Presentation on theme: "Considerations in Determining the Feasibility of a New Enterprise"— Presentation transcript:
1Considerations in Determining the Feasibility of a New Enterprise Rodney B. HolcombOklahoma State UniversityFood & Agricultural Products Center
2Primary Objectives of Feasibility Preview The difference between a feasibility study and a business planIdentify key planning steps for feasibility assessmentPre-feasibility homework
3Feasibility 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.
4Pre-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
5Steve 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.
6So 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.
7Now, 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
8The “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.
9Case 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
10Commodity 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
11Tortillas/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)
12Refrig./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
13Niche Market Items Specialty pasta OSU product development and market studyHigher protein, different flavors, “healthy”Rye crisp breadUse local ryeDeli store itemVirtually no domestic industry
14Matrix AssessmentCompare value-added opportunities across several factorsMarket growthTechnologyScale/Capital RequirementsDegree of CompetitionMarket Proximity
16Then… 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