Concept Development and Market Planning

February 20, 2014

Dan WelchNY FarmNet/FarmLink

Cover Slide Interpretation

Translation: How big is this risk?

Response: It depends… What’s your idea? What motivates you to undertake a new venture?

Personally? In the market?

What’s your risk threshold? What does your support network look like? Have you done your homework?

Do you have a business plan? Do you have a marketing plan?

There’s more to Old MacDonald’s story than the song lets on…

Ag ventures are similar to other businesses in that they require planning, resources across development stages, and constant nurturing

Ag ventures are unique in that:

Livestock don’t take vacations Earth continues to spin on it’s axis - Seasonality Price variability Regulatory oversight

Not all ideas are created equal… There are a lot of business ideas out there

>50% of small businesses fail in first year 95% fail in first 5 years

Source: U.S. Small Business Administration

Ideally, an idea responds to a market need and you not only enjoy providing that good/service but YOU HAVE A COMPETITIVE SKILL ADVANTAGE

Is this idea feasible?

Feasibility

Feasible defined: capable of being done or carried out; suitable, reasonable, likely. Synonym – possible

Implied here is that what’s “possible” is a determined by situational characteristics

Which characteristics merit the closest look? Financial profile Physical production capabilities Marketing know-how

What do you want this business to be?

Identify your goals/objectives and mission statement. In other words, work backwards.

Regardless of your philosophy. the customers and market(s) you serve, the business needs to be economically sustainable unless you have no budget constraint

Economic sustainability is strongly correlated with the ability to sell your product

Marketing: Starting Points Marketing may be the last thing you want to

confront after production Note, this excuse is not sufficient

Marketing: a second full-time job Producers grow/process products well. Few are

naturally, and equally, as adept at marketing.

Farmers need buyers. You don’t have to consider market demand but you

may be saddled with a lot of cheese or maple syrup…

Marketing: Starting Points

Recommendation: work with NYSDAM agents to minimize product safety risk, regulatory missteps, etc.

Remember, NYSDAM may be navigating the learning curve with you.

Case in point: The proliferation of small-scale dairy processors in the state has invited a whole new set of regulatory questions at processing

1. This isn’t how you want to start out your dairy processing career.

2. Simply changing the sign is not enough.

Marketing Agenda The 4 Ps: product, price, promotion,

place/distribution Common strategy for addressing marketing needs

Marketing plan Why have one? What’s in it?

How do I come up with the numbers?

War stories from the ag front

The 4 Ps: Product

What does the market want or need? What are the key market drivers?

What do you have a competitive advantage in providing? Solicit feedback from friends and family before

settling on a product

Provide high quality product to market If you’re going to do it, do it right

The 4 Ps: Price Know your production costs so that you can

determine a breakeven sale price

Know your competition How are similar products priced? How price sensitive are potential customers?

Pricing is experimental Set a price then watch and see Do not be afraid to explore the demand curve

The 4 Ps: Promotion

Think like your customer. Are they looking for the “cheese story?” Will they appreciate (meaning “pay more for”)

pretty packaging? What product attributes do they care most about? What are the most effective venues for promoting

your product?

A high quality product will help market itself. Consider food competitions where awards based on

objective/unbiased evaluation

The 4 Ps: Distribution/Place Fact: The product must physically move from

the farm to the consumer

Question: Are you better off self-distributing or outsourcing this responsibility?

Decision is highly personal. What premium do you place on your leisure time?

To evaluate, need good information on: market value of transportation, effort required to coordinate with buyers, packaging, labeling, and promotional tasks

The 4 Ps: Distribution/Place

The time and labor commitment Distribution can be quite time consuming where

there are a very small number of workers. Self-distribution may appear cost-effective but consider the time constraints especially on already over-extended laborers.

Re-evaluate distribution choices as the venture mattures

The capital/equipment commitment

Do you need refrigeration equipment? Can you retro-fit your pick-up?

The 4 Ps: Distributrion/Place Market outlet choices are quite diverse

Close proximity to several major metropolitan markets. FYI – supplying larger markets is more expensive

Regional/local markets: restaurants, grocery stores, farmers markets, specialty shops

Direct marketing: on-farm sales, farm stands, on-line sales

The supply chain is less formal and structured than you might expect (see handout)

The Marketing Plan Why have one?

Necessary for a business plan

Business plan is first and foremost for your own benefit, then creditors, granting agencies, etc.

The importance of the marketing plan does nothing to simplify the task. It’s time-consuming and frustrating given the inherent challenges of forecasting details about a new or potential market. Consider it a long-run investment.

The Marketing Plan

What belongs in a marketing plan?

Information as to how you will handle post-production responsibilities.

For individual pieces, see handout

Recommendation: put as many (credible) numbers in as you possibly can to help link production and marketing information in your business plan.

The Numbers in a Marketing Plan What numbers?

Target market estimates: How many likely customers per market outlet?

Pricing: Breakeven cost(s), strategic pricing Marketing costs: Alternative scenarios across mix of

distribution, promotion, pckging/labeling

How do I get the numbers? Census data, store managers, observation Talk to vendors

Why worry about the numbers? It allows you to link the marketing and business plans Do not underestimate the value of marketing

information

Stories from the ag front line… Example 1: Specialty cheese venture

Characterized by large budget Still took 5+ years to turn a profit Lost cheese maker, now where to find sheep’s

milk?

Example 2: Food bank/produce grower diversifies into distribution Business goal: leverage resources better for

benefit of local community Wait – our target audience needs more hand-

holding…

To Market We Go… Be prepared. Do your homework. Be

objective during the marketing planning stage.

Recognize that marketing plans have to be flexible. People and markets are dynamic.

Final point: stop and re-evaluate your business objectives when the ag venture is no longer fun.

NY FarmNet and FarmLink Resources

FarmNet offers business planning and financial consultation to NY farmers

FarmLink offers assistance with estate and farm succession planning to NY farmers

All services are strictly confidential and free of charge