Mango Materials Paper

Ashley EvansJames Jordan

Sierra LawChris Wiebe

Jasmine Kurywczak

Introduction: "The future will be green, or not at all. This truth lies at the heart of humankind's most pressing challenge: to learn to live in harmony with the Earth on a genuinely sustainable basis." (Sir Jonathon Porritt) Companies are being formed under this guise and are all trying to find new ways to make our stamp on this planet more sustainable. The bio-plastics industry is one that is greatly affected by this push for sustainability. Bio-plastics refer to any plastic made using a biodegradable source; some of the materials include cornstarch and vegetable oil, rather than using petroleum-derived fossil fuel. Bio-plastics are currently in a limited supply, but studies have shown that 90% of plastics could be made into bio-plastics. “Global consumption of biodegradable polymers increased from 14 million kg (30.8 million lbs) in 1996 to 68 million kg (149.6 million lbs) in 2001” (U.S. Congress, Office of Technology Assessment) and is continuing to rise. The US plastics industry is currently grossing $379 billion and bio-plastics is expected to take up 30% of that market share by the year 2025. Molly Morse, a graduate student at Stanford University, has taken notice of this large projected market increase and, more importantly, the environmental benefits of funding bio-plastics research and production. For these reasons, Morse started Mango Materials in Palo Alto, California, a company that produces biodegradable plastics from methane gas. Mango Materials is using its patent-protected bio-plastics production process to create an economically competitive, environmentally responsible resource.

Company Background:

Personnel:Mango Materials was founded by CEO, Molly Morse, but with help from many engineers, scientists, entrepreneurs, and innovators. Allison Pieja, PhD, is the Director of Technology and Anne Schauer-Gimenez, PhD, Director of Biological Research. The rest of the team includes Bill Shelander, Business Development, Clean Tech Open Mentors: Andra Pligavko, David Rummler, Nabeel Hasnain; and the Advisory Board: Sarah Billington, Craig Criddle, Curt Frank. Every one of Morse’s coworkers is equally committed to Mango materials vision of creating “Bio-based, biodegradable plastics that are cheap and green.” This commitment backed by expertise and enormous amounts of research, led Mango Materials to be awarded semi-finalist of the Clean Tech Open Gala.

Technology:Mango Material’s process starts with methane gas from waste water treatment plants that produces poly hydroxybutyrate (PHB) powder. This powder is then converted into high margin, or high volume, Eco-friendly, bio-polymer that then produces plastic products such as children’s toys, electronic castings, water bottles, and food packaging containers. These outputs, at the end of their life cycle, are returned back to where their original components were derived, the landfill. This “cradle to cradle” certified system furthers Mango Materials stamp of sustainability. “Cradle-to-Cradle” (C2C) is a term thought up by a Swiss architect in the 1970s, but is now a phrase copyrighted by the McDonough Braungart Design Chemistry consultants and



Jasmine Kurywczaktagged to companies with sustainable production practices. Specifically this is a prestigious certification requiring that the companies awarded.

The full cycle starts with the methane bio-gas. Methane is defined as a potent greenhouse gas with a global warming potential 25 times that of carbon dioxide. When methane is captured, it is converted into carbon dioxide and water, which reduces the greenhouse emissions. Substituting energy from bio-gas for energy from fossil fuels also cuts down on greenhouse gas emissions associated with energy production. There are two types of bio-plastics. PHA is the first one; it costs only 20% more than petroleum based plastics. The other bio-plastic is PLA, which costs double to the amount as petroleum based plastics. However, PHA based plastics are the only ones that will decompose in soil or in waterways. Bio-plastics will not decompose in an airtight landfill; water must be added to the mixture.

External Environment:

Economic:After the economic downturn in 2009 both US and International economies have been in a recession. Many businesses have had to scale back, reposition, or close their doors for good. Because of this economic downturn, individuals and companies are looking for ways to cut costs and save money. In other words people are just not spending like they used to. Many business are looking both up stream and down stream in their value chains to identify process that can be mended, integrated, or changed so that they can better position themselves in a less then hospitibal business environment.

Socio Cultural:Media attention is leading the consumer education process in regards to concerns like global warming, pollution, and the limitability of natural resources. In addition to traditional media consumers are becoming more socially aware of the buying choices they make through social media outlets like facebook, twitter, and blogs. As a result consumers are asking for more sustainable technologies. Some through protests and demonstrations and others are communicating their needs simply by purchasing products that meet their standards of sustainability.

Some specifics include initiatives like trying to limit the amount of greenhouse gasses being released into the atmosphere. Parents are now becoming concerned with the risks associated with purchasing generic toys from countries like China; there is currently a huge gap between the demand for safe sustainable sourced toys and the available supply in the market. Disasters like the BP oil spill are only exacerbating consumers to cry out for renewable technologies. In cities like San Francisco plastic bags have been outlawed in grocery stores and the city has adopted a zero waste mentality pledging to eliminate adding to landfills through recycling programs.

Technological



Jasmine KurywczakTechnology in the bio-plastics is advancing out of both demand and necessity. Firms throughout the world are developing sustainable practices to bring to their businesses in the hopes of making changes before it’s too late. We have seen the results of depleting natural resources in many arenas; fish, old growth forests, and fossil fuels. Now companies are trying to position themselves to be on the cutting edge of sustainability not just as a preventative measure but as a competitive advantage.

Political/Legal: “Going Green” is receiving support on a political level as well. In mid 2009 the San Francisco Board of Supervisors approved a measure to improve upon the existing waste management policies. Residents are now held accountable for improper disposal of compostable, recyclable, and landfill-destined waste. In order for the benefits of bio-based plastics to be fully realized, government support for composting infrastructure (even if only at the local level) will be key. On a National Level companies selling computers and electronics are being forced to collect a disposal or recycling fee when consumers purchase a new computer. Lets not forget the CRV tax that is applied to all purchases of beverages in plastic or glass bottles.

Demographic:Mango Material is going to be working with a variety of businesses with different uses for their product. Focusing on the specific populations they will be dealing directly with is imperative to the success of their business. In order to get to full production power, Mango has to go through methane suppliers, project developers, and suppliers for building production capabilities. To get their product to market, Mango has put together a sales team to negotiate and make sales calls to distributors, wholesalers, and in some cases, end users.

Suppliers:After breaking up Mango Material’s Processes into different segments there are many levels at which some sort of “Supplier” will be necessary. Project Developers; Mango Material does not have the ability to supervise and retro fit existing waterwaste plants, landfills, or industrial sources of methane with the manufacturing capabilities to turn methane into their compostable plastic. Material Suppliers; Mango Materials will also need suppliers for the materials needed to build the plants or “Digesters” in which methane is converted. In production spargers, fermenters, bio-reactors, and extractors will all be necessities.

Methane Suppliers; Mango Material intends to utilize existing landfills, industrial byproducts, and existing waste water treatment facilities to source the methane required for production. The purest methane comes from waterwaste plants. Methane from landfills comes mixed with some less desirable contamination that have to be filtered out, and industrial sources that produce methane as a byproduct are rated with a quality between the first two. An estimated 7000 tons of plastics could be produced if Mango Materials were to partner with just one large wastewater plant (like the one in San Jose California). When looking at the map of “Listed and Registered



Jasmine KurywczakProjects” there is an enormous amount of landfill methane in the eastern United States waiting to be used. Although there are no current plans to utilize it, there are gas fields through out the mid west that could become a source of methane at a future date.

CompetitorsThere are three main industries competing in the plastics market; petrochemical, sugar derived, and methane derived. Petrochemical plastics are chemical based plastics derived from petroleum, a limited natural resource. They can also be derived from fossil fuels such as coal or natural gasses. Sugar derived bio-plastics are produced from the enzymes that feed on simple sugars and are biodegradable. Finally, methane derived bio-plastics work similarly utilizing the enzymes that feed on methane to produce another form of biodegradable biopolymer.

Some specific competitor examples follow.

Metabolix is a research and technology company as well as a competitor from the United Sates. Metabolix uses patented technologies to combine bio-science and nature to deliver sustainable solutions for the world's need in plastics, chemicals, and energy with unequaled environmental benefits. Metabolix’s main product, Mirel bio-plastics, combine the functionality and performance of most petroleum based plastics (like heat and water resistance) with the widest spectrum of biodegradability. Overall, Mirel bio-plastics provide the broadest range of environmental benefits.

Tianan, a competitor from China, is the world’s leading producer of PHBV, a fully bio-based and biodegradable polymer. The microbial poly hydroxyalkanoate (PHA) family of polyesters that are thermoplastic with biodegradable and biocompatible properties. They are produced from various carbon substrates by microorganisms. Ralstnia entropha produces PHB (poly-3-hydroxybutyrate) homopolymer and PHBV (poly-3-hydroxybutyrate-co-hydroxyvalerate) copolymer from various carbon sources including glucose, fructose and organic acids (C2-C7).

Biocycle, a competitor from Brazil, produces a biodegradable plastic that is composed of carbon, oxygen, and hydrogen and is called polyhydroxybutyrate. It is produced from renewable raw material, such as sugarcane. They started in the early 90’s, and going forward, they have plans to develop a commercial scale operating plant.

In looking at Mango Material’s competitors both Tianan and Metobolix seem to have the biggest potential threat on Mango’s business strategy. Metobolix is based in the United States and Mango is going to have to compete with them on a local level. Mango has a short window of opportunity to get ahead of Metobolix in market share or face the alternative of coming in second. The other major threat is Tianan because so much product in the United States is imported from China. The likelihood of Tianan being able to get a hold here in the United States is high, which would make it a direct competitor. Mango Materials does have the advantage of having the lowest price per pound (at around $1.10) where the other competitors prices range from $2.25 to $2.75 per pound.



Jasmine KurywczakFive Forces Model

Threats of New Entrants:Medium to High- Because it is a newer market segment, and because it is “trendy,” more and more businesses will want to become involved. If the prices become low enough there will be even more reason to get involved.

Bargaining Power of Suppliers:Medium- Suppliers do not have to supply their products. No waste company has to allow Mango Materials to come in and use their methane gas; however, it will benefit them to allow Mango Materials to do this because they will be making money off of “waste.”

Bargaining Power of Buyers:High- Consumers of plastic do not have to stop using Petroleum-based plastics that are cheaper than bio-plastics. They will only make the switch if it is beneficial to them, whether because of cost advantages, environmental advantages, or if consumers move to another company that is using bio-plastic for their products.

Threats of Substitutable ProductsLow- There are few other bio-plastic producers, most of which are outside of the United States. Also, Mango Materials has the cheapest product because it uses methane as the feedstock.

Rivalry Among Competing Firms Low- Again there are few competitors, and each producing somewhat different products, therefore there is little rivalry among these firms. This will change when the industry takes off more and new entrants enter the segment where methane in used to produce bio-plastic.

The Internal Environment Mango Materials main resources consists of their patented process. Their core competencies consist of a developed patented process to produce PHB from methane-consuming bacteria. This process is not capital intensive and has low operating costs.

StrengthsTheir ability to produce PHB and their use of methane as a feedstock are major strengths. By producing PHB, a form of PHA, Mango Materials is able to produce a material that requires just 57-77% of the energy required for the production of petroleum-based plastics. PHB polyesters are synthesized by bacteria and are stored in intracellular reserves. Mango Materials uses methane as a feedstock instead of glucose and sucrose which saves the company 30% in the long run. Using methane enables Mango Materials to market its bio-polymer for a price that is comparable to that of petroleum at half the price of other biodegradable plastics. Another strength is the higher ROI than using methane to power vehicles or methane to heat and power buildings. The reasoning for this is that using methane to power vehicles or heat and power



Jasmine Kurywczakbuildings just burns methane away where Mango Materials will be able to reuse the methane when the plastic is put into landfills or recycled.

WeaknessesMango Materials has not yet been able to demonstrate pilot scale production capabilities.

ConsumersMango Materials consumers will be plastic converters who extrude, mold, and form plastic to produce materials such as bottles, toys, plastic packaging, electric casing, and films. Other consumers are the larger brand names, such as Rubbermaid, Green Toys, Steel Case and Cereplast.

Opportunities & Threats:Given the relative youth of the bio-plastic industry and Mango Materials’ product versatility, many opportunities are available to the company. The first consideration should be whether or not any “low-hanging fruit,” or quick and easy competitive actions to improve their position are available. Thinking back to our analysis of the Industry Value Network, the complementary process of anaerobic digestion is a natural ally in the pursuit of cradle-to-cradle product development, as well as an available horizontal integration candidate. Mango might also look vertically through the value chain. The logical play down the road might be to invest where the methane fuel for the process is currently harvested, or even stranded, once the capital is available. Mango is building upon its production capabilities and the present focus is limited to the production of resin and pellets, however a significant supply gap exists downstream within the various industries supplying toys, baby bottles, pacifiers, and other products to parents who desperately wish for alternatives to products with short useful lives and long-term environmental impacts. Mango need only effectively prioritize these opportunities and explore each with their core competencies in mind.

Horizontal IntegrationUsable fuel obtained through the process now known as anaerobic digestion has had many different applications over the last few centuries. Street lamps have been powered by sewage flowing under the streets of England, preceding later applications for reciprocating engines and microturbines2. This same fuel is used by Mango to create their bio-based polymer. Luckily for Mango, anaerobic digestors are relatively plentiful around the states but also greatly underutilized (Due to the necessary input of human or animal waste, community support for facilities is weak). Nobody ever said gathering support to create a viable business was easy; therefore Mango can treat this lack of public support as an opportunity to take a major stake in the process and secure their own steady supply, or maybe work with existing digester operators to tailor them to Mango’s specific needs.

Backward integration/supplyPursuing horizontal integration strategies and working with complements can help Mango strengthen their position while still in the early stages, but once Mango has more capital available to them they ought to expand into other areas of their value network. Building on the



Jasmine Kurywczakidea to exploit existing anaerobic digestion infrastructure, Mango can either pursue long-term investment in generating its methane, or search for unused or trapped sources of methane gas. As previously mentioned, the process of treating waste and capturing the methane gas mixture byproduct is relatively unpopular near populated areas. Options available to Mango include purchasing land with stranded supplies of methane, as well as locating a Mango production facility near waste processing facilities.

Downstream activitiesMuch of the uncertainty parents feel when considering what products are best for their children could be alleviated by ensuring their children’s toys, food packaging, and food storage are all generated using bio-based polymers, and by making disposal of these products as innovative and environmentally friendly as possible. Parents are concerned about the safety of their children above all else, but the idea of safety has transformed in recent years to include the kind of world these children will one day inherit. Exploratory research should be undertaken to determine which bio-plastic products are in high demand and short supply. Initial steps could involve focus groups where Mango could learn

Problems of Mango Materials There is one main problem that Mango Materials faces, which is the fact that they have not yet entered into the plastics market. There are three main aspects that the company must focus on in order to accomplish this goal. The first is technical: Mango Materials needs to produce PHB in large, but expected quantities. Right now, they are just producing small amounts of the PHB to test it, but in order to be ready for the market, they need to have much larger quantities and know when it is going to be demanded by their consumers. The second is cost based: Mango Materials needs to be able to produce a product that is cost competitive with petroleum-based plastics. This part of the problem is almost achieved. They produce the cheapest alternative in comparison with their competitors, but petroleum-based plastics are still 20% cheaper. Until there is an even larger shift in demand for environmentally friendly products, producers will always choose the materials that are the cheapest. The third aspect is product acceptance: Mango Materials needs to verify that their plastic is compatible with consumer equipment. For example, if one of their consumers is a child toy producer, they need to make sure that their plastic will be able to be used with their equipment to build the toys. If their plastic is not compatible, they will have to change the product until it is, otherwise they will never sell this bio-plastic.

Solutions and Ideas:

Technical: Once Mango Materials is certain that their products will be accepted by their consumer, they will need to get financing (whether through a loan, a grant, or venture capitalists) to build their own plant to produce PHB in large quantities. This will allow them to be out of the Stanford lab, starting to actually produce their product, gaining a customer base.Another route to gain financing is the company should attend trade shows to present their

products. At events like this, Mango Materials will be able to present themselves to companies in a way that will seem as if they need Mango Materials in order to survive in the up



Jasmine Kurywczakand coming “green business.” Representatives will be selling themselves to companies that if they do not partner now with Mango Materials, it will be too late in the future, and cost that business even more to get on the bio-plastic bandwagon. One trade show that Mango Materials should attend is May 23 - 24 in Hong Kong. There will be many plastic consumers there, as well as speakers who will offer information that can help bio-plastic producers promote their product. This idea also includes continuing to feature their product at events such as the Clean Tech Open. The United States Department for Agriculture Bio-Preferred Program website offers an extensive list of companies currently devoted to creating bio-based products. If Mango Materials would contact a few of these firms, maybe do a joint venture to gain some capital, they would be able to use that money towards their plant as well. There are many different paths that Mango Materials can take to obtain funds, they just need to decide which one they want to take.

Cost:Due to the 20% cost mark-up, stated above, Mango Materials should contact high-end, specialized market producers in order to improve their acceptability. Consumers such as water bottle producers will not want to spend the extra money, but a high-end child toy company, that only wants to be associated with bio-plastics, will want to use their products. The more popular that these products become (which they are bound to because of new information flooding our media), the more companies that will want to produce them, therefore using Mango Material’s products. Government sponsored tax incentives further motivate for consumers to buy bio-based components for their products. Specifically, the Federal Research and Development tax credit “encourages U.S.-based manufacturers to innovate and invest back into their businesses in order to compete more effectively on a global basis;” including investment into more sustainable production options. Because of this tax incentive, the additional cost will then be evened out, making it an even playing field for all (bio-based and petroleum based) plastic producers.

Product Acceptance:Mango Materials will need to work with their consumers to make sure that their plastic will meet the production needs of their consumers. They will need to contact their consumers, offer a free sample for them to test with, and make any necessary changes to the product. The company should do this with many different industrial applications, for example construction, children toys, packaging, etc. This step should be the first of the three solutions. There is no need to get out of the lab and into their own plant to produce PHB if the product will not work with their consumer’s equipment. However, they will need to build a larger reactor to be able to produce all samples that are demanded of them. They will also not need to worry about the cost difference, because no company will buy a product that does not work, and is more expensive than one that does work.

Mango Materials Paper

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