Concept Development and Market Planning

1. Concept Development and Market Planning February 20, 2014 Dan Welch NY FarmNet/FarmLink

2. Cover Slide Interpretation • Translation: How big is this risk? • Response: It depends… • What’s your idea? • What motivates you to undertake a new venture? • Personally? • In the market? • What’s your risk threshold? • What does your support network look like? • Have you done your homework? • Do you have a business plan? • Do you have a marketing plan?

3. There’s more to Old MacDonald’s story than the song lets on… • Ag ventures are similar to other businesses in that they require planning, resources across development stages, and constant nurturing • Ag ventures are unique in that: • Livestock don’t take vacations • Earth continues to spin on it’s axis - Seasonality • Price variability • Regulatory oversight

4. Not all ideas are created equal… • There are a lot of business ideas out there • >50% of small businesses fail in first year • 95% fail in first 5 years • Source: U.S. Small Business Administration • Ideally, an idea responds to a market need and you not only enjoy providing that good/service but YOU HAVE A COMPETITIVE SKILL ADVANTAGE • Is this idea feasible?

5. Feasibility • Feasible defined: capable of being done or carried out; suitable, reasonable, likely. Synonym – possible • Implied here is that what’s “possible” is a determined by situational characteristics • Which characteristics merit the closest look? • Financial profile • Physical production capabilities • Marketing know-how

6. What do you want this business to be? • Identify your goals/objectives and mission statement. In other words, work backwards. • Regardless of your philosophy. the customers and market(s) you serve, the business needs to be economically sustainable unless you have no budget constraint • Economic sustainability is strongly correlated with the ability to sell your product

7. Marketing: Starting Points • Marketing may be the last thing you want to confront after production • Note, this excuse is not sufficient • Marketing: a second full-time job • Producers grow/process products well. Few are naturally, and equally, as adept at marketing. • Farmers need buyers. • You don’t have to consider market demand but you may be saddled with a lot of cheese or maple syrup…

8. Marketing: Starting Points • Recommendation: work with NYSDAM agents to minimize product safety risk, regulatory missteps, etc. • Remember, NYSDAM may be navigating the learning curve with you. • Case in point: The proliferation of small-scale dairy processors in the state has invited a whole new set of regulatory questions at processing

9. This isn’t how you want to start out your dairy processing career. 2. Simply changing the sign is not enough.

10. Marketing Agenda • The 4 Ps: product, price, promotion, place/distribution • Common strategy for addressing marketing needs • Marketing plan • Why have one? • What’s in it? • How do I come up with the numbers? • War stories from the ag front

11. The 4 Ps: Product • What does the market want or need? • What are the key market drivers? • What do you have a competitive advantage in providing? • Solicit feedback from friends and family before settling on a product • Provide high quality product to market • If you’re going to do it, do it right

12. The 4 Ps: Price • Know your production costs so that you can determine a breakeven sale price • Know your competition • How are similar products priced? • How price sensitive are potential customers? • Pricing is experimental • Set a price then watch and see • Do not be afraid to explore the demand curve

13. The 4 Ps: Promotion • Think like your customer. • Are they looking for the “cheese story?” • Will they appreciate (meaning “pay more for”) pretty packaging? • What product attributes do they care most about? • What are the most effective venues for promoting your product? • A high quality product will help market itself. • Consider food competitions where awards based on objective/unbiased evaluation

14. The 4 Ps: Distribution/Place • Fact: The product must physically move from the farm to the consumer • Question: Are you better off self-distributing or outsourcing this responsibility? • Decision is highly personal. What premium do you place on your leisure time? • To evaluate, need good information on: market value of transportation, effort required to coordinate with buyers, packaging, labeling, and promotional tasks

15. The 4 Ps: Distribution/Place • The time and labor commitment • Distribution can be quite time consuming where there are a very small number of workers. Self-distribution may appear cost-effective but consider the time constraints especially on already over-extended laborers. • Re-evaluate distribution choices as the venture mattures • The capital/equipment commitment • Do you need refrigeration equipment? • Can you retro-fit your pick-up?

16. The 4 Ps: Distributrion/Place • Market outlet choices are quite diverse • Close proximity to several major metropolitan markets. FYI – supplying larger markets is more expensive • Regional/local markets: restaurants, grocery stores, farmers markets, specialty shops • Direct marketing: on-farm sales, farm stands, on-line sales • The supply chain is less formal and structured than you might expect (see handout)

17. The Marketing Plan • Why have one? • Necessary for a business plan • Business plan is first and foremost for your own benefit, then creditors, granting agencies, etc. • The importance of the marketing plan does nothing to simplify the task. It’s time-consuming and frustrating given the inherent challenges of forecasting details about a new or potential market. Consider it a long-run investment.

18. The Marketing Plan • What belongs in a marketing plan? • Information as to how you will handle post-production responsibilities. • For individual pieces, see handout • Recommendation: put as many (credible) numbers in as you possibly can to help link production and marketing information in your business plan.

19. The Numbers in a Marketing Plan • What numbers? • Target market estimates: How many likely customers per market outlet? • Pricing: Breakeven cost(s), strategic pricing • Marketing costs: Alternative scenarios across mix of distribution, promotion, pckging/labeling • How do I get the numbers? • Census data, store managers, observation • Talk to vendors • Why worry about the numbers? • It allows you to link the marketing and business plans • Do not underestimate the value of marketing information

20. Stories from the ag front line… • Example 1: Specialty cheese venture • Characterized by large budget • Still took 5+ years to turn a profit • Lost cheese maker, now where to find sheep’s milk? • Example 2: Food bank/produce grower diversifies into distribution • Business goal: leverage resources better for benefit of local community • Wait – our target audience needs more hand- holding…

21. To Market We Go… • Be prepared. Do your homework. Be objective during the marketing planning stage. • Recognize that marketing plans have to be flexible. People and markets are dynamic. • Final point: stop and re-evaluate your business objectives when the ag venture is no longer fun.

22. NY FarmNet and FarmLink Resources • FarmNet offers business planning and financial consultation to NY farmers • FarmLink offers assistance with estate and farm succession planning to NY farmers • All services are strictly confidential and free of charge