Building Entrepreneurial Capacity for Agriculture Dr. Chris Peterson Director, MSU Product Center NACAA Conference July, 2007 © Dr. H. Christopher Peterson, Michigan State University, 2007

The Issues The Problem The Basics of New Venture Creation Capacities Needed vs. What Exists for Entrepreneurial Agriculture Overcoming the Capacity Gap to Build an Entrepreneurial Agriculture

The Problem Undesirable outcome: Declining agri-food firm profitability Possible Responses (not exhaustive): Find alternatives to commodity production, e.g., value-added and/or non-food uses of ag Foster sustainable rural development “Mandate”: Assist new venture creation Both new businesses & new products/services

The Problem What capacities are needed to create new ventures? Do we have these capacities in agriculture? If not, how do we get them? How knowledgeable and skillful are we (the entrepreneurial support community) in assisting new venture creation?

Examining the Basics Entrepreneurship vs. Innovation Entrepreneurship: The drive and skill to commercialize a new venture. Innovation: The drive and means to create a new idea; not adoption; not a venture. Entrepreneurs and innovators need not be the same; but mixture is possible. Entrepreneurship does require an innovative idea; but degree of innovative varies widely.

Examining the Basics Innovation vs. Market Opportunity Innovation: a new idea for business change Products & services, processes & technology, capabilities & competencies, supply chain relationships, and markets Market Opportunity: the demand and supply conditions that would lead to an innovation’s commercialization through a new venture. Idea and opportunity are too often mixed.

Examining the Basics Entrepreneur vs. Manager Entrepreneur: Ability to create a new venture. No existing endowment of resources Only non-marginal decisions about resource accumulation and use Manager: Ability to sustain a continuing venture. Existing endowments of resources Marginal and non-marginal decisions about resource use and growth

Examining the Basics Venture Potential vs. Feasibility No common definition for a business plan or a feasibility study. A useful distinction? Potential: Can the venture create needed profits under a general set of assumptions? Feasibility: Can the venture create needed profits when all knowable factors (in advance) are taken into account?

A FRAMEWORK FOR NEW VENTURE CREATION Industry and Market Environment Policy Environment Innovative Idea Test of Potential Prove potential Create initial “prospectus” to seek resources Test of Feasibility Prove feasibility Prepare for implementation Gather resources Venture Concept New Venture Entrepreneur Market Opportunity Resources III Prop., Plant & Eqmt Personnel Management Buyers Suppliers Advisors/Partners Full Debt & Equity Resources I “Potential” Info (general market, process, org., etc.) “Sweat” Equity Resources II “Feasibility” Info (specific market, process, org., etc.) Initial Equity Industry and Market Environment

What Capacities Are Needed? Entrepreneurial capacity Risk seeking and resource creating Innovation capacity Willingness to create the new Capacity to assess market opportunity What the customer values! Commercialization Capacity Ability to convert the concept into practice

Entrepreneurial Agriculture? Do we have entrepreneurs? Mostly managers, not entrepreneurs Do we seek innovation? Rather conservative business approach Do we assess market opportunity well? The “commodity” mind set Do we know how to commercialize? IP, capital, and partners

Entrepreneurial Agriculture? Two other challenges: Biological foundation of products Need for collective action CONCLUSION: Agriculture is challenged in every capacity needed for venture creation. This does not mean that agriculture can not be entrepreneurial.

Building Entrepreneurial Ag? The way we always have in extension by working directly with agricultural producers and related firms. Apply knowledge Entrepreneurship, innovation methods, market opportunity assessment, commercialization know-how Encourage and support experience

Building Entrepreneurial Ag? Build partnerships With ag & non-ag entrepreneurial community USDA RD, AgMRC, Farm Credit, RECs, FB, etc. SBA, SBTC, Economic Development Corp., etc. With rural communities Creating Entrepreneurial Communities Through networking organizations The Product Center and like entities

Product Center Networks & Outcomes PROGRAM DELIVERY NETWORK GOVERNANCE Dean and Directors Department of Ag Economics Joint Advisory Committee (with participation from customers, internal & external providers, and sponsors. COMPONENT NETWORKS VENTURE DEVELOPMENT Provider Networks Service Networks MARKET & INNOVATION RESEARCH ENTRENEURIAL& COMMUNITY DEVELPMENT NETWORKS Desired Outcomes: ECONOMIC OPPORTUNITIES New businesses New products More successful existing businesses Reduced likelihood of losses from inappropriate business/product decisions Better access to existing resources More educated pool of entrepreneurs and managers Creation of entrepreneurial communities Customers (Ag, Food & Natural Resources) Entrepreneurs Existing Firms Producer Organizations Commodity Groups Communities Government Agencies MSU Faculty & Units Economic Development Groups Local Food Systems Other economic entities MSU PRODUCT CENTER PROGRAMS Venture Development Market & Innovation Research (Knowledge Development) Entrepreneurial & Community Development COOPERATORS EXTERNAL PARTNERS INTERNAL PARTNERS INNOVATION COUNSELORS & EDUCATORS SPONSORS

A FRAMEWORK FOR NEW VENTURE CREATION Industry and Market Environment Policy Environment Innovative Idea Test of Potential Prove viability Create initial “prospectus” to seek resources Test of Feasibility Prove feasibility Prepare for implementation Gather resources Venture Concept New Venture Entrepreneur Market Opportunity Resources III Prop., Plant & Eqmt Personnel Management Buyers Suppliers Advisors/Partners Full Debt & Equity Resources I “Viability” Info (general market, process, org., etc.) “Sweat” Equity Resources II “Feasibility” Info (specific market, process, org., etc.) Initial Equity Industry and Market Environment

Concluding Thoughts We face a “mandate” to support new venture creation. A worthy concept comes first. Entrepreneur, Innovation, Opportunity Then all the elements of commercialization. Agriculture is entrepreneurially challenged. Education, experience, and partnering.