Business Planning and Management – Making the Business Successful

Business Planning and Management –Making the Business Successful and Generate ProfitProducer-Managed Marketing of Meat and Livestock ProductsSARE-PDP WorkshopSeptember 13-15, 2005 –Greensboro, NCRob Holland and Amanda ZiehlUniversity of Tennessee ExtensionCenter for Profitable AgricultureThis 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 whenThis 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 value-added business planningWho 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 differentSlides are designed to be used directly with farmer/small business entrepreneur groupsWhat 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 Value-Added 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 worthSummary 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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.So what is the point of the story?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 othersWhat‟s In A Business Plan?Executive SummaryDescription of the BusinessProducts or ServicesLocationLegal StructureManagement/PersonnelAccounting & LegalInsuranceMarketing PlanMarketing Strategy GoalsMarket AnalysisMarketing StrategyCustomer ServiceFinancial DocumentsPro Forma Cash Flow StatementThree-year Income ProjectionProjected Balance SheetBreak-Even AnalysisIncome StatementBalance SheetBusiness Financial HistoryPossible Exit StrategiesPlan BOption to sell out/liquidateDeveloping 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 nothingBusiness 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 statementsBusiness 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 issuesBusiness planning and management tools, rules and principles vs.the unwritten rules, intuition and entrepreneurship managementScience and Art of SuccessScience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 worthArtFlourish in non-commodity agricultureCompetitive advantage –Not ReplicationEntrepreneurshipMarketing savvyVisionMore proactive than reactive Continual improvementFocus on where and how they overlapScienceArtSuccessOverlap = SuccessGoalsVisionFood Safety & ProcessingRegulationsPricingEmployee Management & TrainingPermits& LicensesCustomersPackagingAdvertising& PromotionsPublicRelationsCommunicationsSponsorshipDistributionManagementPlanning and ManagementKeys 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 flowCaution 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 ImprovementFlourish in Non-commodity AgricultureNon-Commodity AgricultureMisconception --success is based on the commodity.What‟s more important than the commodity?LabelingLaborMarketingSamples & PromotionsSalesDistributionRecord Keeping (accounts payable)Returns/Rejects/ShrinkCommodityProcessingEquipmentPackagingRegulationsValue-Added RecipeSource: USDA, Economic Research Service, February 2004Successful Enterprises . . . And those that Are NotSuccessfulOrganic lambNatural beefGoat milk soaps and cheesesPasture-raised poultryFree-range porkChevon or cabrito (goat meats)Composted livestock wasteNot SuccessfulOrganic lambNatural beefGoat milk soaps and cheesesPasture-raised poultryFree-range porkChevon or cabrito (goat meats)Composted livestock wasteCompetitive Advantage –Not ReplicationCompetitive 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!EntrepreneurshipSo 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 managementENTREPRENEURSHIPDealing with customersManaging employeesAdding value to productFood safety and packaging regulationsMarketing savvyDistribution and other logisticsProcessing facilitiesCharacteristics 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 profitMarketing SavvyMarketing 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 PenI need a volunteer from each group to read their plan!How did you feel?Stressed?Uncomfortable?Competitive?Energized?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Marketing Plan –Main PointsHigh volume, bulk purchaseInexpensiveToss when out of inkSimple packaging and easy to useVariety of colors (red, blue, black)Target all company associatesHigh quality, prestigiousValuableRefillable ink cartridgesComplex pens, modern technologyAble to be engraved for personalizationTarget CEO, CFO, etc.VisionVision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 –FastMore Proactive than ReactiveReactive 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 creamWhat „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 ImprovementPrepare for a road of continual improvementBridge of OpportunityVisionResourcesPlanPrepare & TrainProductsMarketingRegulationsTrack & MeasureContinual ImprovementPlan to create a culture of developing processes with continual evaluation and re-formulation 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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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-thinkingSummary of the Science and ArtSuccess is Where the Science and Art CombineDevelop a plan and 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Have a vision with well-rounded goals and objectivesFind and know who your customers areBe prepared to make changes to your business and then make changes againScienceArtSuccessAny Questions