Chemunity - Pragmatic Procurement of Chemicals

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	Chemistry on the Internet Arnhem, The Netherlands - February 22, 2000 - How do you put a "world idea" into practice? Two young entrepreneurs can see a future for electronic trading in chemical products. They found financial backing for their plan, which is, according to experts, one of the first realistic ideas for e-commerce in the Netherlands. The web site should be able to process its first orders in two weeks' time. Herman Rijks can still quite clearly recall the seconds when the idea formed itself in his head. As manager for Holland Chemical International (HCI) in Hungary, last summer he took the time to observe closely a group of purchasing assistants. "I watched for 15 minutes", says Rijks (36), "with my hands in my pockets. They were super-busy." The HCI buyers negotiated non-stop on the prices of 350 different chemicals. Calling, mailing, faxing, and then calling again. What is your quote? Is that the most feasible? The pressure of the work and its inefficiency stuck with Rijks. Later, a friend in a cafe told him about the possibilities of the Internet. Finally, on a beach in France, the pieces of the jigsaw fell into place. Rijks sent an e-mail to his boss, the chairman of the board of Holland Chemical. It started with I have a world idea. Rijks wanted to set up a web site where suppliers and buyers of chemicals could do business. An Italian toothpaste manufacturer who needs a truckload of PVC to produce his tubes could announce this in an electronic forum. Potential suppliers would receive an electronic message containing a specific order and just one question - what is your price? "I suggested to my boss that I give up all my bonuses and perks", says Rijks. "In exchange, I wanted ten percent of the share capital in a new subsidiary of HCI which would implement my idea." Rijks was turned down. His plan was geared towards trade between suppliers and buyers of between three and one hundred truckloads per year. As a distributor, Holland Chemical concentrates on smaller customers and wants to continue doing so. "Obviously, a company cannot have all its employees playing at being entrepreneurs", says Rijks. "I understood that." On 1 November last year, Rijks and his current partner Mark-Jan Terwindt (34) resigned from Holland Chemical. Just beforehand, they had reached agreement with the Gilde investment fund and the Optimix investment company on the financing for Rijks' plan. Gilde, the first financier to be approached, was critical but eventually took the bait. "The Netherlands still has few realistic plans for business use of the Internet", explains Toon den Heijer, operational director of Gilde. "Initiatives from people with experience in a sector are even rarer. If these people come up with ideas, we take them extremely seriously." Gilde and Optimix provide five-sixths and one-sixth respectively of the 1.5 million euros, which Terwindt and Rijks expect to spend over the coming six months. In return for the money, the financiers receive a 15 percent equity interest in the company. Another 12.5 percent are reserved for option plans for the 40 to 50 people who will have to be recruited in the months ahead. This leaves 72.5 percent for the entrepreneurs - at least until the next financing round. If everything goes according to plan, another five million euros should be collected from financiers in September of this year. "Pure guesswork", is what both entrepreneurs call the valuation of their idea. "Beginners might get two and a half thousand in exchange for 25 percent of their shares in Gorillapark (an initiative of investor Jeroen Mol). With the 1.5 million euros we started with, we have skipped that first phase", explains Terwindt. "I do not think we have made a bad deal." Terwindt and Rijks are in a hurry. Just before Christmas, their company - ChemUnity - was formally founded. In two weeks' time the web site, www.chemunity.com, should be able to process its first orders. In the mean time, 600,000 euros have been spent on setting up the company, eight powerful computers and the software needed to run the web site. Computer Science Corporation, which developed the computer system for ChemUnity, will only have part of its bill paid for the time being. The rest will follow if the company is successful. "A chicken that lays eggs is contributing to a meal, as they say in America", explains Terwindt, "but the pig that provides ham is committed. A slice is cut from him each time. You have to make sure that the success of your project also serves the enlightened self-interests of your partners." ChemUnity admits that it has pulled even better contracts out of the hat with PC manufacturer Compaq and the American software designer Interworld. Based on interest in the plan, the two partners are making their products available free of charge for the time being. Ten years ago, Terwindt briefly interviewed Rijks and took him on at Holland Chemical. Despite a good deal of foreign travel for their employer, the two kept in touch. Rijks talks in rugged sentences and snippets of American: "it has got to work, you see". Terwindt ("don't come to me for creativity") occasionally completes his partner's disjointed snippets. He has captured the pair's plans in expressive metaphors. He unwittingly quotes former Intel chief Andy Grove when he talks about all the money needed to implement their idea, "We keep changing up into a higher gear. In the distance is a wall; we have to break through it." Until September this year, ChemUnity (still three employees, including its two founders) expects to spend 90,000 euros per month on its major cost items: personnel and marketing. The latter is particularly important. In its initial phase, ChemUnity has to face up to a life-sized chicken and egg problem. Suppliers will only come to the web site if there are enough customers. Those customers will want to do business if there are enough chemical manufacturers to create competition and thus achieve an attractive price. "The greatest challenge for ChemUnity is to pull in sufficient suppliers", says Ad Jan Brouwer of Andersen Consulting. ChemUnity's marketing plan is ambitious. "We want to approach twenty thousand potential customers by telephone within a few months", says Rijks. "We do this from a call centre. People who do not take the bait immediately, but who are interested, will receive a visit. In order to do this, we will be employing sixteen people in Europe, which is where we are starting off in the months to come." ChemUnity has reserved half a million euros annually for advertising in a chemical trade journal and Rijks has something else up his sleeve: "It would be great if we could bring in a member of the board from a major chemical company." What about expertise? "It is pure marketing", says Terwindt. The hunt for customers is particularly tricky for ChemUnity because over the past two years more than a handful of companies in the United States have specialised in chemical trading via web sites. Like the new Dutch company, the competition is recognisable by its .com suffix, as well as predictable names such as ChemMatch, Chemconnect and Chemdex. The American companies can often boast an impressive range of major chemical manufacturers as customers or partners. Earlier this month, Dutch firm DSM announced that it was taking a participating interest in Chemconnect and that it will trade via its web site. "Clearly, the major chemical firms prefer Chemconnect", opines board member Jan Dopper, who specialises in electronic trading for DSM. Is there room for a newcomer? "In this new market, it is often a case of first come, first served. On the other hand, just look at the enormous growth in e-commerce. That offers opportunities." The founders have made contact with major chemical companies such as Shell, ICI and Solvay. Deals have not yet been struck. Nonetheless, they are convinced that they have found a niche in the market with respect to the competition in the US. One by one, American colleagues are ruled out: one targets very large orders averaging one million guilders. "You would pick up the telephone for an amount like that", says Rijks. Another is offering thousands of products and is involved in transactions that are small compared to the truckloads on which ChemUnity is to focus. Yet another offers "no more than a notice board on which you can leave a message, like in Albert Heijn." Brouwer of Andersen confirms that the method of trading that Terwindt and Rijks want to introduce is innovative. What would happen though if one of the more established Americans copies their idea? A brief silence ensues in response - ChemUnity's founders have seen the danger too. Dopper from DSM can see opportunities for the burgeoning web sites, but only in market niches. If DSM has a load of bulk products that it wants to get rid of, the best way of doing so is to offer it for sale via a web site. Major customers will then want to communicate with DSM, according to Dopper, via what is known as an Intranet, a comparable type of technology but in a private network. Customers for a specialist product from a single supplier will also not go to a public web site, but will go straight to the manufacturer, possibly via the Internet. For Andersen, Brouwer comments, "The major chemical companies are of course setting up their own web sites. Customers have less choice there. On the other hand, these chemical giants can provide technical advice over the Internet, for example. If a customer wants to know why the film in which he packs his meat crumples like it does, he goes to BASF, not to ChemUnity." Nonetheless, Brouwer does believe that the new Dutch firm stands a chance if it can hook customers quickly by providing additional services. Rijks and Terwindt are brimming over with ideas. For instance, they also want their customers soon to be able to buy in transport for chemicals via ChemUnity. A contract has been concluded with credit insurer NCM enabling the financial reliability of partners to be guaranteed. Gathering and providing information about the chemical market is another possible crowd-puller. Then there is the future vision. "In five years", Terwindt believes, "we will move towards a system where an order is automatically dispatched when a gauge in the tank of chemicals falls below a certain level." Brouwer points out that large chemical companies are already using this system. "It is more suitable for customers and suppliers working closely together than for an open market with many suppliers." Terwindt and Rijks still hold one trump card: they bought twenty thousand euros' worth of software from Nokia which ensures that the sales staff of large chemical companies will soon be able to receive orders from potential customers on their mobile phones. At a cost of one thousand guilders each, Nokia supplies the required WAP (Wireless Application Protocol) telephones, which make this Internet application possible. The chemical market is huge. Even if the entrepreneurs from Arnhem only manage to attract a fraction of it, they will achieve substantial turnover with their intended two percent share in every transaction. But what if it goes pear-shaped? "We do not have mortgages, we rent our homes", explains Rijks. And on today's labour market, two entrepreneurial thirty-somethings will have no trouble finding new jobs, either in the Netherlands or elsewhere. Terwindt goes on, "Strange, the difference compared to the United States. Over there, they think it is great if you have run five companies into the ground. At least you have tried something." Source: NRC Handelsblad, February 22, 2000 by Michiel van Nieuwstadt