It's Viable ... Now What? From Feasibility Study to Business Plan
How to move from identifying a feasible business to creating a solid business plan.
When considering creating a business, most often the first step is to conduct a feasibility study. Designed to establish if a business opportunity exists, a completed feasibility study does not determine how you intend to exploit that opportunity. That process, and eventual document, is the domain of the business plan.
This webinar illustrates, by examples and discussion, how to move from a positive feasibility study to a full business plan, and financing the operation. In addition to a "Wharton Business School education in 15 minutes," we present two case studies: a food hub, and a food processing center.
This presentation was designed for those considering creating a new business in the food value chain, or involved in counseling those who do. The presentation concluded with questions from the audience.
This is webinar is in some ways a companion to our Sept. 30, 2010 webinar. Watch the recording of that webinar.
- Franklin County Community Development Corporation - Greenfield, MA - Business Planning resources
- B Impact Assessment
- Some food hub feasibility studies
- Southern Wisconsin Food Hub Feasibility Study
- Local Food System Assessment for Northern Virginia
- Ready to Grow: A Plan for Increasing Illinois Fruit and Vegetable Production
- Building Successful Food Hubs: A Business Planning Guide for Aggregating and Processing Local Food in Illinois
Questions and Answers
Please note: Carol Coren reports that since the webinar ended, she has learned that the Wisconsin Producer and Grower Cooperative mentioned in her response to an attendee's question about rural programs has dissolved. She suggests that people interested in learning about rural food hub models examine La Montanita Co-Op Food Market in New Mexico. This enterprise operates four-stores that sell 1,100 products bought from nearly 500 local growers and producers, at a $2.7 million annual pace. La Montanita is actively invested in the operation of a new mobile grocery, “MoGro,” short for Mobile Grocery, a new enterprise that uses temperature-controlled trucks to provide access to healthy, affordable food to communities lacking regular, easy access to fresh foods and staples due to physical location and cost. The other principals in the MoGro LLC are the Johns Hopkins Center for American Indian Health, food distributor and Richard Schneiders, a retired former CEO of Sysco, Inc., the giant food distribution firm.
Q: When do you consider revisiting business plan?
A: [Jim Epstein] I am not far enough into my business to tell you from practical experience so I cannot give you an answer based on my experience. Our sales have been slower ramping up than we expected, nonetheless, we expect to hit our Year Two sales projections. As a result we reviewed and updated our financial models but not our business plan. We have not started the greenhouses even though that was part of the activity in Year One. Again, it did not seem to me to warrant changing the business plan. On the other hand, we said nothing in our original business plan about a commercial kitchen/food processing operation that is now a joint venture possibility in our smaller warehouse. Again we will crank the numbers into our financial model. If it looks as if the JV deal will happen then a revisit to the business plan seems warranted, especially if additional financing would be required. My guess is that if it is important for those outside the business to know the status… and the changes… then I’d update the Business Plan.
[Carol Coren] As Jim points out, financials are subject to repeated revision . New circumstances such as a different location, an opportunity for a new market channel, a change in supplies and interest on the part of an investor with special requirements require revision. Remember that the need for revisions occur as a result of what you learn and what opportunities occur during the course of your initial plan’s implementation. The plan is not an academic exercise but rather a roadmap to a destination that might not be as set in stone as you would have liked. You should also check in with your financials on a frequent basis: weekly as the venture takes off and certainly on a monthly basis thereafter, particularly in regard to cash flow and P&L.
Q: What are your thoughts on the efficacy of incubator processors such as John Waite, rather than all emphasis on Food Hubs
A: [Carol Coren] Incubators are touchy ventures that should have anchor tenants in place and in line if they are to cover costs. There are many issues that affect their performance and too many have had to be subsidized beyond their start up phase. Without the capacity to recruit and retain a select group of firm and long term, frequent user tenants are in place, the prospects are grim. Right now there are few combinations of incubator/food bins in operation. The ability to receive, clean, package and advance deliveries of fresh foods or to serve as a storage facility/distributor for packaged foods is in some respects at variance with what an incubator has space and capacity to do. One issue though that most incubators confront within a year of opening is the need for storage space.
[John Wiate] I agree with Carol that having anchor tenants is very helpful for an incubator. Because incubators serve a wide variety of businesses and purposes there are many moving parts and they all contribute to the sustainability. Initial costs are a big one. We took longer fundraising to start our Food center so we wouldn’t any debt. Two incubator kitchens in New Hampshire folded because of debt. We also decided to build a smaller kitchen than originally planned so we could do it in the building that the parent organization already owns. On paper the Food Center does pay rent but during the early years they didn’t have to. Paying a Manager, whether the Center is booked up or not, is vital so the Center can maintain health and safety standards. Regarding processing, I think it’s a natural extension of getting more fresh foods onto the market and for climate challenged places like New England it can extend the season for regionally grown foods.
Q: How can we work with city and businesses to start a non-profit organization?
A: [Carol Coren] That could be the subject for a NGFN webinar and for discussion with public sector economic development professionals. It is best though to start with an effort to educate the public sector and local business stakeholders about the merit of finding ways to support local food systems and build a constituency for this that will show up at community meetings and endorse proposals. In some respects you need to mount a campaign to get the attention of people whose help could move a project onto a fast lane for zoning, financing, marketing and sales.
Q: Question in general: for food-based businesses that are serving their local communities, how do you address the concept of Exit Plan, particularly if you are seeking equity financing?
A: [Jim Epstein] Our business is by nature rooted in the “local.” As a result we did not contemplate an exit in the traditional sense that we would sell the company to a bigger entity. This would go against our commitment to remaining local in both our sourcing and our customers. One advantage of going forward with a Benefit Corporation model is that enlightened investors looking for impact investments that serve the common good and are good investments are much more likely to respect that the return will come from a growing business not a realization on the sale of the company.
[Carol Coren] The aim of many who are striving to operate as social enterprise entrerpreneurs is to build ventures that perform on a local level and that reward stakeholders in accordance with terms agreed upon in advance. Though mergers with other local and/ior non-local groups could prove useful it is not likely that divestiture will be seen as beneficial unless it is through a sale of the enterprise to employees or other local owners. As Jim says, the aim is not for leaving but rather for finding ways to stay on where and as you are. Had social enterprise models been in place and promoted in the recent past, enterprises like Ben and Jerry’s ice Cream might still be locally owned and controlled. Once stockholders come into play with expectations of substantial capital gains, the social enterprise model is endangered. It is for that reason that exit issues are and should be addressed in By-Laws.
Q: What are the differences between a business plan for a non-profit and a for-profit enterprise? Is the business plan format the same for both, or are there other considerations to be explored for a non-profit model?
A: [Jim Epstein] From my perspective, anyone contemplating a non-profit model still needs to apply the same financial rigor to the analysis. What changes is the sources of funding – different kinds of investors if you will, looking to make an investment in you but not expecting a return of equity, just a beneficial return to the common good.
My advice would be to seriously contemplate a for profit model. I see the food system changing dramatically over the next few years and with that shift there will be plenty of economic opportunities in which a for profit business can thrive. Any feasibility study will tell you how big the local food industry is and how little is actually sourced locally. In the DC region – $16.8 Billion and 7% local. If 2% more shifted to local in our region, that represents $336 million in additional local food. That in itself is a BIG number. (Our facility tops out at $100 million a year) Moreover, a profitable business (with values supporting the common good) is holistically sustainable and has a much more profound impact over the long term. An added bonus – many of our growers really appreciate that we are a for profit business. They like to see that we make money as well.
[Carol Coren] The business planning for nonprofit ventures should address issues that impact the charitable or public purpose as well as those that impact the creation of goods or provision of a service. Also, the potential response of private sector competition needs to be considered and treated as a risk. Capitalization plans might but need not include grants and gifts as well as earned income, bond money and loans.A significant advantage that the NPOs have is their ability to attract and receive grants.
[John Waite] Business Plans need to be well researched and organized no matter what the owner structure. I think Non-profits may be more difficult because you have to focus on the financial sustainability (profitability) as well as the social costs and benefits. I call our new projects “pilot” while a for-profit may call it R&D, but it’s similar. We’re all trying to figure out how to do things better.
Q: I would be interested in learning about some of the case studies that Carol just spoke of [not sure when this was asked, but might have been the coop that folded
A: [Carol Coren] Check out some of the case studies in this monograph on multi-stakeholder cooperatives: http://www.uwcc.wisc.edu/pdf/multistakeholder%20coop%20manual.pdf It chronicles several food related coops. Also, note that some of the most successful cooperatives outside of credit unions in the USA today are in the food arena: AWG, Wakefern, WINCO stores in OR, etc. Since the webinar ended, I have learned that the Wisconsin Producer and Buyer Cooperative mentioned in my response to an attendee's question about rural programs has dissolved. (NOTE: this coop is described in the monograph noted above) I suggest that people interested in learning about rural food hub models examine La Montanita Co-Op Food Market in New Mexico. This enterprise operates four-stores that sell 1,100 products bought from nearly 500 local growers and producers, at a $2.7 million annual pace. La Montanita is actively invested in the operation of a new mobile grocery, “MoGro,” short for Mobile Grocery, a new enterprise that uses temperature-controlled trucks to provide access to healthy, affordable food to communities lacking regular, easy access to fresh foods and staples due to physical location and cost. The other principals in the MoGro LLC are the Johns Hopkins Center for American Indian Health, food distributor and Richard Schneiders, a retired former CEO of Sysco, Inc., the giant food distribution firm.
Q: How can nonprofits get startup capital to launch farm enterprises? We don't have collateral for loans, and because we will be small scale, paying fair wages, and growing organically, our profit margin will be too small to attract private investors
A: [Carol Coren] Partnerships with Churches might be a way to go. Also, some areas now have preservation farmland that might be ready to be conveyed to new generations. Efforts need to begin to find ways to finance new farmers and to help them secure long-term or lifetime access to these lands. The issue of the need to outfit a new generation to work the land is looming and groups like The Reinvestment Fund are developing strategies to raise capital and provide new farmers with realistic products for financing. Several Healthy Food Financing forums are going to be held around the country this winter and spring to bring CDFIs (Community Development Financial Institutions) onto a level playing field in this area.
Q: re: business/financial model....could you comment on Sacred Commerce Model as practiced by Gratitude Cafe
A: [Carol Coren] I think their efforts and commitment coupled to their growth into 6 stores and a productive e-commerce component is commendable. I do note that the ecommerce catalog appears to have more in the way of novelty items and gifts than foods from local farms. They are clearly trading on their value propositions and meeting needs that exist in the markets/communities they reach. Their web page doesn’t offer information about their start up financing so I am assuming they raised capital from the founders, their families and friends.
Q: for John- what portion of each farmers produce did you purchase for farm to institution and if you can share what other outlets did they sell through?
A: [John Waite] The past 3 years we have purchased only a small portion from each farmer, although this year one farmer said he sold us half of his pepper crop. Each year, as we are able to purchase more and the farmers feel more confident about us they have said they will plant more and sell more to us. Getting more income to our regionally farmers is one of our main goals, so this seems to be working. Most of the larger farms we purchase form don’t do direct sales. They sell to a middleman or to supermarkets.
A: [John Waite] Our Local and State government folks understand that new endeavors need some support and are willing to fight for it if it leads to economic growth in the future. We have a 22 year record of owning and operating a small business incubator (non-food business) that has “graduated many growing businesses that now own their buildings and pay taxes which is positive for governments and taxpayers. As long as we can demonstrate job creation and business success some people should support some reasonable subsidies. Having said that government subsidies are much more difficult these days, but some foundations appreciate this work.
Q: What kind of support do you get from the government?
A: [Jim Epstein] Blue Ridge Produce went entirely the private equity route. We felt it would simply take too long to wait for public funds to come through especially since we had a time constraints (a property to purchase).
[Carol Coren]Carol: Some projects get a tremendous amount of public sector support but take a long time to do so. The Rutgers Food Innovation Center took nearly five years to put in place with production facilities. A business development division of it operated during that period and developed public support and business partnerships with food industry operators during those years. It raised all of the funds it needed from federal grants, the Casino Commission, state grants and enterprise zone resources available to the township where the Center is situated. Other projects such as Greensgrow in Philadelphia launch new ventures with combinations of grants and loans. The Farm started as a hydroponic food production facility but quickly moved to raised beds, production on a 2 acre farm in a nearby county and an array of marketing initiatives. It has sought out public and private grants as venture capital and applied such funds to new program startup costs so as to be spared the debt servicing burdens that John Waite cautions against. If a Greensgrow program doesn’t achieve self-sufficiency after a few years (during which it is subjected to careful assessments and financial performance reviews) it is ended.
[John Waite]Not much anymore. We did receive 3 grants totaling $800,000 to build the W. MA Food processing Cener, but we’ve had to keep it going with fees most years. We have received some private grants for the purchase of some equipment.
Q: How do you develop the questions for the feasibility study?
A: We often rely on community food assessments and economic development agency studies to identify areas where exploration is needed. A good deal of creative desktop research is needed to get background needed to inform the questions raised. We also do a good many interviews with stakeholders and potential customers as well as focus groups and surveys.
Q: Distinguish "financial model" from "business model" please.
A: A business model is the legal structure selected for organizing the venture. A financial model is the range of options for the business or founding group. It ranges from a go for broke for profit, social enterprise trading off consequences for earnings, or nonprofit intent on covering costs and holding a reasonable surplus for emergencies and opportunities.
Q: What did the 'S' stand for in that PEST study again?
A: PEST STUDIES: political, environmental, social (community), technical
Q: For John Waite: are these farms organic?
A: We only worked with one organic farm and we produced Marinara sauce that went to Williams College. We also froze small packets of veggies for a few CSAs.
Q: Did any of the speakers get paid external support in raising funds for their feasibility studies, business plans, or overall projects' implementation? If so, how was that technical/relationship development support compensated?
A: (John Waite) We received about $30,000 from the MA Dept. of Ag. for the feasibility work, then we took about 2 years to raise $700,000 and we put in another $100,000 plus took the risk of filling the gap during the early years.
Q: Are the 3 C's different for Ecommerce businesses?
A: no....the need for capital, service cost management and cash flow are very bit as critical for a web based enterprise as for any with fixed capital costs.
Q: Are there different business models that work better in certain communities--i.e. small, rural vs. large urban?
A: (Carol Coren) I have not ever heard that the type of community matters.
Q: Carol, do you have any example of biz models that include government or councils of governments?
A: Some of the big potatoes in this arena are Pikes Place (coupling through an authority a city organized housing complex to a long- standing tailgate center in Seattle), the Philadelphia Food Distribution Center, the Mercado in Minneapolis, and a growing number of small and large food hubs and culinary school linked processing centers.
Q: My husband and I are members of the Southern Illinois Food Works and are attending the SI Farm Beginnings program. We are in the process of putting a business plan together for a small dairy goat creamery based in Southern Illinois. Do you have any info on sample BP for goat dairies?
A: contact your extension people for guidance they might have samples.
Carol Coren is a business development specialist with expertise in social enterprise, management consulting, marketing, and the food industry. She has started two US Treasury certified Community Development Financial Institutions, conducted regional branding campaigns for arts and cultural organizations and women's social services and advanced innovative technologies for environmental restoration and remediation projects in rural and urban settings.
Ms. Coren worked for six years with Rutgers University's Food Innovation Center where, as a Cooperative Development Specialist and Business Association Mentor, she assisted entrepreneurs, community groups and rural service organizations on an array of projects including food enterprise development, food production and distribution, urban agriculture, coastal windmill farms, solar energy, waste recycling, Main Street Public Markets, Farmers Markets and purchasing cooperatives. Prior to that, she served as Director of Community Programs for the Oregon Food Innovation Center where she helped advance food ventures as well as high tech initiatives in areas such as RFID tagging and food safety assurance programs.
Ms. Coren served as a member of the USDA’s E-Government Advisory Committee in 2004 and 2005 and has a background in media production, marketing and broadcasting. She was a pioneer in advancing microenterprise investment applications of Individual Development Account saving programs around the United States and has worked with a variety of groups on issues having to do with financial literacy.
Her education led to her receipt of a Master of Fine Arts degree from Temple University’s School of Communications and she has worked as a broadcast media producer for public and commercial television stations. Her interest in using media as a community development tool led to her involvement in youth broadcasting programs overseas; in her advocacy of online distance learning programs; and in her promotion of social networking for business development and marketing.
During the course of her career, she has served as a director of nonprofit agencies and led them through workouts of financial problems. She also helped raise funds for environmental restoration and remediation businesses, launched a successful, enduring Jersey Arts Campaign, and supported the work of the Roy F. Weston Foundation’s development of programs to advance environmental and science education. Her community service includes participation as a volunteer board member or advisor to the National Campaign for Sustainable Agriculture, CASH-Oregon, Family Planning Council of SE Pennsylvania, United Way of Columbia-Willamette, Community Leadership Seminars of Philadelphia, the Falls Township (PA) Industrial Development Board, and the Portland, OR Community Food Matters. In recent years, she has been involved in efforts to bridge urban-rural divides forming in the USA and overseas. She has traveled widely and has worked as an advisor to economic development programs in Southern Sudan, Armenia and Kyrgyzstan where she played roles in advancing micro-enterprise loan programs, business training and management consulting ventures and economic development initiatives in rural communities.
Jim is the founder and Chairman of EFO Capital Management Inc., a family investment firm based in Washington D.C. Jim is the developer of Belmont Bay, a mixed-use, pedestrian friendly community on the Occoquan River near Woodbridge, Virginia and is finalizing plans for a village development at the north end of Culpeper County, Virginia. Early in 2011 he founded Blue Ridge Produce, a for profit local food aggregation operation that sources food from Virginia and the eastern seaboard for sale to grocery stores, food service companies and distributors in the Washington Metropolitan area. Jim is a member of the Congress of New Urbanism and Social Venture Network. His wide- ranging interests have led him to serve as Chairman of Dance Place and DC Greenworks, as a Board member at Triskeles Foundation, and as an Emeritus member at Pathfinder International, an international family planning organization founded by his grandfather.
John Waite is the Executive Director of the Franklin County Community Development Corporation. John began work at the Franklin County CDC in March 2000 after having been involved with small business and economic development in Africa, Central Asia and New York City since 1983. At the FCCDC, John has helped expand the Business Technical Assistance and Lending Program, and helped raise $900,000 to build, equip and operate the Western MA Food Processing Center. The Center is now 10 years old and has served over 220 food and agricultural businesses. John’s most recent endeavor is focusing on farmers and institutions to build a local food system that is fair to all parts of the food value chain and will get more locally grown products into the institutions throughout the year.
With a BA from the University Massachusetts and a Graduate Degree from Columbia University John has been a volunteer and staff person with the Peace Corps, worked with CARE International, and consulted for several Microfinance programs.