Fifty percent of new value-added farm businesses fail, says David Kohl of Virginia Tech.
He said many farmers find it difficult to tackle the multitude of roles required by human resources, marketing and operations. In addition, it often takes longer than expected to get products accepted in the marketplace.
Kohl said poor accounting is another cause of failure. Good accounting skills are needed to determine critical issues such as how many sales a day are required to break even. Farmers also have to figure they will need at least 25 percent more capital and time at the outset.
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A lack of an effective operations strategy can result in unproductive periods for workers, said Kohl, who added that niche businesses always need to be working on the next product to keep ahead of competitors.
He said it’s important to examine overhead and management costs, get the most out of capital assets like equipment, pinpoint costs of production and have a good working capital strategy.
“Costs are established locally, price is established globally,” he said.
Success comes from offering a unique product, service or experience, and having a location that values and rewards the product. He said the value-added businessperson needs people, sales and marketing skills and a long-term plan to build a brand, not just a farm.
“Successful management isn’t doing 1,000 percent better, but doing 1,000 little things one percent better,” Kohl said.
