Presentation on theme: "Considerations in Determining the Feasibility of a New Enterprise"— Presentation transcript:
1 Considerations in Determining the Feasibility of a New Enterprise Rodney B. HolcombOklahoma State UniversityFood & Agricultural Products Center
2 Primary Objectives of Feasibility Preview The difference between a feasibility study and a business planIdentify key planning steps for feasibility assessmentPre-feasibility homework
3 Feasibility Study vs. Business Plan ScopeFS: Overview of possibilitiesBP: The specifics about one activityDetailFS: Infrastructure, leadership, market/industry impacts, services sector, etc.BP: Business structure, mfg. plans, specific objectives, key staff, etc.
4 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
5 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.
6 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.
7 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
8 The “Matrix” ApproachTake all the information on all processing possibilities.Determine which factors are of most importance to feasibility/choiceTechnology requirements, capital requirements, market growth, competition concentration, etc.Use a matrix scoring system to compare the possibilities.
9 Case Study Example NW OK wheat producer cooperatives Hard red winter (HRW) wheatExamine markets/industriesCommodity flour, tortillas, refrig./frozen dough, specialty pasta, rye crisp bread“Matrix” assessment of potentialSummary of potential for each possible venture
10 Commodity Flour 4 existing OK flour mills 31,400 cwt./day capacity Less than 20% of OK wheatHeavy competition from KansasApprox. 9.5% of U.S. flour millingNew mills planned/constructedFt. Worth
11 Tortillas/Flatbreads $2.87 billion in 1996 sales12% growth over 1994Western U.S. approx. 30% of tortilla marketFlour:corn sales of 2:1Est. consumption of 75 billion in 199854% cons. increase predicted within 5 yearsLarge competitors (e.g. Mission Foods)
12 Refrig./Frozen DoughSIC 2053 value of shipments up 51.7% from 1992 to 1996Biscuit dough 41% of product sales6.5% annual market growthRolls and sweet goods9.8% and 16.8% annual market growth, resp.Top 4 firms control 24% of overall market
13 Niche Market Items Specialty pasta OSU product development and market studyHigher protein, different flavors, “healthy”Rye crisp breadUse local ryeDeli store itemVirtually no domestic industry
14 Matrix AssessmentCompare value-added opportunities across several factorsMarket growthTechnologyScale/Capital RequirementsDegree of CompetitionMarket Proximity
16 Then… The Feasibility Study Refrig./Frozen dough became the focus of a feasibility studyProduct categories within refrig./frozen doughBig players, category sales, top brand namesGeneral facility and equipment requirementsPossible locations for a facility based on available resources and infrastructureFrom all of this pick one course of actionThen ready for a business plan