1. Considerations in Determining the Feasibility of a New Enterprise
Rodney B. Holcomb
Oklahoma State University
Food & Agricultural Products Center

2. 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

3. 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.

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” 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.

9. 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

10. 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

11. 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)

12. 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

13. 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

14. Matrix Assessment
Compare value-added opportunities across several factors
Market growth
Technology
Scale/Capital Requirements
Degree of Competition
Market Proximity

15. Matrix Example

16. 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

17. Questions?