Business Planning and Management – Making the Business Successful and Generate Profit

1. Business Planning and Management – Making the Business Successful and Generate Profit Producer-Managed Marketing of Meat and Livestock ProductsSARE-PDP WorkshopSeptember 13-15, 2005 – Greensboro, NC Rob Holland and Amanda Ziehl University of Tennessee Extension Center for Profitable Agriculture

2. This is not your typical business planning seminar!

3. This session will: • Address the importance of entrepreneurship • Introduce the value of a vision and integrating managerial functions • Consider some of the nontraditional factors of business success • Focus on how business planning and management help create an intuition for knowing which steps to take and when

4. This session: • Reviews value-added business planning principles • Emphasizes the marketing component of a value-added business plan • Introduces entrepreneurship characteristics • Describes successful and not-successful value-added enterprises and why they are the way they are • Reveals common “yellow flags” of value-added business planning

5. Who are we dealing with? • People and their business in transition. • People responding to change. • People asking “broad” questions about unknown issues. • Successful farmers . . . fledgling businesses. • People with new ideas or no ideas.

6. Who are we dealing with? • Are farmers accustomed to asking questions and getting answers? • What is enterotoxemia? How can I prevent it? • When should I wean the calves? • How many pounds of gain will my hogs get? • Are the questions changing? You bet! • CHANGE! • Questions are different • Answers are different • Planning process is different • Management is different

7. Slides are designed to be used directly with farmer/small business entrepreneur groups

8. Finish on time Something I can use Fun -- Not boring “Feed me” Interaction – Input “Q & A” Copy of slides Learn something new New ideas to make $ Breaks Motivation ___________________ ___________________ ___________________ ___________________ ___________________ ___________________ ___________________ ___________________ ___________________ ___________________ ___________________ What are Some Good Rules/Objectives for a Great Session?

9. Product Packaging Regulations Buyers Profit Labor Equipment Rewarding _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________ What are Some Rules/Objectives for a Great Value-Added Livestock/Meat Business?

10. Experiences of the Tallgrass Beef Cooperative • Read this article and discuss the reading at your table • What are some issues you discussed? • Production and supply issues • Narrow profit margins in the entire system • Accounting for time doing marketing, managing and other activities • Growth or loss in net worth

11. Summary points of the Tallgrass Beef Coop • 10 ranch families in Kansas formed a grass-fed beef cooperative • Did not account for sweat equity (volunteer time) • Customers were not local • High per unit costs • Did not develop a business plan – trial & error • Sometimes, no matter how hard people try to make their work a business success, it doesn’t always happen. • Despite this challenge business planning, management and entrepreneurship may help lead to success. So what is the point of the story?

12. What is a Business Plan? • Written plan of action • Proves the business will work “on paper” • Adds validity to your idea • Assists in planning the details of the business • Used as supporting documents for funding • Increases the chances that overlapping business activities get considered • Serves as a roadmap for business development and success • Effectively communicates to others

13. What’s In A Business Plan? Executive Summary Description of the Business • Products or Services • Location • Legal Structure • Management/Personnel • Accounting & Legal • Insurance Marketing Plan • Marketing Strategy Goals • Market Analysis • Marketing Strategy • Customer Service Financial Documents • Pro Forma Cash Flow Statement • Three-year Income Projection • Projected Balance Sheet • Break-Even Analysis • Income Statement • Balance Sheet • Business Financial History Possible Exit Strategies • Plan B • Option to sell out/liquidate

14. Developing a Business Plan • Allows you to tie many things together • Prevents you from overlooking some common ingredients • Forces you to address some issues • Regulations • Legal business structure • Funding • Marketing • Labor • Planning is everything. . . the plan is nothing

15. Business Planning • If you can’t make a profit with a pencil, you can’t make a profit with a plow. • The difference between success and failure is management, management, management. • A dream and hard work are not enough to succeed. • If you don’t have a competitive advantage. . . don’t compete. • All labors of time, energy and expense are not equal.

16. Business Planning • Planning and management develop a culture and intuition for knowing which steps to take and when to take them. • Approximately 75% of small businesses fail in the first year . . . only about 13% survive the 5th year. • The paths of value-added enterprises are paved with skeletons of many failed dreams, wounded pride, broken friendships, lost livelihoods, bankruptcy and/or divorce.

17. Business Planning and Business Plan Principles • Keep records • Production and financial records • Separate different enterprises to evaluate each individually • Prepare current and pro-forma statements • Continually update financial statements • Monitor and evaluate performance • Against goals and expectations • Against forecasts and pro-forma statements

18. Business Planning Principles are Important, Critical and Essential . . . but not sufficient to alone generate success.

19. Why do businesses fail? • Costs too high . . . Margins too low • Employee management problems • Not enough capital • Lack of sales • Distribution • Marketing ineffectiveness • Management issues

20. Business planning and management tools, rules and principles vs. the unwritten rules, intuition and entrepreneurship management

21. Science Cash flow Start-up costs Packaging costs Overhead costs Utility costs Break-even cost per unit Sales per customer Sales per square foot Sales per $ of labor cost Net income Return on investment Net worth Art Flourish in non-commodity agriculture Competitive advantage – Not Replication Entrepreneurship Marketing savvy Vision More proactive than reactive Continual improvement Science and Art of Success

22. Success Science Art Overlap = Success Focus on where and how they overlap

23. Goals Distribution Vision Employee Management & Training Sponsorship Public Relations Advertising & Promotions Management Communications Packaging Food Safety & Processing Regulations Pricing Permits & Licenses Customers Planning and Management

24. Keys to Success • Management • Marketing • Leadership • Vision • Distribution • Flexibility • Source of capital • Low dependency on grants • Ability to see problems and react appropriately • Competitive pricing • Advertising and promotion • Packaging • Customer service • Cash flow

25. Caution Flags (avoid these) • “Let’s stop planning and just do something.” • “We don’t have any competition and we already know it will work.” • “We need to get moving because we’ve already got a good name picked out.” • “If we build it, they will come.” • “We don’t need to advertise, it will sell itself.” • “Now, we just need a grant.” • “We just need to get it into Cracker Barrel.”

26. (The Art side of things) Applications… • Flourish in non-commodity agriculture • Competitive advantage – Not replication • Entrepreneurship • Marketing savvy • Vision • More proactive than reactive • Continual Improvement

27. Flourish in Non-commodity Agriculture

28. Non-Commodity Agriculture • Misconception - - success is based on the commodity. • What’s more important than the commodity?

29. Value-Added Recipe Source: USDA, Economic Research Service, February 2004 • Commodity • Processing • Equipment • Packaging • Regulations • Labeling • Labor • Marketing • Samples & Promotions • Sales • Distribution • Record Keeping (accounts payable) • Returns/Rejects/Shrink

30. Successful Organic lamb Natural beef Goat milk soaps and cheeses Pasture-raised poultry Free-range pork Chevon or cabrito (goat meats) Composted livestock waste Not Successful Organic lamb Natural beef Goat milk soaps and cheeses Pasture-raised poultry Free-range pork Chevon or cabrito (goat meats) Composted livestock waste Successful Enterprises . . . And those that Are Not

31. Competitive Advantage – Not Replication

32. Competitive Advantage – Not Replication • How can you replicate success? • Why replication does not work… • Need a unique combination of resources • Environmental and regional differences • People have different tastes and preference • Success is not easy • No cookie cutter approach will create success…find what you have a competitive advantage in and do that – be an entrepreneur!

33. Entrepreneurship

34. PRODUCTION Weaning weights Average daily gains Pounds of milk Fertility and reproduction Carcass yield Waste management So you can handle production, but are you ready to be an entrepreneur? ENTREPRENEURSHIP • Dealing with customers • Managing employees • Adding value to product • Food safety and packaging regulations • Marketing savvy • Distribution and other logistics • Processing facilities

35. Characteristics of Entrepreneurship • Able to employ strategic management practices • Innovative – not just with new ideas, but also able to exploit the value of ideas • Able to make rational decisions • Goal-oriented • Risk taker • Energetic and ambitious • Seek out opportunities to be responsible • Preference for creating activity through some innovative combination of resources for profit

36. Marketing Savvy

37. Marketing Savvy Exercise • Write a marketing plan to be the exclusive supplier of pens to Dell Computer . . . • Sort into two groups • One group writes a plan for Bic Pen • Other group writes a plan for Cross Pen I need a volunteer from each group to read their plan!

38. How did you feel? • Stressed? • Uncomfortable? • Competitive? • Energized?

39. High volume, bulk purchase Inexpensive Toss when out of ink Simple packaging and easy to use Variety of colors (red, blue, black) Target all company associates High quality, prestigious Valuable Refillable ink cartridges Complex pens, modern technology Able to be engraved for personalization Target CEO, CFO, etc. Marketing Plan – Main Points • ______________________________________ • ___________________ • ___________________ • ______________________________________ • ______________________________________ • ______________________________________ • ______________________________________ • ___________________ • ______________________________________ • ______________________________________ • ______________________________________ • ___________________

40. Vision

41. Vision • As mentioned during the first session, it is important to have a vision and be able to communicate that vision • Everyone must know and understand your vision and how to go about achieving it • It is important to establish your objectives and define your tactics that you will use to obtain your “Vision”

42. Need a Well Supported Vision • The road to disaster is often paved with only one objective • Have fun … jail • Best products … bad customer service • Aesthetic restaurant … horrible dinner • Pick two • Good – Cheap – Fast

43. More Proactive than Reactive

44. Reactive vs. Active vs. Proactive • Observe neighboring dairy selling organic milk • Read about organic production methods and begin to consider this option for your dairy • Have been selling organic milk for the past six years, now considering yogurt, cheese and ice cream

45. What ‘active are you? • What % of your time are you Reactive - - - Active - - - Proactive • National average = 70% - - - 20% - - - 10% “A move from reactive to active more often leads to greater revenue/sales”

46. Continual Improvement

47. Prepare for a road of continual improvement Products Vision Plan Regulations Bridge of Opportunity Resources Prepare & Train Track & Measure Marketing

48. Continual Improvement • Plan to create a culture of developing processes with continual evaluation and re-formulation for continual improvement • TENNIS BALL GAME: • Establish a sequence. • Everybody must touch the tennis balls in the sequence first established . . . and the tennis balls must end in the hands of the person where they started. • Fastest time wins.

49. Communicate expectations Sense of accomplishment Fun, creative, innovative Competition, pride Tracking and recording (benchmarking, scoring) Re-visit the rules and goals Cooperation There was no boss: Leader, yes Coach, yes Initiative, yes Boss, no Results of the game • Team building, problem solving • Ideas in action/motion • Continuous change • Success – Productivity –Chaos • Create a process • Set a goal (allows us to focus) • Vision • Listening • Re-formulating, re-thinking

50. Summary of the Science and Art