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

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?