Considerations in Determining
the Feasibility of a New
Enterprise
Rodney B. Holcomb
Oklahoma State University
Food & Agricultural Products Center
Primary Objectives of
Feasibility Preview

The difference between a feasibility study
and a business plan
 Identify key planning steps for feasibility
assessment
 Pre-feasibility homework
Feasibility Study vs. Business
Plan

Scope
– FS: Overview of possibilities
– BP: The specifics about one activity

Detail
– FS: Infrastructure, leadership, market/industry
impacts, services sector, etc.
– BP: Business structure, mfg. plans, specific
objectives, key staff, etc.
Pre-Feasibility Questions

What are my/our overall goals/objectives?
– Better price for my/our commodity?
– Add value to my/our commodity?
– Business development in my/our community?

How much can I/we put into determining
the project’s feasibility?
– Sweat equity, start-up costs, and eventually
investment
Steve Hunt’s 3 Rules

Steve Hunt, CEO of USPB
 1. Don’t try to start a business on “free”
money.
 2. Don’t let your business decisions be
determined by politicians.
 3. Don’t have rural economic development
as your primary goal.
So A Venture Should...

Be deemed worthy/unworthy on economic
merits.
 Be taken under consideration as a business
completely separate from the farm/ranch.
 Not be pursued just because of political
pressure.
 Be funded by at least 50% owners equity.
Now, What To Do?

Several factors to be considered for
determining a course of action.
– Assessment of all possible processing
possibilities for a commodity.
– Catalogue all needed resources for processing.
– Market research for all processing possibilities.


Growth, trends, advertising/promotion.
Competition, market share, acquisitions/mergers
The “Matrix” Approach

Take all the information on all processing
possibilities.
 Determine which factors are of most
importance to feasibility/choice
– Technology requirements, capital requirements,
market growth, competition concentration, etc.

Use a matrix scoring system to compare the
possibilities.
Case Study Example

NW OK wheat producer cooperatives
 Hard red winter (HRW) wheat
 Examine markets/industries
 Commodity flour, tortillas, refrig./frozen
dough, specialty pasta, rye crisp bread
 “Matrix” assessment of potential
 Summary of potential for each possible
venture
Commodity Flour

4 existing OK flour mills
 31,400 cwt./day capacity
 Less than 20% of OK wheat
 Heavy competition from Kansas
 Approx. 9.5% of U.S. flour milling
 New mills planned/constructed
 Ft. Worth
Tortillas/Flatbreads

$2.87 billion in 1996 sales
 12% growth over 1994
 Western U.S. approx. 30% of tortilla market
 Flour:corn sales of 2:1
 Est. consumption of 75 billion in 1998
 54% cons. increase predicted within 5 years
 Large competitors (e.g. Mission Foods)
Refrig./Frozen Dough

SIC 2053 value of shipments up 51.7%
from 1992 to 1996
 Biscuit dough 41% of product sales
 6.5% annual market growth
 Rolls and sweet goods
 9.8% and 16.8% annual market growth,
resp.
 Top 4 firms control 24% of overall market
Niche Market Items







Specialty pasta
OSU product development and market study
Higher protein, different flavors, “healthy”
Rye crisp bread
Use local rye
Deli store item
Virtually no domestic industry
Matrix Assessment

Compare value-added opportunities across
several factors
 Market growth
 Technology
 Scale/Capital Requirements
 Degree of Competition
 Market Proximity
Matrix Example
Commod.
Flour
Tortillas/
Flatbread
Refr/Frzn
Dough
Specialty
Pasta
Rye Crisp
Bread
Market
Growth
Technology
Scale/
Capital
Degree of
Compet.
Market
Prox.
Total
Score
3
5
5
1
3
17
7
3
7
4
8
29
7
8
4
7
8
34
3
4
6
3
4
20
1
3
8
4
3
19
Then… The Feasibility Study

Refrig./Frozen dough became the focus of a
feasibility study
– Product categories within refrig./frozen dough
– Big players, category sales, top brand names
– General facility and equipment requirements
– Possible locations for a facility based on available
resources and infrastructure

From all of this pick one course of action
– Then ready for a business plan
Questions?