After a congress about general science in which you took part out of personal interest, a renowned scientist comes to talk to you. He swears he invented the world’s first perpetual motion apparatus. It requires no energy source and keeps running forever. It can even turn a small fan with its motion.
The scientist asks you in which markets he can monetize the invention and how much money he could make in Europe in the first year.
This case is somewhat unconventional. Here no standard framework is required, instead, a lot of creativity and an MECE structure (mutually exclusive and collectively exhaustive) that shows the interviewer that the interviewee has an overview of the big picture, treating all possibilities.
Although this case is pure fiction, it can be seen as a market entry/new product case – the new product in this case being a method of creating energy out of nothing.
- The solution can replace traditional power plants.
- The NPV is positive and therefore the scientist should continue developing his idea.
Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Information to share” section.
Paragraphs highlighted in blue can be verbally communicated to the interviewee.
Paragraphs highlighted in orange indicate hints for you how to guide the interviewee through the case.
The following structure would be a good approach for the problem:
The interviewee should ask more details about the technology:
- Building materials
- Size of machine
- Room for improvement (efficiency, size)
Information that can be shared if inquired:
- The machine costs around $1,000 to be built and can turn a small fan forever without any energy source.
- It weighs however 30 kg and takes 1 m3 of space.
- All materials necessary can be easily bought anywhere.
- The concept can be enlarged and adapted to provide more power.
- The scientist estimates that with technical improvements the method can produce, at its best, twice as much energy with four times less weight and space.
- The machine is very big and heavy, generating only a little bit of energy.
- Even with future improvements, the machine will not be able to generate much more energy than it does now.
- It can be enlarged to generate more power.
The first question, how to monetize the invention, requires a thorough study of the possible application areas of the invention (ideally an MECE tree).
The method is a new energy generation technology.
- Sectors/fields that require/produce energy
Even though the machine does not require any fuel, it is quite heavy and takes a lot of space for producing only a little bit of energy.
This is an important constraint as discussed in the following.
Information that can be shared if inquired:
- Power plants:
The main and most important energy application field. Power plants generate most of the energy consumed by cities and their inhabitants.
Power plants are in this case all the more relevant as they do not impose weight and space restrictions to the energy generation technology.
One of the main necessities of energy in our society regards transportation. Combustion engines can be embedded very efficiently in vehicles. This is not true for the scientist’s new energy generator.
With the possible exception of large ships, which have lower weight and size constraints, this technology would not be suitable for land or air transportation.
- Private energy generation:
Many families invest in solar panels as an alternative for buying electricity from power plants. The new technology would also not be suitable for this application as it would take the size of the whole house for the generator to produce a useful amount of energy.
- Other fields:
Here we can include all other possible usages of energy. For example the generation of energy for small and isolated groups of people (farms, islands, etc.).
The main market would be the generation of energy in power plants.
To assess how much money we could make in this market, let us estimate its size in a simplified manner (as this is not the focus of this case).
Energy is used mainly by two types of customers:
- Companies / Government (industry, public illumination etc.).
We will estimate the usage of the first type of customers and, for simplicity’s sake, assume that companies/government spend approximately as much as people do.
Europe has around 500 million inhabitants. If we take families that have on average 4 people, we have 125 million households.
The amount spent per family per month depends on its social class, so we could segment families in different classes to obtain a more precise result.
However, let us assume that the average electricity bill is around $40. That means that the market of house electricity in Europe totals $5 billion per month or $60 billion per year.
Considering the same amount spent by companies/industries we have a total energy generation market of $120 billion.
If we consider that in the first year we can already build plants that are able to generate 5% of the total market energy (power plants are not built overnight), then the scientist could make $6 billion in the first year (here we are not accounting for the investments themselves).
In order to estimate the profitability of a power plant, necessary investments of the perpetual motion machine for a larger amount of energy must be known.
In addition the lifetime of a power plant has to be known.
Share Table 1 with power plant details if the interviewee inquires it.
Ask the interviewee about the NPV which can be calculated with the already presented data.
For easier calculation, inflation does NOT have to be taken into consideration for the market price.
From 50W needs of the fan can be concluded that the output of the perpetual motion machine is around 0.05kW.
If energy is sold at 20 cents, the machine generates revenue of 1 cent per hour:
On a yearly basis, this is $87.6 per year:
After all, the PV of the revenue is $1,080.47:
The NPV therefore is positive, with $80.47:
- The project can be seen to be profitable and produce a positive cash flow in its lifetime.
- Quoting the scientist, a duplication of the generated power is possible. Economies of scale can be generated because a lot of machines are needed for power plants to supply Europe.
- Thus, the scientist needs to improve his invention quickly in order to increase the rate of return, which might be too low for investors.
- If not done yet, the first thing the scientist should do is file a patent for his invention in the main patent offices of the world.
- After that, the scientist could negotiate with the most important energy companies (or even with venture capital investors or business angels) in order to get financial support to invest in the new power plants.
What would be your 30-second-elevator Pitch to try to sell the idea to Warren Buffet?
This is a source of limitless energy. As the society strives ever more for new and cleaner sources of energy and demand continues to grow, this comes up as precious technology. Who would regret to invest in such a promising energy resource?
Not only would there be social value in the technology itself, there would certainly be demand for it and the target market of energy production represents a big opportunity for it.
How would you price the energy produced with this new technology? And how would this change over time?
The price of a product is best set by what customers are willing to pay for it. I would price this energy at similar levels as existing sources and market it as zero-emission and 100% environmentally friendly energy.
This would surely suffice for customers and governments to adopt it. The price would slowly be reduced over time as new competitors would possibly appear using similar methods that could not be covered by the patent.
More questions to be added by you, interviewer!
At the end of the case, you will have the opportunity to suggest challenging questions about this case (to be asked for instance if the next interviewees solve the case very fast).