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Business Development in project Pinexo at

Chalmers School of Entrepreneurship
Development of tools for heat exchanger network designs in
order to reduce energy consumption in the process industry
Master of Science Thesis in Industrial Engineering and Management

Rawand Faraj
Department of Industrial Engineering and Management
Division of Management of Organizational Renewal and Entrepreneurship MORE
CHALMERS UNIVERSITY OF TECHNOLOGY
Gothenburg, Sweden, 2013

Business Plan

Business Plan
Pinexo
2013-05-14

Executive Summary
Pinexo reduces energy consumption in the process industry
through optimizing heat exchanger networks.

Swedish industry alone consumes electricity worth more than SEK 6 billion annually. Industrial facilities
are continuously looking for cost saving measures, while consultants are actively looking for tools to offer
the best possible service for these customers. Pinexo solves both of these needs through offering a tool
that can quickly generate energy optimization suggestions complete with investment analysis.
A skilled team with diverse backgrounds and a senior Board lays good foundations for a successful startup process, and the team has made sure to attract solid collaboration partners such as CIT Industriell
Energi AB and well-known customers for pilot studies. Financing has been received from Vinnova, Almi,
Gteborgs Energi and Encubator, which is a solid foundation for growth.
The main methodology behind the product, Pinch analysis, is well established from more than 25 years of
research, while the uniqueness in the Pinexo software are novel cost calculation algorithms and a user
friendly and intuitive interface. Competitors do not offer the same depth of investment calculations for the
energy optimization suggestions generated, nor do they have a product that is easy to use.
In Sweden, we are looking at a market that spent SEK 2.8 billion on IT services in 2011. Aiming at both
facilities in the process industry, for example paper/pulp mills and refineries, as well as the consultants
serving these, we have about 600 potential customer companies in Sweden. Our next market will be
Germany, whose process industry is the worlds largest and amounts to 13% of the global export.
A well-defined sales process with a competitive price of SEK 85.000/license/year will give us a positive
accumulated cash flow in 2017, assuming we reach our conservative estimate of 35 license customers by
that point. Working actively towards a profitable exit within five years, Pinexo offers a promising
opportunity for its shareholders.

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Table of Contents
1! Introduction+......................................................................................................................+1!
1.1! Background+.............................................................................................................................+1!
1.2! Vision+and+Mission+..................................................................................................................+1!
2! Idea+...................................................................................................................................+2!
2.1! Need+.......................................................................................................................................+2!
2.2! Offer+........................................................................................................................................+2!
2.3! Business+Model+.......................................................................................................................+3!
2.4! Competitive+Advantage+...........................................................................................................+4!
3! Organization+.....................................................................................................................+4!
3.1! Company+.................................................................................................................................+4!
3.2! Business+Team+.........................................................................................................................+5!
3.3! Technical+Team+........................................................................................................................+5!
3.4! Board+......................................................................................................................................+5!
3.5! Ownership+Structure+...............................................................................................................+5!
3.6! Collaboration+Partners+.............................................................................................................+5!
4! Technology+........................................................................................................................+6!
4.1! Pinch+Analysis+..........................................................................................................................+6!
4.2! Software+Solution+....................................................................................................................+8!
4.3! Proof+of+Concept+......................................................................................................................+9!
4.4! Competing+Technologies+..........................................................................................................+9!
4.5! Intellectual+Property+..............................................................................................................+10!
5! Market+............................................................................................................................+11!
5.1! Market+Segment+....................................................................................................................+11!
5.2! Market+Research+...................................................................................................................+11!
5.3! Competitors+..........................................................................................................................+12!
5.4! Substitutes+............................................................................................................................+13!
5.5! Value+Potential+......................................................................................................................+13!
5.6! Sales+Strategy+........................................................................................................................+15!
5.7! Marketing+Plan+......................................................................................................................+16!
6! Action+Plan+......................................................................................................................+16!
7! Risk+Analysis+....................................................................................................................+18!
8! Finance+............................................................................................................................+18!
8.1! Pricing+Strategy+.....................................................................................................................+19!
8.2! Exit+Strategy+..........................................................................................................................+20!
Appendix+...............................................................................................................................+21!
Appendix+1++Finance+......................................................................................................................+21!
Appendix+1.2++Pricing+.....................................................................................................................+23!
Appendix+2++Collaboration+Partners,+full+list+...................................................................................+24!
Appendix+3++Plan+for+Proof+of+Concept+...........................................................................................+25!

ii

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1 Introduction
Every year, Swedish industry spends more than SEK 6 billion on electricity alone1. As an example, the St1
oil refinery in Gothenburg consumed 2300 GWh of energy in 2011, of which 139 GWh was electricity
amounting to 70 MSEK, and the rest stemmed from burning off about 5% of their input raw material2.
One way that the process industry (paper/pulp, petroleum, petrochemical, chemical, food and dairy) deals
with the enormous amounts of spill heat is to heat exchange. It is a simple process one hot stream and
one cold stream placed closely together where they cool and heat each other respectively. This can
generate large energy savings since energy needed for heating or cooling can be partially or, in the optimal
cases, altogether eliminated. As long as you are looking at one hot and one cold stream it is fairly obvious
where to place the heat exchanger however, as soon as the number of streams passes five of each kind,
the picture gets complicated. Up until now, industrial companies have been using benchmarking and past
experience to decide how to heat exchange. However, there is a better way to do this in fact, an optimal
way.
There is a method developed to find the optimal energy scenario. This method is called Pinch and has
been developed at Manchester University and Chalmers University of Technology for the past 25 years
but it has yet to see widespread diffusion in the process industry. This is mainly because it deals with
theoretically ideal situations that are not applicable for retrofit and rebuild situations which is a far more
frequent event in industry and also because several previous efforts to commercialize the method have
all become very academic and thus not easy enough to apply in a commercial setting.
By combining the Pinch method with the Matrix method, a method for taking into account multiple cost
parameters, and automating this analysis process, Pinexo has developed a powerful new tool for energy
optimization in process industry, presented on the following pages.

1.1 Background
Pinexo is a commercialization project at Chalmers School of Entrepreneurship, class of 2013. The three
business developers received the idea and an initial version of the software from the process consultancy
firm TecNet Nordic AB, which in turn based their development work on research coming out of Chalmers
in the period 1995-2001. The project is supported by Encubator AB, Chalmers venture creation partner.

1.2 Vision and Mission

We enable a more sustainable process industry.

In order to reduce energy consumption in the process industry, Pinexo develops and
offers user-friendly tools and services to industrial plants and consultants.

1
2

Industrins Energianvndning 2011, Statistiska Centralbyrn

Miljrapport 2011, St1 Refinery AB

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2 Idea
2.1 Need

Lack of resources and knowledge

The production industry is the most energy intensive sector in Sweden, accounting for roughly 25 % of the
total energy consumption3. Within this sector, the heavy process industries such as pulp/paper, refineries
and metal production stand out as extremely energy intense with energy accounting for 12,5% of direct
production costs4. Rapidly increasing demands on profitability, stricter legislation and a growing focus on
environmental performance in the market put a large pressure on process industry companies to lower
energy consumption.

Energy intensive industry that

seeks to lower consumption

Methods for lowering

energy consumption

Figure 1 - Identified barrier for fulfilling need of energy optimization

Well-established methodologies such as Pinch have proven to drastically lower energy consumption in
numerous installations for the past 40 years. However, these methodologies are often disregarded because
of their great complexity and resource requirements that lie outside of core operations. This means that
optimization projects with large potential savings in energy consumption and costs are left completely
unexplored.

2.2 Offer
Pinexo offers the first truly user-friendly tool for energy optimization in the process industry. The
software takes data from the facility and lets the user quickly generate suggestions on how to optimize or
rebuild the process in order to generate maximum potential savings in energy and costs. Through utilizing
an intuitive interface and novel algorithms for cost calculations the software can instantly generate
detailed suggestions complete with investment analysis that previously required weeks of work and expert
knowledge to perform.

3
4

Industrins Energianvndning 2011, Statistiska Centralbyrn

Energimyndigheten, 2012

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2.3 Business Model

The software will be sold as a user/year license to process industry plants and consultancy firms working
with energy optimization. By utilizing our network of experts within the field we can provide our
customers with all technical knowledge and services required to create a full energy optimization solution
for the customer.

Figure 2 - Business Model

2.3.1 Alternative business models

During the initial work with securing partners for the proof of concept, a few items has become clear:

Many plants will not be interested in leasing a software tool, as analyses are usually one-off
events (as proposed in our Risk Analysis in Chapter 7).
Most customers, consultants and plants alike, will not have enough knowledge in-house to
perform the required data extraction nor evaluate the proposed solutions.

As such, we are in the process of evaluating alternative business models. A board decision has been made
to re-evaluate and make a decision upon these after we have secured proof of concept and as such have
even more knowledge about our customers.
Alternative 1: Pinexo as a niched consultancy
Pinexo will sell energy analysis of heat
exchanger network to plants and consultants, as
a niched consultancy firm. Consultants will use
our expertize as part of a larger project with their
customers, while the plants might take us in to
look at a specific project in their own pre-study
phase. We will use the Pinexo tool as an internal
consultancy tool, enabling us to make good

Figure 3 - Alternative Business model 1

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2013-05-14

margins on our services. We will either build up our own in-house expertize or secure an even closer
collaboration with our existing technical collaboration partner CIT Industriell Energi AB.

Alternative 2: Targeting Consultants with tool and educational packages

Another options is to offer the tool as proposed
in our current business model however, we
will mainly target consultants operating (or
wanting to operate) within energy analysis and
optimization. Together with the tool we will
offer packaged educational services, enabling
the consultants to perform heat exchanger
network analyses themselves. This is an
Figure 4 - Alternative Business model 2
especially
interesting
business
model,
considering the intention of expanding globally. A global sales group is expensive to build, and through
targeting consultancies that often already exists on the international arena we can utilize this network for
an expansion.

2.4 Competitive Advantage

Detailed and automated investment analysis By utilizing a novel algorithm developed by

leading researchers, the software can take into account all costs related to performing the
suggested optimization. It automatically analyzes all possibilities to find a small number of
suggestions that are the most profitable and realistic to perform. The result can then be taken
directly to the detailed planning stage. Existing solutions can only take basic costs into account
and also requires the user to generate suggestions, which increases both time required and the risk
that optimal solutions might not even be uncovered.
User-friendly Where existing solutions are highly complex and require knowledge in both base
technology and the specific software, Pinexo is so simple and intuitive that no education or prior
experience is required besides knowledge of the production process. This drastically lowers costs
for education and reduces implementation time.
Accessible and secure Being a web-based cloud software, Pinexo ensures that the user always
has the latest version and completely eliminates resource requirements for installation, updates
and decommissioning. High level of data security through automated back-ups and bank-level
encryption ensures our customers data is kept secret and securely backed up.

3 Organization
3.1 Company
Pinexo was created in collaboration between Chalmers and TecNet Nordic AB in mid 2012 and is
currently being developed within Chalmers venture creation partner company, Encubator AB. The

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venture creation project is located at Encubators office space in Gothenburg and is being managed by 3
business developers as a master thesis project for their education in Business design and Entrepreneurship.

3.2 Business Team

The three business developers in the Pinexo business team each add a diversity of skills to the project and
handle all day-to-day activities. The team members contribute with consultancy and start-up experience
from, among others, IT-projects in Silicon Valley, technical consultancy, product development and
innovation processes.

3.3 Technical Team

In addition to the business team we have a team of software developers based in Moldavia, FusionWorks,
working on the software development on a consultancy basis. In addition to FusionWorks, we also have
two consultants that are working on usability and user interface programming. Furthermore, we recently
broadened the team with a technical developer, Amin Mehdipoor. Amin works full-time with the R&D
development and technical aspects in customer projects. All members of the technical team have solid
working experience in their field and work closely together with the business team to develop the product.

3.4 Board
The board consists of interim chairman Jan E Liljeqvist, representing Encubator AB, and Gte Nordmark
from TecNet Nordic AB. Jan has over 30 years of experience from working with strategy and business
development in companies such as Ford and Boeing. Gte has a deep insight of the process industry from
large corporations and also as CEO and co-founder of the technical consultancy firm TecNet Nordic AB.
Pinexo is currently searching for a chairman of the board with strong experience from the process industry
and suitable leadership profile to develop the venture further.

3.5 Ownership Structure

Pinexo is a venture creation project within Encubators incubation model. Encubator AB and the idea
provider TecNet Nordic AB own a large part of the shares respectively. The business developers own a
smaller portion of the shares but will retain a larger portion if they stay on the project after the summer
2013. Ownership in the limited liability company to be created is thoroughly regulated in a contract
between the parties mentioned above.

3.6 Collaboration Partners

Pinexos main collaboration partners are pilot customers in the process industry, governmental financing
agencies in Sweden and leading researchers at Chalmers.
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In December 2012 Pinexo established a collaboration with CIT Industriell Energi AB, managed by one of
the worlds leading experts within Pinch analysis. CEO Per-ke Franck acts as technical advisor for
Pinexo, which adds additional technical insight to the project and also substantially increases credibility.
Arla Foods, BIM Kemi and ABB are the leading development partners to Pinexo and one pilot project has
been initiated in Q2 2013. These development partners and test projects will provide Pinexo proof of
concept, deep market/customer insights and create an initial foothold on the market.
Pinexo has received grant financing from Vinnova, Almi and DinEl, which has secured the projects
expenses up until Q3 2012. Pinexo has also established collaborations with Innovationskontor Vst and
Innovationsbron for soft funding at a later stage.
For a detailed list of Pinexos collaboration partners, see Appendix 2.

4 Technology
Process industry plants need to run their processes at
different temperatures at different stages. Where the
processes need to be cooled, water or air is put into the
system and when heating is needed steam or hot water is
applied. Both these utilities are costly and thus the aim is to
minimize their use by running more efficient processes. Heat
exchangers are placed where two streams can transfer heat
so that target temperatures can be reached and external
heat/cooling sources can be eliminated. The benefits of heat
exchange are reduced energy consumption, less waste of
heat, minimized costs, lower dependence on fossil fuels, less
components and less emissions.

Figure 5 - Waste energy in proces industry

However, when the process requires 5 or more heat exchangers, the efficiency and cost becomes greatly
dependent on the configuration of the system and optimized layouts are difficult to calculate. Since most
industrial plants contain more than 5 heat exchangers the optimization process is a frequent challenge.

4.1 Pinch Analysis

Pinexo is developed in close collaboration with professors and engineers and is based on the wellproven methodology Pinch analysis. Pinch was developed during the 1970s at ETH Zrich and University
of Manchester and is a systematic methodology based on thermodynamic principles used for energy
savings in industrial sites. By analyzing all hot and cold streams in an industrial site Pinch analyzes the
current energy usage and identifies appropriate changes in the placement of heat exchangers so that energy
can be saved. The method has its largest use in suggesting new designs to be able to reach optimal energy
levels. Pinch technology has been developed and refined in the academia for 25 years and has shown to
reduce total energy costs with 10-35 %5, depending on industry.

Chalmers Industriell Energi AB, 2012

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The aim of a Pinch analysis is to find out which streams can be matched in other to reduce energy
demands by heat exchange. Below you can find the basic steps of the Pinch methodology, which the
Pinexo software builds on.

Figure 6 - The basic functionality of a Pinch analysis

1. Collect stream data, such as heat capacity flow rate as well as start and end temperatures.
This enables a representation of the plants current design.
2. Plot the streams to calculate the so-called Pinch temperature, and split the system into two
subsystems at that specific temperature. This illustrates the current thermodynamic characteristics
of the whole system.
3. Line up the streams in each of the two subsystems and calculate their heat demand.
4. Combine hot and cold streams were heat exchange is possible.
The input for a Pinch analysis is the thermal data for the streams of an industrial site, such as heat capacity
flow rate as well as start and end temperatures. Streams are then divided into hot or cold streams,
depending on the increase or decrease of temperature, and their energy demands are identified. By
splitting the system at a specific optimal temperature, the pinch temperature, the streams suitability for
exchanging heat is identified and calculated. The two new systems, above and below the pinch, makes it
possible to identify the optimal internal heat exchange and calculate the minimum amount of external

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heating or cooling that needs to be provided to the system. The comparison between the new optimized
design scenario and the current energy usage provides the quantity of energy saved, which compared to
the costs of the reconstructing conveys the net profit of the investment.
There is a lot of research going on in the field of cost connected to pinch analysis on industrial sites. The
main problems are connected to the investments already made in the current facility and how to use the
current heat exchangers in the best way possible so costs can be minimized.
Pinexo is unique when it comes to cost calculations for reconstruction
designs, also called retrofit projects. The software handles reconstruction
situations of heat exchanger network designs based on the novel Matrix
method. The method, which is developed at Chalmers University of
Technology, identifies heat exchangers that are wasting energy and
systematically goes trough all the possible alternatives of costs to create a
Figure 7 - The Matrix Method

better design and identifies the optimal solution for the current site.

The Matrix method goes trough every possible match between streams and
calculates the total costs needed for all alternatives, displayed in a matrix, seen to
the left. It then chooses the best match and calculates a new cost matrix for the
remaining alternatives, as the choice of one match affects the cost of the others.
The process is repeated until all the best possible matches are identified. By
doing it in this systematic process the optimization is able to prioritize solutions
with the highest potential savings and lowest total cost. Therefore the Matrix
method is unique in the degree it takes the current plants resources and related
costs into consideration and delivers the most cost-effective and accurate
optimization method for heat exchanger networks. This method is not available
in any software available today and is unique for Pinexo.

Figure 8 - Effect of Tmin

4.2 Software Solution

Utilizing the methods described above, the Pinexo software can process data from a plant to generate
rebuild suggestions complete with cost calculations and economic data such as payback rates. It is focused
on user friendliness and simplicity while giving complete and accurate suggestions, taking into account all
major cost parameters. Data is extracted from the plants control system or simulators, adding missing
data when necessary, and uploaded to the Pinexo tool in an excel file.
The development of the current product can be said to have started with Pro_pi, a VBA excel add-on
written in 1995 by Per-ke Franck, which was taken into the VBA excel program Matrix.xla a year later
by the same author together with Annika Carlsson. In 2001 the thesis worker Claes Andersson wrote an
automation routine for this program. Later he used this concept as the basis for a C# program called
HexaTec, developed as part of his work at TecNet. The code was ready in 2004, but no further efforts
were put into commercializing the product.
In 2012 the Pinexo team took over, and it was decided to do another rewrite of the software. A Java
Backend with a database structure, with an API towards a HTML5 UI was deemed more applicable for the
envisioned web application, concerning both the definite need for a new UI, the enhanced security aspects
of splitting up the backend/frontend, the current state of the code and the need for scalability of the
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product. The reprogramming of the backend and the development of a new UI took place winter
2012/early 2013 and while development work is ongoing, a solution ready for use and testing was released
on a commercial server February 2013.
In terms of functionality, the Pinexo software displays the energy savings in both energy amounts and
money saved but also provides the user with suggested actions to make the implementations for reaching
the optimal energy level for the facility. The software includes costs on reconstructions and components
needed, which provides the user with a full analysis of the costs.
Pinexo can include the costs of: Heat exchanger area, Piping, Pressure drop, Type of heat exchangers,
Material requirements of heat exchangers, Space requirements and Maintenance. This detail level of
investment analysis in unsurpassed in any existing solution on the market.

4.3 Proof of Concept

As this product has seen previous shapes through the years, several proofs of concept have already been
obtained however, none that is directly applicable to the current software version.
Pro-pi and Matrix.xla have been tested and verified by both Master and PhD students in Sweden and
globally, both at a theoretic level and in practice in industry.
In 2004, as the original HexaTec software was finalized, a pilot test was performed at Sdra Cell, a pulp
mill in Vr, Sweden. The pilot study showed promising results but due to lack of resources at the time
the project was put on ice.
Pilot Studies will be performed the summer of 2013 to obtain proof of concept and valuable customer
feedback for future development. The initial Pilot Studies will be performed with:

Arla Jnkping dairy plant, shipping 700.000 liters milk daily. The test project was initiated
early May 2013.
BIM Kemi, Stenkullen specialty chemicals manufacturer. We have been granted access to their
plant when needed, and maintain a close relationship with them. When Arla is closing in on
completion we will focus on BIM.

An example of a pilot study plan can be found in Appendix 3.

4.4 Competing Technologies

The most widely used method for analyzing the heat exchanger network and identify better solutions
today is benchmarking towards existing plants. Access to other plants heat exchanger layout, system data
and energy situation gives a point of comparison and better layouts can be imitated. This method only
brings value to designing new plants, where a plants efficiency could be mimicked. As every plant is
unique and the method doesnt take current plants investments or facility- and process limitations into
consideration, it is not suitable for reconstructions of existing plants. Even in the new design situation the
method is inadequate as it only provides a relative analysis and dont provide a full analysis that includes
the best theoretical solution possible.
A smaller portion of industrial firms has come further than the others in their energy efficiency efforts and
is working with Pinch. Process engineers that have studied or previously worked with Pinch technology
are able to analyze and optimize heat exchanger networks without any tools but are then limited to the
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number of heat exchangers, as the work quickly gets very complex. After 10 streams, corresponding to 5
heat exchangers, it is considered best to use software tools and after 20 streams (10 heat exchangers) it is
considered too complex for manual work. Another limitation is the time used for performing manual
Pinch analysis as it takes a fraction of the time if the process is automated.
A number of software providing optimized Pinch solutions are on the market today. They vary in the
degree of integration with other process software and the possibility to estimate reconstruction costs of
new and current plans. For more details, please see Chapter 5.3, Competitors.

4.5 Intellectual Property

4.5.1 Current assets
Our most important intellectual property is our software. The older HexaTec software is not patentable,
as it has been shown publically destroying novelty and is also closely related to well-published academic
material. The current redevelopment of the software could be made patent claims to, and we will keep a
tight lid on the development and use NDAs extensively however, because it is still closely related to the
previous versions, obtaining a patent either in the US or Europe is still very unlikely. For the current
version we are thus dependent on a black box solution, keeping our code and algorithms a trade secret.
This is enabled through offering the software as a web application as described in the business model. The
software will be built with back and front end (where the magic happens and the user interface) entirely
separated, communicating through an Application Programming Interface (API).
Our most prominent selling point is user-friendliness and intuitive software, and thus our brand will be an
important and necessary intellectual asset. We are already using a TM by our name to indicate our
intention to protect it. A solid graphic profile and communication strategy ensures that all exposure of the
brand is done in alignment with our core values.
The old software code will be transferred with incorporation per the collaboration agreement with TecNet.
Whenever we engage external developers for product development we make sure that we transfer the
copyright of the code they are writing, this will be a necessity for all consultancy contracts. The TM and
domain belongs to Encubator and will be transferred to Pinexo upon incorporation, so there are no 3rd
parties that can make claims.

4.5.2 Intellectual Property Strategy

As new features and ideas are being developed continuously in the project, there is a potential for securing
more intellectual property rights besides of the copyright for the future. We have decided to continue
keeping a tight lid on our software so that we ensure novelty is not destroyed. We have initiated contact
with a well-reputed Gothenburg based IP lawyer and with the future development we will stay in close
touch with him to evaluate whether any of our inventions (one in particular) may be patentable in the US,
Europe or both.
We are aware of that software patents do not give absolute protection. It is however important for us to
secure intellectual property rights besides the obvious copyright, as this may be of great importance for
potential investors in the future.

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5 Market
5.1 Market Segment
5.1.1 Initial Market
Our market is the production industry, and our main segment is the process industry. We will initially be
targeting process industry plants and the consultants offering energy optimization services to these, in
Sweden. Any plant that has more than 5 hot and 5 cold streams are applicable for an analysis using
Pinexo. Sweden is chosen as launch market because of the geographical and cultural closeness to pilot
customers, high level of energy awareness within the process industry and closeness to leading base
research at Chalmers.
Based on the in-depth market study performed during spring 2013, indications have been identified
pointing to an initial target segment of niched small consultancy firms offering energy analysis to plants or
other consultancies. These small firms will have sufficient in-house capabilities to efficiently learn and use
the tool, they do not have as complicated purchasing processes as the large companies, and they are more
adaptive to new technology.
Targeting this segment awaits initial results from the proof-of-concept along with a board approval. The
next steps will be to perform targeted sales to confirm the results of the market study.

5.1.2 Next steps

When an initial customer base has been established in Sweden we will be looking towards Germany,
which is close geographically and culturally. By building up a customer base in Germany, global
applicability can be proven and a strong foundation for further global expansion is built.

5.2 Market Research

There are 350 process industry plants in Sweden with 20 or more
employees, and around 280 consultancy firms with 20 or more
employees serving these6. The number of employees is the best
quantitative variable that has been found in order to quantify the
potential market. It has been found so far to correlate roughly with
the company size required to be of interest for our software.
The Swedish Production Industry had a turnover of 470 billion
SEK in 2010, which amounted to 30% of all Swedish exports6. In
2006, the Swedish process industry spent on average 12,5% of Figure 9 - IVA's rough estimation on direct costs
for plants in the process industry
their direct production costs on energy7. Another interesting fact is
6
that this industry spent 2.8 B SEK on IT services in 2011 .
Continuous discussions and meetings are held with potential customers, researchers and industry experts
to ensure that project decisions are based on the most relevant market information. The feedback we
receive has been very positive. We have also experienced repeatedly that people in industry who knows
6
7

Statistiska Centralbyrn, 2012

kad konkurrenskraft for svensk processindustri, Kungl. Ingenjrsvetenskapsakademien (IVA), 2006

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Pinch, usually former students from Heating Systems Engineering or Chemical Engineering at Chalmers,
say I had that idea once. Had I not been in my current job Id have worked on my own making a software
like this.
Looking towards an international market, we initially intend to target Germany. The German Process
industry had revenues of 307 billion in 2011, amounting to 13% of the global market8. It is also worth
noting that 61% of German energy consumption comes from gas, oil and coal8.

5.3 Competitors

User-friendly IT
No Pinch expert
required
Cloud based
Integration with
simulation
software
Substantial cost
analysis
Freestanding
software
Closeness to
academia
Market focus
Price in SEK

Pinexo

Super-Target

AspenTech

Hextran

PinCH

ProSim

Switzerland
19.000

France
Unknown

Sweden
85.000

Europe
229.500

Global
224.000

Asia
Unknown

As can be seen above, our closest competitors in the high-priced segment are SuperTarget and AspenTech,
which both forms part of a larger control system and requires installation of these to run. SuperTarget also
requires deep knowledge of Pinch.
Looking towards the less-functionalities and lower-priced end of the market, our main competitor is
PinCH, offering a low price license for a basic feature set. As this software too does not require
installation of a control system, these can be said to be our closest competitor. However, they are steadily
anchored in Switzerland, offering cost analysis only in Swiss Franc and with a no global marketing
efforts. The product also requires Pinch knowledge and lacks extensive cost analysis. By offering
significantly better functionality, building a strong brand and a utilizing strong marketing strategy we will
be able to compete well against this low-priced player.

Germanys Chemical and Related Process Industry 2011, Germany Trade & Invest

12

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Pinexo
2013-05-14

5.4 Substitutes
Consultants in the industry as well as larger plant corporations may have developed their own software for
energy optimization. A common way to do this is to benchmark the efficiency of one plant compared to
others. As every plant is different, and you do not know how energy efficient they are in the first place,
this obviously does not give great results, and substantial rebuilds based on this are not common.
Another substitute is experience. However, in an industry where margins diminish and efficiency is key,
being able to quantify your decisions are more and more important, and this you cannot do with
experience.
A third important substitute is the obvious not acting. Plants can very well choose to improve their
production process without focusing on energy. With the steep increase in focus on global warming and
our common responsibility the past years, however, we see this trend declining but some parts of the
industry are definitely more conservative and slow moving than others.

5.5 Value Potential

Pinexo provides the customer with a smart tool for finding and initiating optimization projects that save
energy and costs. Pinexo provides analysis of the current energy situation as well as suggestions for future
heat exchanger network design with an optimal trade-off between energy savings and investment
equipment costs. By using Pinexos software the customer finds new cost effective designs that reduces
their energy costs whilst the prior investments in expensive equipment is taken into consideration. The
design proposals are delivered with an implementation guide for the reconstruction as displayed
investment costs, potential savings and payback-time of the project.

5.5.1 Process Industry Company

By using Pinexos intuitive and user-friendly tool process engineers can now identify new lucrative
redesigns in a time efficient manner, without investing time in learning the software. The redesigns are
delivered together with an economical analysis (where the energy savings, investments costs and the pay
back time is calculated) with an implementation guide for the reconstruction.
Main values provided by Pinexo

Enables in-house engineers to review energy optimization opportunities quickly and continuously
for all parts of the production process.
Generates payback scenarios for all possible projects and pick the most profitable ones at every
investment opportunity.
Generate optimization suggestions and investment analysis that lead to projects actually being
implemented instead of put on hold because of complexity.

Successful reference projects

Pinexo is a new tool based on a well-established and tested methodology, Pinch. The method has been
used to generate substantial energy and capital savings in the process industry for hundred of new and
retrofit designs during the last 30 years. Following examples are successful projects:

13

Business Plan
Pinexo
2013-05-14

BillerudKorsns, Karlsberg Sweden

Type:
Summary:
Annual savings:
Payback time:

Partly integrated pulp and paper mill

Elimination of steam users below pinch temperature by reconfiguration of
the heat exchanger network.
740 000 EUR/year
12 months

Preem Refinery, Gothenburg Sweden

Type:
Summary:
Annual savings:
Payback time:

Crude oil refinery, retrofit project

Identification of internal heat recovery potential and energy savings trough
pre-heating of a number of streams.
6 250 000 EUR/year
6 months

5.5.2 Technical Consultant

The technical consultancy firm serves several customers in Sweden and Europe with energy optimization
services. Currently, the energy group uses AspenTech licenses at 229.500 SEK/year and manual
calculations to perform energy optimization pre-studies and suggestions. These typically take 3 manweeks per project to perform.
Main values provided by Pinexo

Substantially reduces time required to perform analysis through automated calculations. This can
greatly increase profitability and free up time to work with other projects.
Enables continuous sharing of optimization suggestions to the customer and subsequent
modifications can be made to generate fully implementable suggestions.
Can be used as a sales tool: when performing one type of service for a process industry
customer, already available data can be quickly uploaded to Pinexo in order reveal energy
optimization possibilities for the customer that can generate more service sales for the consultancy
firm.

Customer case example

The consultancy firm wins a project to perform energy optimization studies of the heat exchange system at
a pulp mill. With data available from the customer, consultants can quickly start generating optimization
suggestions that are continuously shown and discussed with the customer to capture all aspects of a
possible rebuild. A list of 5 different rebuild suggestions complete with investment analysis is delivered
on time to the customer, which chooses to continue detailed evaluation of two of them. Since the project is
charged at a fixed price and Pinexo eliminates a substantial amount of calculation time that was
previously required, the profitability of the project is greatly increased. At half of the price of an
AspenTech license, significantly higher value has been created for both the consultancy company and
their process industry customer.

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Pinexo
2013-05-14

5.5.3 Societal Value

Apart from the values created for Pinexos customers, reducing energy consumption also creates
substantial societal value. This is accomplished by providing the customers with a tool that can reduce
energy consumption and thereby decrease pollution and emissions of greenhouse gases. By better usage of
the heat supplied to the processes the industry can reduce their demand of oil and gas and limit the
dependence of fossil fuels. Diffusion of Pinexo and similar tools can help companies, regions and
nations to meet stricter environmental legislation and help make energy and environmental issues a natural
part of corporate strategy and operations. Companies that find energy savings can distribute energy to the
district heating system. By providing the society with additional heat sources end consumers energy prices
can be lowered and stable during seasonal variations.

5.6 Sales Strategy

Being an early stage venture, sales is an integrated part of the development process. Current efforts are
focused at initiating collaborations with potential customers where customer learning can be directly
translated into the software development process. Letters of intent are used a tool to set general frames for
the collaboration, and when detailed testing commences project documents are used to thoroughly specify
tasks, responsibilities and payments. The goal of each collaboration is to turn the development partner into
a paying customer upon completion of the first commercial version of the software.
The commercial sales strategy envisioned for Pinexo consists mainly of direct sales towards potential
customers, targeting plant managers, maintenance managers or process engineers. With a sales pitch
focused on reducing environmental impact, the aim is to visit the customer at their plant to find out further
about their needs and specific operations. If a good relationship can be established, the potential savings
by using Pinexo will be highlighted by using reference projects for similar customers. Through sales
work conducted so far, the following key findings have been made:

It is important at all stages to learn about the customer and continuously adapt the communication
around Pinexo so that it matches the long-term strategy of the customer.
Using joint R&D projects is a good way to earn acceptance at the early stages of development
where little or no proof-of-concept data can be shown.

Sales efforts can and will be accelerated through expansion of the sales force. Web marketing and fairs are
seen as strong complementary channels to generate sales and will be expanded continuously.

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Business Plan
Pinexo
2013-05-14

5.7 Marketing Plan

Time Period
Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014

Actions
Develop segment specific marketing material and communication strategy
Study the market to identify the initial market segment for the commercial
version.
Perform marketing strategy litmus tests to verify the accuracy of our
communication.
Actively participate at the Pinch conference International Process Integration
Jubilee Conference 2013.
Package results from pilot project 1 and focus on marketing towards Early
Majority.
Targeted marketing with focus on sales.
Actively participate as exhibitors at VA-mssan and ProcessTeknik 2013
Package results from pilot project 2 and focus on marketing towards Early
Majority.
Develop marketing strategy and material for the German market.
Package results from pilot project 3 and focus on marketing towards Early
Majority.
Conduct market research on the German market.
Initiate collaborations with Swedish universities for introduction of educational
version.
Hire sales manager and increase direct sales efforts.
Introduce product on the Swedish educational system, two universities.

6 Action Plan
On the following page you can see Pinexos action plan from Q2 2013 to Q3 2014. During this period
Pinexo plans to verify the market need, establish contact with relevant companies, develop the software
solution and perform three pilot studies to test the prototype and get a proof of concept.

16

Business Plan
Pinexo
2013-05-14

Figure 10 - Action plan

17

Business Plan
Pinexo
2013-05-14

7 Risk Analysis
Impact
1-5

Probability
1-5

Mitigation Actions

Our tool is a one-off analysis and we

achieve no repeat purchases

Not enough end customers in the chosen

segment and market price

Customers do not have faith in the

technical quality of the product
Data extraction process difficult and/or
time consuming

Customers deem web solution not secure

enough for sensitive data upload

Bugs, unstable product - main risk in data

authorization and user access
Customers are not willing to pay for the
supplied functionality

Targeting consultants
Develop alternative features and services for
lock-in
Target markets as consultancy firms or heat
exchanger manufacturers. Consider change of
business model, possibly to shared savings or
freemium model.
Solid proof of concept and dedicated
communication around it
Educate customers on the data extraction
process or sell the service. Recruit those
competencies to the project.
Pick Cloud Service Provider with focus on
safety to leverage their policies
Push security issues in marketing and sales
Develop product as desktop software as Plan B
Test Plans made in parallel with development

Risk

Communicate benefits of product clearly

Continuously develop features requested by the
customers

Miljontal

8 Finance
35
Income

30

Costs

25

Cash Balance

20

Cashflow

15
10
5
0
- 5
- 10

2013!

2014!

2015!

2016!

2017!

- 15

18

2018!

2019!

Business Plan
Pinexo
2013-05-14

The above diagram shows estimated income, costs, cash balance at end of year and cash flow for the
coming 7 years, excluding financing events. For detailed data and assumptions, please refer to Appendix 1
Finance.
Revenues stem from sales of licenses for the Pinexo software. Staff costs amount to 85% of the total
costs and the main costs linked to the growth is additional salary costs for sales staff and developers. The
cash balance at the beginning of 2013 was 490 000 SEK. Encubator provides office space and related
resources during the first half of 2013. Soft funding has been received from VINNOVA, ALMI,
Gteborgs Energi and Encubator. Opportunities for soft funding are reviewed continuously and
discussions with Innovationsbron have been initiated for verification grants and possibly also equity
investment.

8.1 Pricing Strategy

Pinexo utilizes a value-based pricing strategy based on performance factors. Interviews with potential
customers, industry experts and analysis of current ways of working have generated a list of 120
performance factors. These have been compared to competing solutions in order to identify factors where
Pinexo performs above, equal or poorer than competing solutions. By quantifying each factor a reasonable
price relative to competitors can be set. Additionally, by performing this analysis the sales efforts have
been strengthened greatly by being able to show key factors where Pinexo outperforms competitors and
also how these factors can be translated into quantitative value for the customer.
The market introduction price for the Pinexo tool is 85.000 SEK per user and year. Please refer to
Appendix 1.2 Pricing for more details on the pricing strategy.

8.1.1 Alternative business model pricing

As described in Chapter 2.3.1, we may need to pivot our business model based on our findings during the
proof of concept.
If we go for Pinexo as a niched consultancy, we will offer a pre-defined pricing depending on the size
of the plant, the amount of available data and the level of participation by the plant themselves. The
pricing strategy might be value-based, for example related to potential savings, or based on estimated
number of hours per project.
If Pinexo is a tool and educational packages sold to consultants, we will charge for the tool as described
above, plus fixed prices for the educational events and material.

19

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Pinexo
2013-05-14

8.2 Exit Strategy

We aim at providing our shareholders with a profitable exit. Depending on the time of transaction, we are
working with the three scenarios below.
Time span
Type of transaction
Parties involved

Critical success factors

to enable exit

2-5 years

5-7 years

7-10 years

Acquisition

Second stage equity

investment

Initial Public Offering

(IPO)

Competitor with similar

offering or consultancy
firm within energy
optimization

Late stage venture capital

entity

Public stock exchange for

small companies,
primarily in Sweden

Strategic fit with buyer

Strong and stable growth

High perceived threat

towards incumbents

Profitable business model

Demonstrated ability to
stay innovative and
competitive

Proof-of-concept

Demonstrated scalability
and global potential

Positive cash flow

Large potential for strong
further growth globally

Awareness of Pinexo
among competitors and
global market

20

Business Plan
Pinexo
2013-05-14

Appendix
Appendix 1 Finance
Cash flow excluding
financing activities
(SEK)

2013

2014

2015

2016

2017

2018

2019

Income
Software sales

255 000

680 000

1 700 000

3 740 000

7 480 000

14 960 000

29 920 000

20

44

88

176

352

167%

150%

120%

100%

100%

100%

255 000

680 000

1 700 000

3 740 000

7 480 000

14 960 000

29 920 000

- 409 200

- 409 200

- 818 400

- 818 400

-2 046 000

-3 069 000

-4 092 000

Salary management

- 204 600

- 818 400

- 818 400

-1 636 800

-3 069 000

-4 603 500

-6 138 000

Management staff

12

Sales and marketing

- 14 400

- 28 800

- 57 600

- 115 200

- 230 400

- 460 800

- 921 600

General & Administrative

- 57 300

- 118 038

- 121 579

- 125 227

- 128 983

- 132 853

- 136 838

- 235 376

- 389 453

-1 386 967

Total number of licenses

Revenue growth
Total income

Costs
Salary developers
Development staff

Corporate tax

25 515

Total costs

- 685 500

-1 374 438

-1 815 979

-2 670 111

-5 709 759

-8 655 606

-12 675 405

Net cash provided by operating

activities

- 430 500

- 694 438

- 115 979

1 069 889

1 770 241

6 304 394

17 244 595

490 000

59 500

- 634 938

- 750 917

318 972

2 089 213

8 393 607

59 500

- 634 938

- 750 917

318 972

2 089 213

8 393 607

25 638 202

2014

2015

2017

2018

Cash and cash equivalents at

beginning of year
Cash and cash equivalents at end
of year

Key figures

2013

Average monthly costs

- 57 125

Market introductions

Sweden

Financing need

200 000

- 114 537

2016

- 151 332

- 222 509

Germany

Global

800 000

21

- 475 813

- 721 300

2019
-1 056 284

Business Plan
Pinexo
2013-05-14

Input data
Revenues
Price per license
Salary costs incl taxes
Category
Developer employee
Management employee
Sales and marketing (initial)
Category
Printed material
Events
Web marketing
G&A costs
Category
Office rent
Telephone
Internet
Office material
Representation
Transports
Insurance
Consultants/legal advice
Cloud hosting

85 000

per year

Per month
34 100
34 100

Per year
409 200
409 200

Per month
200
500
500
TOTAL:

Per year
2 400
6 000
6 000
14 400

Per month
5 000
100
250
100
600
1 000
500
1 000
1 000
TOTAL:

Per year
60 000
1 200
3 000
1 200
7 200
12 000
6 000
12 000
12 000
114 600

Key assumptions

Key staff will accept a gross salary of 20 000 SEK/month in exchange for ownership stake in the
company. This will only include key personnel employed the first three years. After this, salary
levels will be adjusted up by 25%.
Encubator will sponsor office space and related administrative costs until the end of June 2013.
No fixed assets will be acquired.

22

Business Plan
Pinexo
2013-05-14

Appendix 1.2 Pricing

In the table below is a summary of the four main competitors for Pinexos software and a short version of
the price analysis performed to set the initial price for Pinexos initial software product.
Pinexo 2.0

AspenTech
Energy Analyzer

KBC
SuperTarget

HEXTRAN

General description

Stand-alone cloud
application

Full control and

engineering
system suite with
Pinch analysis
module

Specialized Pinch
analysis software
that works in
integration with
simulation
software

Full control and

engineering
system suite with
Pinch analysis
module

Stand-alone
desktop
application

Main advantages

User-friendly (no
education
required)

Market leading
position

Market leading
position

Part of a larger
software suite

Part of a larger
software suite

Many reference
projects

Strong add-on
consultancy
services

Strong support
and add-on
services

Strong add-on
consultancy
services

Standard feature
set for simpler
analysis

Strong presence in
US

Expert level
calculation
features

Automated
optimization
calculations
Detailed cost
calculations
Fully compatible
on all platforms
No installation or
costs for
ownership/decom
missioning
Main drawbacks

Expert level
calculation
features
Includes advanced
heat exchanger
design features
Strong presence in
Asia

No/few reference
projects

Highly complex
to use

Highly complex
to use

Highly complex
to use

Currently no/few
add-on
consultancy
services in-house

Complex
installation
process

Requires separate
simulation
software to run

Complex
installation
process

Requires full
installation of
system suite to
run

Manual
optimization
calculations

Requires full
installation of
system suite to
run

Lack of
integration with
existing control
systems
Lack of expert
level manual
calculation
features
Lack of
documentation
and literature
Price per user and
year (SEK)

Strong presence in
UK

85 000

Only basic cost

calculations

Manual
optimization
calculations

Requires special
training

Manual
optimization
calculations

Only basic cost

calculations

Only basic cost

calculations

Requires special
training

Requires special
training

229 500

224 400

23

PinCH

Unknown

Complex to use
Only basic cost
calculations
Economic data
only in Swiss
Francs
Market presence
only focused on
Switzerland
Driven only as
part-time project
by researchers

19.000

Business Plan
Pinexo
2013-05-14

Appendix 2 Collaboration Partners, full list

Partner

Role

CITArla
Industriell
Foods Technical
Development
Energi, AB advisor
partner

Collaboration details

Value generated from collaboration

Per-kehas
Franck
is one
of the
lead Pinch
experts
Pinexo
initiated
a pilot
project
at Arlas
in the plant
worldinand
also the creator
of the
Matrix
dairy
Jnkping,
where the
Pinexo
method. Franck
givingPinexo
Pinexowill
valuable
input
software
will be is
tested.
own the
abouttothe
Pinch calculations,
which
is a part of
right
communicate
the results
in marketing
the
softwares
purposes
and ifalgorithm.
the project shows good result
St1s intention is to buy licenses of the product.

Validation
on Pinch methodology
Proof
of concept
Development
Pinch calculations
Test
results forofmarketing
Practical input
on costs data,
extracting data
Feedback
for development
process
on
sites.
More
insight in customer needs
Credibility on technical aspects.

BIM Kemi Development

partner

Pinexo is planning to preform a pilot project

together with BIM on their production plant in
Gothenburg. Pinexo will own the right to
communicate the results in marketing purposes
and if the project shows good result St1s
intention is to buy licenses of the product.

Proof of concept
Test results for marketing
Feedback for development process
More insight in customer needs

St1 Development
partner

Pinexo is planning to preform a pilot project

together with St1 on their refinery in
Gothenburg. Pinexo will own the right to
communicate the results in marketing purposes
and if the project shows good result St1s
intention is to buy licenses of the product.

Proof of concept
Test results for marketing
Feedback for development process
More insight in customer needs

ABB Development
partner

Pinexo is planning to preform a pilot project

together with ABB on one of their customers
plants. Pinexo will own the right to
communicate the results in marketing purposes
and if the project shows good result ABBs
intention is to buy licenses of the product.

Proof of concept
Test results for marketing
Feedback for development process
More insight in customer needs

Pinexo is together with F planning on

preforming a pilot project where F uses the
product on one of their customers plants.

Proof of concept
Test results for marketing
Feedback for development process
More insight in customer needs

Energi- Key opinion

myndigheten leader &
financier

Energimyndigheten is a key opinion leader on

regulations and standards in the energy sector.
They also provide financing for projects related
to reducing energy consumption.

Insight in trends and new regulations

Network
Possible project financing

Vinnova Financer

Vinnova is the Swedish governmental agency

that administers state funding for research and
development. Pinexo has been granted soft
funding for the VINN-verifiering program and
has the opportunity to search for other financing.

Financing
Credibility

Almi Financer

Pinexo has been granted soft funding from

Almi, which is a governmental agency that helps
growth companies.

Financing
Credibility

Innovationsbron is a state owned investment

entity that performs both grant financing and
equity investments. Pinexo is in discussion with
them about both financing forms.

Financing
Credibility

Chalmers is the leading technical university in

Scandinavia. The Matrix method were develop
by Chalmers researchers and is today the main
driving force in the development of Pinch.

Per-ke
Franck Ph.D.

F Development
partner

Innovations- Financer
bron

Chalmers Research and

recruiting

24

Thesis works
Researchers
Credibility
Recruitment

25

the chosen section

A-2.2 Mapping of processes to
produce a simple flowchart over the
chosen section
A-2.2 Collect data for as many
streams as possible within the system.
[Start temperature, End temperature,
Mass flow (F) and heat capacity (Cp)]

facilitys relevant areas

A-1.2 Identification of relevant
section of streams for the test project

Time required by Arla: One person,

2-4 hours

and has in advance thought about

suggestion on relevant section areas
for the project.
R-1.2 Arla: An process engineer that
is familiar with the plants streams
and processes.

R-1.1 Arla: Prepares the guided tour

Responsibility and resources needed

for the analysis

D-1.1 Agreement on chosen section

Time required by Arla: One person,

4-12 hours. Depends on amount of
available data and might be more.

template for data collection

R-2.2 Arla: Delivers items D-2.1 and
D-2.2 in cooperation with Pinexo.

R-2.1 Pinexo: Delivers an excel sheet

Responsibility and resources needed

D-2.1 Flowchart of selected section.

D-2.2 Excel file with stream data.

Deliverables

A-2.1 Identify the streams within

Deliverables

Actions

A-1.1 Guided tour trough the

Step 2

May 15th

Step 2

Data extraction

Actions

Step 1

May 1st

Step 1

Start-up meeting

Project plan for pilot study with Arla

Time required by Arla: None. If data

from Step 2 is insufficient, Arla might
have to spend a couple of hours.

and the delivery of D-3.1.

R-3.1 Pinexo: Responsible for step 3

Time required by Arla: 1-2 persons,

2-4 hours

information about the project and hands

over a report (item D-4.1).
R-1.2 Arla: Makes sure that 1-2
persons interested in testing the
software attends at the presentation
meeting.

R-1.1 Pinexo: Present all relevant

Responsibility and resources needed

Responsibility and resources needed

2 weeks if the data from step 2 is

sufficient.

D-4.1 Project report with test results

D-3.1 Pinexo communicates within

Deliverables

through of software procedure

A-4.2 Software test-session.
Deliverables

A-4.1 Onsite presentation and run

stream data
A-3.2 Simulation and software testing
A-3.3 Creation of project report with
test results

Actions

Step 4

June 10th

Step 4

Presentation

A-3.1 Analysis of flowchart and

Actions

Step 3

June 1st

Step 3

Analysis process

Business Plan
Pinexo
2013-05-14

Appendix 3 Plan for Proof of Concept