Profitable Ag Enterprises: Mapping The Process

Editor's Note: the following was inspired by a presentation given by Ginger S. Myers of the Howard County Economic Development Authority of Maryland at the Women In Sustainable Agriculture Conference.

Before you begin, take some time for a reality check. Most businesses fail. Not for lack of trying or desire to succeed but because not all of the pieces in the puzzle were present. In his book Small Business Management, Michael Ames gives the following reasons for small business failure:

1. Lack of experience
2. Insufficient capital
3. Poor location
4. Poor inventory management
5. Over-investment in fixed assets
6. Poor credit arrangements
7. Personal use of business funds
8. Unexpected growth

Spend some time thinking through your idea. Talk with experienced business people, and research, research, research. Spending this time up front might save you hundreds of hours and thousands of dollars -- not to mention countless hours of frustration.

Ask yourself this question. Do I want my own business so I can do only what I love? If the answer is yes, stop right here and go find a job doing what you love. Starting a business to create a job for ourselves is one of the biggest mistakes we make. We're not going to sugar coat this. Starting a business takes a lot of hard work and requires us to spend time working on many tasks outside of those that actually make the product or provide the service. The reality is you might spend long hours doing paperwork, making sure there are enough boxes in stock, help on hand to get ready to transplant, or dealing with upset customers on the phone.

Owning a business is as much about managing time and resources (financial and materials) as it is about actually doing the work you love. Be thorough and make sure you answer all of the unknowns before you invite your first customers in.

The Process

The process for starting up any business is the same whether it is home-based, agriculture-based, or a mainstream business.

1. Identify your reasons
2. Perform a self-analysis
3. Review your personal skills and experience
4. Evaluate your idea
5. Analyze the market
6. Plan out the business
7. Secure the financing

Each step in the process is designed to help you think. Don't be afraid to admit you don't know all of the answers. That's what the process is designed to help you with - identifying what you don't know so you can go get the answers and fill in the gaps. Sometimes it helps to have others test your business idea. While it might sting to have others criticize your idea, it's also a good way to identify the weaknesses you may not see.

Identify your reasons

We all have different reasons for wanting to begin our own business. It might be that you want to be in charge of your work schedule or that you feel you can produce a better quality product. Whatever the reasons are that spurred you to pursue your business idea, write them down. Understanding what motivated you to get started will help keep you focused as you move along.

Here are a few common answers:

1. Add revenue to the current business model
2. Saw an unfilled demand for a product or service
3. Financial independence
4. Full use of personal skills and knowledge

Perform a self-analysis

Take a long hard look at yourself and your work habits. The way you manage yourself and interact with your family and friends can be a good indicator of how you might handle yourself as a businessperson. If your idea will expand on an existing business be sure to think about the added stress of pursuing a new venture while running the existing one.

If this is your first business idea consider these:

1. Are you a leader?
2. Do you like to make decisions?
3. Do others turn to you for leadership?
4. Do you enjoy competition?
5. Do you have willpower and self-discipline?
6. Do you plan ahead?
7. Do you like people?
8. Do you get along well with others?

If you're already running a business of your own also consider these:

1. Will you have to change how you run the existing operation?
2. Will you have to change how you interact with people?
3. Will you have to plan further ahead?

Review your personal skills and experience

It helps to know your limits. By assessing what you bring to the table you will better be able to define what help you will need. It's not a bad thing to be inexperienced in some aspect of the business idea you want to develop. It would be a bad thing to ignore your lack of experience. You can always seek out people who have the skills and experience you need and hire them.
See our article on Hiring, Training, and Keeping Employees.

Ask yourself these questions:

1. What are my strengths?
2. What are my weaknesses?
3. What could I learn and do I really want to learn it?
4. What could I let someone else do?
5. Do I have the experience the business needs?

If your new business idea adds onto an existing operation be sure to review how good you are at time management for yourself and your employees. If you know your field crops but your idea is to add on an orchard you need to ask yourself if you know how to manage an orchard. It's alright if you don't, but acknowledge it and be prepared to learn how or find someone who does.

Evaluate your idea

Give your idea the acid test. Does it make sense? Think about the market place and how you will sell your product or service. Have you looked at the certification process if you're going to have your product certified (organic, biodynamic or otherwise)? Think long and hard about the profitability of the product or service and compare that against the level of effort it will take to make and distribute it. Here are some more questions to consider:

1. Is there a need?
2. What will it take to provide the product or service?
3. Will you need a production line and if so will you buy one or rent one?
4. Are there any obvious questions you need to answer such as where you're going to find the raw ingredients and equipment for processing and handling?
5. Will you have to increase your staff and if so, what qualifications will they need?

Think about all of the steps necessary to create, market, and deliver your product or service. Look down the road a few years. If you're very successful can you grow your business idea to meet a significant increase in demand? If you need 200 gallons of maple syrup for your maple candy business today, where will you get another 200 gallons in 2 years when your sales suddenly double? And don't forget those crunch times. Think of Christmas trees. There is a small window of time when the trees are selling hand-over-fist. In that small window the Christmas tree farmers make their entire year's income so planning the harvesting, marketing, and distribution is critical!

Analyze the market

Your market is made up of consumers and competition. If you don't know who they are and what they want then stop and do the research. Compare your business idea against your competition using a standard business assessment evaluation called SWOT - Strengths, Weaknesses, Opportunities, and Threats. SWOT evaluations are part of strategic planning and can be a great way to learn how well your idea will compete in the marketplace. (Learn more about SWOT and Strategic Planning)

Ask yourself:

1. Who are my likely customers?
2. Do I understand what motivates them?
3. Do I know where they live?
4. Does my product or service match what they will buy?
5. Will my prices be competitive?
6. Will my product/service be of equivalent quality and value to similar products/services?
7. How does my idea compare with that of my competitor's?
8. How will I deliver/distribute my product or service and will it be convenient for my customers?

Plan Your Startup

Take the time to write a business plan. If you're not going to pursue financing from outside sources then it doesn't need to be polished and professional. The purpose of the business plan is to help you identity the plan for running your business. In the process of writing the business plan you'll need to identify the following:

1. The legal name of your business
2. The legal business structure your business will operate under
3. The principal people involved and what their roles will be
4. Where your business will be located
5. What your business is and what it sells
6. How will your business market and sell it's products and services
7. How much revenue will it generate
8. How much will it cost to generate that revenue

Financing your business

Sometime, but not always, you will need to seek financial help. This can come in the form of a bank loan, using personal financial reserves, or borrowing from friends and family. No matter which way you decide to go, be sure there is a plan for paying back the money. When you're calculating the amount of money it will cost to get your business idea off the ground remember all of the little details that need to be covered. If you plan to sell cottage cheese you'll need containers, labels, packaging, processing equipment, scales, scoops, ladles, and the raw ingredients. Think about the whole process including every step you'll need to take from the moment you have the capital in hand to the time your product arrives in your customer's hands. Be sure you have an answer for every step and have accounted for all of the resources you'll need to get there. Be sure you can answer these questions fully:

1. How much money do I have?
2. How much money will I need to get started?
3. How much money will I need to stay in business?

Conclusion

Starting your own business doesn't need to be complicated but you do need to attend to details. And once it's up and running you cannot become complacent. Part of running a successful business involves reviewing the business plan and comparing it against what you've learned since you wrote it. Business plans should be reviewed on a regular basis and changed to adapt to changes in business conditions. Always be willing to review and adapt as necessary but always evaluate each change. Just because your competitors decide to sell blue cottage cheese doesn't mean it's a good idea. Go through the process of evaluating it and in the end, if you can see the plan and it looks good, run with it.

Resources

Service Corps of Retired Executives (SCORE) - http://www.score.org/
SCORE is the best source of free and confidential small business advice to help you build your business-from idea to start-up to success.

SCORE is a 501 (c) (3) nonprofit organization. SCORE provides a public service to America by offering small business advice and training. It was formed in 1964 to help small businesses flourish.

SCORE's 10,500 volunteers have more than 600 business skills. Volunteers share their wisdom and lessons learned in business. Their volunteers are working/retired business owners, executives and corporate leaders.

AllBusiness - http://www.allbusiness.com
AllBusiness.com is an online media and e-commerce company that operates one of the premier business sites on the Web. Founded in 1999, the site has received critical acclaim from The Wall Street Journal, Forbes, Business 2.0, Fortune, and other publications. AllBusiness.com helps entrepreneurs, small and growing businesses, consultants and business professionals save time and money by addressing real-world business questions and presenting practical solutions. The site offers resources including how-to articles, business forms, contracts and agreements, expert advice, blogs, business news, business directory listings, product comparisons, business guides, a small business association and more.

United States Government Office of Entrepreneurial Development (OED) - http://www.sba.gov/ed/index.html

The Office of Entrepreneurial Development oversees a network of programs and services that support the training and counseling needs of small business. It is SBA's technical assistance arm with resource partners located throughout the country. OED is also responsible for much of the content within SBA's website, especially as it relates to starting and growing a business, online training and information resources.

Books

Here are some books we found on the subject of starting your own small business.