X-Message-Number: 1304 From: Subject: CRYONICS Date: Tue, 13 Oct 92 20:21:46 PDT The following is an email thread mostly between myself and Mark Volker with the rest of the Alcor board lurking. I asked Mark to post his thoughts on splitting up Alcor because, I did not understand the exact split proposed. In spite of that, most of the thread is applicable to his posting. Keith ********* Memo re Mark Volker's proposed business plan for splitting patient storage off from Alcor: Mark, I have no idea if you want input on this topic, but since I have written a few business plans and looked at a lot more, I am sending you some of the basics. Please excuse me if you are already up to speed on this. The heart of a business plan is the economic model, nowadays done on a spreadsheet. For a proposed profit making business, the go/no go question is: Does it makes enough money in some period of years (typically 5) to justify investing? For a cryonics storage operation, the go/no go criteria is: Does it have a strong enough resource base (patient care fund) now, and at all times into the indefinite future to be able to confidently take care of the patients? This means it must start with enough to provide a roof over the dewars, and provide for a round the clock staff to care for them, plus the cost of LN2, replacement dewars (they have a limited life) utilities and overhead. I suppose the storage company could rent, but that is not going to be easy, and having a landlord would make me uncomfortable. This was what forced the move to Riverside. In either case, you have to decide how many square feet you need, and what that is going to cost either to rent, buy or build. You may need to factor in the cost to brace the dewars, or the building itself to deal with natural disasters. A non-trivial cost will be moving the patients to the new site. We estimated 50k for the move to Phoenix, but I don't remember what fraction of that was for the patients. So, the initial capital part of the budget will require numbers for square feet of building, cost per square foot, cost of dewars which do not come with the patients, cost of special installations, such as level alarms, and hosts for moving patients. By the way, there should be plans, staff and extra dewars to get the patients in a given dewar transferred in a few hours, since that is all the time you have after a vacuum failure. And, grim as it may sound, you should include the facilities and equipment to convert to neuro if it ever becomes necessary. There should be contingencies for dealing with an interruption of the LN2 supply, though an on-site plant is probably out of any reasonable reach. The continuing expenses will start with salaries. You are going to need to figure out number of caretakers required and what other duties and special skills they might require (you are going to need at least one bookkeeper and one facilities engineer besides someone like Mike Perry.) Other expenses will include LN2 deliveries, utilities, repairs, bonding of the people who work there, audits of the books, etc. I am sure this list is rather incomplete. The income side depends on the capital in the patient care fund and the income from that fund which can be spent without depleting the fund. (The fund has to grow at least as fast as inflation, so a good fraction of the income has to be put back into capital.) As the financial markets go up and down, you cannot count on this being a steady income, and a storage company has no membership base to help out if they get into trouble. I would work the numbers for the historical range of interest and return on investments in stock. You need a number for the size of the fund. With the current mix, the patient care fund for 25 has about 1.2 million. While this would buy a heck of a vacation, it does not generate all that much income. The model should include projections of growth, and still not go into bankruptcy if the growth stops for some reason. Growth has both positive and negative effects on the model. If you are planning for growth, you need a bigger facility. If the growth actually happens, it helps reduce the fraction of the income being spent on overhead and salaries. Growth has a neutral effect on LN2 supply and new dewars. You have to buy more, but you have more money to buy LN2 and dewars. Growth means you have to move or build more space on a regular basis. I can give you rough numbers for many of the factors I have mentioned, but I had rather you obtained them yourself and let me (and/or others) check them for being within a reasonable range. If you do all the work, and it just does not look feasible any time this side of a decade away, don't feel you have wasted your time. The research will make you a lot more knowledgeable about the problems we face. Best of luck, Keith cc Board, Paul Wakfer (please pass to Saul Kent) ************************* Mark wrote: >Keith: Thank you for your thoughtful comments regarding setting up a >separate patient care storage company. I definitly want to encourage >people to give me advice on this topic. You and Saul have both told me >that you would help me delvelop such a plan, Err, I don't think so, Mark. I know how much work would be involved here, and I definitely remember when I make massive commitments. I am certainly willing to very carefully study what you and others produce. I am even willing to look at the list of assumptions you make as you go along, but the spreadsheet effort alone is going to take between several days and a few weeks. Keith ***************************** Steve writes: >Keith: >Re: Your thoughts on Mark Voelker's proposal: > >You've provided a really valuable list of considerations for Mark and others >to work on. I think in principle a split-off of the storage business has >some real advantages. The practicality must be shown, too, however. I am >also curious how those numbers can be overcome. Hmm, I was not aware that I put enough numbers in my list of considerations to indicate one way or the other if splitting off the storage business required overcoming any numbers. I happen to agree with you and Steve Harris re the advantages (mainly legal protection) of splitting off the storage business. But what I considered a minor point yesterday when I wrote the note has now become a major sticking point in my mind. I refer to what would happen to a storage company without an active membership if the company got into trouble. Alcor has a policy of supporting the patient care fund out of general revenues. While the patient care fund is currently fat, and we are billing it at about what it costs to house and service the dewars, we have in the past just paid for LN2 out of operating revenue, not billed the fund at all, and put 10% of unrestricted revenues into the fund. If the patient care fund got into trouble, inflated out of existence, embezzled, tied up in a lawsuit, or confiscated by the government, the living members (who empathize with those in the dewars) are a major source of funds to keep the patients frozen. This source is not so subject to legal judgments, inflation or other economic upsets. I have stated before that the members will give till they bleed if there is great need. (They give of time and money at a high level even when Alcor is not in a lot of trouble.) I don't believe this is a new observation. The early founders of Alcor recognized this and set up for there to be a flow of money from general revenues to the patient care fund. >Mark may, as he is going through this process, come up with some new ideas >which will help improve the efficiency of Alcor's own Patient Care >operation. But he may really find some ways which will make a separate >company feasible in much less than 10 years. I'm willing to look at >whatever he comes up with. >Steve Bridge Me too. These exercises are always useful, and sometimes lead to completely unexpected results. One such thought which came to me after I posted last night is that something we have been kicking around, Alcor accepting non-Alcor patients for storage (or for that matter, biological samples) might have a very strong legal protective effect on the patient care trust fund. We mingle the funds from the patients, and I believe if we mingled funds from non-Alcor sources this would give a great deal of legal protection for the fund. I.e., even if there were a judgment against Alcor, I think it would be very hard for someone suing Alcor to get at funds Alcor were holding in trust from people or other companies to pay for storing patients or biological samples in perpetuity. There is simply no legal connection between these funds and Alcor as an entity. This should be looked over by a lawyer, but I did so much legal research a few years ago that I feel fairly confident that I can model lawyer thinking on issues like this. Comments, Carlos? And, Mark, your interest in storing biological samples, rather than generating liability, might be something we *want* to do to protect the patient care trust fund! Keith ************************************** Mark writes: >Keith: I agree with your point regarding last ditch funding should the >separate Storage Co. get into trouble. I think that it would be good >if the Storage Co. had agreements in place whereby, if it gets into >financial trouble, it can transfer its patients to other >organizations. My problem with this is who would *want* to take care of patients without funding? And even if they did (Alcor has two or three charity patients salvaged from Trans Time) how would they be able to afford it? From what I understand--it was before my time--Alcor converted the charity patients to neuro, got a donation to pay for the dewar, paid for LN2 out of operating funds, and justified the whole thing as a research effort. You can do that with two or three patients, but hundreds? or thousands? > In fact, individual patients might set up, or contract >with, independent "reanimation committees" which would have the legal >right to go in and claim them and their supporting funds if the >Storage Co. was about to fail. This also might help solve the dilemma >about when and why the patient is to be reanimated. The Storage Co. >has little incentive to reanimate a person (and thus lose his share of >the PCTF), but the Reanimation Committee could be under a contract >that would give them a reward if the patient was successfully >reanimated. >From what I know of business failures, the first indication of problems might well be bad odors drifting downwind from the dewars. Reanimation considerations are actually a point against a storage company. I don't know about you, but I regard this cryonics business, storage and all, as an uncomfortable burden. If I had any involvement at the time it becomes possible, I would want to put the folks in the dewars back on the street as soon as possible so I could go on to doing something more interesting and less of a burden. Re reanimation costing the storage Co. a share of the PCTF, I am not aware that there is any requirement to return beans to a revived patient. Be nice of them to spot me a few day eating money, but long as *I* come out of the far end of the process, I am not going to kick. > Regarding the storage of biological samples, there are >positive and negative liability aspects to this. A negative, pointed >out to me by Dave Pizer, is the legal risk to the Storage Co. should >someone's sample be lost or damaged. Does s the PR value of storing >samples such as endangered species, which would tend to give us a >"good guy" image. --Mark As Carlos pointed out, we deserve to be sued if we lose a sample--or a patient! Good grief, we should be able to do this right! My point was that having some of the mingled patient care fund come from non- Alcor sources might give a lot of protection to the whole thing. In another posting Mark wrote: >Semantic confusion: I consider providing advice to be a form of >"help". And by the way, if working those spreadsheets and developing a >plan for the Storage Co. is a good idea, how about doing the same >thing for Alcor itself? While we did not use a spread sheet program, or project out for many years, that was essentially what we did last Saturday. Can you imagine how much harder that task would have been and how much further it would have been from reality if we had not had the real figures for what we spent in the first half of this year? Lack of an experience base is what makes business plans so hard to write, and so risky to actually implement. Keith ****************************** Mark writes: >Keith: Regarding dangers to the patients due to the risk that >Storage Co. might fail: How is this different from the present >situation, where Alcor might fail? The point of separating the two >portions of the cryonics business is to insulate the patients from the >risk due to Alcor's suspension activities. Perhaps I have a different model of the storage company than you do. It is indeed possible for Alcor to fail, but consider the consequences of just the PCTF going *poof* in each case. Living Alcor member are likely to dig into their pockets for the $17k/year or so it currently takes to keep the patients frozen. We could convert all the whole body ones, and reduce this considerably. Even without that step, the cost to keep the patients frozen would be about $60 per animate member per year. Now think about the storage company. My assumption is that the storage company has no socially coherent support, i.e., active members (or clients to use Al Lopp's preferred term). If the organizations really are separate, then the failure of the storage company due to economic fluctuations or other misfortunes does not reflect on the suspension organization--which is focused on suspending patients. In fact, a given suspension and "membership" organization might well be sending patients to several storage companies. I could put real names interchangeably in place of A and B below for this example, but to avoid being quoted out of context will not. Would a suspension/ membership organization be much concerned if one of the places it was sending patients failed? Would they break their necks for a bunch of patients who may have come from several suspension organizations? Or would they just shrug and say "Wasn't *our* fault, the members who picked storage company A instead of B (which is still doing fine) made the wrong choice. Tuff luck." Over the long haul, it is hard to beat having a bunch of dedicated, even fanatical, active defenders of the patients. Split the patient storage off, and the organized motivation of the animate ones to keep them frozen come hell or high water goes away. Re risks, I simply don't feel that the risk which comes from suspending patients is high enough to worry about--even over the long haul. For one thing, a big enough organization has the resources to fight off just about any challenge. For another, it is not as easy to get a judgement against a non profit as it is against for profit companies. And, there is the approach I mentioned earlier to make the PCTF harder to attack. > Since the PCTF is well funded, this should be possible >given a large enough patient base. Regarding Carlos' statement that >"we deserve to get sued is we lose a sample" (probably not an exact >quote), I agree. But this *is* a drawback to storing such samples. I >say this as someone who still thinks it is a good idea. Finally, >regarding a business plan for Storage Co.: we do have experience with >the economics of storing patients (or we should!) The relevant data >should be recorded in Alcor's internal financial statements. There are numerous articles in Cryonics on the economics of storing patients going back as far as I can remember. Check on this, but I believe the current cost for LN2 (losses and all) for the current mix of patients is about $17k per year. I do not believe the nitrogen cost reaches 50% of operating cost of a storage company till there is somewhere between 100 and 1000 patients. I think you will find that for fewer patients other factors dominate, particularly labor. > I don't >think that what we did last Saturday was develop a business plan, it >was more like reviewing a budget. I think that a business plan would >consider questions like "How should suspensions be priced? Do we want >to to hold the line on price increases and allow the technology to >slowly increase the quality of our suspensions, or do we want to >maximize the quality with little regard to the cost? What is the >demand vs cost curve for cryonic suspensions? What market niches are >our competitors (e.g. CI) aiming for? What sort of people buy our >"product"?" Then, with our best answers to these and other questions, >we would develop a strategy to serve a given market niche, then design >a budget and set of job assignments to implement that strategy. But I >may have completely the wrong idea about how to grow a business--I've >never done it, and I have an MS, not an MBA. Or there are probably >several approaches to doing this, some more formal than others. I for >one think that we should lean more toward formality, since Alcor is >run by a board and not headed up by a single individual. Budgets are certainly part of any business plan. Unless something slipped by me, Alcor is headed up by a single individual, Carlos. Re the rest of the stuff above, you have some of it right. > As Joe Hovey >pointed out, going through the process of developing a plan for Alcor >will ensure that everyone concerned knows what our goals are, and what >we are doing to reach them. If some ambitious person involved with >Alcor would write a short tutorial on business planning, I would be >delighted. --Mark Well, *I* consider our long range goal to be getting the patients back on their feet, worth keeping in mind, but hard to put a time table on it. You may want to review the 100k or so of exchanges between Steve Bridge and me on this and other topics, especially on the role of a board of directors. Re business planning, the library is simply full of books on this topic. Keith Rate This Message: http://www.cryonet.org/cgi-bin/rate.cgi?msg=1304