Like all businesses, agribusinesses should be built around a product/service and a niche market. Ideally, more products and services spawn more business models with some models eventually becoming separate business units. When that happens, it becomes easy to assess the viability of each business model. Contrary to some beliefs, in a business model, money is just like salt. Without meat or vegetables, salt is useless. The salt owner should be interested in those with meat, potatoes, tomatoes and other products. On the other hand, while some commodities need salt, some consumers don’t need much salt.
Confusing a business plan with a business model
Most agribusinesses lack models. They confuse a business plan with a business model yet a plan assists in executing a model. A model is an attempt to turn your innovation into profit or economic value. The following pillars help to characterise a business model without over-simplifying the complexity in agricultural value chains:
- The owner — who will provide the product or service.
- Value proposition — What need or solution do you want to address? Have you addressed a need? Absence of a value proposition is the main reason why we end up with copycats, who just watch what another person is doing and try to imitate rather than focusing on the customer. A need is a value proposition. What loans are needed from the customer’s perspective? To what extent is a reasonable interest rate a solution to farmers? What if a loan amount is the real need? What if the main issue is unfavourable conditions that insist on collateral not in line with the agribusiness?
- Market segmentation — Who are you targeting? Are you targeting farmers, traders, transporters or individual consumers? A clear target will enable you to model in line with business behaviour. Most models, especially financial ones, are locked in systems. It is important to create your own market niche that can inform what products to provide.
- Distribution channel — What is your distribution channel? How are you going to reach your customers cost-effectively? Most banks ended up setting up brick and mortar structures to establish presence. However, the entire value chain may be better supported by ICT-inspired channels. Where point of sale (POS) machines are missing at other value chain nodes, clients get stuck. For instance, loan disbursement will not be useful if traders cannot transact from rural agro-dealers where they stay. Neither can loan repayment be smooth. When clients get money, they want to use it somewhere. It is important to understand destinations where money will end up being used. That will enable the building of other networks like between farmers and agro-dealers who also know what farmers need. Concentrating on the immediate client is a big mistake, particularly in the network economy.
- Identify niche markets — Invest in building relationships or ride on partners who have already built networks. That is how you can build more models and networks.
- Best use of resources — resource configuration. Should you go and rent a building or work through agents?
- Identify core competencies — What are the skills, knowledge, abilities, expertise and attitudes available for supporting all other pillars?
- Networks — You cannot work in isolation. Which partners are you going to collaborate with? Trying to dominate the whole value chain speaks to unjustified enrichment at the expense of other actors.
Some of the fundamental considerations in agribusiness models
It should be about capturing everyone. Start with early adopters who can assist you in refining as you go? Do not dream of creating wealth if you are not creating wealth for others. Starting with others builds a sustainable base for your wealth. From early adopters you are able to refine your financial strategy. Most business models have too many messages which end up confusing potential clients. Concentrate on a core message and few benefits.
If tobacco farmers who come to the market once a year get preference for cash from banks, what about traders who are in the market throughout the year and drive food markets? That ignorance is counter-productive because it lures many farmers into tobacco, leaving other potentially lucrative commodities. Why don’t banks enable traders to also get cash when they need it? That is why traders end up locking their money in the market with their relationships with farmers. They know that once they bank it, the money will be given to external value chain actors who are not interested in agricultural markets.
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