Considerations in Determining the Feasibility of a New Enterprise

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Considerations in Determining the Feasibility of
a New Enterprise

• Rodney B. Holcomb
• Oklahoma State University
• Food Agricultural Products Center

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Primary Objectives of Feasibility Preview

• The difference between a feasibility study and a
  business plan
• Identify key planning steps for feasibility
  assessment
• Pre-feasibility homework

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Feasibility Study vs. Business Plan

• Scope
• FS Overview of possibilities
• BP The specifics about one activity
• Detail
• FS Infrastructure, leadership, market/industry
  impacts, services sector, etc.
• BP Business structure, mfg. plans, specific
  objectives, key staff, etc.

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Pre-Feasibility Questions

• What are my/our overall goals/objectives?
• Better price for my/our commodity?
• Add value to my/our commodity?
• Business development in my/our community?
• How much can I/we put into determining the
  projects feasibility?
• Sweat equity, start-up costs, and eventually
  investment

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Steve Hunts 3 Rules

• Steve Hunt, CEO of USPB
• 1. Dont try to start a business on free
  money.
• 2. Dont let your business decisions be
  determined by politicians.
• 3. Dont have rural economic development as your
  primary goal.

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So A Venture Should...

• Be deemed worthy/unworthy on economic merits.
• Be taken under consideration as a business
  completely separate from the farm/ranch.
• Not be pursued just because of political
  pressure.
• Be funded by at least 50 owners equity.

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Now, What To Do?

• Several factors to be considered for determining
  a course of action.
• Assessment of all possible processing
  possibilities for a commodity.
• Catalogue all needed resources for processing.
• Market research for all processing possibilities.
• Growth, trends, advertising/promotion.
• Competition, market share, acquisitions/mergers

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The Matrix Approach

• Take all the information on all processing
  possibilities.
• Determine which factors are of most importance to
  feasibility/choice
• Technology requirements, capital requirements,
  market growth, competition concentration, etc.
• Use a matrix scoring system to compare the
  possibilities.

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Case Study Example

• NW OK wheat producer cooperatives
• Hard red winter (HRW) wheat
• Examine markets/industries
• Commodity flour, tortillas, refrig./frozen dough,
  specialty pasta, rye crisp bread
• Matrix assessment of potential
• Summary of potential for each possible venture

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Commodity Flour

• 4 existing OK flour mills
• 31,400 cwt./day capacity
• Less than 20 of OK wheat
• Heavy competition from Kansas
• Approx. 9.5 of U.S. flour milling
• New mills planned/constructed
• Ft. Worth

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Tortillas/Flatbreads

• 2.87 billion in 1996 sales
• 12 growth over 1994
• Western U.S. approx. 30 of tortilla market
• Flourcorn sales of 21
• Est. consumption of 75 billion in 1998
• 54 cons. increase predicted within 5 years
• Large competitors (e.g. Mission Foods)

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Refrig./Frozen Dough

• SIC 2053 value of shipments up 51.7 from 1992 to
  1996
• Biscuit dough 41 of product sales
• 6.5 annual market growth
• Rolls and sweet goods
• 9.8 and 16.8 annual market growth, resp.
• Top 4 firms control 24 of overall market

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Niche Market Items

• Specialty pasta
• OSU product development and market study
• Higher protein, different flavors, healthy
• Rye crisp bread
• Use local rye
• Deli store item
• Virtually no domestic industry

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Matrix Assessment

• Compare value-added opportunities across several
  factors
• Market growth
• Technology
• Scale/Capital Requirements
• Degree of Competition
• Market Proximity

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Matrix Example
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Then The Feasibility Study

• Refrig./Frozen dough became the focus of a
  feasibility study
• Product categories within refrig./frozen dough
• Big players, category sales, top brand names
• General facility and equipment requirements
• Possible locations for a facility based on
  available resources and infrastructure
• From all of this pick one course of action
• Then ready for a business plan

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Questions?