Seminar offers advice to producers on developing a business plan
A business plan and market research are two important elements for farmers who want to develop a local food business on their operation. That was one of the key messages from Carl Rainey, an economic consultant with the Department of Agriculture, Trade and Consumer Protection (DATCP.)
Rainey was a keynote speaker at several "Seeds for Success" seminars last week sponsored by Wisconsin Farmers Union, the University of Wisconsin Extension and the Wisconsin Local Food Network. The session in Madison drew about 45 people wanting to learn more about business planning and market research for their operations.
A business plan, said Rainey, is a living document that is "out of date" tomorrow, but it is a step on the way to getting some things done. People who want to start a new enterprise can create a product and then go looking for a market, or they can identify a market and create a product to meet the needs of those consumers.
Often sharing dreams, thoughts and plans with others can be a first step as it makes the whole idea real. A business plan should include facts about the location and history of a business and also its personnel - all part of the "story" that will be told to a lender. And it shouldn't be all rosy.
"Identify the gaps in your team. Everybody has gaps - you may not be an accountant or a lawyer. Describe how you will address them," he advised, while also talking about the talents and skills that are being brought to the business.
Rainey said the personnel portion of the plan should include items like where those workers are coming from, what their skills are and how they will be compensated.
The plan should also include a section on the marketplace that the business will be entering. He encouraged his listeners to include market information and data in the plan and to note where that information came from. A part of the plan that shows the target market strategy should tell about the business's choice of groups in the market.
"Explain why your company is focusing on these specific target market groups. What makes these groups more interesting than the other groups? You need to break the market down. No store is after everybody. Wal-Mart isn't after everybody," he said.
Part of the strategy involves breaking down the market. At any given farmer's market, he said, availability and price were the two biggest reasons people buy. But even at a farmer's market not everybody there is your target market, he said. "You can't do everything well and we're not interested in everybody."
Rainey said the market needs section of a business plan defines the business offering "based on the buyer needs you satisfy, not on what you have to sell." He encouraged his listeners to do much research even if it means making some assumptions and looking at developing trends.
Conditions in the marketplace, and changes in those conditions, can mean a world of difference to a developing business. Businesses need to identify those trends and talk about which of them can make a difference to their plans.
Market growth and an analysis of the industry should also be included in the plan, along with specific information on competitors in the marketplace, he said. The plan should also include an explanation of the nature of the industry the business is in. "There's a difference between an industry like auto manufacturing where there are only a few large companies and one like handicrafts in which there are tens of thousands of participants," he said.
Every business has competitors, he said, and the business plan should list the three or four main competitors along with the strengths and weaknesses of each. The plan should go into detail on their products, pricing, reputation, management and any other relevant information, he said. In doing that analysis, it's important to look for the strategy of business competitors.
"Quite often we find they don't have one," he added.
A market analysis should include facts on the potential customers and their needs, attitudes and benefits provided by the business in question. The plan should talk about the size of the potential market, where the customers are and how to reach them. This market analysis checklist should also include information on the competition - how many competitors there are, what they're offering, some thoughts on their profitability and their strengths and weaknesses, he said.
The plan should also include a list of "your strengths and weaknesses," he said, and a "comparison of your strengths against the competitors' strengths and weaknesses. Comparing strengths can identify opportunities, he said, while comparing weaknesses can identify threats to the business.
Rainey said many start-up businesses, especially in food and agriculture, have trouble pricing their product. He compared selling the former Eastern European auto, the Yugo to selling a BMW, the "ultimate driving machine." Producers often mis-price their product and then go broke trying to educate the public, he said.
One of his clients, a cheesemaker, was producing cheese on a very small profit margin, a strategy that wasn't working too well. "He renamed the product, doubled the price and is still in business today," Rainey said.
A successful marketing strategy involves knowing what story to tell about the business. "If the stories resonate they spread and seduce others and then you succeed," he said.
Successful companies have boiled down what they do, what they stand for and how they are unique, he said. The magic of doing that can often be found in a simple phrase, he said like the following: we try harder; just do it; it does a body good; and snap, crackle, pop.
Rainey also presented attendees a video chat with Lois Federman, the coordinator of the Something Special from Wisconsin program who also is part of a family farm business in Mineral Point. She and her brother own the family beef farm there from which they market specialty products.
Federman says that it dawned on her that there might be an opportunity for them to sell beef in a CSA-type (community supported agriculture) arrangement where subscribers get a certain amount of farm product each week directly from the farmer. She did some research and found that there weren't to her knowledge, any other meat CSAs in the state.
They partnered with some other farmers who were friends of theirs, in order to expand their market offering and together they embarked on a venture to bring the fledgling CSA to the Chicago market. Federman said their market research determined that their target customer would be a Whole Foods customer with significant disposable income - "because they would pay the money we needed to have. They thought our prices were a steal."
Research on the internet was huge to their plans, she said, and satisfied them that they were on the right track. She was surprised a bit by their members' reaction to the various meats in the CSA. "People were either not interested in lamb or they were very excited about it," she said.
There were also some members who didn't want pork in their CSA subscription either for ethnic or religious reasons and that was something the farmers had to work their way through, she said.
"Our customers understand there are multiple families involved. We felt we had a story to tell - values and commitment to quality and commitment to customers," she said. They had 100 shares in their first year, she said, and they had to turn people away. Now they have expanded that to 350 members, based on continuing marketing efforts.
Market research, she said, is critical and will become part of the business plan. "Don't fool yourself that you don't need to do it. Market research will become part of your business plan. Without that you'll be very unfocused. You need a guiding goal that you're trying to achieve," she said.
Federman said farmers getting into this kind of venture will find many things are not the way they thought they'd be. She encouraged them to continue to take a hard look at strategies three months into the effort and again at six months. Continuing to take feedback from customers is critical, she said, and can offer avenues for business growth.
Rainey agreed that a business plans is a way to put thoughts on paper and will provide a roadmap for the goals of the people involved. "Business plans without customers are dreams," he said.
He encouraged attendees to focus on the customer, as Federman and her partners did, rather than on the product. But most importantly, they must be put into action. "Plans without action are wasted time," he said.
