Capsim "stockholders' meeting" presentation, CSULBA FEMBA 11, August 2011
IFP Team 56 Final Report Bryan Walkey V33 Master
1. A&L Canada
Laboratories Inc.
Opportunity in the Precision
Agriculture Industry
Team 56
Sid Aiyar, Simon Clark, Harpreet Marwah, Rayner
Mendes, Kelsey Paskell, Claire Sandilands
EIR: Bryan Walkey
2. Executive Summary
• Project objectives:
• Go to market strategy that includes Marketing, Internal Decisions, and
Operations Strategy
• Break even within 18 months of operations
• Realize 18% ROI within second year of operations
• Recommendations:
• Target consultants and farms over 2,000 acres
• Use product advocates, a whitepaper, trade shows and print/electronic
advertising
• Price $24,670 - $28,670
• Hire a division manager
2
Impact
• Breakeven in 2016
• 19.2% ROI
• 88 total units sold in 2019
• Implicit value of $1.63 million
3. Within this section:
Precision Agriculture Overview
Competitive Analysis and Positioning
A&L’s Product and Unique Selling
Proposition
Target Market and Marketing Efforts
Pricing and Projections
Marketing
4. Precision Agriculture and its Benefits
For the farmer, precision systems provide meaningful benefits that
justify the investment.
4
Reduce Time Surveying Crops
Minimize Impact of DiseasesReduce Costs of Inputs
Improve Yields
Research suggests that a farmer could save up to 33% on fertilizer alone.
5. Competitive Analysis
Many competitors fail to focus on benefits to the end consumer,
and market their specifications in isolation of each other.
Competitor
Image
Precision
Ease of Use
Processing
Speed
Retail Price
(basic
package)
Variety of Options
Offered
eBee Ag by
SenseFly
2 cm per
pixel
Fixed wing
Proprietary
autopilot
Flight planning
1 hour
617 - 823 acres
$25,000
Multiple models
Multiple sensors
Additional accessories
Lancaster
Hawkeye by
Precision
Hawk
1 cm per
pixel
Fixed wing
Autopilot
Results
analysis
ND $25,000
Multiple sensors
Multiple cameras
Analysis provided free
AgDrone by
Honeycomb
3.2 - 4.6 cm
per pixel
Fixed wing
Autopilot
Flight planning
Results
analysis
1 hour
750 - 1,000
acres
$15,000
Multiple sensors
Tablet with built-in software
A&L
1.5 cm per
pixel
Fixed wing
Open-sourced
autopilot
Flight planning
1 hour
900 – 1,200
acres
$24,670
Single sensor
Single model
5
6. Competitive Positioning
SenseFly and PrecisionHawk present the greatest threat from a
financial and human capital perspective.
Financial
Capabilities
Innovation &
Expertise
Service End-to-End Solution Sensor
• Parrot: $96.9
million (cash)
• 2013
revenues
$6.3 million
• 427 internal
full-time
employees and
75 external
contractors
• Not
disclosed
• Import data into
eMotion, and provides
images, immediate
feedback
• Poor
quality
• $10 million in
Series B
financing
• Investors: Intel
Capital and
CEO of
Hulu.com
• Significant
lead time
• Data upload via
Cloud; $0.10 per acre
for data processing &
$0.20 per acre for
data storage
• Poor
quality
6
Competitors’ access to resources presents a threat to A&L. However, their lack of high-quality
product and service is an opportunity that A&L can and should capitalize on.
7. A&L’s Product Offering & USP
The UAV provides a unique end-to-end solution that addresses
pain points experienced by farmers.
A&L’s Product Offering
7
Autopilot
Stitching
Software
Cloud Mapping
Image
Sensor
A&L will only be
able to sustain its
competitive
advantage once
they can develop
and monetize
prescription
algorithms
NDVI
Light Sensor
8. 8
Potential Target Markets – Consultants
Consultants have been early adopters of technological innovation
and can be used to increase brand recognition.
Total Market Size (1,800)
Size of the Actionable Market in FY2015
Actionable (200)
Accessible (300)
Expected (9)
9. 9
Potential Target Markets – Large Farms
Large farms are the consumer group that receives the greatest
direct benefit from the product.
10. 10
Potential Target Markets – Crop Insurers
Crop insurers could see $1.2 million in cost savings on seasonal
workers if they were to utilize UAV technology.
$1.2 million
Savings assuming workers are paid $15/hr,
8 hours/day for 40 days
90,000
Yearly claims
2,250
Temp workers
needed
750
Workers with
UAVs
1,500
Fewer seasonal workers needed after
investment
11. 11
Market Strategy and Marketing Efforts
Direct sales to consultants and large farms presents itself as the
optimal short-term strategy.
Medium-Term (2018-2019)Short Term (2015-2017) Long-Term (2020 onwards)
Consultants Farmers Crop Insurers Distribution
through Retailers
Whitepapers &
Publications
Leasing to
Consultants
Trade Shows Paradigm
Precision
12. Farmers’ Willingness to Pay
12
Pricing Considerations
When pricing the UAV, A&L needs to primarily consider the value
to the end user.
Competitors’
Pricing
Market
Signalling
Production
Costs
$12,875
$17,167
$21,459
$25,751
$30,042
$34,334
$38,626
$42,918
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
Acreage
Yearly Input Savings Yearly Potential Yield Increase
Basic Price ($24,670) Premium Price ($28,670)
Product
Packages
Basic Safety Premium
$24,470 $26,920 $28,670
13. A&L can give customers flexibility and the option to customize their
UAV solution by offering different product packages.
13
Pricing Considerations & Projections
22 23 28 31
22 23
28
31
20
23
26
9
44
66
79
88
0
20
40
60
80
100
2015 2016 2017 2018 2019
Consultants Large Farms Crop Insurers
5-Year Unit Sales Projections
15. Current Capabilities
Internal Capabilities & Requirements
• Research and Analytics
• Only 3 full-time employees
• Strong relationships with farmers and
consultants
• Continuous improvement, which has resulted
in late to market
• Only one R&D employee
15
Requirements
• Build manufacturing capabilities:
• Leverage existing personnel for sales and
marketing
• Hire a division manager
• Hire one additional full-time employee for
production and testing
• Seek out additional human capital for
research and development from top
universities
Human Capital
Capacity
Constraints
Core
Competencies
A&L’s core competencies lie in agricultural research and analytics
where they have developed strong relationships.
16. Phantom StockSalary
ResponsibilitiesEducation and Expertise
The Division Manager
16
A&L should hire a division manager with strong business acumen,
leadership skills, and experience within agriculture.
• Minimum 2-year business diploma
Basic accounting
Financial projections and modelling
Marketing
Operations and Logistics
• Minimum five years Agriculture
experience
• Product Development experience
• 5% phantom stock, redeemable after 5
years, or increasing by 1% thereafter until
2025
• Suggested salary of $70,000
Growth
DirectionLeadership
Communication
17. Positioning within A&L
A&Ls UAV division will interact closely with other divisions and will
benefit directly from the proprietary algorithms developed by other
A&L divisions, once they are fully functional.
17
Farmer
A&L Biologicals
UAV division
Paradigm Precision A&L
$24,670 for a UAV and $500 for prescriptions
Pays of portion of salaries Pays $150 in royalties
Illustrative ScenarioPositioning
30% Royalty to A&L
for Algorithms
Separate Entity
Portion of Paradigm
Precision’s Salaries
20. Refining A&L’s Business Model
A&L must choose a value discipline that takes into account its
capabilities and culture as well as competitors’ strengths.
Operational
Excellence
Product Leadership
A&L’s OpportunityValue Disciplines Explained
20
Customer Intimacy
• Understanding of the Problem
• Customer Relationships
• Complete End-To-End Solution
21. Make vs. Buy
A&L should manufacture until critical mass is reached and then
consider outsourcing.
21
Assemble UAVs
Manufacturing UAVs
Explore Alternatives Once Critical Mass is Reached
Source Parts in Bulk Reduce
Dependence
Re-Focus on Core
Competencies
Explore Partnerships
and Joint Ventures
22. A&L Training Program
22
A&L should offer training sessions that focus on software use as
well as flight operations of the UAV.
Overview of Training Program
Groups of Customers Classroom Component UAV Operations
• At Customer Field
• Pre-FlightPost-Flight
• SFOC Not Required
• Autopilot Set-up
• Stitching Integration
• Troubleshooting
• At Customer Location
• In London, ON
• Group Rates at Hotel
24. Implementation Plan
24
Marketing Activities
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Activities Dec'14 Mar'15 Jun'15 Sep'15 Dec'15 Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 Sep'17 Dec'17 Mar'18 Jun'18 Sep'18 Dec'18 Mar'19 Jun'19
General Marketing:
Website Development $20,000
Publication Advertisements $7,200/Year
Whitepaper from MNP $60,000
Promotional Leasing Agreements
Trade Shows: $75,000/Year
Western Canadian Crop Production Show
Canadian Farm Progress Show
Canadian Western Agribition
Target Market:
Consultants
Large Farmers
Crop Insurers
Marketing Activities Sales Efforts Sales & Marketing
Division and Operational Activities
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Activities Dec'14 Mar'15 Jun'15 Sep'15 Dec'15 Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 Sep'17 Dec'17 Mar'18 Jun'18 Sep'18 Dec'18 Mar'19 Jun'19
Manufacturing Efficiencies Production 80 hrs Target Production Time 60 hrs Target Production Time 50 hrs Target Production Time 40 hrs
Develop Sales Channels
Hire Division Manager
Hire Production and Testing Staff
Search for Additional Engineering Staff
Production 10 units 45 units 70 units 80 units 90 units
Sourcing of Bulk Parts
Develop Flight Training Program
Run Training Programs
Ongoing effort Hard Target
Variable-rate applicators are used to apply pesticides, fertilizers,
fungicides, and nutrients as needed because different crops have
varying input requirements. This reduces wastage and improves
the overall health of the crop.
• According to the Northeast Agriculture Research Foundation,
farmers currently overuse fertilizer and can effectively cut fertilizer
costs by up to a third with the use of precision ag systems. For
example, a canola farmer with 2,000 acres could save up to
$50,000 in fertilizer alone. However, our research suggests that
average savings are closer to 15%(1)
.
• Research at Auburn University suggests that guidance systems
can provide a 4.3% average input savings with a payback
under two years(2). Farmers can expect savings between $1.50 -
$25.00/acre/year. The variability in input savings is a function of
the crop, management techniques, field shape, and overall size.
• Research on the financial impact of UAVs is not yet available
because the technology is new and existing players have failed to
focus on these benefits.
With UAVs, a farmer can effectively survey their entire field and
precisely target the plots that require further attention. This frees
farmers to engage in value-added activities.
UAVs are a convenient method of surveying the health of the
land, and have the ability to identify problem areas effectively.
This allows farmers to isolate the problem and address the
issue in a timely manner. UAVs also offer a cost-efficient way for
insurers to assess a farmer’s claim for crop insurance.
• Disease can impact yields in a given year significantly and cause
extreme financial distress. A disease in a wheat field, for
example, can destroy 50% of the crop(3)
. This can be the
difference between profitability and bankruptcy.
GIS has become critical in determining the health of fields and
provides the foundation for fertilizer and fungicide prescriptions
that can increase yields.
• Field-mapping sensors can create vegetative indexes that allow
farmers to pinpoint where soil samples make the most impact.
• Yield monitors are specially designed to help farmers identify
variability in yields, and can be used to create yield maps for
planning purposes. Yield maps act as a data source to develop
specific management strategies going forward (e.g. nutrient
prescription maps, management zones, variable-rate seeding,
etc.). Despite the benefits of yield planning, the multitude of
variables such as weather, crop rotation, and equipment, make it
difficult to quantify yield improvements.
The UAV space is littered with many competitors that provide UAVs for field surveying; however, many systems do not keep the end user in
mind. Competitors’ UAVs capture images but farmers struggle to use these to gain any tangible benefits.
• Competing UAV systems boast specifications that are taken in isolation and used as a marketing tool. For example, flying at a higher
altitude negatively affects the image quality, but positively affects the maximum acres that can be covered in a single charge. As a result,
farmers are coerced to compare on specifications that inaccurately depict the true strengths of the UAVs.
• Competitors typically focus on the hardware rather than its practical applications, placing the onus on the end user to extrapolate valuable data
from the images. Currently, farmers have to wait to process images by uploading them to a cloud service, or in some situations, mailing a USB
for analysis. The time delay is further amplified if the images taken are unusable as a result of cloud cover or wind speeds, which no UAV in the
market has the ability to account for. The closest competitors have priced their basic UAV package from $15,000 - $25,000, with added
packages that can increase this price to $30,000 - $40,000.
Financial Capabilities, Innovation, and Expertise: Competitors’ access to resources presents a threat to A&L. With strong financial backing,
competitors will be able to invest heavily into building a better UAV with more operational efficiency. Additionally, these competitors have
external support in the form of venture capital networks. Intel Capital, for example, has been recognized as a premier venture capital firm. A&L’s
competitive advantage in the UAV space is likely to be short-lived, unless the analytics service can accompany the sale of the UAV.
• Service, End-to-End Solution, and Sensor: Competitors’ lack of timely and high-quality service is an opportunity for A&L. Since the technology
is new, it is important that A&L differentiate itself by supporting the customer every step of the way. Additionally, A&L’s UAV has been streamlined
to improve user-friendliness through automated pre-flight testing and seamless integration with the stitching software. A&L’s plans to develop an
in-house sensor that works with their proprietary algorithms will be key to maintaining a long long-term sustainable competitive advantage
The UAV currently utilizes a Canon camera and third-party sensor that is modified with proprietary firmware to pickup near-infrared waves,
allowing them to determine Normalized Difference Vegetative Index (NDVI) with greater accuracy than competitors. A&L is in the process of
developing a 6-band multispectral sensor that can provide useful output for the company’s crop-specific algorithms, which will enable A&L to
provide specific crop health prescriptions without the need of soil sampling.
• A&L has developed proprietary code to supplement the open-source autopilot, improving ease of use and reducing the chance of missing parts
of the field during a mission. This increases operational availability of the product, which is the time the UAV is available to perform valueadded
tasks. The UAV includes a light sensor that matches each picture with a corresponding colour temperature, allowing it to differentiate
between pictures that may have been taken in different light conditions (e.g. morning vs. evening). This sensor also liaises with the auto-pilot to
allow the UAV to re-fly areas that were covered by clouds. Both of these factors influence the NDVI output.
• The frame is made from foam to reduce impact upon landing, and is reinforced with fibre glass to reduce breakage.
• The sensor is able to log information in detail for each picture taken during flight. This allows the stitching software to produce a preview image
that is cross-referenced on Google Earth to determine if the image was geo-referenced correctly. If not, the farmer is able to immediately cancel
the processing of the image, thereby reducing downtime and allowing them to start a new mission immediately.
• A&L provides the stitching software to the farmer as part of the basic package, so they are able to perform the stitching of the image on the
field. This saves the farmer significant time since they do not need to upload the files to the web, wait for analysis results, and potentially have
to re-run the mission if even a single image was unusable. For many farmers, their fields are miles from home; in the event a mission re-run is
necessary, this represents a significant loss of time. The ability to save travel and re-flight time represents intangible value to the farmer
