Case+Analyses+1

It is a line of 100% natural insect-control products. It is produced with diatomaceous earth (DE) and protein attractants. This mixture kills insects by physical instead of chemical means. The diatomaceous earth is a very thin powder that absorbs the moisture from the insect body. The protein attractants counteracts the repelling effect DE has, and it lures insects into the DE. As insects are killed through physical means, they can’t develop any resistance to it. Finally, Chemfree products are safe for use around children and animals and they don’t harm the environment.
 * 1. What is the product and why is it regarded as environmentally safe?**


 * 2. Why did they have to merge?**

They merged when a company owned by Gary Sheppard bought the patents from Arthur Carle. Carle was a commercial insect exterminator who discovered the protein attractants, which mimicked a substance that some insects produce to signal the presence of a food source, so other insects can sense it. The mixture was refined with the help of an entomologist of McGill University. As Carle had no means to commercialize the mixture, Sheppard bought the patents for 300,000. Sheppard’s company granted Chemfree the worldwide rights to the development, manufacture, distribution and sale of the products.


 * 3. What is Chemfree’s central challenge?**

Chemfree needs funds ($1.2 million) for new product development plans, for a new advertising campaign and for bridging the seasonal cash flow. In addition, the other two stakeholders of the company, who have 5% of the shares each, wish to liquidate their holdings.

The company has experienced some losses in the last two years. The banks would only extend credit based on personal guarantees. Sheppard and the other two stakeholders have already pledged as much as their limited personal guarantee.

Sheppard has spoken with 20 potential sources of funds, and four of them are interested based on different conditions. Sheppard needs to assess those conditions to decide weather or not they represent a good option for him.

4. **Outline the company’s major strengths.**

- Chemfree is largely the industry leader in this sector because of characteristics of the product. - The product is relatively easy to produce and to storage; the raw materials that are needed are - The product that clearly resonates with consumers - Chemfree complies with the existing regulations in the US and Canada. - It has a large customer base (around 13% of the market), due as well to it's positive service-oriented reputation. - It provides ancilliary services

5. **Outline its major weaknesses.**

- The seasonal nature of Chemfree's products hinders the growth of the company dramatically. - Need to spend lots of advertising because this item is new in the market and Chemfree would need to bring awareness to the market. - Is 10% more expensive than the competence


 * 6. Outline the major opportunities.**

- Chemfree could utilise this method of exterminating insects and modify its use to create another line of products to exterminate other household pests. - Expand its product line and market internationally. - New regulation on pesticide usage that benefits Chemfree - A possible licencing agreement for the exclusive rights to a natural insect repellent - The market reacts very positively when Chemfree has advertised it products


 * 7. Outline the major threats.**

- Competition from competitors that would use this idea. - Might face financial issues in their effort to support this product. - Unable to get financial backing from investors.


 * 8. Is the involvement of Sheppard in the firm a strength, a weakness, or neither?**

Involvement of Sheppard in the firm is a strength because it demonstrates his committment to the firm and the product that are produced. He has expertise on running businesses. He has an important backgroun on marketing and advertising, since one of the companies he owned was an advertising agency.


 * 9. Based on your response to the previous question, what is the main challenge? (Think about what is the value of the firm/patent without expansion.)**

Chemfree's oldest patent still have 5 more years to expire (since this case was published, 1995), so this is a critical moment to take advantage of being the only ones that can make use of such a good discovery (in the case they have money to defend the patents from being used by someone else). Having enough money will allow Chemfree to expand greatly, and this may be the only opportunity to do so.


 * 10. What decision and considerations regarding funders is he considering (i.e., what criteria should be considered)? Think about this question in terms of value, control, and value-added options**

When considering funders, he should consider the following:

- Funders believe in the product because if the funders are are not confident with the item, then they might not be fully committed to the expansions that would need their support down the road. - Funders should have tthe same objective as the Chemfree. They should also be the type of company that are aware of their environment. Chemfree should not look for companies that have contradictory values as them. This will cause marketing problem too. - Funders should be willing to give Chemfree more control about the direction of the product since Chemfree is the main patent holder of this product. This will allow Chemfree to have more room for adjustments with the product.