An idea for a business is not a sufficient reason to begin production straight away. It is essential to be aware of the different aspects involved in actually running the business. To reduce the risk of failure, producers should first go through the following aspects and finally develop a business plan.
1. Assess yourself as an entrepreneur
The success of any business depends largely on the entrepreneur’s personal characteristics, skills and financial situation. To be a successful entrepreneur you need to:
- Have a strong commitment to your business
- Have strong motivation to own your business
- Be able to take considered risks and to make important decisions
- Have the support of your family and friends
- Have the necessary technical skills to produce the product of your business
- Have enough business management skills, such as selling, record keeping and costing, to run a business of your own
- Have sufficient knowledge of your line of business
- Have sufficient personal funds.
2. Conduct a feasibility study
To reduce the risk of failure it is necessary to decide whether the idea is feasible. This involves carrying out a short market survey and feasibility study. The following are the stages of a feasibility study:
1st stage: Market feasibility
- Market research
- Selling strategy
- Expected market size/share
2nd stage: Technical feasibility
- Scale of production needed to meet market share
- Equipment, materials, services and labour needed for scale of production selected
- Quality control
3rd stage: Financial feasibility
- Start-up costs
- Loan required
- Cash-flow for one year (income and expenditure)
- Business development over three years
4th stage: Decision
The first stage is to collect as much information as possible on the potential market for the products you intend to make. This is achieved by carrying out market research, usually in the form of a market survey of the target population in the area you intend to sell the product.
What is market research?
Market research is the process of investigating a market to find out the sales prospects for a product and how to achieve success with it. It is the set of activities necessary to obtain the information required about the market. Market research is important to avoid the failure of food processing ventures. Market research activities include the following:
- Consumer questionnaires
- Tasting tests to see if people accept the
- product or which taste they prefer
- Interviews with retailers and wholesalers.
1. Market research: the necessary steps of market research are as follows:
1a. Work out the size of the potential market:
- What is the potential market area?
- Who will be the potential customers?
- What are the potential outlets?
- Who will be the competitors?
- How much of the product can be sold? (what quantities of the product are already sold and what quantities of similar products are being sold?)
- What is the seasonality of demand?
1b. Research consumer attitudes towards the new products:
- What, where and when do consumers buy?
- What are consumers’ preferences about tastes, smell, texture etc?
- What is the consumers’ reaction to packaging and labeling?
1c. Find out how the new products can be made attractive to consumers:
- What are the size units and prices of competing products according to location?
- Where are quality weaknesses of the competition?
- Which containers are used for competing products?
- Which labeling is used by competitors and what are the legal obligations regarding label and contents?
1d. Identify the most appropriate option for distributing products:
- Direct to consumers?
- To suitable retailers in an area?
- To supermarkets (if sufficient quantities can be delivered)?
- To wholesalers (suitable for larger processors)?
- To institutions and the catering trade?
1e. The factors to be considered in deciding on the marketing channel to use include:
- Quantities processed and quantities required by distributors, transport and payment arrangements, margins and mark-ups
2. Market Share
Estimate the proportion of the total market that the new business could expect to have (likely market share)
3. Scale of Production
Once you have found information about potential customers, their requirements and the likely share of the market that could be obtained for a new product, it is necessary to calculate the monthly and daily production required to meet that demand