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Deal Radar 2008: Creative Water Solutions

Posted on Wednesday, Nov 26th 2008

Palm, corn and sugarcane may be getting a lot of headlines in the mainstream media as the world seeks alternates to fossil fuels, but as my interview with Glen Kertz shows, a huge variety of plant species can be used in Cleantech solutions. Today’s Deal Radar post discusses another use of plants in cleantech. Creative Water Solutions (CWS) uses sphagnum moss as a natural agent to condition, clean and clarify the water of swimming pools, spas and hot tubs. The company has two products available on the market – SpaNaturally and PoolNaturally, both of which are completely ‘green’ products, the first of their kind in this industry.

The idea came to Dr. David R. Knighton, co-founder of CWS, when he read an article about the use of sphagnum moss in World War I to pack wounds sustained by soldiers. The moss’s high absorbency made it a better alternative to cotton. Dr. Knighton and co-founder Vance D. Fiegel studied and tested the possibility of the moss also having anti-bacterial properties. They discovered that moss prevents overgrowth of harmful bacteria while allowing low levels of normal bacteria to flourish in different types of fungus, mold and algae. Four years of experimentation led to the development of an environmentally friendly system for water treatment that addressed the formation of biofilm in spas and the variability of water across the country.
 
Knighton and Fiegel have jointly founded numerous companies based on their expertise in paradigm shifts, including one that reached over $100 million in annual revenues for the treatment of chronic, non-healing wounds. Their most recent products, an endoscopic saphenous vein harvesting device for cardiac bypass surgery, has over $140 million in sales per year. Also with them is CEO Allan Schwartz, who has led Kroy Companies, a manufacturing firm, from $1 million to $40 million in four years. 

The company’s research and development of sphagnum moss was funded by Knighton and Fiegel through one of their other companies, Embro Corporation, with profits from previous ventures. CWS has also received bank loans and small angel investor financing, but details on these are unavailable. The company is funded from sales and insider financing. CWS is negotiating with an angel investor for a $3 to $6 million investment. CWS is located in Plymouth, Minnesota.  

The company is working on a system for home water treatment, industrial water treatment, and aquarium water treatment. Additionally, they are looking to fulfill the developing world’s need for clean, safe water and have begun designing a solar-powered water purification and treatment system. CWS plans to launch these products in 2009. It seems ambitious and defocused to me to try to launch so many products with such diverse market focus, and my recommendation to the company would be to focus on one area, especially one in which they are already gaining traction.

The spa and pool water treatment industry has been dominated by chemical-based water treatments with oxidizers like chlorine, bromine and ozone, and chemicals to control the pH, alkalinity and hardness of water. These substances cause unpleasant odors, skin irritation, itching, discoloration of bathing suits and hair, and often bacterial infections. Chlorine, the ‘gold standard’ in the industry, is very toxic in high concentrations so must be used carefully.

As an alternative to chlorine and bromine, companies started using other ion treatments like silver and cooper. Touted as ‘green’, these are simply chemical additives that almost always need other sanitizers to deliver safe water.

CWS addresses all aspects of water treatment with a scientifically based system that mirrors the natural water treatment from certain species of sphagnum moss from New Zealand. The intense maintenance that was required to keep water in balance is replaced with a simple, monthly change of the moss insert and occasional administration of a small amount of sanitizer. 

The pool and spa chemical market in the US is a $2.5 to $3.5 billion a year market. The Association of Pool & Spa Professionals (APSP) reports that the residential pool and spa industry represents over $9 billion in annual sales volume in the United States, with spa sales the fastest growing segment. The chemical portion of this market is in excess of $3.3 billion per year and growing. The majority of in-ground pool owners report using a chlorine sanitizer, with 22% preferring a non-chlorine option. 32% of above ground pool owners and 45% of spa owners use chlorine-free sanitizers.

CWS distributes through four main channels. The first is a network of over 450 distributors selling to over 3,000 retail dealer locations.  The next channel is through multi-branch regional buying groups, which are made up of the largest regional retailers, who have joined to buy from the manufacturers directly using their larger volumes to maximize discounts. The company also distributes through original equipment manufacturers (OEM) that build spas and pool equipment; their products might be shipped with the SpaNaturally label or under a private label arrangement. The final channel is catalog and Internet sales.

CWS is not yet profitable. However, revenues continue to grow and CWS expects to reach profitability by the end of 2009, depending on the launch of its home, industry and aquarium products. According to the Minneapolis/St. Paul Star Tribune, 2008 revenue was estimated at $150,000 to $175,000 and the projected figure for 2009 is $600,000. 

CWS plans continue to penetrate the pool and spa market in the US, the EU and Asia by hiring and training its own sales force or by joining with a more mature marketing partner. They expect to expand into new markets with unique products and systems based on the sphagnum moss technology and will continue to explore the science of moss to discover how it produces the effects now seen from the intact plant.

Given that their penetration into the pool and spa chemicals market is thus far miniscule, and the total addressable market is adequately large, the fact that they are even talking about entering new markets already seems alarming to me. It shows a lack of focus, something the entrepreneurs should be profoundly wary of. In fact, if seasoned private investors get involved with the company, they will immediately shoot down the idea of selling anything other than pool and spa chemicals until the company reaches $100 million in revenues.

I certainly would!

Recommended Readings:
What Clean Tech Is and Why it Matters
Cleantech is Cool
Serial Entrepreneur: HP Michelet

This segment is a part in the series : Deal Radar 2008


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