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Promotion Of New Technology To Edible Oil Refiners
Posted By: chiron34* on 12/12/2004 12:16 PM (CST) 500 Points
This is a follow on from a post of mine last July/August concerning a project to introduce patented industrial technology into the edible oils processing industry. Since that post discussion, which concerned the drafting of a covering letter for an Equity Offer Statement to venture capital firms, the project was withdrawn.

The project was withdrawn as the inventor of the patented technology came up with a further invention, which was then written into the business plan. In the previous post, Virago, Simon. SRyan, Michele, Vevolution and Inbox Interactive all provided me with useful information.

In particular, shareholders accepted SRyan’s advice about the proposed name for the operating company, and agreed to a name change to DryTech Edible-Oils Ltd. The shareholders also acted on advice from Vevolution & Inbox Interactive who encouraged us to first establish a marketplace presence through sales before again seeking equity funds. Some seed capital was obtained, and I am presently trying to attract edible oil producing companies to use the technologies.

I have sent the letter below to a number of edible oil producers with the objective of initiating one to one discussions about the target companies using the technologies in their plants. I am having only limited success. My response rate is only about 5%, and frankly, in view of the possible financial benefits to edible oil producers, this has surprised me. The letter was directed to Chief Executives and/or Plant Engineers. Both officers are knowledgeable about the technicalities of edible oil processing.

We do face the difficulty that the first recruit is always the hardest to get. The DRP technology, the major invention, has been tested in a commercially operating refinery during its development process. Unfortunately, the test company ran into difficulties (unrelated to its oil processing activities) and was sold. The new owners were not financially able to fund a permanent installation.

To date, we have not been able to set up a company as a template example. We are naturally prepared to offer attractive arrangements to any company expressing interest in order to get the project off the ground. Unfortunately, the application of the technology has to be specifically designed for the particular plant, which means that the equipment required must be specially fabricated, so it is difficult to do any background work in advance.

I would therefore be most grateful if KHE colleagues could perhaps not only comment on the text of the letter, but also redraft those portions that are most in need of surgery.

Any other advice on the overall situation will also be very useful.

Please note that this post is being submitted in two sections for technical reasons.

Many thanks in anticipation,

chiron34

Posted by: chiron34* Author Response
12/12/2004 12:18 PM (CST)
Letter for Review:

Dear X,

The edible oil industry is a tough industry. We know that companies such as yours must continually adopt new technologies and processes to cut production costs & improve productivity to give you the competitive edge that is so necessary to remain profitable.

Our Company, DryTech Edible-Oils, has patented and design-protected two unique technologies that will

1. reduce your production costs by between $USD7.50 and $USD11.80 per tonne of oil produced,
2. improve the quality of the output oil, and
3. increase refinery capacity by up to 25%, thus raising refinery profitability.

The Dry Refining Process

The first of our new processes is called the Dry Refining Process (DRP) to distinguish it from the highly polluting caustic refining process and the product damaging physical refining process presently in use worldwide. The DRP has been successfully tested on a wide range of oils and fats. In the traditional processing configuration, vegetable oils are usually degummed prior to neutralisation. The DRP utilises a reverse process. That is, after treatment by the DRP, the oil is acidified to precipitate the phospholipids while at the same time removing any residual calcium soaps. These phospholipids are removed in any of the conventional ways.

The commercial advantages of the DRP are:

1. The DRP considerably simplifies the wet caustic refining process by

■ reducing input chemical costs,
■ eliminating soap splitting costs,
■ eliminating water and toxic effluent disposal costs,
■ significantly reducing energy costs, and
■ simplifying the complexity of the equipment used for the neutralisation.

2. The DRP eliminates the adverse effects of the physical refining process by substantially reducing the high operating temperatures required, and improving the output oil quality by preventing the loss of important natural micronutrients, which in turn will lead to higher oil selling prices and increased profits.

3. The substantial reduction in the high operating temperatures increases refinery capacity by a factor of up to 25%, leading to higher profits.

4. The DRP significantly reduces the capital cost of establishing a new refinery.

5. The DRP is patented technology (including in the USA).

The Thin Film Deodoriser

The second technological development is a unique thin film deodoriser that uses nitrogen as the stripping gas. This cost-effective design breakthrough permits deodorisation at temperatures well below the high temperatures required by the existing deodoriser technology now in use. The use of nitrogen in conjunction with the lower process temperatures results in a much higher quality output oil, because the lower operating temperature will not damage or destroy important micronutrients in the oil that are important for human health.

Bleaching

We do not recommend any particular bleaching method as both the DRP and TFD can be integrated into any of the current bleaching technologies.

Commercial Benefits

The higher quality output oil from use of our DRP & TFD technologies will provide your Company with an opportunity to increase either market share, or the sale price of the oil, thus contributing to an increase in your Company’s profitability.

Access to the Technologies

Would you like to know more about our technologies?

We are ready to answer any questions you might have and work with you to investigate use of the DRP & TFD technologies in your operations. Our DRP & TFD technologies offer you the opportunity to gain a significant commercial advantage over competitors.

That commercial advantage is not only that you will reduce your production costs by $USD7.50 to $USD11.80 for every tonne of oil produced, but that you will be able to supply your Customers with a much higher quality product - an important competitive edge in a tough industry.

Our DRP & TFD technologies are affordable. We do not seek payments from our Clients based on capacity to pay, profitability, processing plant size or production levels. Neither do we seek large licensing fees. We simply wish to participate in the beneficial cost savings that will be your Company’s financial reward from using our technologies. That is, we would like to receive a royalty based on a proportion of your cost savings.

No cost savings, no royalty payments!

We are very confident that our technologies will cut your Company’s production costs and increase your Company’s profitability.

Invest in Our Technologies

Our Company, DryTech Edible-Oils, is also looking for equity investors to help its commercial expansion. Any Company joining us as an equity partner will be given preferential access to our DRP & TFD technologies at a considerable discount. Please e-mail me for a copy of our official Equity Offer document that has been issued in accordance with Australian Government regulations.

I look forward to your response. Until then, may I wish you every business success.

Yours sincerely,

… end: chiron34
 
Posted by: Inbox_Interactive Accepted Answer
12/12/2004 3:57 PM (CST)
A 5% response rate is not bad. However, if all you're trying to do with this letter is initiate a more one-on-one conversation, I'd do five things.

1. Shorten this letter dramatically. I think you're spending too much time talking about the technology and process (features) and not enough time on the benefits. I'd focus on the reduction in production cost.

2. Use shorter sentences. Shorter sentences create a feeling of urgency.

3. Highlight the fact that you will get paid only from the cost savings. This is HUGE. It shows that you are putting your money where your mouth is.

4. Lose the paragraph about how you are searching for equity capital. Customers don't want to know that you are looking for funding to expand your operation. They want to feel that you're already rock solid. Also, you shouldn't give the reader more than one path to go down. If you want to make a sale, ask for a sale. If you want equity capital, ask for equity capital. Don't ask for both.

5. Use a P.S. at the bottom. Even in b-to-b letters, I think a P.S. is important. People just about always read the P.S., even if they don't read the whole letter. In that P.S. you would restate that you can cut their production costs and get paid only if you deliver these cost savings.

If you feel strongly that you must include this additional detail, I believe that it belongs in a brochure, not a letter.

Also, if you are waiting for people to call you, I think you'll be waiting a long time. You might try following up with these people proactively as opposed to waiting for your own phone to ring. If your marketing efforts are left to sending mail and waiting for people to call, you're losing the majority of your potential customers.

Hope this helps. Looking forward to other comments.

Paul
 
Posted by: Michele Accepted Answer
12/12/2004 4:04 PM (CST)
Hi there
The letter is very long - and the main benefit is burried at the bottom.

Perhaps start the first paragraph with a heading like:
You only pay us if you save
and bring the costing model to the top.

I am tight on time now, but do recomend a complete rewrite to shorten and tighten the letter.

Best wishes,
Michele.
 
Posted by: D4Demand Accepted Answer
12/12/2004 6:19 PM (CST)
I see two problems in the approach. (forgeive me if these were suggestion from Profs agreed to by your board.

1. You are asking companies to adopt a new technology. What is the investment climate and profitability picture in this industry.
2. You are asking them to participate in a payback option which is OUTSIDE of the NORMAL.

It may sound like a scam to them: Too good to be true.

The solution?

Prove it.

Publicly.

Place a challenge ad in the trade publications offering to convert ONE production line in a two line refining operation (or in technologically tandem plants) free, if you can afford it.

Invite the trade press to cover the conversion of the line and the results of the trial. Make certain that this is a major publication. Make sure that you get to convert the second plant at profit when you win the challenge or assure the plant owner that you will take the line back to original processes if you fail.

You could call it "Edible Oil Idol" (sorry about that) :-)

OR

Sell your idea to a Banking community first. Get them to offer lower financing rates for such a project.

A few years ago there was a new building technology in the States which would allow a homeowner to build a home without a furnace. But no mortgage lender would underwrite the construction of such a home. So the company lined one up. They convinced the lending underwriters of a major bank of the promise of this "zero-heat" technology and took a loan officer with them to every homeowner presentation they did. They also took along builders who were ready to build a custom home for a willing buyer.

You could do the same gby lining up ready financing. Then you could do presentation seminars to mid=level managers (who seem to always be ready to break away to start up a competing organization), or to those whose plant has been idled, or whose plant MAY be idled or be part part of a hostile takeover -- people with a dream, expertise, and a lot to gain.

One last suggestion. Procter & Gamble's engineering group in the food products category. Find a champion on the inside rather than going to the CEO right away.

The time line will be longer, perhaps, but I think it may work.

OR

Use the tail to wag the dog.
Instead of going to the iol refiners, go to the users. Tell them that they may be able to gain a competitive advantage by getting their supplier to adopt a new technology and being able to purchase at a lower price. Convince them with Rock Solid arguments. Then let the buyer put pressure on the supplier.
 
Posted by: D4Demand Accepted Answer
12/12/2004 7:00 PM (CST)
Letter Reviewed an compressed.

I punched up the news and the offer.

Letter for Review:

Dear X,

DryTech Edible-Oils can
1. Reduce your per tonne of oil production costs by between $USD7.50 and $USD11.80
2. Improve the quality of the output oil, and
3. Increase refinery capacity by up to 25%

at Zero upfront cost to you!

Our company, has patented and design-protected two unique technologies called the Dry Refining Process and the Thin Film Deodoriser.

The Dry Refining Process (DRP)

The DRP reverses the acidification process. The oil is acidified after treatment by the DRP to precipitate the phospholipids while at the same time removing any residual calcium soaps.

The Dry refining Process
■ reduces input chemical costs,
■ eliminates soap splitting costs,
■ eliminates water and toxic effluent disposal costs,
■ significantly reduces energy costs
■ simplifies neutralisation.

The substantial reduction in operating temperatures increases refinery capacity by 25% and increases profits. DRP has been successfully tested on a wide range of oils and fats.

The Thin Film Deodoriser (TFD)

TFD uses nitrogen as the stripping gas. This deodorises oils at temperatures well below those currently required. The result is higher quality oil, much richer in important micronutrients.

Benefit from These Technologies at Zero Risk to You!

We are so confident that you will reduce your production costs by $USD7.50 to $USD11.80 for every tonne of oil, that we will let you pay for the technology through a royalty based on your cost savings. No cost savings? No royalty payments! It’s that simple!

I look forward to your response and to saving you money. Until then, may I wish you every business success.

Yours sincerely,

D4
 
Posted by: SRyan ;] Accepted Answer
12/13/2004 5:50 AM (CST)
At the risk of repeating the advice from Paul and Michele...

If you've already sent this letter out, definitely send a new one, MUCH shorter. Do NOT close it with, "I look forward to your response."

YOU need to call THEM after sending this. Close the letter with, "I will follow up with you next week to explore a project with you." (Something like that.) Then CALL that guy.

Getting the first customer is never easy.

One thing my company did was to throw a launch event -- we had breakfast treats catered in, we invited our biggest fans (bankers, product developers, advisors) and a dozen potential clients, and we did a good presentation (NOT death by powerpoint) and a compellling demo. The "beta" customer we signed up that morning is still with us today!

- Shelley
 
Posted by: chiron34* Author Response
12/13/2004 9:51 AM (CST)
Thanks for the advice. It may be useful if I post some additional information that may cause some reconsideration of the advice posted, although that advice is welcome.

The industry itself is very fragmented. The industry is dominated by a few very large trans-nationals with plants spread across the world. ADM for example states that across its plants worldwide, it produces over 100,000 tonnes of edible oils per day.

My next post actually was to be about how a 'minnow' like DryTech could approach these trans-national 'sharks' without getting eaten up. You might like to advise on that interesting conundrum.

The industry more generally consists of smaller independent companies the produce anything from 50 tonnes per day to a thousand tonnes per day. There are probably a thousand or so, but they are widely dispersed. In Australia - my home base - there is only about eight independent processors. Each country will have a small number in proportion to its population. So far (for example) I have identified about 25 companies in India. So some of the good ideas suggested by D4 may be a bit impractical.

Looking at the situation generally, the following information may be useful:

The savings to a refiner from the DRP technology is dependent on the level of free fatty acids (FFA) in the oil being processed. The most common level of free fatty acids in vegetable oils such as soybean, canola, rapeseed and the like is in the range of 0.5 to 1.75%. Our testing proves the following cost savings

Column 1: FFA % in the input oil
Column 2: Cost to Refine One Tonne of Oil by the Traditional Wet Refining System
Column 3: Cost to Refine One Tonne of Oil by the DryTech ‘Dry Refining Process’
Column 4: COST SAVINGS Per Tonne of Oil

0.25% $USD8.58 $USD1.06 $USD7.52
0.50% $USD10.03 $USD2.13 $USD7.90
0.75% $USD11.47 $USD3.19 $USD8.29
1.00% $USD12.92 $USD4.25 $USD8.67
1.25% $USD14.36 $USD5.31 $USD9.05
1.50% $USD15.81 $USD6.38 $USD9.43
1.75% $USD17.26 $USD7.43 $USD9.82
2.00% $USD18.70 $USD8.50 $USD10.21
2.25% $USD20.15 $USD9.56 $USD10.58
2.50% $USD21.60 $USD10.62 $USD10.98
2.75% $USD23.04 $USD11.68 $USD11.35
3.00% $USD24.21 $USD12.75 $USD11.79


What this means is that under the traditional wet refining method, oilseed oils with an FFA of 1.5% will cost $USD15.81 per tonne to refine. Under the DRP method of refining, the cost will be $USD6.38 per tonne. This is a cost saving to the refining company of $USD9.43 per tonne. If we take (for example) a refinery processing 500 tonnes per day, this is a cost saving of $USD9.43*500: $USD4,715 per day or $USD141,450 per month. On a per annum basis with a one month maintenance close-down, the annual cost savings will be $USD4,715*330 days: $USD1,555,950 pa.

There is an inherent delay in the installation of the DRP into a client processor’s refinery. This delay is a consequence of

■ having to custom design the DRP equipment for the specific plant,
■ requiring a specialist machinery supplier to fabricate the equipment,
■ the time taken to deliver the equipment to the client refiner, and
■ the time taken to install and commission the equipment in the client’s plant.

These expected delays for our 500 tonnes plant are estimated to be:

■ design and preparation of the equipment specifications & drawings: 3 weeks,
■ fabrication of the equipment by a specialist machinery supplier: 12 weeks,
■ delivery of the equipment to the client refiner, 7 weeks, and
■ installation and commissioning of the equipment in the client’s plant: 6 weeks.

There is therefore a total of 28 weeks from ‘go to whoa’.

The costs associated with the process is:

■ The DryTech cost to design and prepare equipment specifications & drawings is estimated to be $USD45,000. This is an actual cost, and does not include any component of profit. Put simply, DryTech is willing to design and prepare the equipment specifications & drawings on the basis that its out-of-pocket costs only need be covered by the client company.

■ The fabrication of the equipment by a specialist machinery supplier is expected to cost between $USD55,000-$USD70,000. As we understand that large refiners will have commercial relationships with their own independent fabricators, we expect that this fabrication work will be carried out by a fabricator that will be chosen by the refining company. If necessary, we do have a relationship with a fabricator of international reputation who can undertake this work on a contractual basis.

■ The delivery and installation/commissioning of the equipment in the client’s plant is expected to cost about $USD40,000. Here again, DryTech is only seeking to cover its own direct expenses.

The total cost of designing, fabricating, installing and commissioning the DRP will be between $USD140,000 and $USD155,000.

Royalties

If we again take as the example the refinery processing 500 tonnes per day, there will be a cost saving of $USD9.43*500: $USD4,715 per day or $USD141,450 per month. DryTech intends to negotiate for a royalty payment based on 25% of the cost saving as its primary objective. This will be a royalty payment of $USD2.36 per tonne which extrapolates to $USD35,362 per month.

I have posted this detailed information to give as much background as possible. Your inputs are genuinely appreciated.

chiron34
 
Posted by: Frances* Accepted Answer
12/14/2004 2:47 PM (CST)
I agree with Michele: Break up the letter into a letter and a brochure (or/and a web site for all the technical detail).

Also with Shelley - you must give a time when you will call them. There is only so much a letter can do...

If you are addressing different countries, do some research into the best style to use. Letter conventions differ between countries. What sounds 'cheeky' and like a scam in one culture will be fine in another. You may also want to consider translation into different languages.
 
Posted by: Papadoc (Steve)* Accepted Answer
12/18/2004 9:44 PM (CST)
As stated above, there is too much technical info here. I realize that you have much to say, but unless someone is interested before they start reading, I think you are going to lose them before they start.

However, I think you have lost the main idea of this letter, and that is to introduce yourself and your company and as is often said in sales, "sell the sizzle, not the steak". Don’t define the technical end, talk about the results. Many of those that read your letter such as the plant engineers will certainly understand the process. You may be right about the CEO as well, though in my experience, unless they came in from the ground floor, these guys were big picture guys and didn’t need (nor want) to know a thing about the process.

Even if they do understand this, in their current role, they aren’t about using nitrogen as a stripping gas or not. They are about profits, elimination of downtime, keeping operations smooth, and eliminating problems. Make bold statements about the business end of things that you can back up (saves XX% in the production costs).

If you are indeed the minnow, then it stands to reason that people are going to be a bit skeptical of you. Who are you? Do you know your stuff? Are you for real? Or are you just a few guys working out of a garage? At this level of business, trust is not automatically granted, it is earned and that takes time and transparency with who you are. Discuss some things about your company but again, don’t get into where you are financially. Frankly, I am always a bit concerned about putting a vital process of my business into the hands of someone that I am not sure is going to be there 6 months from now.

Personally, I’d also rework that bit about participating in the cost-savings instead of charging a fee. This only sounds good theoretically. From a CEO standpoint, I’d want NOTHING to do with this. It’s a deal-breaker right from the start. Here’s why:

1) You sound like you might be desperate. I do not want to work with desperate people as they only act in their best short-term interests. I want to work with people that are successful because then, you will be around when I need you.

2) Having been in liquid product manufacturing years ago (laundry and paper processing chemicals), I want to OWN my processes. I do not want to rent them from you for a cost that is related to my own profits. What happens when you decide that you don’t wish to do this anymore and you want your equipment back? What happens when you determine that you aren’t being paid as much as you thought you would and you decide to come get your stuff and go home? What happens if my business depends on your installation and you don’t pay your taxes or your collateralized loans? Does my process get repossessed leaving me stranded?

3) I don’t want you into my books. If the business is that competitive, I don’t want anyone outside my businesses to know my costs or have any information that can then be sold or even slipped to a competitor. Your proposal would require me to do just that.

4) By any country’s laws, when you share in my profits, that makes you my legal partner without calling it a partnership. That gives you certain legal rights in my business that I reserve for myself.

These are just a few of the reasons to consider a money alternative. Consider guaranteeing it with an escrow instead.


 
Posted by: chiron34* Author Response
12/21/2004 10:50 AM (CST)
Thanks one and all for your thoughtful and thought provoking responses. I will keep you informed of my progress in this project.

bye for now.

chiron34
 
Posted by: jose04 Member Response
12/21/2004 2:39 PM (CST)
Hi chiron34

Just to paraphrase the good advice above.

Keep the AIDA format in mind. THis being a sales letter the sequence of creating Attention, Interest, Desire, and Action is the way to go in your letter.

This simple ruling will tell you what to say first and last.

The action statement at the end decides your response ratio.

TO enhance your cheques to response ratio % you need to follow up your leads and improve on your presentations.

You might find this link useful!
http://www.writeexpress.com/sales.htm

AND SOME MORE HINTS..
http://www.bookcoaching.com/freearticles/article-117.shtml

Hope these thoughts help!
 


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