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Business Planning and Management – Making the Business Successful and Generate Profit Producer-Managed Marketing of Meat and Livestock Products SARE-PDP Workshop September 13-15, 2005 – Greensboro, NC Rob Holland and Amanda Ziehl University of Tennessee Extension Center for Profitable Agriculture This is not your typical business planning seminar! 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 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 valueadded business planning 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. 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 Slides are designed to be used directly with farmer/small business entrepreneur groups What are Some Good Rules/Objectives for a Great Session? 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 Rules/Objectives for a Great ValueAdded Livestock/Meat Business? _________________ Product Packaging _________________ Regulations _________________ Buyers _________________ Profit _________________ Labor _________________ Equipment _________________ Rewarding _________________ 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 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 So what is the point of the story? 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. 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 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 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 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. 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. 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 Business Planning Principles are Important, Critical and Essential . . . but not sufficient to alone generate success. Why do businesses fail? Costs too high . . . Margins too low Employee management problems Not enough capital Lack of sales Distribution Marketing ineffectiveness Management issues Business planning and management tools, rules and principles vs. the unwritten rules, intuition and entrepreneurship management Science and Art of Success 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 Focus on where and how they overlap Overlap = Success Success Science Art Planning and Management Goals Distribution Vision Employee Management & Training Sponsorship Advertising & Promotions Management Public Relations Communications Packaging Pricing Customers Food Safety & Processing Permits Regulations & Licenses 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 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.” (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 Flourish in Non-commodity Agriculture Non-Commodity Agriculture Misconception - - success is based on the commodity. What’s more important than the commodity? 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 Successful Enterprises . . . And those that Are 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 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 Competitive Advantage – Not Replication 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! Entrepreneurship So you can handle production, but are you ready to be an entrepreneur? PRODUCTION Weaning weights Average daily gains Pounds of milk Fertility and reproduction Carcass yield Waste management ENTREPRENEURSHIP Dealing with customers Managing employees Adding value to product Food safety and packaging regulations Marketing savvy Distribution and other logistics Processing facilities 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 Marketing Savvy 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! How did you feel? Stressed? Uncomfortable? Competitive? Energized? Marketing Plan – Main Points 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. Vision 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” 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 More Proactive than Reactive 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 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” Continual Improvement Prepare for a road of continual improvement Products Vision Plan Regulations Bridge of Opportunity Resources Prepare & Train Track & Measure Marketing Continual Improvement Plan to create a culture of developing processes with continual evaluation and reformulation 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. 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 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 Summary of the Science and Art Success is Where the Science and Art Combine Develop a plan andSuccess write it down Continually monitor your plan, record new information and make changes as you need Account for your time and effort Be an entrepreneur, manager and innovator Science Artgoals and Have a vision with well-rounded objectives Find and know who your customers are Be prepared to make changes to your business and then make changes again Any Questions