3. Formally explore and develop your idea

Questions Your Business Plan Should Answer
What will our product be? To whom will we market it? How will we market it? How big is our potential market? Who are our competitors?
What investments will be required to initiate our business? How much will they cost? How long will it take to initiate operations? How soon can we expect the business to generate a positive cash flow? If we will have a facility, where should it be located? How large will the business be when it starts up? What are the plans/possibilities for growth and expansion? What factors are likely to limit growth and expansion?
How will we finance our business? How large is the pool of potential equity investors? How will we attract new members/investors? Will all equity investors be producers who provide raw product to the business? How much debt financing could be serviced by anticipated cash flows?
How should the business be organized? Will we need to hire a manager and/or other employees? Are we likely to be able to attract people with the necessary management and technical skills?

If your group’s idea for collective marketing sur- vives the informal assessment phase, you’ll need to begin making more detailed decisions about the products you will offer and how you will finance and operate your business. Often this will require market research or business planning assistance that focuses specifically on your needs. For example:

The hog producers who formed Prairie Farmers Cooperative in West Central Minnesota believed they could market their hogs at a premium, but they needed to conduct research first to be sure their "belief" was correct. Using funds and technical assistance provided by AURI, Prairie Farmers Cooperative hired a marketing firm to survey retail food stores. More than 185 of 225 targeted stores responded to the survey and over half showed interest in buying fresh pork and sausage from the Cooperative. Working with the Minnesota Department of Agriculture, the group also identified retailers in Colorado who were interested in carrying antibiotic-free pork.
Tim King was looking for ways to expand the market for products produced by members of the Central Chapter of the Sustainable Farming Association. When efforts to market to local colleges proved unsuccessful, he began advertising products on the Internet, sending product and price lists to members of a sustainable agriculture electronic mailing list and to customers who had been buying imported organic coffee. This was an immediate success and King was soon making regular deliveries of beef, vegetables, and garlic to Twin Cities residents who agreed to pick up their orders at pre-arranged drop-off sites. Recognizing the strength of this customer base and the low investment cost for further development, 25 farm families, including King and his wife, Janice, formed the Whole Farm Cooperative in December 1997. Over the next several months, they worked on the details of a long-term business plan that identified investments in equipment and licensing that would be needed for start-up and projected revenues and costs for the first years of operation.
Working out the details of a marketing agreement that would enable members to maintain existing markets while encouraging collective marketing at a profitable price was the biggest challenge facing the seven growers who formed Apple Crisp Cooperative in September 1995. Each member contributed $300 that served as seed money for developing official bylaws, putting together a marketing agreement, and distributing stock to members. "We had to find a way to keep and interest growers who already had processing facilities and marketing networks. In the beginning, we couldn’t expect someone to give up a market that they had been selling to for 20 years just to join the co-op," says Harry Hoch, explaining that several interested growers dropped out of the Cooperative because of these concerns.

During this phase, your group needs to keep asking whether your idea addresses a real, continuing need or opportunity and whether collaborative marketing will produce a win-win situation for everyone involved. You also need to ask some very specific, detailed questions about how your idea will be implemented and how successful it will be. It’s important for the members of your group to be involved in developing clear answers to questions you face during this phase. Your commitment of time will increase and you will need to begin spending money if you need outside help. The way you respond to these challenges will test the strength of your belief in the idea you are developing and your ability to work together.

This phase is a challenging one for many groups. Demands on the time and attention of the steering committee increase significantly and avoiding burnout is a major challenge. The breadth and complexity of the information you need to process will also increase. To help keep track of your progress, be sure to maintain complete, well-organized files, and date all documents to facilitate subsequent discussions and revisions. Finally, following through on commitments is essential during this phase since your group will be starting to establish its reputation with potential resource providers and customers.

Establish an initial business structure

If you have not already done so, the first item on your group’s "to-do" list for this phase should be to choose an initial business structure and establish it with the help of your attorney. At this point, the structure should be simple. It should not close too many doors on future organizational forms since the final organizational form should follow from the business plan. The initial structure should establish basic governance procedures and should make it possible for your group to receive and spend money with safeguards that protect against misuse of funds.

Your newly established organization will probably have a board of directors. The board should hold regular meetings to share information, prioritize activities, and discuss alternative plans. It is important to continue delegating tasks and sharing responsibilities. It is essential to establish workable accounting and record-keeping systems. This initial board will carry most of the workload for organizational development during this phase. Members should not only be well qualified but also willing and able to devote significant amounts of time to the CMG.

Submit funding proposals

If your group will seek outside help, you will want to move quickly to prepare and submit proposals for funding and technical assistance from state and federal agencies. You should have made contact with these agencies during the informal development phase and will probably have selected one or two that will be your primary potential sources for funding and assistance. Keep in mind that writing proposals can be time consuming and there is no guarantee your proposal will be accepted. It is useful to view this effort as a first outside test of your group’s idea and your ability to communicate it to others. Be aware that many funding agencies offer assistance to new applicants. Check with the specific agency and be clear about the criteria used to award grants.

Conduct technical research and develop a business plan

With help from agencies and/or consultants, your group will need to first conduct technical and market feasibility studies to more formally assess the workability of your idea. If you determine the idea is feasible, you can then go on to develop a formal business plan. Findings from the feasibility study will help shape the plan. This may be costly and will require considerable time and effort from members of the group, but it establishes the roadmap for actually putting your idea into operation. As Rosemary Mahoney from CDS observes, "Spending $1,000 up front can save you $100,000 down the road." Funding to cover many of these expenses may be available from state and federal agencies, but your group should also expect to pay for some of this work. Success in raising funds during this phase is a good signal of potential members’ commitment to the CMG. Work with an attorney to develop procedures for raising and spending funds from membership. It needs to be clear to everyone involved how funds will be used and that they are at risk.

Developing a workable business plan takes time. The process should challenge your assumptions and often your ideas will evolve into something quite unexpected. Though sometimes slow going and frustrating, careful planning is not something to be avoided. It is much less expensive to deal with difficult, unexpected problems on paper than it is to find out your idea is unworkable after commitments have been made and money invested. Give your business plan time to mature and force yourself to ask difficult questions about each aspect of your collaborative marketing idea.

Determine necessary investments

CMGs can often begin operations without making large investments in buildings and expensive equipment. The Dawson Buying Station Network did not require any up-front investment in "bricks and mortar" nor did Apple Crisp Cooperative. Initial investments for Central Minnesota Buckwheat Growers and the Whole Farm Cooperative were modest. But some ideas do involve major investments in processing facilities. For example, based on market research, the producers who formed Prairie Farmers Cooperative concluded that they needed to process their own pork to ensure product consistency, quality, and regular packing availability. If your collective marketing activity will be built around a processing and/or distribution facility, your business plan should include technical specifications and cost estimates for the facility. In some cases, the plan will also identify one or more existing facilities that may be purchased or potential sites where a new facility will be constructed.

Apply for loans and plan for an equity drive

If your business plan calls for debt financing, your group will need to formally present it to the lender you have selected. Well in advance of your meeting, find out what information your lender will require and be sure your business plan presents it in a manner that is clear, concise, and well documented.

In most cases, financing for building and/or equipment needs to be in place before potential members will be willing to contribute equity. Under these circumstances, any debt financing that is approved will be contingent on a successful equity campaign. Therefore, your group will also need to develop plans for a membership and equity drive. Work with an attorney on this to be sure your plan conforms with security laws. Then schedule informational meetings and develop standard membership and equity contribution forms.

Decide on a long-term organizational form

As your group looks to expanded membership and considers financing alternatives, you may need to revisit the question of what organizational form will be best for your future operations. Most of the groups profiled in this publication are cooperatives, but cooperatives can take many forms and a collective marketing organization can also be organized as a partnership, a corporation, a limited liability partnership (LLP), or a limited liability company (LLC). These forms differ with respect to members’ personal exposure to debts incurred by the organization, restrictions on membership, antitrust exemptions, and tax treatment. Key characteristics for each form are summarized in Table 1 on page 24. Work with your attorney to choose a form that best fits your business and your potential membership.

Outcomes

As before, there are three possible outcomes from this phase in the development of a CMG. First, as you refine your business idea and develop a business plan, you may conclude that it is not feasible. As we noted earlier, recognizing the need to stop at this point is much less painful and expensive than experiencing the failure of an operating business. Second, your group may determine that your idea cannot be developed through collective action but may be feasible for an outside investor. If this would benefit the group, you may shift your efforts to attracting an entrepreneur who is willing and able to develop your idea. Finally, you may decide to continue developing your idea as a CMG.

next >>