that they invested in a certain company.

        Over the years, many people have started to be angel investors for any idea that they believe will work. Thus, Envirofit must grab this opportunity and sell the idea of their product to people who are viewed as potential angel investors. Envirofit is a new idea and can give positive impact to the environment. Such ideas can attract people to invest in it even though it has a high risk. Envirofit also can seek financial help from NGOs who can invest in their product to produce it in a large scale.

3) Critical balancing between social, environment and financial objectives

Envirofit is a company that produces a retrofit kit, which reduces the emissions from dirty two-stroke motorcycles. This will decrease the air pollution and directly improves the lives of drivers and passengers who are inhaling polluted air everyday. At the same time, Envirofit wants to stay as a business that sells products, provides warranties and parts and service. They did not want it to become a nonprofit corporation because they want their company to be taken serious by other multinational companies, as they are the potential investors and future distributers of their products. Thus, it is important for Envirofit to build a business model that can satisfy these three objectives.

        The way to come up with the best-suited business model is by doing SWOT analysis. SWOT analysis can help to identify the strengths and weaknesses of the company while assessing the opportunities and threats present externally in the market. These three objectives can be achieved at once if enough environmental awareness is cultivated among the drivers and passengers of tricycles. Awareness in air pollution will prompt the passengers to choose taxis with retrofit kit installed as this is a greener vehicle and this will make many drivers to follow suit and install the retrofit kit. When the demand for the kit increases, sales will increase. This also will give positive social impact by improving the health of drivers and passengers. Thus, all three objectives can be achieved gradually. This will also attract more investors and shareholders.