Biofuels are the hot topic of the moment. Two twentysomething Irish Entrepreneurs are determined to grow the fire. In our eight series Maree Morrissey talks to Briain Smyth and Stuart Dowzer founders of Irish Pellets, about their business’ crux at present.

VITAL STATISTICS

Briain Smyth and Stuart Dowzer of Irish Pellets

Business Name: Irish Pellets Year of Set Up: 2006 Founders: Briain Smyth and Stuart Dowzer Location: Clara, Co. Offaly Business Type: Energy - Fuel

BACKGROUND

Irish Pellets is a new Irish company serving the home energy market and providing an Irish produced home heating fuel that is 100% ‘green.’ Irish Pellets is currently the only indigenous producer and supplier of Irish wood pellets and wood briquettes. An entrepreneurial firm, Irish Pellets was started to provide an Irish produced product to replace an imported one. The company was founded by 28 year old Briain Smyth following his family’s extensive efforts to secure a reliable source of Grade 1 wood pellets to fuel the home heating system. Trying to secure a reliable source brought Briain from Westmeath to Limerick to Canada and back. The result was a product that cost twice what it would if produced in Ireland and the source was not constant. Briain had met with codirector Stuart Dowzer through mutual associates and in conversation they learned that both were interested in the area of renewable energy.

Twenty-eight year old Stuart had been looking at the area of biodiesel at the time, however after a number of meetings and further investigation, Briain and Stuart realised the timing was right to launch the wood pellet side of the business.

With the announcement in the December 2005 budget of the allocation of €65 million over the period 2006 to 2010 to, launch several innovative grant schemes relating to biofuels, combined heat and power, biomass commercial heaters and domestic renewable heat grants, and an indicative allocation of €22 million for a Bioheat Boiler Deployment Programme, Smyth and Dowzer decided to strike while the iron was hot and formed Biofuel Manufacturing Ltd, trading as Irish Pellets. Their headquarters are in Ashbourne, Co. Meath and the Irish Pellet Plant is currently under construction in Clara, Co. Offaly.

CURRENT STATUS

Wood pellets have been used as a highly efficient and carbon neutral source of energy produced from renewable and sustainable sources for over 30 years. Currently wood pellets are imported into Ireland from sources as diverse as Canada to Russia. Much of the imported product is also ‘Grade 2’ or lower in quality and is completely unsuitable for most domestic burners.

Irish Pellets produce a ‘Grade 1’ guaranteed Irish product from this year and will supply homes all over the country with the hugely efficient Irish Pellets wood pellets.

The company is now 14 months in existence and officially trading since March of this year. The 17,000 Square foot, state of the art plant in Clara, Offaly will be complete by the end of this year. In the meantime, Smyth and Dowzer have sourced an Irish company to manufacture product to Irish Pellets specifications and the orders and enquiries are flying in. Throughout Ireland, 104 distributors have been brought on board to meet the constant increase in demand.

FINANCING

Having identified the market gap the two fast thinking entrepreneurs secured private investment for this multi-million euro project.

EXPANSION

Wood pellet burning stoves have been sold in huge quantities around the globe over the past number of years. For example, in the US between October and December 2005 in excess of 70,000 wood pellet burning stoves were sold in the Mid-Western States alone.

In the UK usage of wood pellets has increased from zero just a few years ago to 250,000 tonnes. In Wales the Drax coal burning power station is adapting its systems to enable it to use wood pellets for 30% of its fuel requirements. Germany has seen its wood pellet usage grow by 100% in the past year. In Ireland 795 wood pellet boilers were installed the first quarter of 2006.

The Irish Pellets plant will be at full capacity within 18 months of opening and will produce 90,000 tonnes of Grade 1 Pellets per annum. Biofuel Manufacturing Ltd has plans to expand into other renewable fuels over the next number of years.

THE CRUX OF THE MATTER

The bottom line is to try to stick to the business plan. As entrepreneurs from a very early age, both Smyth and Dowzer have learned that the action plan is only sound if the actions are enacted immediately. They stress their motto that time waits for no one and as astute businessmen they insist on meticulous and instant follow-through.

FUTURE PLANS

The response to the arrival of Irish Pellets to the Irish market has been phenomenal to date and the company plans to continue to grow and manufacture Grade 1 guaranteed Irish product. Judging by international trends, wood pellets will shortly become the fuel of the future in Ireland with value and performance factors as well as increasing environmental regulations positioning pellets as the logical choice of fuel.

Irish Pellets and briquettes are cleaner and more efficient than traditional energy sources and fossil fuels. Raw materials are sourced from 100% renewable sources and packaging is fully biodegradable. In value terms, Irish Pellets product will be produced using the most efficient technology resulting in a product that delivers greater fuel efficiency at a lower price when compared to traditional fossil fuels.

QUESTIONS FROM IRISH PELLETS TO THE PANEL

1. As a company breaking new ground in a new industry in Ireland we face massive legislative and corporate hurdles. What suggestions would you make to help navigate these hurdles?
   
   
2. New ways of thinking are required for traditional businesses in dealing with renewable energy and the need to cut energy costs. What tips would you give to help communicate the message to business managers?
   
   
3. How would you suggest a company develops its export potential whilst looking after a growing domestic market?
   
   
4. The new business is growing rapidly, what are the pitfalls that occur with rapid growth?
   

Kevin Sheehan, Partner, Owner Manager Group, Deloitte heads up the panel of experts below who give their advice on how best Irish Pellets can grow their business.

Smyth and Dowzer have jumped the first entrepreneurial hurdle; they have identified an opportunity and gone for it. The question now is whether the team can deliver a sustainable and viable project. At the outset, a shareholder agreement should be in place to avoid future misunderstandings. A number of potential pitfalls lay ahead, and if they are addressed the venture is more likely to deliver returns to the principals. GETTING OFF THE GROUND The business idea is moulded, now the team should ensure that existing market research supports demand and at a price per ton which will deliver strong operating margins. The cost of building a plant is significant. Proper financing is required at the outset through a mixture of equity, grant aid and competitively priced debt. Properly structured project finance will reduce the risk of excessive interest burden which can prohibit growth. WHAT NOT TO DO Smyth and Dowzer are ambitious, hungry for success and new to this emerging industry. Avoid the temptations to accept any sales orders, ensure that prices are delivering good margins. Know your customers; a sale is only a good one when the payment is banked within your credit terms. Grow in an orderly fashion, supported by a business plan and financial projections, and most of all, don’t loose the appetite for success. Kevin Sheehan, Partner, Owner Manager Group, Deloitte. Head of Panel for Crux of The Matter.

Strategically, early stage business projects should have the capacity for export business in the long run as companies solely dependent on local/regional markets will never have difficulty in achieving scale or full potential. Irish Pellets appears to have strong export potential but achieving success in export markets presents a new set of challenges. I would suggest Irish Pellets talk to industry groups and support agencies specialising in this area, for example Enterprise Ireland, to get advice, guidance and assistance to help maximise its export potential. MANAGING GROWTH Rapid business growing, while desirable, can place considerable pressures on a businesses financial health for example; To fund the growth, significant levels of investment may be required which can take time before the business sees the return on investment. Rapid growth can put strain on the business cashflow. If both sales and costs increase, it can lead to higher levels of cash being tied up in debtors and stock. Often sales levels can exceed the cash coming in which can damage the business’s cashflow situation. CASH FLOW Smyth and Dowzer should meet with their accountant/financial advisor to develop financial forecasts to try to identify and mitigate against any financial pressures the business may face going forward. Adrian Moynihan, Business Strategy, AIB

WIIFM is not a radio station, although every entrepreneur and business owner recognises and lives by the message ‘what’s in it for me.’ So when Smyth and Dowzer ask for tips which will help communicate the message to business managers, they must concentrate on the benefits and return which business will gain from changing to the Irish Pellets product. WINNING THE MARKETPLACE A basic proposition outlining the initial investment, annual running costs and grant incentives compared to the existing energy costs, showing the overall cost savings and pay back period resulting in a positive return on investment will go a long way to win over the ‘listeners to WIIFM’. GUARANTEEING PRICES With the astronomical increases in energy costs through ESB and Bord Gais it will be imperative that the company can give cast iron assurances that the cost of fuel pellets will not mirror the opposition and increase in tandem with them. Many businesses and householders have been burnt’ by already converting to gas and then been hit with price increases. We in Ireland are at the end of a long pipeline, whether it be gas or oil with the resultant risk of being the first to be cut off. Irish business will need to be assured of the stability and sustainability of the supply of fuel pellets. Mark Fielding, Chief Executive, ISME

Irish Pellets is a very interesting business with a clear ‘import substitution’ positioning in a market that is growing. Wood pellet boilers are covered under new Govenment legislation to encourage use of renewable energy in Irish households and businesses, and the fuel source for these boilers is likely to experience rapid growth. I believe that existing sources are unreliable. NAVIGATING LEGISLATIVE HURDLES This is a new business sector and this always has the risk of changing and developing legislation. Irish Wood Pellets have an opportunity to influence this process, through direct contact with the Minister of the Environment and should already be in dialogue with Minister Roche and his officials. Clearly the objective is to ensure that legislation allows the business to be competitive and that there is a level playing field for Irish Pellets as the only Irish supplier, and other importers of wood pellets from outside the EU. MARKETING TIPS Irish Pellets have opportunity to use local and national PR to get their message out to other businesses. Suggest using local and national radio, targetting presenters of business and general interest talk shows. Also local and national newspapers. A ‘road show’ should be developed and brought to businesses through local chambers. Speaking opportunities at environmental and business conferences should be sought also. Gina Quin, Chief Executive, Dublin Chamber of Commerce

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