Agribusiness and

Entrepreneurship
FPE 3253
Chapter 1
Objectives
After completing this lecture, the student
should be able to:
Examine whether entrepreneurship is for you.
Describe the challenges of entrepreneurship.
Prepare a business plan
Explain the five major areas of agribusiness

management
Overview
Planning & Organizing

Entrepreneurship

Characteristics

Challenges

Agribusiness venture

Business Plan

Section 1:
The Business

Section 2: Financial Data

Section 3: Supporting Documents

Major areas of agribusiness

 Self-employed OR work for
someone else
Entrepreneurship: General
Characteristics
 Entrepreneur” is a person who accepts all the risks
pertaining to forming and operating a small
business.
 “Entrepreneurship” is the process through which
entrepreneurs create and grow enterprises.
 Reasons people choose it:
Work for themselves
Set their own hours
Test their own theories
Set prices, determine production levels, control inventory
Solve problems
Set company policy
Personal Characteristics of Entrepreneurs

 An entrepreneur should first have

knowledge or skill in the area he/she
wants to start a business, but he/she
must also be the following:
Independent, self-confident, energetic,
organized, visionary, persistent, optimistic,
committed, problem solver, self-nurturing,
risk taker, action oriented, flexible,
emotionally stable, and have a sense of
urgency
Challenges of Entrepreneurship
 Total Responsibility:
 Must manage workers, manufacturing, and shipping
 Must find customers, sell the product, and be certain
orders are met
 Long, Irregular Hours
 Longer hours than working for someone else
 Often over 60 hours/week
 Financial Risks
 Take money to start a business, run a business, and grow
a business
 Only half of all small businesses reach a fourth year
Reasons Agribusinesses Fail
 Failure is usually the result of four factors:
Management (a mismanagement of resources,
people, or products, by failure to fully plan)
Labor (unqualified and/or undependable workers
can cause failure of any business)
Finances (inability to allocate resources, debt,
and taxes can all cause an agribusiness to fail)
Undercapitalization (do not have adequate
startup capital to survive one-to two-year)
Analyzing an Agribusiness Venture
 Prior to starting a business, one must first
recognize a need (type, product, service), then
take into account several factors:
 Agribusiness startup factors to consider
 What financial resources are needed?
 what labor will be required?
 what management requirements exist?
 does a market exist for this service or product?
 where should the business be located?
 should an agribusiness be started or purchased?

 Applying business fundamentals

 Conducting a business survey (market potential)
Applying business fundamentals
 Size consistent with capital
 Devote adequate time
 Keep employees fully employed
 Maintain an inventory level
 Set price – reasonable profit
 Buy good-quantity materials at the lowest

price possible
 Treat customers and employees fairly
 etc
Differences Between Businessman and
Entrepreneurs
Businessman Entrepreneur
Low Risk Taker Moderate Risk Taker
Engages in Business activities for Starts venture, assumes leadership
the purpose of profit to support and expands the venture to fulfill
his living and his family personal goals and attains self
accomplishment
Follow others and invests only in Takes circulated Risk
tested and proven market
Differences Between Conventional Manager and
Entrepreneur
Conventional Manager Entrepreneur
Very Conscious of Rules Views rule as guidelines
Sensitive to the future and willing Concepts of the future based on
to postpone reward personnel goals.
Low threshold of Frustration
Has a power need for acceptance Ambivalent toward control,
success and responsibility. Can be
manipulative and exploitative
others
Able to identify problems in any Impatient with discussion and
course of action. Makes detailed theories. Is prone to action and
plan seems impulsive
 Want to start a business?
If so, you have to plan your
business
How to plan?
Write a Business Plan
How to write?
What is Business Plan
 Prior to the actual agribusiness, an entrepreneur
must create a business plan.
 Def: A written description of a new business that
describes all aspects of the proposed agribusiness.
 This plan allows the entrepreneur to be realistic,
honest, detailed, and objective
Why Write a Business Plan?
 Feasibility
 Marketing – Is there a market? How much can you sell?
 Management – Does the management team have the skill?
 Financial – Can the business make a profit?
 Operating plan
 Identify opportunities and avoid mistakes
 Develop production, administrative, and marketing plans
 Create budgets and projections to show financial outcomes
 Communicates your idea
 Determine the amount and type of financing needed
 Forecast profitability and investor return on investment
 Forecast cash flow, show liquidity and ability to repay debt
Who will use the plan?

Employee Managemen
t team

Supplier Shareholde
r

Bank /
Customer lender
Business Plan Outline
 Cover Sheet (Business Name, Address, Phone
Number, Principals, Plan Date)
 Executive Summary or Statement of Purpose
 Table of Contents

◦ Section 1: The Business

◦ Section 2: Financial Data
◦ Section 3: Supporting Documents
Section 1: The Business
A. Description of Business
B. Products/Services
C. Market Analysis
D. Marketing Plan
E. Location
F. Competition
G. Management and Operations
H. Personnel
I. Application and Effect of Loan or Investment
Section 2: Financial Data
A. Projected Financial Statements
 Income Statements
 Cash Flow Statements
 Balance Sheets
 Assumptions to Projected Financial Statements
B. Break Even Analysis
C. Sources and Uses of Funds
Section 3: Supporting Documents
 Historical financial statements,
 tax returns,
 resumes,
 reference letters,
 personal financial statements,
 facilities diagrams,
 purchase orders,
 contracts,
 etc.
A. Description of Business
1. What general type of business is this?
2. What is the status of the business? Start-up, expansion
or take-over?
 Start-up: Why will you be successful in this business?, What is
your experience with this type of business?, What will be special
or unique about this business?, Why will your business be
successful?
 Take-over: When and by whom was the business founded?, Why
is the owner selling?, How was the purchase price determined?,
What are the current financial conditions and trends?, How will
your management make the business more profitable?
3. What is the business form? Sole Proprietorship,
Partnership, Corporation or Limited Liability Company?
4. What are your products?
5. Who are (will be) your customers?
Potential customers
 Age
 Sex
 Income Level
 Education Level
 Geographic Location
 Occupational Area
 Leisure Interests
 Buying Habits
 Goals and Aspirations
B. Products/Services
1. What products/services are you (will you be)
selling?
2. What are the features and benefits of what you
sell?
3. What Position do you have (or want to have) in the
market?
4. How do your products/services differ from the
competition?
5. What makes your products unique and desirable?
6. Why do (will) customers buy from you?
C. Market Analysis

Questions for Existing Businesses:

1. Who are your current customers? (List largest customers or
categories.)

2. What do they buy from you?

3. Why do they buy from you? (Quality, Price, Reputation, etc.?)

Basic Questions:
4. Who are the purchasers of your products or type
of products?
5. What is the size of the market? Is it growing?
6. What is (will be) your share? How will your share
change over time?
D. Marketing Plan

Product Strategies
1. How will products be packaged?
2. How broad will your product line be?
3. What new products will you introduce?
4. What Position or Image will you try to develop or reinforce?
Pricing Strategies
5. What will be your pricing strategies? (For example: Premium, Every Day Low Price,
Frequent Sale Prices, Meet Competitor Price, etc.)
6. How will you compare with competition and how will they respond?

7. Why will customers pay your price?

8. What will be your credit policies?

9. Is there anything about your business which insulates you from price competition?

10. Can you add value and compete on issues other than price?

Promotional Strategies
11. Who are your Target Markets?
12. How will you reach your Target Markets? (What Media will you use?)

13. How will you motivate them to buy? (What Message will you stress?)

14. What is the cost and timetable for implementation of the marketing plan?
E. Location
1. What is the business address?
2. Is it owned or leased? If leased, what are
the terms?
3. Are renovations or modifications needed,
and what are the costs?
4. Describe the property and the surrounding
area.
5. Why is this a good location for your
business?
F. Competition
1. Who are (will be) your largest competitors?
List them.
2. How will your operation be better (and
worse) than your competitors?
3. How are competitors doing? What are their
sales and profits?
4. (If Start-Up) How will competition respond
to your market entry?
G. Management and Operations
1. What is the business management experience of
the management team?
2. What are the functional areas of the business?
3. Who will be responsible for each functional area?
4. Who reports to whom?
5. What will salaries be?
6. What management resources outside the company
are available?
7. How will your products/services be produced?
(Describe manufacturing processes, proprietary
technology and key supplier relationships.)
H. Personnel
1. What are the personnel needs now? In the
future?
2. What skills must they have? What training
will you provide?
3. Are the people you need available?
4. What is their compensation? What fringe
benefits will be provided?
I. Application and Effect of Loan or Investment

1. What is the total investment required?

2. How will the loan or investment be used?
3. How will the loan or investment make the business
more profitable?
4. When will the loan be repaid?
5. If you are seeking equity (selling part of the business to an
investor):
◦ What percent of the company are you willing to give up?
◦ What rate of return is possible for the investor?
Ten Ways to Ruin Your Business Plan
1. Submitting a “rough copy”
2. Outdated historical financial information
3. Unsubstantiated assumptions (be prepared to explain the “why” of every point)
4. Too much “blue sky”
5. A lack of understanding of financial information
6. Lack of specific, detailed strategies
7. No indication that the owner has anything at stake
 equity capital invested in the business
8. Unwillingness to personally guarantee any loans
9. Starting the plan with unrealistic loan amounts or terms
10. Too much focus on collateral

7-10: Especially important if the business plan is prepared for a lender

Major Areas of Agribusiness Management
 The ability to manage is probably the single most
important quality for the entrepreneur. Management
must take place in several areas:
◦ Planning (what, when, where, how)

◦ Organizing (grouping together activities, people, and resources)

◦ Directing (leading by instruction and guidance to employee)

◦ Staffing (recruitment, selection, training, and retention)

◦ Controlling (setting standards, solving problems, monitoring,

communicating)
Goal Setting for the Agribusiness
 Goals should be set prior to and during
business operations.
 These goals can take three forms:
 Immediate goals are accomplished daily, weekly, or
monthly.
 Short-term goals are set for accomplishment in a year
or two and often lead toward long-term goals.
 Long-term goals are set with the future of the
business in mind.