growth

Prerequisites for Growth

Last week we began a discussion on Avenues to Growth, and in introducing the concept we described how employing tactics to achieve that growth is meaningless without first defining your business goals, “your WHY”. The reason: how do you quantify actions without a desired outcome with which to measure those actions against?

Just get in your truck and drive. Go. Which way do you turn out of your driveway, or at the corner? Where are you going? After driving for an hour, aimlessly, where will you be?

It may be anecdotal, but there is truth in saying “If you don’t know where you’re going, how will you know when you get there?” Every time you get into your vehicle to drive, you have a goal of getting somewhere. It may be to the rink, the bank, or the store, but the point is you have a goal of where you want to go. And somehow, quite amazingly sometimes, you reach your declared destination.

Your business is no different.

Pursuing growth in business without defining what it is you’re trying to achieve is as fruitful as getting into your truck and driving aimlessly for an hour. You will have used up valuable resources (time, capital, fuel/energy, etc.)  and found yourself somewhere you didn’t expect to be. Then you have the challenge of figuring out what to do when you’re there. Turning the truck around and heading home is much easier than doing the same in business. Metaphor ended.

Step 1. Define your business goals for growth.

 


 

To achieve your growth goals, you will need sufficient resources. This opens up a plethora of subtopics that is suited to a separate discussion. For today, we will look at only one: financial.

Part of the activity in defining growth goals is to include discussion on the business’ financial resources. Does your business have, or can it acquire, the resources required to successfully implement the tactics that will achieve your goals?

Ask any banker, any financial analyst, and you’ll probably get a response akin to the importance of cash to your business. Cash is critical, often suggested that “cash is king.”

“Cash is not King…it’s the Ace!”

-Phil Symchych

To suggest cash is king would indicate that something else is the ace, meaning something else is more important than cash, and I’m here to tell you that cash is the lifeblood of your business and draining the cash from your business is similar to draining the blood for your body.

It’s true, cash is not king…it’s the ace.

“Growth, however, is king!”

-Kim Gerencser

By letting growth be the ace and cash be king, you’re placing growth ahead of cash; this is incredibly dangerous. Many aggressive businesses have grown themselves to the brink of bankruptcy by making this mistake. I recall dealing with some young farmers who pursued growth so rapidly that their working capital couldn’t keep up. They began borrowing more and more operating credit to keep the business afloat and found themselves using their operating line of credit to make their term loan payments (HINT: bankers get real squirrelly real fast when this happens.) This business didn’t have sufficient cash when pursuing their growth actions. They had no defined goals, only (what now appears to be) reckless abandon. They might have one year left, and if that year isn’t stellar they could be forced into liquidation.

Step 2. Compile (or acquire) sufficient resources for growth.

 


 

Because of my work in agriculture, I often get asked by non-farming people “How big is too big” when it comes to the size and scale of modern farm operations. My reply: I can tell you exactly when a farm is too big (as the audience waits with baited breath)…it’s the moment that the farm has outgrown the management ability of the manager! For some it’s 40,000 acres, for others it’s 400 acres. It all comes down to management capacity and ability.

Too often, businesses feel they must expand to remain relevant. As such, they pursue growth before they are ready. This can lead to management burnout, employee dissatisfaction, and lost customers. Consider a elementary school aged child; if that child has not successfully exhibited sufficient competence in math, reading, and writing, the child should not (by rights) be advanced to the next grade. Doing so will cause the child to be unnecessarily stressed in the next grade from having to learn new concepts before the base knowledge has been established. Such a situation can lead to all kinds of issues better left to the educational professionals. There is great similarity in the abilities of the manager in your business to the example of the school age child. Asking management to manage a business that has grown beyond their ability is a recipe for failure.

Step 3. Perform an audit of management’s ability & capacity for growth.

 


 

Plan for Prosperity

Aspirations for growth are born out of the desire for prosperity. Both must be planned. Accidental prosperity from fortuitous growth is not sustainable.

Growth is exciting, invigorating, maybe even intoxicating…especially when growth happens systemically, systematically, and successfully.

Conduct the 3 Step Growth Audit laid out above to evaluate your likelihood of successful growth. If you need some guidance, give me a call or email.

 

Growth Avenue

Avenues to Growth – an Introduction

There are many tactics that can be implemented to achieve growth in your business. Listing them right off the hop would be meaningless, because first we must understand your goals.

What is it you are trying to achieve in business? Why are you in business? As Michael Gerber wrote in The E-Myth Revisited, “the problem is not that the owners of small businesses don’t work; the problem is that they’re doing the wrong work.” Gerber has built a career and a successful enterprise on breaking down why most small businesses fail. In my opinion, it is summed up nicely in what Gerber calls the Fatal Assumption.

The Fatal Assumption is: if you understand the technical work of a business, you understand the business that does the technical work. And the reason it’s fatal is it just isn’t true.  The technical work of a business and a business that does that technical work are two totally different things!

Michael Gerber – The E-Myth Revisited, page 13

So, if the reason you’re in business is because you are an expert at the technical work being done in your business, you may be wondering why your dreams and aspirations of growth, wealth, and freedom haven’t transpired as imagined when you took the leap.

Business is complex. There are many facets to successful business, far more than simply “doing the work.”
Understanding that is the first step.
Asking for help is the second step.

Because if you are an expert at the technical work of your business, then is it likely you’ve struggled managing the business which does that technical work.

And growth has possibly eluded you…
Or, at least the potential for growth that your industry may present?

As a former bank lender, and having had several conversations with current bankers over the last half-dozen years since I left banking, the sentiments are the same. One banker was recently describing a client, who was a good client but could be so much better, by saying, “He builds a helluva road, but can’t manage his cash to save his life.”

Change the character to either he or she, and change the activity to almost any technical work. She/He:

  • Builds a helluva road,
  • Installs a helluva wiring system,
  • Designs a helluva house,
  • Welds a helluva bead,
  • Grows a helluva crop,

…the list can go on and on.

Just doing the work will grow your business to a point, but that point is reached when you, as the owner/manager, run out of capacity.

Dr. David Kohl spoke recently in southern Saskatchewan. He described how success requires alignment of your expertise, your capacity, and your market.
Clearly, you have expertise or you would likely not be in business.
If you operate in a market that is hungry for your product or service, then growth is ready for the taking.
Is your capacity is sufficient in ALL areas that need to be covered in order to sustain growth: management, finance, reporting, staffing, logistics, facilities & equipment, etc?
(**Did you notice that facilities & equipment was found at the END of that list?  That is symbolic.)

All too often, the “technician” owners put emphasis on the facilities & equipment because that’s where their expertise is found. It’s why the “technician” owners are more apt to fail. Getting additional equipment is the easy part; managing the cash flow, bankers, and staff is the hard part.

So in this Introduction to the “Avenues to Growth”, we have described that:

  1. You need alignment of your expertise, your capacity, and your marketplace;
  2. You need clarification of your reason for being in business; and
  3. You must define your business goals.

Plan for Prosperity

Over the coming weeks, we will be exploring the Avenues to Growth in greater detail. The explicit certainty in any growth plan is that growth must be intentional. Accidental growth or fortuitous growth is not sustainable unless the owners & management team conduct a postmortem on how and why the growth occured so that lessons can be learned, mistakes not repeated, and good decisions leveraged further in the future.

The other explicit certainty to growth: there are many avenues to get there, none are a straight line, and there is no “Easy Street.”

 

**The featured image is a screen shot from a Google street-view of Fort Wayne, Indiana. In a weird twist of irony, Growth Avenue in Fort Wayne is a dead end street.

Coach

Who Needs a Coach?

Muhammad Ali.

Wayne Gretzky.

Tom Brady.

Professional athletes…emphasis on “professional,” the best at what they did (do). Evoking cries of “The G.O.A.T.” which stands for “Greatest Of All Time,” these legends all used a coach.

Football teams have more coaches than they are allowed players on the field at any one time. Baseball, hockey, soccer, olympic squads, the list goes on…all have coaches.

Individual success, such as Tiger Woods, Venus Williams, Michael Phelps, even many CEOs of Fortune 500 companies, all use a coach. One of the best, if not the best coach of corporate executives, Marshall Goldsmith, uses a coach himself.

Right now, I have three. Each has a specific purpose, yet they compliment each other in how I benefit from having them. This does not include the advisers I use for accounting, legal, investments, or insurance where the number then increases to more than ten.

Back to the professional athlete, who is so skilled at what he or she does that they make a living doing it (and a exceptionally good living at that.) If you’re already top of your game, what good is a coach? If that were true, then everyone at the top of their game (see a small sample list above) would have fired their coach. Just because we might be at the top of our game doesn’t mean there is no longer room for improvement. None of us is perfect.

Can you and your business benefit from a coach? What aspects of your business could use some coaching?

Efficiency: is your efficiency all it could be? The old adage that I lean on is “You don’t know what you don’t know”, so is the perspective from an expert a worthy pursuit?
Finance: this relates to banking, borrowing, and investing. Is your approach more reactive to these important facets of your business, or do you regularly analyze your situation to proactively position you and your business? I couldn’t tell you how often I’ve seen something as simple as monthly account fees going totally unmonitored and therefore costing 2-3x what would be charged if a regular review was done.
Growth: this can take so many forms; I could write a book! Growth is not just about size and scale, there are many ways to grow (both personally and business.) If growth is your desire, considering how varied and complex growth can be, having a growth coach can save hours of stress, create multiples of efficiency, and help avoid pitfalls along the way.

The list is almost endless: from technology and social media to HR and governance/policy development, there is an expert available who is willing to help you take your business to new heights.

Plan for Prosperity

It is not reasonable to expect that you, as an entrepreneur and business owner, can know everything related to the successful operation, sustainability, and life-cycle of your business. And yet, considering that your business is the driver of your family’s lifestyle and a big part of your legacy, it is tragic to leave to chance so much of what is critical to business success.

Do what you do best, and get help for the rest.™

-Kim Gerencser

The quote above is a major cornerstone of my advisory work with clients, that’s why I’ve trademarked it. It’s been said that we can spend our entire lives trying to improve on our weaknesses and all we’ll end up with are a bunch of strong weaknesses. Whereas if we leveraged our strengths, the potential they create can grossly overshadow the drawbacks of any weaknesses…especially if we leverage others whose strengths are in the areas of our weaknesses.

 

 

Contrast

Contrast

Did you ever wonder how so much expansion is going on during what is supposedly challenging economic times?

In this part of the world, in fact in this part of Canada, we are experiencing economic growth that is far less than we’ve enjoyed over the last decade. Government spending has been reduced provincially, and the federal government deficit has grown exponentially; we were teased with drastic changes to our federal business income tax structure; we’re paying higher levels of consumption tax; unemployment has grown; overall confidence has declined.

And yet, we continue to see businesses growing, we see new construction in housing, commercial, and industrial levels, consumers continue to buy new cars and take vacations. On Boxing Day, my thermometer read -32 Celsius but there was a line up outside the doors of the Visions Electronics store prior to their 6am opening. How tough can these times really be?

Notwithstanding the socio-economic challenges that our society faces (none of which I am trying to discount here), behavior would indicate that the “tough times” aren’t as tough as we’re being led to believe.

Contrast the difference between 2 businesses in the same industry: both make widgets, both have sales forces, both face the same challenges of staying relevant in the sleepy industry of widget production.

Company A wants to corner the market and pursues a mission of expansion that leans hard on the idea that “bigger is better,” and expecting it to lead to greater efficiency, sales, and profits. Company A increases debt and increases cash flow spending on capital assets, technology, and marketing to fuel its expansion aspirations.

Company B recognizes the truth in the adage “Innovate or die.” While the widget production industry is sleepy, Company B knows that the status quo is not sustainable. Five years ago, Company B developed a 5 year plan to position itself to be an innovator in widget production. It carefully managed margins and cash flow so as to create a “war chest” of resources.

Which company is building a new production facility in 2018? Which company is at risk of losing not only its market share, but its best people,  to its competitor? Which company will blame the tough economic times for the decline of its business?

The best businesses, and it doesn’t matter which industry they are in, the best businesses plan. They plan for cycles, growth, innovation, and the unforeseen (like the 4 D’s: death, divorce, disability, disagreement.) Businesses that do not plan leave themselves at the mercy of the market, the fickle nature of consumerism, or “tough economic times.”

Plan for Prosperity

Planning, in and of itself, does not guarantee prosperity. Even execution of the best plan does not guarantee prosperity. But in contrast to your competitors who do not plan, who make decisions based on short term perspective and emotion, or who are happy just floating along, there is a clear and obvious line separating the grain from the chaff.

Which side of that line do you want to be on?

FOUR HANDS MALE AND FEMALE TOAST WITH MUGS OF BEER

Milestones

This is the 150th consecutive Tuesday that I have written and shared this weekly Op-Ed piece. Thank you for reading it each week. I am humbled by the number of subscriptions you have provided.

Truth be told, I almost blew right by this milestone. There is another piece I had written that was ready to be sent. It was only when preparing to load it into the emailing program I use that number 150 came to light. This gives a good opportunity to pause and reflect.

In January 2015, I was starting from square zero by going fully independent in my business advisory practice. I left behind all of the clients and prospects I had at the time to start with a clean slate and a clear conscience.

Here’s some of what I’ve learned over the last 150 weeks.

  1. Right when you think you know something, someone comes along and blows that “knowledge” right out of the water. Hence, one of the mantras I live by: Learn, Unlearn, Relearn.
  2. Success is not defined by how big your investment portfolio is, or how large your business is. As Alan Weiss says, “There Is Always A Bigger Boat™ – stop living by other people’s standards!”
  3. The greatest limiting factor in our businesses is usually ourselves. Our businesses are limited by our vision, our fears, our aversion to the right risk, or our propensity for the wrong risk. Coincidentally, this also applies to our lives.
  4. Far too many businesses continue to make decisions with inaccurate or insufficient information at best… or with emotion & a hunch at worst.
  5. Going by behavior and attitudes, the shift from farming as a “lifestyle” to farming as a “business” still has a long way to go.

What is your milestone in business? How has your business changed over that time? What is the next milestone you see?

To Plan for Prosperity

The path is never clear, there are always obstacles that will cause you to make adjustments. It is safe to say that someone else’s path may not be best for you since it’s their path, not yours, and you’re not them. Choose your path carefully, but give yourself the freedom to choose another when necessary.

  1. Clarify your definition of success.
  2. Establish specific goals that will lead you to success.
  3. Set out tactics to achieve your goals.
  4. Prepare contingencies.
  5. Execute.

I’ve revisited that simple 5-step plan more than once in the last 150 weeks. I expect I’ll revisit it several times more over the next 150. I utilize my business advisor to help me with that process; I am walking my talk…”Do what you do best, and get help for the rest™!”

Cheers to Success!

 

Complex Decision Making

Complex Decision Making

On October 21, 2017, Seth Godin wrote the following:

Decision making, after the fact

Critics are eager to pick apart complex decisions made by others.

Prime Ministers, CEOs, even football coaches are apparently serially incompetent. If they had only listened to folks who knew precisely what they should have done, they would have been far better off.

Of course, these critics have a great deal of trouble making less-complex decisions in their own lives. They carry the wrong credit cards, buy the wrong stocks, invest in the wrong piece of real estate.

Some of them even have trouble deciding what to eat for dinner.

Complex decision making is a skill—it can be learned, and some people are significantly better at it than others. It involves instinct, without a doubt, but also the ability to gather information that seems irrelevant, to ignore information that seems urgent, to patiently consider not just the short term but the long term implications.

The loudest critics have poor track records in every one of these areas.

Mostly, making good decisions involves beginning with a commitment to make a decision. That’s the hard part. Choosing the best possible path is only possible after you’ve established that you’ve got the guts and the commitment to make a decision.

 

With the benefit of hindsight, none of us is ever wrong. We can, without fear of reprisal, predict what just happened 5 minutes ago.

In business, we can not afford to avoid the complex decisions. Leaving it to chance or following the crowd is about as solid of a strategy as allowing “hope” to be your business plan…

In the next breath, we must cut ourselves some slack; large and complex decisions are daunting. It can seem easier to do nothing than to tackle a complex decision and risk making the wrong choice. But, as Godin wrote, “making good decisions involves beginning with a commitment to make a decision. That’s the hard part.”

To Plan for Prosperity

“Paralysis by analysis” is an old adage that accurately and humorously describes our inability to make a decision (and act on it) because we never stop considering different options. We might feel like a failure, or inept, if we don’t get the decision right.

In reality, more opportunities are lost from perfect inaction than there are mistakes made from imperfect action.

Test Your Outlook

Test Your Outlook

Price vs. Cost

*The following three lines are excerpted from Seth Godin’s Blog, October 16, 2017*

Price is a simple number. How much money do I need to hand you to get this thing?
Cost is what I had to give up to get this.
Just about every time, cost matters more than price, and shopping for price is a trap.

Does what Godin writes above strike a chord with you? When I hear of farmers selling out their long time input supplier to buy fertilizer for $5 per metric tonne cheaper from the dealer 20 miles down the road, I can easily understand that this is someone who does not understand price vs cost.

Expense vs. Investment

Too often there is confusion about what constitutes an expense and what constitutes an investment. An investment will provide a return over what you’ve paid, an expense will not.
Examples of investments are crop inputs, land, hired help, and quality advisors.
Examples of expenses are repairs, fuel, and equipment.
Sadly, when profitability is at risk, the first place many farmers look at is what falls under investment.

Price vs. Value

Price is what you pay.
Value is what you get.
And while it seems simple to distinguish one from the other, when emotion enters the equation we find that value is often seen where it does not actually exist.

Profit vs. Cash Flow

When I was still farming, the first year that dad wasn’t actively farming on his own any more and had rented us all his land, I was negotiating with him on when he wanted to get paid the rent (in the current year or after January 1). When he offered to defer to the new year since he had enough old crop sold already, I thanked him while admitting that it would help us since we were tight on cash for the next couple months. His reply was, “I thought you said this farm was profitable.” I told him it was, yet he wasn’t able to recognize that even though we weren’t flush with cash at that moment, we were profitable.

Often times when working with clients, I am offered a projection that they might have built on their own. Whether they call it a profit projection or a cash flow projection, it usually is a combination of both: it contains cash flow items like loan payments as well as expense items like (non-cash) depreciation. Doing so makes the result of the exercise look much worse that it actually might be.
Profitable businesses run into cash flow challenges at times; unprofitable businesses run into cash flow challenges most of the time. To rectify the issue, one must first know whether the problem is profitability or cash flow.

Problem vs. Opportunity

Recently, I read an article written by a farm advisor that described the panic of a client who hedged 30% of his new crop production at a profitable price. The panic was because the market had moved higher. His view was that this was a problem, but the advisor patiently guided him through the reality that this was actually an opportunity to price more crop.
The producer viewed the situation as a problem because he felt he “missed out” on selling for a higher price.  The reality was that he was already priced at a profit (a meager one, but still a profit) and now had the opportunity to price in even more profit. Sadly it seems he would have been happier if the market had moved down because his hedge would have been even more in the money despite the fact that the remaining 70% of his new crop was unpriced and might then be unprofitable…

To Plan for Prosperity

Objectivity can be difficult to maintain when making business decisions. I know; occasionally I have the same difficulty in my own business, and that is why I have a business advisor.

As entrepreneurs, we get caught up in what we’re doing, what we’re trying to solve, or what we’re working to create. We can get so engrossed in our own ideas that we sometimes fail to see what is blatantly obvious, that which can bring faster results, a more desirable outcome, or just less stress. Garnering the perspective from someone outside our business is a great way to test our outlook.

 

CEO Labor

CEO Labor

When we put autosteer in the tractor, it was my dad who said, “This isn’t farming if you’re not driving the tractor!”

It was a frustrated colleague of mine who said, “When driving tractors is more important than running the business, we’re near the end…”

My friend, Dean Robinson, published a great piece recently on how common it is in family businesses for the owner, the boss, the CEO to “regress” from being the “entrepreneur” back to being the” technician.” While this is common in family business, it seems like an expectation in farming. What I’m getting at is that successfully running a business involves thinking and acting like a CEO, while it is assumed that running a farm means getting dirty and operating equipment with the rest of the guys and gals in the operation. We all say that “farming is a business” but actions don’t appear to support that. Here is Dean’s column in its entirety; put the words in your own context to gauge how they apply to you.

Dean Robinson header

Dean Robinson photo

EDITION 67 – WEDNESDAY 3RD MAY, 2017
______________________________________________________________
TECHNICIAN – MANAGER – ENTREPRENEUR – PART 2

In last week’s edition of Growth, we talked about the evolution from Technician to Manager to Entrepreneur and how many family business owners are regressing from Entrepreneur back to Technician.

Here’s a reminder of the five adverse effects for your family business of this regression

  1. The client exposes themselves to risk if you are doing too much of the work yourself.
  2. You are not growing if you are not communicating often enough at a higher level.
  3. You put financial pressure on the business every time you hop into the rollercoaster of chasing work, finding too much of it, doing all of it, then running out of work again.
  4. Your bank is exposed to risk if the business is too centred around you and your involvement.
  5. Your team don’t see you as a leader, so might take instructions from you, but not direction and inspiration.

The five reasons I have given you above are motivation enough to have family business owners stop and think about why you are dragging yourself back into the role of the technician. However, it is not the biggest.

The number one reason why you should not do this is that I hear too many family business owners expressing unhappiness as to how their day to day life in business is panning out. They are fed up with the constant phone calls, the poor performing staff, the rushed deadlines, the lack of time to do any form of business planning. Yet, they turn up to their business every day and do the same old thing.

Here’s my message:

Stop it! Stop it right now!

You cannot grow a business that is profitable, valuable and sustainable in the longer term if you, the Entrepreneur, are operating at the Technician level.

If you keep falling back into the Technician’s role, you should seriously stop thinking about growing your business and, instead, lower your expectations as to what you want out of life and how your family business can fund that. You should revert back to being a Man (or Woman) in a Van and have a limited customer base that you focus on.

Now, if lowering your expectations is not on the cards, you need to think about what you need to do to ensure you not only put yourself back in the Entrepreneur’s role, but engage the three point racing harness and stay there.

There is an important element to locking yourself into the role of the Entrepreneur. I am yet to see a family business owner that can do this alone. As a family business owner, you need someone alongside you who:

  1. Challenges you.
  2. Forces you to think differently.
  3. Encourages you when you make progress.
  4. Pulls you back on track when you deviate.
  5. Supports you in your journey.

As the owner of a family business, you have complete control over the direction of your family business. However, because you are at the top of the tree in your organisation, most people don’t question you, the decisions you make or the direction you take. Which is why at times, the direction is forward, at others it is round and round, and at others still, it is backwards.

Having someone from outside your business perform this role creates:

  1. Accountability.
  2. A sense of reporting to a higher authority.
  3. A measure of progress.
  4. A degree of perspective.

Do you have someone in your family business life that is working alongside you so that you stay in the role of the Entrepreneur?

 

This Week’s Tip

“If you as the Entrepreneur, keep regressing back into the Technician role, your life will only get much, much busier as your business grows. More work for the business means more work for you personally. Which means less time for yourself and your family. What’s your choice?”

 

ABN 77 613 885 859
PO BOX 533, CAMDEN NSW 2570
(02) 4654 5000 – 0409 207 969
DEAN@DEANROBINSON.COM.AU
DEANROBINSON.COM.AU

 

Copyright © 2017 Dean Robinson Group PTY LTD, All rights reserved.

 

To Plan for Prosperity

The risks that Dean highlighted in his column should provide adequate reason to pause and reflect. Operating at a technician level (as labor) does not afford the CEO adequate opportunity to develop and execute his or her vision. Short term decisions get made from a technician’s perspective which have long term effects that are not given sufficient consideration because the CEO’s chair remains vacant…because the CEO is running equipment and not the business.

Maybe if farm CEOs spent more time in the office and less time in equipment their equipment costs wouldn’t be so high…?

 

Expansion Plans

Expansion Plans

Harry* is one of those subtle role models that every farm community has. While no one treats him like royalty, nor does he act like it, everyone knows Harry is highly respected, not just here at home, but in the agriculture community across the entire province. He has quietly, and diplomatically, build his own little empire.

Most people wonder how Harry has done it. True, they are a little envious, but they cannot understand how Harry could be so well off compared to most others in the area when he gets the same weather, he farms similar soil, and grows similar crops as everyone else. Harry’s yard is always neat and tidy, his buildings are clean and kept up, and his “not new, but not old” line of equipment shines like a new dime despite some of it being over ten years old. There are three new 60,000 bushel bins going up this spring, and a concrete pad has been poured which, if you believe what you hear on coffee-row, is for a new grain cleaner.

Harry has expanded his crop acres a little at a time, never making a big splash in the market. Neighbors usually come to him because they know he is a character guy: he always pays his rent on time, he respects their land, and he keeps them informed. Through rent and purchase, Harry has taken the 1,200 acres he inherited from his parents in 1984 and has grown it to 8,600 acres today. He owns about 6,000ac and rents the remaining 2,600.

Harry heeded some sage advice when he started out. He was told that production is only part of the equation; the haughtily delivered quip stuck with him through the years, “Farmers don’t get paid for growing it, they get paid for selling it!” While production is incredibly important in the commodity business, Harry learned early that in the commodity business you have to produce as much as possible as cheaply as possible. Efficiency of finances and expenses, not just operations, would be key.

Harry has worked diligently to keep his costs down, especially equipment. Despite easy credit and low interest rates readily available, Harry has stuck to his guns when solicited with discounts and deals on newer equipment. He has drilled down on every operation on his farm, and can tell you quite accurately what his entire cost is per acre, including labor and depreciation, for seeding, spraying, harvesting, and trucking. He knows off the top of his head when he is better off hiring custom work or doing it himself by comparing the custom rate he is quoted against what he knows are his “all in” costs.

Harry recognizes that he cannot be an expert at everything. He knows he is an operations expert because he has managed his costs to their lowest reasonable point and because he manages his crew and makes all logistical decisions to get 8,600 acres seeded and harvested with greater efficiency every year. Harry knows he is not a human resources expert, so he’s taken coaching in order to improve his employee relations; he knows he is not an expert in international grain markets, so he’s hired an advisor and subscribed to market intelligence services, he knows he’s not a financial expert so he heeds his banker’s advice and has even hired a financial and capital expert to increase his confidence in the decisions he wants to make.

Harry has been thinking about expanding the farm for a couple years now. His two children, now in their early twenties, have shown a real penchant for the farm. After taking his advice to work somewhere else (either in or outside of agriculture) and to get a post-secondary education, Harry’s children have solidified their dedication to the family farm, bringing with them their outside work experience and their formal education: one with a Bachelor’s of Science in Agriculture, the other with a Bachelor’s of Commerce. The kids get along fine, and work very well together. Their differences in interests and education will bring a real synergy to the passion they share for the farm. Harry is incredibly proud.

Two of Harry’s neighbors have been thinking about retiring for a number of years now. Being the proactive strategist that he is, Harry has been discussing the possibility of expanding the farm with his advisors. Today, Harry is supremely confident that he knows exactly what upgrades need to be made to equipment and labor, and how it would affect his balance sheet, income statement, and cash flow, should he be successful in taking on more acres.

When Harry heard that Fred’s effort to rent the land of both neighbors came up short, he was honored when those neighbors came to Harry and asked him to rent their land. Having been planning for this opportunity for almost two years, Harry has been aligning his resources and as such he has abundant working capital to take on about 2,000 acres from each of his two new land partners. After having coffee with each neighbor for a couple hours, Harry has acquired the knowledge he needs and now knows what he will seed on which field. He calls his supplier to inform them of the additions to his original corp plan and procures the required inputs. Despite it being early April, Harry gets everything in place smoothly. He knows full well what a stressful mess this new land would be if he just tried to pull the trigger without planning for how to get it done.

To Plan for Prosperity

If the story above sounds too idyllic, please know that Harry’s last name is not “Perfect” (Get it? He’s not “Mr. Perfect”!) Harry hasn’t done everything right, and he doesn’t do everything right on a daily basis. What he has done different, what he does so well is that “he knows what he knows, and he knows what he doesn’t know,” and as such, he has equipped himself with the right help and advice to fill the gap. What might be the most important thing that Harry does well is that he makes a plan, and uses great discipline to not allow temptation to lead his plans astray. He avoids the temptation to increase his costs from high priced equipment or fancy yield-exploding elixirs. He maintains his strategy of keeping costs down, and protecting cash flow & working capital as the life-blood of his business that it is.

If you asked Harry, he’d admit that there are many decision he would have made differently from knowing what he knows now. But, being strategic and disciplined has allowed Harry to grow his business, not only in size and scale, but in efficiency, profitability, confidence, comfort, and lifestyle.


*Harry is a fictional character. The story portrayed above is fictional. Any similarity to a real person or situation is purely coincidental.

 

Cycles

Cycles

The weekly op-ed by Kevin Hursh in the Western Producer is a regular read for me. His recent column, Taking Risks OK, but prepare for the next downturn is another resounding piece clamoring for farmers to sit up and take note.

Bullet proof your balance sheet during the good times, so you can catapult ahead of your competitors during the bad times.
If you get greedy during the good times, you’ll likely be on your knees in the bad times.

-Moe Russell, Russell Consulting Group, Iowa USA

We’ve all seen enough charts and graphs over the years to be able to acknowledge and recognize the cycles of the past. Has anyone ever been able to consistently predict a cycle’s beginning, end, or severity? Certainly few, if any, in the energy sector could have predicted what they are going through right now…

Your business produces commodity, and in the commodity business you have no control over the cycles that affect it. Recognizing that cycles will always be present and will always affect your business is the first step. The next step is to prepare.

The future will always belong to those who see the possibilities before they become obvious.

-Danny Klinefelter, Honors Professor & Founder of TEPAP, Texas A&M University

Hursh writes, “While no one can predict the future, it’s probably naive to think that grain prices will always be this strong relative to production costs…it would seem equally naive to think that a world grain glut couldn’t cut grain prices by a third or even by half for a prolonged time period.
” If you follow ag-economic news from the US midwest, you’ll know that farmers there have been under significant pressure, land values are dropping, and lenders are reducing credit limits and tightening lending terms. I’ve asked on a number of occasions, “Who thinks this can’t happen here (in western Canada)?” (ref. Twitter)

Market cycles will hurt some, but offer opportunity to others.
The difference between who suffers and who prospers is…Who’s Ready.

– Kim Gerencser

To Plan for Prosperity

If adhering to the advice in any of the three quotes above, to “bullet proof your balance sheet” & “see the possibilities” in order to “be ready” for the next round of business cycles…well, you better get lean!

While LEAN is possibly best known as a system of techniques and activities for running a manufacturing or service operation, in the context here LEAN means “sans fat.” Trimming the fat from your operation is a primary step to solving cash flow challenges, increasing profitability, and reducing risk. Driving down your operating costs is key to consistent profitability in a time when yields, production quality, and markets are anything but consistent.

Next, reduce the impact of emotion on your business decisions. Two basic human emotions, fear and greed, often have the biggest impact on “why” and “when” bad decisions get made.

In closing, your pragmatic 3-step plan to prosperity during cycles in the commodity business are:

  1. Get lean;
  2. Eliminate “fear and greed” from impacting business decisions;
  3. “Do what you do best, and get help for the rest™”