LESSON TEN: HIGH TUNNEL BUSINESS

PLANNING AND MARKETING

High Tunnel Fruit and Vegetable Production

ObjectivesIdentify 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) Idea2) Organization3) Feasibility4) Planning 5) Capital 6) 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) Local Impact2) Market3) Technical Resources4) Final Projections5) Management

FeasibilityLocal 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 startsGood 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) Identification2) Analysis3) Strategy 4) Action5) Evaluation

Marketing

1) Identification – Constantly scan marketplace for areas of threat or opportunity

2) Analysis – Priorities are set based on ‘potential’ customer demands.

1) How quickly will opportunity/threat develop? 2) How will it impact our products and operations? 3) Is it likely to become of major importance? 4) How would our investors expect us to act? 5) What is our ability to react to

opportunity/threat? 6) 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

facilitiesMarketing 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 successProducer 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

demandPricing Methods

Relative Pricing – Acquire price info from competitors Cost-Oriented Pricing – Best method, must know costs

of production