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Avoid These Pitfalls When Growing a Value-Added Ag Business

Safeguard expansion efforts by recognizing and addressing potential challenges that could impede the success of your value-added agriculture business.

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Updated:

March 6, 2025

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Growing a value-added agriculture business can be both an exciting and anxious time. No one plans to expand a business with the expectation of failure. Therefore, an awareness of issues that can negatively impact the success of an expansion can be helpful in guarding against failure. While the following points will be discussed in the context of growing or expanding a value-added dairy foods business, they are equally relevant when launching an enterprise.

It is important to keep in mind that:

Everyone's business situation and circumstances are different
Everyone has a different risk tolerance
Everyone has different goals
There are always exceptions to the rule - someone will be able to point to another who succeeded despite falling victim to one of these pitfalls.

Consider the following business scenarios:

You have the opportunity to sell through more outlets,
You have the opportunity to sell your product nationally
You have the opportunity to expand your product line.

"Opportunity" is the keyword here. Simply because something is an opportunity doesn’t mean it is the right path for your business or that difficulties won't be encountered while pursuing it. When presented with business opportunities, we need to be aware of the pitfalls that accompany them.

Pitfalls to Growth Success

Failing to Plan

This pitfall is probably the most crucial to avoid. A plan explains why and how you're expanding. When you fail to plan and don't have a pathway to guide you during growth, you can lose sight of your mission and/or vision and risk misallocating resources.

When starting a value-added venture, it is important to have a plan to look to for guidance during business growth. Your plan should include the "why" that is driving you to expand, why growth is a positive thing for your business, and how you envision doing so.

When you don't plan, it's easy to lose sight of your mission and vision, and without these guiding you, just like the lack of a plan, it becomes tempting to chase every opportunity that presents itself. New opportunities might look attractive, but chasing too many could result in your resources being spread too thin. A lack of proper research could lead to misdirected focus. Even worse, it could affect the success of each opportunity you pursue. The planning process helps ensure that you do the work necessary to ensure a solid foundation for growth.

Veering Away from Your Expertise or Specialty

The opportunity to grow your business exists because you have a quality product that customers want (either for themselves or to sell to their customers). When you veer from your expertise, you may alienate core customers or, perhaps worse, sacrifice product quality or safety. When either of these happens, the impact can be substantial. You may experience decreased customer satisfaction, loyalty, revenue, or damaged credibility or reputation.

When growing or considering growing your business, you may be tempted to explore options that aren't entirely in your wheelhouse. For instance, it may be jumping too quickly into processing a product you're not skilled at making because you want to take advantage of a trend or see other businesses achieving success with that product. Consider what happened with Eastman Kodak, the noted camera manufacturer. Behind the curve in adapting to digital photography, Kodak instead expanded into pharmaceuticals, memory chips, healthcare imaging, document management, and many other fields, none of which brought great success (Newman, 2010).

When you abandon your expertise or are not centered on what brought you success to this point in time, you are at risk of alienating your core customer base. They may question their importance to you or your business purpose. These can, in turn, lead to decreased revenue if customers no longer feel your product is deserving of their money and damage to your business and personal reputation. Instead, try to emulate businesses that have been able to grow and expand while maintaining their mission and vision.

Inflexibility

While it is important to plan and develop a map for how to grow your business, sticking rigidly to your plan can also lead to failure. Planning is also intended to provide you an opportunity to assess aspects or forces that may impact your business and necessitate a deviation from your preferred plan. Remember one purpose of an analysis of strengths, weaknesses, opportunities, and threats (SWOT) – to guide you in exploring external threats and opportunities to your business and industry. A SWOT analysis is intended to open your eyes to what could potentially occur, allowing you the time to plan options if those opportunities or threats become real. Inflexibility prevents you from making necessary adjustments or exploring more profitable or beneficial opportunities. Consider the PC software giant Microsoft. This company remained so laser-focused on software that it missed out on related opportunities such as Web TV, E-books, smartphones, and tablet PCs (Newman, 2010).

So, whether it has to do with your product line mix, the market channels and outlets used, or your business operations, try to ensure that you do not adhere so strictly to your original vision or plan that you are unable to adjust or explore because no one knows what the future holds.

Not Understanding the Market

Having an accessible and willing target market for your products is vital. As your value-added business grows, your potential audience's make-up, needs, and values may differ from your existing customer base. Take the time to understand the potential new audience, which may have different characteristics and values depending on whether business growth is due to geographic or product line expansion.

As an existing small business, if you serve mainly your local community, staying in touch with customers' needs can be easy. However, this can become more difficult during a geographic expansion when you do not have the same amount of face-to-face customer interaction. Before expanding, do the market research necessary to avoid a costly mistake. Study how or whether customer needs change based on geographical location. If so, you might be able to expand your product offering to fulfill these needs.

Focusing on your customers is critical when doing your research. What do your customers need? Does your product meet this need? Putting your customers first can increase their loyalty and trust, leading to greater product demand and profits.

The danger in not understanding the market is that you do not adapt your marketing strategies. Knowing your market helps drive your sales and marketing strategies. Never assume that if a strategy works with one market, it will succeed with another. Adapting doesn’t mean compromising your brand; it means tweaking your sales and marketing strategies within each market.

Not Maintaining Brand Consistency

Customers rely on and expect brand consistency. Confusion resulting from inconsistency can inhibit sales, revenue generation, and growth. Consider this story from the blog of brand management company Marq -

"Imagine you have two friends. One of them always follows through on their commitments, and you always have some idea of how they'll respond to a given situation. The other is emotionally unstable and constantly flakes on you, so you never know how they'll react when you speak to them. Which of the two would you trust more? Now, imagine that we're talking about two different businesses instead of friends. One maintains a consistent identity and positive communication with its customers. The other's behavior is best described as eclectic and disjointed, and no two brand messages are the same. Again, which comes across as the more trustworthy of the two?"

Consistent branding breeds trust and loyalty with consumers. It shows that there is stability with your business and products and that you know and are committed to your business's mission, vision, and values. Brand consistency also demonstrates standards regarding product quality and customer service.

Aspects of branding to review to ensure consistency include:

Common visual elements (colors, logos, signage, etc.)
Common slogans, sayings, or terminology
Labels and packaging
Promotion/communications
Online presence
Brand personality
A general code of conduct (employees)

To read more about building your brand, see the article Branding Your Farm Business.

Poor Management

Whether it is sales, marketing, human resources, accounting, distribution, or any other task, as a small business owner, you are likely accustomed to doing much of this work yourself. What does poor management look like? It includes trying to do everything yourself, micromanaging employees, not growing your workforce, hiring unsuitable employees, providing inadequate training, or not providing clear expectations. These actions may result in poor productivity, inconsistent results, and errors, all of which can jeopardize business success.

In addition, trying to do everything yourself when growing your business can lead to owner burnout because you fail to implement the necessary systems and processes needed to sustain the business in your absence, resulting in a lack of infrastructure. Careful planning will help identify the systems, processes, and people needed to support growth. It is important to recognize when to search for and hire outside help for your growing business operations.

Not Staying Current with Regulatory Requirements

Depending on how your business grows, there may be additional regulatory requirements that you will need to adhere to. Regulations may have to do with product processing/manufacture, employees, or marketing and sales. For instance, if you are expanding your product line, be sure to acquire the necessary permit(s) from the state before that allows you to process that product legally. For example, if you are currently pasteurizing milk for fluid milk sales but want to expand into manufacturing raw milk cheese.

You may be expanding by selling through new market channels and outlets. Ensure you follow any required regulations at the state, county, or township level. Or have your sales and revenue increased such that under FMSA, where you have been a qualified facility, you are now a covered facility? If you are working with international markets, do you need to comply with the Foreign Supplier Verification Program (FSVP) of FSMA?

Changes to the type and/or number of employees you have also often accompanies business growth. Make sure you comply with requirements regarding pay, overtime, insurance, workers’ compensation, food safety plans, etc.

While audits may technically fall outside of regulatory requirements, they can be an avenue to open doors to new markets. Some markets may require compliance with a third-party audit program to establish a business relationship. Thoroughly explore the costs and requirements associated with those programs before making the leap.

By failing to stay atop of any new regulations or existing regulations that may require additional records or paperwork, you increase your business's risk exposure due to inadequate/incomplete records, recalls, lawsuits, or damaged reputation. All of these come at a financial cost as well. It is your responsibility to understand the existing regulations and how they apply to your business. Reach out and ask.

Growing Too Fast

Growth should not be viewed as a competition. Businesses grow at different speeds and over different time frames. Growing too fast can be a danger to long-term success. Specifically, two financial dangers can result from this pitfall: poor cash flow and overcapitalization.

When businesses grow too quickly, cash flow problems may occur. Cash is needed to buy more inputs, pay employees, and expand marketing campaigns, among other things. Until products are sold and cash comes into the business, cash on hand to pay expenses may not be available. Therefore, a detailed plan for ensuring adequate cash flow is required. This may include an operating loan from your lender, for example.

Overcapitalization occurs when your business has more debt than its assets are worth. Perhaps this resulted from purchasing assets when prices were too high or taking on a loan with an interest rate higher than the return the investment generates. If you are overcapitalized, you may have to pay high interest, thus decreasing profits, which isn't sustainable.

It is essential to have a financial plan that you’ve worked with your lender to develop that includes a scenario analysis to assess your financial position under different conditions.

Not Monitoring Progress

However you grow your value-added business, you need to ensure that you are monitoring the progress of that growth. Opportunity prompted you down the path of growth or of considering it, so how will you evaluate whether you made the right decision? Will your measure(s) be increased product numbers sold, gross profit margin, revenue growth rate, new customer growth rate, customer retention rate, return on equity (ROE), market share, number of full-time employees, some other measure, or a combination of these? These measures are commonly referred to as key performance indicators (KPIs), and as an existing business, you should already be monitoring some of these measures. Which and how many new KPIs you decide to add to your monitoring will be determined by your product and marketing channels and should be decided during planning.

When you fail to monitor progress, you risk missing possible warning signs that may lead you to adjust your growth plan. These warning signs may include changing market conditions, consumer preferences, or regulatory requirements.

Consider what tools (software, etc.) would help monitor progress. For instance, should customer relationship management (CRM) software be implemented to manage and track buyer interactions? Are you or an employee skilled at data analysis? Should you perform regular customer satisfaction surveys? This ties back to planning.

Unrealistic Expectations

Some of us may dream about being the next Jeff Bezos or Joanna Gaines – owning immensely profitable and well-known businesses. And it's not wrong to set high goals for ourselves and our businesses. High expectations can be motivating and inspire confidence in us from others.

The downfall comes when expectations are unrealistic, and then we are disappointed if those expectations are not realized. Additionally, you may fail to seize more reasonable and practical opportunities.

For example, you might convince yourself to grow too rapidly or invest more than you can afford because you believe so much in what you can do and the success of your value-added business. Unfortunately, this could risk not just your business's future but your personal finances, too. Ensure you don’t rush into expansion without having done the research and preparation to assess the likelihood of success.

Avoid unattainable expectations by sharing your plans and inviting feedback from a team of trusted individuals (mentor, lender, consultant, etc.). Planning can help manage unrealistic expectations by forcing you to set realistic timeframes and targets.

Approaching Business Growth

More pitfalls may accompany business growth than what is covered in this article, as well as additional aspects to the pitfalls discussed. For instance, there are considerations to weigh if you decide to take on investors to fuel growth. This article aims to help you safeguard expansion efforts by recognizing and addressing potential challenges that could impede the success of your value-added business by highlighting issues and providing some strategies to decrease the associated risk. So, it is by no means an exhaustive list, but hopefully, one that gets you pointed in the right position of assessing your individual situation.

When growing your value-added business, knowing your vision and goals for the venture is key. With that determined and agreed upon by the principal players in the business, approaching growth is more manageable and can be done strategically. Your goals will lead you as you identify the needs for achieving them. Keep these points in mind –

Rely on your team
Develop a plan that includes key performance indicators (KPIs) and measurement metrics
Hire expertise that you don't possess
Set realistic expectations
Be flexible on the details

Remember, you may decide that growth is not a reasonable or feasible goal for your business, and …that’s ok!

Disclaimer: Where individual or trade names appear, no discrimination is intended, and no endorsement by Penn State Extension is implied.