Situation analysis.
(a)
Collaborators: Given the nature of this product, collaborators will be critical to establishing market
penetration. By this, I mean other organizations or people with whom Lisa and Peter can work and
depend upon to deliver this product to consumers. For example, there will often be a need to
convince architects and contractors to specify and work with this material. Who are the key
collaborators? What messages should be sent to collaborators to get them on board and get them
to choose
hempcrete
over
alternatives?
Our objectives In this assignment, you will: · examine a business challenge in detail and firsthand · employ the Business Model Canvas to analyze the major components of the client’s business model · evaluate opportunities to grow the hempcrete market · design and analyze market research that you have collected · craft a set of recommendations for our clients, to address · combine your conceptual, theoretical, and analytic knowledge and skills with your creativity Organization overview We have two sets of clients for this engagement. Our external clients are Lisa Sundberg and Peter Holmdahl. Lisa and Peter are entrepreneurs who are aiming to build a comprehensive system to provide hempcrete building products. Our internal client is Johnny Chen, the Director of the Center for Marketing and Consumer Insights (CMCI) at Oregon State University. CMCI is working with Lisa and Peter as part of a $10 million United States Department of Agriculture grant on hemp commercialization that was awarded to Oregon State University. What is hemp? Hemp is a cultivar of Cannabis sativa that is commonly used for food consumption, industrial applications such as rope, textiles, etc., or medicinal purposes. Other Cannabis sativa cultivars are grown for use as marijuana. A relatively new use for hemp in the United States market is as a building material. Specifically, we will examine market opportunities for a hemp-derived concrete substitute known colloquially as hempcrete. What is hempcrete? Hempcrete was popularized in Europe in the 1990s but has seen limited success in the US market. It is made by combining three major components: · Hemp hurds: Hemp hurds (also known as hemp shives) are the core of a hemp stalk. They are porous and contain channels that the hemp plant uses to transport sap throughout the stalk. After the hurds are dried, these channels become hollow and filled with air. · A binder: The binding material holds the hemp hurds together into a solid mass. The binder in hempcrete is made primarily of lime, which is an inorganic mineral (do not confuse it with the green citrus fruit – this is another, totally different type of lime that happens to share the same name). · Water Hempcrete can be made on-site by mixing the ingredients at the building location and curing them in wooden frames. It can also be made in a fabrication facility, either in custom sizes or standard sizes. Traditional concrete consists of aggregate (stones and sand), a binder (typically Portland cement, which is a mix of lime and clay), and water. SWOT analysis Below is a brief summary of the strengths and weaknesses of Lisa and Peter’s organization, along with opportunities and threats for the industry. Strengths · Lisa and Peter have a wealth of knowledge relevant to establishing a business in the hempcrete market. · Lisa has prior experience navigating complex and new business environments. She designed the cash access systems for Tribal casinos when these organizations were being established in the Pacific Northwest in the late 1980s and early 1990s. This context has many similarities to the hempcrete market · Stakeholders are competing against more established alternatives (tribal casinos competing against established gaming companies like Bally’s, Caesars, etc.; hempcrete competing against concrete and other more familiar building materials) · Many levels of stakeholder coordination (casinos/financial institutions/tribal governments; architects/engineers/contractors/materials suppliers) · Strong regulatory influence · Peter has training in the science of hempcrete. He has over 15 years of experience in the hemp and cleantech building industries. · He is the co-founder of the Nordic Hemp Building School, a training institute for architects, engineers, and contractors that emphasizes certified building techniques and regulatory compliance. · He also co-founded House of Hemp AB, a Swedish distributor of Tradical products in that region; Tradical is one of the largest hempcrete suppliers in Europe. · In addition, Lisa and Peter both have cultural backgrounds that convey credibility and access to stakeholders. · Lisa is a member of the Yurok Tribe, an indigenous people whose homeland is in the Pacific Northwest. She can credibly convey knowledge about natural resource stewardship and she has contacts in the broader indigenous community that may facilitate access to those markets. · Peter is a Swedish-American based in France. Hempcrete is a much more established building material in Europe (especially in France and Scandinavia), and Peter’s proximity to those markets enables porting over European understanding of this material to the Pacific Northwest. Weaknesses · Lisa and Peter are entrepreneurs and are largely building their business in the US from scratch. · They do not currently have a large organizational talent infrastructure to rely upon in order to form and grow their business. At present, the company consists of them. · They do not have a deep funding source and likely will need to rely on outside investors (e.g., angel investors) in order to commence operations. · They do not have deeply established relationships with members of the construction community (e.g., large homebuilders, architects, contractors, engineers, etc.) in the United States. Opportunities · Hempcrete offers many functional advantages over competing building materials such as concrete. · The channels within the hemp hurds trap air. Air is an excellent insulator, both thermally (i.e., temperature) and acoustically (i.e., sound). This means that buildings made with hempcrete often require less mechanical heating/cooling and are quieter inside.1 · The porous nature of the hurds allows humidity and water vapor (e.g., from cooking, showering, etc.) created inside the building to exit, reducing the probability of mold, etc. In other words, hempcrete is a “breathable” material.2 · Hempcrete is lightweight, making it versatile in a variety of applications.3 · Hempcrete is fire-resistant and pest-resistant.4 · Hempcrete is environmentally sustainable. · Plants, including hemp, collect carbon from the environment via photosynthesis. When hemp hurds are turned into hempcrete, this carbon is stored instead of being released back into the environment.5 · Further, hurds are often a byproduct from the creation of other hemp-based products. Hempcrete repurposes this byproduct in a productive way. · Hemp is an environmentally sustainable crop. Growing it does not require the use of pesticides, fertilizers, or herbicides. It can be planted in rotation with other food crops like barley and rye because it grows thickly, provides crop cover that drives out weeds, and maintains soil health.6 · Hempcrete has been adopted in other jurisdictions (especially Europe, and increasingly in Canada), leading to the growth of knowledge and understanding of best practices. However, awareness and knowledge of this building material is low in the United States. · Few companies sell hempcrete products and those that do are relatively small operations with niche markets. · Multiple government programs have been enacted in recent years to encourage energy-efficient upgrades to homes, such as the Inflation Reduction Act, which provides income-geared tax incentives, and rebate programs run by local electric and gas utilities. Additionally, some jurisdictions have passed legislation designed to shift residential and industrial energy sources from fossil fuels to electricity, which can be generated via renewable sources like wind, solar, and hydro. · Lime kilns are a major use of industrial energy use and carbon emissions in construction. These kilns heat limestone so that it can be used to make hempcrete (and concrete). Electrification of these kilns should lead to a significant further reduction in the carbon impact of hempcrete.7 Threats · Perhaps the most acute challenge to the widespread adoption of hempcrete is a lack of knowledge and mistaken perceptions throughout the value chain. Hempcrete is not a well- known building material among end users (e.g., homeowners, property developers, etc.), tradespeople (e.g., contractors), architects/designers, or regulatory agencies. This lack of knowledge represents a significant barrier in many ways. · Hemp is Cannibis sativa, which related to the plant that produces marijuana. As a result, hemp faces some social opposition. · Between 1970-2018, the law treated hemp in the same way as marijuana – as a controlled substance – and growing hemp in the United States was illegal. While hemp production became legal at the Federal level in 2018, revisions to regulations continued until 2021, creating significant uncertainty. · Some people (e.g., consumers, contractors) confuse hemp with marijuana and question its legality / morality. These concerns can lead to hesitancy in adoption. · Producing hempcrete so that it is durable and consistent requires a fair amount of skill and training. The production process and the composition of the binder is very important to product quality. Hemp hurds absorb water very effectively and quickly. If the binder is not well-formulated or the ratio of hurds : binder : water is not optimal, the hempcrete will not cure properly. This results in finished products that are visually unappealing, that dry out, and / or that create unacceptable levels of dust. · Many farmers who are currently growing hemp are finding it challenging to make a profit. It is a relatively labor-intensive crop. Further, plants that develop too much THC (the psychoactive compound in marijuana) must be destroyed. It requires a license to grow and store. When products containing CBD (a non-psychoactive compound thought to provide wellness benefits) became legal in many states, prices for high-CBD strains of cannabis increased significantly, but oversupply has since caused prices to fall. Further, there are many strains of cannabis, and only some are most suited for hempcrete production; these are typically not the strains currently grown for CBD production. As a result, there is a not a large domestic infrastructure in the United States for growing and selling hemp. Most of the hemp raw material for hempcrete must be imported to the United States from abroad (e.g., growers in Canada and Europe). · Building codes have presented another barrier to adoption. · Prior to 2023, Hempcrete was not approved as a building material under the International Residential Code, which has been adopted by 49 out of the 50 U.S. states. The 2024 version of the IRC will include hempcrete as an approved material for non- structural infill wall applications in one- and two-family residential dwellings.8 An infill wall is a wall facing the exterior of the building; it encloses the perimeter of the structure. Thus, hempcrete panels can form the exterior wall of a home in place of materials like brick, stucco, or siding, as long as the wall is supported by structural framing (typically timber in North America). · Commercial applications remain unapproved until at least 20259, though there may be avenues to use hempcrete in jurisdictions that do not follow the model building code. · Hempcrete is not a suitable replacement for concrete in all applications. In particular, it has much less compressive strength than concrete, so it is not suitable for replacing concrete in building foundations, roads/bridges, etc. · The cost of hempcrete construction is a major challenge hindering adoption. However, estimates vary widely. · Estimates from Colleen Keahey Lanier, Executive Director of the Hemp Industries Association, indicate that hempcrete construction adds an additional $60/sq ft to a new home.10 In 2021, the median size of a new single-family home sold in the US in 2021 was 2,356 sq ft. and the median sale price was $397,100.11 Thus, given these estimates, for the average home, hempcrete construction would add over $140,000 to the construction cost, a large increase. · Estimates from the construction of a sports facility in France saw 30-40% increases in materials costs versus traditional materials. However, construction proceeded 20-30% faster and reduced labor costs.12 · Much of the variance in cost is likely attributable to supply chain requirements; if materials need to be shipped or require specialized expertise, costs will be higher. · While reduced operating costs for HVAC also offset the cost of hempcrete construction, paybacks are long due to high up-front costs. The challenge In sum, hempcrete appears to represent a promising but challenging market opportunity. This material offers many advantages but a number of structural barriers stand in the way of large-scale adoption. In addition, Lisa and Peter are facing the task of starting a business from the ground-up. They must settle on a feasible business model and strategy in order to convince investors to fund their company and to commence operations. As experts in business strategy, this is where you come in. Specifically, Lisa and Peter request your assistance in addressing the following questions: Where should the customer focus be? Initial research has identified a number of possible customer segments: (1) New residential construction. Hempcrete could serve as the primary cladding material for building new homes. · Such a focus could involve securing supply agreements with a major home builder of “spec homes” such as D.R. Horton or Lennar. Spec homes are mass-produced and often found in suburban subdivisions that contain a limited selection of home models. This type of customer could potentially buy pre-fabricated panels that are built at a central facility and shipped to job sites or panels in standard sizes that are fabricated on the job site. · Or, Lisa and Peter could partner with architects and builders who specialize in custom homes. Since each home is different, individualized sizes/shapes of hempcrete cladding would likely be designed with the architect and fabricated on site. (2) Residential retrofit/renovation. Homeowners often pursue upgrades to improve the energy efficiency, acoustics, or aesthetics of their homes. · Many historic homes have inadequate thermal insulation that was not present at time of construction or that has degraded over time. Hempcrete materials could be placed behind the exterior cladding material (e.g.,