RIVER FALLS, Wis. – More consumers are craving local, artisan food products. Value added dairy products are a part of this demand.
    “Whether it’s for you really depends on your passion, desire, creativity and a sound business value proposition,” Joe Folsom said.
    Folsom is the executive director of the Pierce County Economic Development Corporation in River Falls, Wis. He also works with small businesses as part of SCORE in St. Paul, Minn.
     Before deciding if value added is right for the dairy, farmers need to consider the product they wish to explore and the consumer base for said product.
    Consider the community in which the dairy is surrounded by.
    “Because of Pierce County’s vicinity to the Twin Cities and metro area, there are a lot of smaller producers exploring marketing opportunities due to their vicinity to the metro market,” Folsom said. “If done right, they can distinguish themselves and be successful.”
    Value added farms Folsom has worked with include those featuring grassfed beef, rural experiences and education.
    Then, conduct a value propositions test with real customers.
     “Identify the product or service that will differentiate yourself from the competition and get feedback,” Folsom said. “Test the proposition. Is it something marketable? Does it make sense? Does it have great value to you?”
    Use the lean startup business canvas to evaluate, define and test the value proposition. This methods shortens product creation cycle and viability determination.
    The process includes testing and refining the value proposition products and services offered with real customers.
    “Real customer feedback is crucial,” Folsom said. “Do not rely on friends and family.”
    The canvas should include nine building blocks – customer segments; value propositions; channels; customer relationships; revenue streams; key resources; key activities; key partners, and cost structure.
    Once the canvas and its building blocks are structured in a way that makes sense for the business and value proposition has been tested, proceed to develop the complete business plan.    
    “You don’t need to do it alone,” Folsom said. “Reach out to the local resources within your community for assistance and guidance.”
    Folsom suggested connecting with the area small business development centers and SCORE chapter, where free one-on-one mentoring and counseling is offered to guide farmers through the business development process.
    Specifically in the agriculture community, there are a wealth of free tools and resources available to create a business plan for value added farms. Aside from Folsom’s organization in the cities that offers online templates and worksheets farmers can use when putting together a business plan, he also encourages people to use the University of Minnesota Center for Farm Financial Management AgPlan.
    “AgPlan lets you ask questions and breaks the business plan into small components so you’re not staring at an overwhelming outline,” Folsom said. “Once you have the business plan complete, it becomes a living document you can present to investors and lenders, and manage your business.”
    In preparation for the business’s success, farmers should analyze in great detail the business’s capitalization, cash flow and other facets to help plan accordingly.
    “The last thing you want to do is run out of money when sales take off,” Folsom said. “Expect to invest some of your own capital to have some skin in the game. This shows investors you’re putting something at risk and have a passion for what you’re doing.”
    Aside from having the financial stability to start up a new venture, the product and its marketplace will weigh heavily on the farm’s business success.
    Folsom stressed the importance of understanding the product in the marketplace.
    “Just because you have a [product] in mind doesn’t mean it will be the best for your customers,” he said.
    As the marketplace is further understood and the product is developed to meet those needs, continue working with investors of the business, such as lenders and spouses.
    “These people are partners in your business. All too often, we don’t ask for help until it’s too late. If we can engage in open dialogue, we come up with a better solution and vision moving forward,” Folsom said. “We’ll work through challenges, and when we all get pulling in the same direction, that’s quite exciting.”
    There is ample opportunity in value added for dairy farmers. If there is a product or service no one else is offering, then begin small to capture that segment of the market.
    “Does interacting with customers and building those relationships fit into your wheelhouse of skills?” Folsom said. “If it’s not your cup of tea, then maybe this isn’t the right fit for you.”