High Tunnel Fruit and Vegetable Production

LESSON TEN: HIGH TUNNEL BUSINESS PLANNING AND MARKETING

Objectives

 Identify the key components of a complete business plan.  Develop strategies for business and marketing planning.  Recognize the most ideal methods of organizing and marketing a high tunnel operation based on your individual situation.

Business Planning

 More to starting a business venture than coming up with the idea and jumping in feet first  The success of a new venture is often predetermined before project is ever started  Reasonable chance at succeeding depends on careful and thoughtful planning

Business Planning

 Steps to Business Planning: 1) Idea 2) 3) 4) 5) 6) Organization Feasibility Planning Capital Marketing  Each step requires thoughtful examination  Allocate adequate resources of time and money

Idea

 Is the operation worth the effort necessary to turn it into an enterprise?  Getting started is not worth the effort if you can’t figure out how to make a profit!  Depends on:  Level of basic knowledge about the business  Ability to turn that knowledge into a profitable business venture.

Idea

 If viewed purely as a business venture:  Early and accurate self-assessment of business climate is critical  Builds confidence and knowledge of the enterprise  Helps secure partners, financing and customers  Build strong understanding of enterprise  Most affordable risk management available  Detailed plans and strategies come later

Organization

 Structure is one of most important decisions  Choice can be wise move or costly mistake  Initial legal business structure  Important to periodically re-examine  May achieve optimum results at start-up phase  May require adjustment as business matures

Organization

  Common types of formal business structures:  Sole Proprietorship  Cooperative  General Partnership  Limited Partnership  Limited Liability Partnership  Limited Liability Company  Corporations Selection depends on several factors

Organization

 Sole Proprietorship  Easiest and least costly way of starting a business  Find location and open the door for business  Fees to obtain business licenses  Attorney’s fees for starting less than other forms  Less preparation of documents required  Owner has absolute authority over business decisions

Organization

 Cooperative  Belongs to people who use it (member/owners)  Share in control of the cooperative  Meet at regular intervals  Review detailed reports  Elected directors from among themselves  Directors hire management  Oversee day to day affairs  Serve member interests

Organization

 General Partnership  Can form simply by oral agreement  Legal partnership agreement highly recommended  Drawn up by an attorney  Legal fees are higher than for a sole proprietorship  Can be helpful in solving disputes  Partners are responsible for other partner’s business actions, as well as their own

Feasibility

 Offers a reality check on merit of a business idea  Review of an individual enterprise differs greatly from review for a large start-up production facility  For accuracy, remove personal emotion  Utilize or engage an independent third part  “Getting a second opinion”  Develop an exhaustive set of questions to help validate the core business principles

Feasibility

 Identify opportunities, unexpected hurdles and other impacts that may be encountered  Typically includes 5 areas of impact: 1) 2) 3) 4) 5) Local Impact Market Technical Resources Final Projections Management

Feasibility

 Local Impact  Are adequate local resources available to support a high tunnel business?  Will there be negative impact/resistance to operation?  Market  Is there a clearly identifiable and measurable market?  Will business location appropriately serve the market?

 How far and how often will you have to travel?  What are the transaction costs?

Feasibility

 Technical Resources  Access to quality equipment and service?

 Can the infrastructure needs be met?  Financial Projections  Do market projections and production assumptions match, and at a profitable level?  Adequate resources for different business climates?  Can all potential costs be identified through detailed production budgets?

Feasibility

 Management  Enough experience to manage the operation? Are all area of the operation adequately covered?  Are adequate support services available to assist management?

Planning

 Develop a written business plan with all details  Helps secure financing  Provides road map to keep project on track  Good business plan should, at minimum:  Describes business, structure, products and goals  Explain the roles and responsibilities of all involved  Outline the marketing plan and strategies  Illustrate the financial plan  Include assumptions and goals used to reach profitability

Capital

 Takes time and effort to research the right sources  Examine needs, plan how funding will be utilized, and study what is available  Securing sufficient funds  Need enough to start and grow enterprise  Requires significant preparation  Capacity to manage funds efficiently and effectively

Capital

 Inadequate or ill-timed financing large reason for business failures  If financing is required, check for local funding first.  Many rural development groups  Local lenders  Some level of local participation  When exploring options, don’t limit the search.

Marketing

 Marketing is a “first, last and always” consideration  Have a established market before production starts  Good marketing program is essential to realizing fullest potential and profit  Best strategy will yield whatever level of sales it take to make business profitable  Thoroughly understand needs of potential buyers  Ability to differentiate and diversify as market changes

Marketing

 High tunnel marketing strategy should capitalize on one or more of the benefits over traditional production methods  First to Market  Multiple Crops  Quality  Unique Crop  Scalability

Marketing

   Critical to have a marketing plan that is adaptable  Customers ‘needs’ change Make marketing plan changes systematically  Avoid negatively impacting ability to stay profitable Ongoing evaluation process including: 1) 2) 3) 4) 5) Identification Analysis Strategy Action Evaluation

Marketing

1) Identification – Constantly scan marketplace for areas of threat or opportunity 2) 1) 2) 3) 4) 5) 6) Analysis – Priorities are set based on ‘potential’ customer demands. How quickly will opportunity/threat develop? How will it impact our products and operations? Is it likely to become of major importance? How would our investors expect us to act? What is our ability to react to opportunity/threat? What are the costs of not reacting to it?

Marketing

3) Strategy – Develop written strategy to address changes in market place that directly impact or change the original plan.

4) Action – Marketing activities are a synchronized and integrated response to the nature of marketplace. 5) Evaluation – Regularly monitor and measure any change to the original strategy to evaluate the impact of those changes on profitability.

Market Diversity

 Strategy should not be highly dependent on one venue or market outlet  Can make the difference between profit and loss  Develop and participate in multiple markets  Provides significant risk management as well as market research  Consider a variety of marketing strategies/outlets  Key to ensuring the right option is selected

Market Outlets for High Tunnel Growers

  Farmers Markets  Well suited for small, individual lots of mixed produce  Relatively easy markets to access  Rental fee may be required “U-Pick” (Pick Your Own) Sales  Popular for perishable vegetables  Not capital intensive, but advertising essential  Accident liability insurance may be required  Challenge: Coordinating harvest frequency and customer volume

Market Outlets for High Tunnel Growers

  On-Farm or Roadside Markets  Works well in areas with high traffic volume  Not capital intensive and easy to access  Packaging and grading stricter than farmers markets  Rules and regulations must be considered Wholesale Produce Auctions  Shareholders provide startup capital for auction  Most buyers purchasing for small supermarkets, roadside stands or restaurants  Commonly commission is deducted from sale price

Market Outlets for High Tunnel Growers

  Restaurant and Institutional Sales  Selling to chefs and institutional services  Most market targets are independently owned and operated restaurants  Institutional services include schools and care facilities Marketing Cooperatives  Growers who produce similar products or have similar growing practices  Can share input costs, labor, equipment  Requires marketing agreement between members

Market Outlets for High Tunnel Growers

 Supermarket Sales  Regional wholesale to chain or independent markets  Harvest scheduling is crucial  Community Supported Agriculture (CSA)  Economic partnership between growers & consumers  Consumers may pay at purchase or for whole season  Stabilize incomes and minimize risk  Usually used to diversify funding sources

Pricing

    Setting price is crucial component to success Producer can set the price, consumer controls price  What is your total cost of production?  What is the competitor’s price? Closer to consumer = more control over price  Gauge the level of competition and consumer demand Pricing Methods  Relative Pricing – Acquire price info from competitors  Cost-Oriented Pricing – Best method, must know costs of production