Developing a successful farm business - Purdue University · Developing a successful farm business Ariana Torres, PhD. Assistant professor . Marketing Specialist. ... • Most vendors

Developing a successful farm business

Ariana Torres, PhDAssistant professor Marketing SpecialistNovember 14, 2017

The first steps to take when establishing your farm business are critical.

Personal Needs Assessment

• How much money do you need to live on each month?

• How much of this money will be drawn from the business?

Vision and mission

Environmental scanning

Strategy Formulation

Implementation

Vision & Mission Statements

Vision statementWhat kind of business do you want to be?

• Why do you want to begin this venture?• To increase your income?• To become your own boss?

• Where do you want to go?• Be lofty• Destination 10 years down the road

• Comprise things that you value, treasure, “hold dear to your heart”• Relationships• Career objective• Lifestyle• Legacy

Writing down your vision

• Write down your BHAGs goals 1. _________________________________________________2. _________________________________________________3. _________________________________________________

“Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to environmental crisis.”

“To grow in neighborhoods across America to offer every family fresh, local, organically grown foods from a trustworthy source, in a pleasant shopping environment.”

Mission statementWhy are we here and where are we going?

• The purpose• What are we in business to accomplish?

________________________________________________________________________________________________________________________________________

• The business• How are we going to accomplish it?

________________________________________________________________________________________________________________________________________

• The values• What principles and beliefs form the foundation of the way we do business?

________________________________________________________________________________________________________________________________________

“To produce high quality, nutritional, and flavorful vegetable for consumption in both local and regional markets.”

“To create opportunities for leadership in highly productive teamwork for local women who work on the farm.”

“To grow a hydroponic operation that provides safe, wholesome, and nutritional food for my community and produced in an environmentally responsible way.”

Think about your mission statement next time you are working on the farm…

Environmental scanning feasibility analysis

1. How attractive is an industry as a home for a new farm business?2. Can you identify possible niches you can occupy profitably?

Develop a network

Join member organizations

Do your research

Farmers markets in the U.S. grew from 1,755 in 1994 to more than 7,864 in 2012,

according to the USDA.

Why?

They are wonderful incubators for building your farm business.

Indiana farmers markets = 155 and counting

Why farmers markets?

• Capture larger share of customers’ dollars• Improved cash flow• Delegate marketing to market managers• Obtain immediate feedback

• Varieties• Products

• Join networks• Build relationships

Roadside stands

Restaurants

Institutions

Food hubs

Cooperatives

CSAs

Tell the real story behind your produce

• Who are you• What do you stand for• Where are you from• What are your standards• What are your challenges• How consumers’ purchases

impact your community/family

• Rising disposable income• Health campaigns• Time-crunched consumers• Prices of vegetables is expected to increase• Vegetable consumption is higher than fruits• Increasing production costs

• Industry revenue has risen by 2.1% annually ($4.8B)• Increased consumption• Rising prices• Moderate increase in the population• A growing focus on healthy campaigns

• Most vendors are small selling directly to consumers

Key success factors

• Attractive product presentation• Experienced workforce • Proximity to key markets• Ability to control stock on hand• Produce currently favored by the market• Economies of scope (diversity of crops

all year long)

SWOT Analysis

Strengths Weaknesses

Opportunities ThreatsIn

tern

al

Exte

rnal

Leverage ControlSWOT

• Scan the environment for internal and external factors

• Every business faces threats, how can you control them?

Strengths Weaknesses

Opportunities Threats

Develop a business plan. Six components of a business plan include:

1) Executive Summary 2) Business Description 3) Operations 4) Marketing Plan 5) Management 6) Financials

For a step-by-step guide to writing a business plan, visit https://www.sba.gov/starting-business/write-your-business-plan/executivesummary

Business Model Canvas

• Who are our key partners?

• Who are our key suppliers?

What activities do our • value propositions

require?• Distribution channels?• Customer relationships?• Revenue streams?

• What value do we deliver to the customer?

• Which one of our customers’ problems are we helping to solve?

• What bundles of products and services are we offering to each segment of customers?

• Which customer needs are we satisfying?

• What is the minimum viable product?

• How do we get, keep, and grow customers?

• Which customer relationships have we established?

• How are they integrated with the rest of our business model?

• How costly they are?

• For whom are we creating value?

• Who are our most important customers?

• What are the customer archetypes?

What key resources do our ______require?• Our value proposition• Our distribution

channels• Customers relationships• Revenue streams

• Through which channels do our customer segments want to be reached?

• How do other companies reach them now?

• Which ones work best?• Which ones are most cost-

efficient?• How are we integrating them

with customer routines?

• What are the most important costs inherent to our business model?• Which key resources are most expensive?• Which key activities are most expensive?

• For what value are our customers really willing to pay?• For what do they currently pay?• What is the revenue model?• What are the pricing tactics?

1. Value propositionFactor Type of factor

Stocking up on fresh and healthy food

Functional

Feeling good about thepurchase

Emotional

Eating fresh and healthy food

Basic, functional

Protecting family and its health

Social

Looking modern/trendy Social

Learning something Functional, emotional

Buying specialty goods Functional

Customer Jobs of FM customers

Factor Type of factor

Fresh food Functional

Healthy food Functional

Sellers’ recommendations(personal approach)

Social, emotional

Good feeling about supporting local producers

Social

Stylish packaging Social, emotional, functional

Gains of FM customers

Factor Type of factor

Higher prices Product

Inconvenient opening hours

Convenience

Not enough information on the source of goods

Product

Anonymity of farmers Product

No parking Convenience

Queues Convenience

No card payments Convenience

No returns Convenience

No restrooms Convenience

Pains of FM customers

2. Customer segments

2.Customer segments

Who is more likely to buy fresh fruits and vegetables in the US?• Women > men

• College and post-graduate

• 45+ years old

• Management, business, and financial operations

• Professional and related occupations

• Household income $75,000+

• White race

3. Customer relationships

• What medium will you use to reach customers?• Social media• Website• Paid advertisement in search engines (Google)• Dedicated personal assistance or self-service

• What will be your strategies to retain your customers?• Stand for something and communicate to customers• Utilize positive social proof that buying from you will improve their benefits• Use the words they love to hear• Make it personal

4. Market channels

Direct-to-consumers Wholesalers

Institutions Intermediated

ComplexFragmented

Dynamic

5. 6. 7. Key Activities, Partners and resources

• What do you need to do to fulfill your value proposition?

• What key resources do you need for each activity?

• What partners and key suppliers will be necessary?

8. Revenue Stream

• Farmers market sales• Restaurants• At-the farm• Grocery stores

• Is there any price difference? • What are your price strategies for each channel?• Capital investments

9. Cost structure

• What are the most important costs needed to fulfill your value proposition?

• What key resource• What key activity

Collect primary data• Test the problem you think the business will solve for the

customer• Test the business model in the market • Make changes and adjustments in the business (pivots)

Important considerations

Where to Find Help

Local health departmentCounty farm service agency

Soil and water conservation agencyYour bank

Economic development corporation in your area.

Grants that may be available:

• USDA (grants.gov) • Sustainable Agriculture Research Education

(sare.org) • Community organizations, economic

development groups, and foundations• Local banks• Farm Credit• Farm Service Agency• Cost-Share Programs• NRCS/EQIP

TIP! A new resource for funding opportunities was recently released and contains almost 60 resources including crowdfunding platforms, start-up accelerator funds,

state and federal programs, and other miscellaneous funding opportunities for food-related businesses in

Indiana and Michigan.

The 61-page PDF is available online at http://foodsystems.msu.edu/resources/food_business_f

unding_sources

Don’t forget insurance!

Farm insuranceLiability insurance

Liability Insurance

Liability insurance extends coverage to a person, business, or entity to cover bodily injury or property damage

Bodily injury includes the cost of care following an accident, the loss of service one might endure as a result of that accident, and the cost of restitution should the accident take a life or permanently injure someone.

The term property damage includes the loss of property and the loss of property use.

Many farmers markets purchase liability insurance; many also require that their vendors purchase insurance to protect themselves from a lawsuit, should an accident occur.

Market Minimums

Everyone needs a different level of insurance coverage based on their exposure and their net worth. The insurance industry regularly defaults coverage to $1 million. The Commercial General Liability (CGL) Policy is the most common policy used for insuring farmers markets, and it normally covers up to $1 million per claim, with a maximum payment of $2 million per policy period.

How Much Does Insurance Cost?

Typically, vendor liability insurance premiums cost between $400 and $500 each year and will cover the vendor for the entire 12 months. Despite the fact that many vendors only sell a few months out of the year, they are still covered for 12 months.

Risk Management

Vendors can help to address risk management in order to reduce

negligence lawsuits. Precautions have to be taken to ensure the safety of everyone

involved at the market. Addressing risk management not only prevents accidents,

but it also protects the market and the vendors from being sued when accidents occur. As a vendor, you need to be aware

of your surroundings, remain alert to customer behaviors, and help the market

to remain a safe place for everyone involved.

Make financial projections• Use an enterprise budget to check potential profitability

purdue.ag/hortbusiness• Forecast income statement, cash flows, and balance sheet• Use decision making tools

• Breakeven analysis• Sensitivity analysis• Net present value

Thank you for your attention