What should be considered for selection of best alternative?

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Entrepreneurialism
Decision Making Process

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A range of creative policy or management alternatives designed to address the objectives is developed. Alternatives should reflect substantially different approaches to the problem or different priorities across objectives, and should present decision makers with real options and choices.

Good solutions are not possible without good alternatives. Yet we often move to a single solution, without truly exploring distinct and creative alternatives. Technical teams take on the task of delivering “recommendations” to decision makers. But often these recommendations encompass value judgments that are better made by decision makers. Usually, what decision makers need is good information about a small, carefully thought out set of alternatives – their consequences, key differences (trade-offs) in their consequences, and the response of key stakeholders with respect to these trade-offs. Generating good alternatives is a source of important insights both from a technical perspective and a values perspective.

Most often, an alternative is not a single action, but a set of actions – a ‘portfolio’ , “strategy”, or ‘package’ of individual elements that together provide a comprehensive approach to the decision situation.

In this section we explore:

The characteristics of good alternatives
Generating alternatives from objectives and criteria
Screening
Developing strategies or portfolios
Refining

Characteristics of good alternatives

Developing good alternatives is an iterative task. Initially, the task is to generate a range of creative alternatives. These alternatives are carefully evaluated technically, in terms of their estimated consequences. They are also evaluated deliberatively, in terms of their relative desirability. New alternatives are generated, joint gains are found and the key trade-offs and uncertainties are highlighted. By the time alternatives are presented to decision makers, they should be:

Value-Focused, meaning that they are explicitly designed to address the fundamental values or ends of the decision – the “things that matter” or “felt needs”, as defined by the objectives and the evaluation criteria;
Technically Sound, meaning that in developing alternatives for achieving the objectives, the project team has drawn on the best available information about cause and effect relationships and has designed creative and diverse alternatives based on sound analysis;
Clearly and Consistently Defined, meaning that all alternatives are defined to a sufficient and consistent level of detail using logically consistent assumptions, and that a base case against which all alternatives can be compared has been clearly established;
Small in number and high in quality, meaning that poor (dominated) alternatives have been eliminated and those remaining have been iteratively refined to incorporate new ideas and joint gains;
Comprehensive and mutually exclusive, meaning that individual elements or components of a strategy are combined into complete packages, and that the packages are directly comparable;
Able to expose fundamental trade-offs, meaning that they emphasize rather than hide difficult but unavoidable value-based trade-offs and present real choices for decision makers;
Developed collaboratively with the people most affected, because difficult trade-offs are easier to make and to accept when people believe that a thorough search for good alternatives has been conducted and that the best alternatives are on the table.

Key Ideas

First, you must orient your group to the problem
Second, your group must specify what matters in the decision
Third, your group must decide how to evaluate whether or not potential solutions can achieve the objectives
Fourth, your group will create a variety of alternatives for decision makers to consider
An alternative is a set of actions providing a comprehensive approach to the decision problem
Good alternatives share a number of characteristics

The agricultural industry in Iowa is dominated by commodity production, which is a high volume, low profit margin industry. Narrow profit margins force farm businesses to grow in assets, output, and labor for income to remain profitable. Farmers unable or unwilling to grow must look to higher margin alternatives. The question becomes which alternative?

Choosing among the large number of alternatives can be a daunting task. It involves a decision making process, as well as an understanding of financial statements and analysis. It usually involves either creating a totally new business or related enterprise. Lastly, choosing among alternatives is hard work and will require some entrepreneurialism.

This publication is intended as an overview outlining the major steps in the decision making process of choosing among alternative agricultural businesses or enterprises. It is not intended to be a one-stop resource. Numerous resources and references are available to the agricultural entrepreneur looking at starting a new business. Some of those references are listed in this publication.

Entrepreneurialism

An entrepreneur is often described as an innovator. They have a strong desire to create something new, a vision of how the business will grow, and the drive to make it happen. Entrepreneurs evolve as they develop new skills. People aren’t born entrepreneurs they develop into them. Entrepreneurs are concerned with risks and risk management and do whatever they can to minimize their risk. Although entrepreneurs work hard at minimizing risk, the businesses they are creating are often noncommodity types of business. These businesses are by their very nature more risky. The first question then that needs to be answered by a potential new business developer is: am I a risk taker? The American Women’s Economic Development Corporation and Women in New Development created an entrepreneurial quiz, which is presented in Table 1. For each question, pick the answer that best describes you. You must answer all questions for the test to be accurate.

After all the questions have been answered, assign 3 points for each “yes”, 2 points for each “maybe”, and 0 points for each “no”. Total up all the points. According to the test developers if the score is between 60 and 75, a business plan can be started; score between 48 and 59, additional skills need to be developed in weak areas or personnel need to be hired that have those skills; score between 37 and 47, potential partners should be looked for to compliment weak areas; and a score below 37, success at selfemployment is unlikely. Keep in mind that quizzes like this one are simple tools intended to see if an individual has personal attributes similar to already successful entrepreneurs/business people. They are not intended to be a final answer. The decision to start a business can only be made by the individual.

Decision Making Process

Once the decision has been made to look at creating a new business or enterprise, a planning process should be determined. Numerous resources with a variety of lists exist on how people go through the decision making process. Most processes start with goals designed to begin defining the business idea. This is often followed by a current assessment. The purpose for these first two steps is to begin to determine the feasibility of the new venture. It is important that there is a broad focus on products, markets and ideas. From the broad focus, a concise concept will be developed. If the process is started with only one idea in the beginning, the number of opportunities is often limited and risk increases. Therefore, it is better to keep an open and flexible mind in the early steps.

From the assessment or feasibility analysis, a concise business plan should be developed. The business plan, however, still needs to have a flexible focus on the product market and ideas. Flexibility is important because conditions and the business environment change. The last step is to fund or finance your business idea. Keep in mind that many new entrepreneurs want to start with financing the business, focusing on sources of funds first. Without a concise plan, often new businesses exist only as long as the stream of financing is in place. Start with goals.

The decision making process should always start with goals and abilities. Ask questions such as: what do I love to do, what do I know how to do, and what do I do well (Bubl and Stephenson, 2001). Maybe a better question is what is motivating me to plan? Start with the last question first because it will determine the overall goal. The other questions will help narrow and refine the decision making process. Goals vary and are either non-financial (e.g., partner- ship with the local community or provide healthy products) or financial (e.g., provide a fair return to my labor and management). Goals that are financial should be compared to existing businesses or industry averages to determine if they are realistic.

Current assessment.
Current assessment involves a better understanding of the resources available and the strengths of the business. The potential for the new products need to be understood. Who are the customers and what do they want? Secondly, an assessment of the current resources needs to be made. Does the current business have the land, labor, management, and capital to meet the potential market? Are there financial resources available to get the proposed product to market? These questions as well as others (see Sullivan and Greer, 2002; Born, 2001) are designed to evaluate any new business or enterprise.

What alternatives to look at – feasibility and planning.
Once a current assessment is completed, alternatives that match up with the assessment can be evaluated. According to Joel Salatin (referenced in Sullivan and Greer, 2002) there are several factors that will help make the initial choices. Alternatives should have low initial start-up cost and high gross profit margin. They should have relatively low maintenance requirements and high cash flow relative to expenses. Alternatives should have a history of high success rates among new enterprises and high demand/low supply in the current marketplace. Lastly, alternatives should have high product distinctiveness and be relatively size-neutral regarding profit potential. Each of the potential alternatives should be evaluated through a feasibility process. A feasibility study is intended to look at the multiple alternatives and narrow them down to one. The narrowing process should take the following into consideration. First, the alternative should match the goals and objectives of the business. Second, the alternative should match the current assessment of the strengths of the business. Third, market opportunities need to exist for the products. Lastly, the product should be able to be made efficiently and effectively.

In essence the narrowing of the alternatives to one and the refining of the initial business concept leads to the development of a detailed business plan. Numerous sources and guidebooks are available to help evaluate alternatives and range from very simple to more complex. Simple evaluation worksheets can be obtained from Wood and Isaacs (2000) or Grudens-Schuck and Green (1991). A much more detailed step-by-step process is outlined in "Building a Sustainable Business: A Guide to Developing a Business Plan for Farms and Rural Businesses" (2003) available from the Minnesota Institute for Sustainable Agriculture.

Summary

Developing a new agricultural business or enterprise is hard work and requires a decision making process involving goals, current assessments, and business planning. Non-commodity business development also requires innovation and the aptitude to take risks (entrepreneurialism). However, there are numerous resources available that can help agricultural entrepreneurs through the process. Some of the resources are listed in the reference section at the end of this bulletin. Other business startup and planning resources can be obtained from the Small Business Administration, Agricultural Marketing Resource Center, and the Iowa Small Business Development Center. Last, but not least, perhaps one of the best sources of information related to a new business or enterprise is someone who has already gone through the process.

Craig Chase, local foods extension specialist, 515-294-1854,