Considerations in Determining the Feasibility of a New Enterprise Part 2

Considerations in Determining
the Feasibility of a New
Enterprise (Part II)
Rodney B. Holcomb
Oklahoma State University
Food & Agricultural Products Center
Primary Objectives of
Feasibility Preview
Identify key planning steps for feasibility
 Determine the required resources for an
 Setting stop/go points
 Assistance programs for helping fund
feasibility studies
Pre-Feasibility Questions
What are my/our 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 this venture
and still keep food on the table?
– Sweat equity, start-up costs, and eventually
A Venture Should...
Be deemed worthy/unworthy on economic
 Be taken under consideration as a business
completely separate from the farm/ranch.
 Not be pursued just because of political
 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
Market Potential for Outputs
Universe of Marketable Product
– Retail, foodservice, exports, fundraisers
Determinants of Market Quality
– What characteristics are deemed most desirable
by customers and how can you provide them?
Wholesale Product Value
– Don’t focus on retail prices.
Geographic Market Potential
Potential Local Buyers
 Potential Regional Buyers
 International Markets
– Build in expenses/steps for exporting products.
Government Programs
– Potential for large volumes, low margins.
– Market generation (e.g. ethanol)
Market Competition
Existing Businesses
– Where they are, where they distribute products,
what brands they manufacture, etc.
Businesses that have ceased operations
– Why did they cease operations?
– Are their facilities/equipment for sale?
Import/Export Market
– Companies, countries, barriers.
Market Opportunities
Best-Fit Opportunities
– Brand vs. co-packing, retail vs. foodservice
Strategies for Market Approach
– 4 P’s of marketing
Barriers to Market Entry
– Regulatory barriers
– Industry concentration
– Co-product barriers
Raw Product Supply
Supply Markets
– Captured supply through investor/members?
– Proximity/concentration of the commodity?
Complexity and Variability
– Collection/delivery system
– Quality specifications
– Year-to-year variation
Raw Product Costs
Commodity value
 Transaction costs
– e.g. verification and certification
Storage costs
 Transportation costs
 Tax costs
Facility Specifications
Location Factors
– Picking a location that makes the most sense
from an economic standpoint.
Design Factors
– Functionality, flexibility, expandability.
– Thinking through the processing steps.
Further Processing Components
– Making sure all the pieces fit.
Facility: Location Factors
Availability/costs of land and utilities
 Access to inputs and markets
 Transportation infrastructure
– Roads, rail, barge, and even air
Availability of service providers
 Labor and labor training
 Taxes and community attitude
Facility: Design Factors
Much will depend upon regulations
associated with a processing venture
– walls, ceilings, floors, storage facilities
Ambient vs. cold storage
 Expandable
 Suited for processing system
– Not always best to fit the system to a building
Facility: Further Processing
Flexibility in further processing
 Competent engineering design
 Do all pieces of equipment “speak the same
 Common equipment or specialty?
 Location and reputation of equipment
 CIP or other sanitation programs
Further Processing
Value-Added Outputs
– How many products? (Co-products?)
– Suggestion: Start with less than 6.
Customers and Value
– Always the basis for what gets produced
Estimated Product Values and Margins
– Check with an “expert”
Further Processing (cont.)
Manufacturing Requirements
– Space, prep, consolidation of activities
Production Throughput
– Shrinkage, remix, waste, product loss, etc.
Necessary Equipment, Costs, and Staffing
– Start shopping around
– Ask around for names of potential key staff
Stop/Go Points
Build “phases” into feasibility and business
planning, stop/go point at the end of each.
– Phase I: Market and industry overview
– Phase II: Determination of physical needs
– Phase III: Assessment of “what you have” and
“what you can get”
– Phase IV: Business plan
Available Assistance
Land-grant universities and extension specialists
– Value-added centers, food technology centers
State funds?
– Through established assistance programs
– Through your legislator
USDA Value Added Product Market Development
Grants (VADG)
– $40 million/year through 2007
– Requires a minimum $-for-$ match
Final Comments
Do your homework
 Base all decisions on economic rationale
 Think like a processor, not a producer
 Don’t get caught up chasing “free money”
 “Expect it to cost twice as much to start,
take twice as long to get going, and lose
twice as much as expected in the first year.”
Any Questions?