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Considerations in Determining Considerations in Determining the Feasibility of a New the Feasibility of a New
EnterpriseEnterprise (Part II)(Part II)
Rodney B. Holcomb
Oklahoma State University
Food & Agricultural Products Center
Primary Objectives of Primary Objectives of Feasibility PreviewFeasibility Preview
Identify key planning steps for feasibility assessment
Determine the required resources for an enterprise
Setting stop/go pointsAssistance programs for helping fund
feasibility studies
Pre-Feasibility QuestionsPre-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
investment
A Venture Should...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?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 OutputsMarket 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 PotentialGeographic Market Potential
Potential Local BuyersPotential Regional BuyersInternational Markets
– Build in expenses/steps for exporting products.
Government Programs– Potential for large volumes, low margins.– Market generation (e.g. ethanol)
Market CompetitionMarket 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 OpportunitiesMarket 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 SupplyRaw 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 CostsRaw Product Costs
Commodity valueTransaction costs
– e.g. verification and certification
Storage costsTransportation costsTax costs
Facility SpecificationsFacility 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 FactorsFacility: Location Factors
Availability/costs of land and utilitiesAccess to inputs and marketsTransportation infrastructure
– Roads, rail, barge, and even air
Availability of service providersLabor and labor trainingTaxes and community attitude
Facility: Design FactorsFacility: Design Factors
Much will depend upon regulations associated with a processing venture– walls, ceilings, floors, storage facilities
Ambient vs. cold storageExpandableSuited for processing system
– Not always best to fit the system to a building
Facility: Further Processing Facility: Further Processing ComponentsComponents
Flexibility in further processingCompetent engineering designDo all pieces of equipment “speak the same
language”?Common equipment or specialty?Location and reputation of equipment
manufacturer(s)CIP or other sanitation programs
Further ProcessingFurther 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.)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 PointsStop/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 AssistanceAvailable 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 CommentsFinal Comments
Do your homeworkBase all decisions on economic rationaleThink like a processor, not a producerDon’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?Any Questions?