Better is Better

Better is Better…

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Would you rather make $50/acre profit on 20,000 acres or $100/acre profit on 10,000 acres?

This is a question I ask any farmer who admits to pursuing aggressive expansion. As was aptly described in a recent edition of FCC’s AgriSuccess  in May 2017, journalist Kevin Hursh discusses cost effectiveness of farm expansion with Kristjan Hebert. Kristjan has been quoted in this commentary a number of times in the past because he is the first person I hear using the term “Better is better before bigger is better.” To his credit, he admits that it isn’t his phrase; he heard first heard it from someone else.

The question posed at the beginning of this piece is meant to evoke an admission of any business flaws that have crept in to the practices and decisions that drive aggressive expansion.

The point is acknowledge that for all the risk undertaken in the operations of any agricultural enterprise over the course of one year, the end result must recognize the effort involved and the risk taken. If you’re working harder and risking more, why would you accept less profit? True, the linear dollar profit is the same in this example, but the profit per unit (in this case, per acre) is half. Anyone who can prove that their whole farm costs, right to the paperclips, are also halved is welcome to step up and prove that bigger is in fact better. I’ll wait…

There are many advisors who have questioned why any commodity production business would want to rapidly expand before doing the best job they can on what they already have. The argument on what led to the mindset of expansion at all costs hasn’t been settled in over 20 years, and won’t be settled here today. But in the end, we can do better, we must do better, because now we know better.

And the words are true: Better IS Better…

To Plan for Prosperity

This week’s piece is purposefully pithy. It is meant to drive awareness of the “Costs and Effects™” of the decisions made in our businesses. Every choice we make has a consequence, and to truly “be better,” we must evaluate each business decision on its merit, not how it makes us feel.

While bigger can sometimes be better, it’s guaranteed that better is always better.

 

Discipline

Discipline

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Over the last number of weeks, we’ve contrasted two fictional farmers and their approach to managing growth, and specifically an expansion opportunity. One failed in his aspirations, the other succeeded. One of the major factors contributing to the results of both examples is discipline.

“Fictional Fred” was lacking discipline. He shot from the hip, and ran his business in a reactionary fashion. He did not make it habit to consider the impact of the decisions he was making, whether it be adding another combine late in the season, or attempting to take on additional land that would equate to an immediate 66% increase in cultivated acres. He recklessly adds equipment to his business which has driven up his equipment cost. This has also come with the cost of damage to his relationship with his primary lenders. Fred behaves in a way that many people think is entitled. He’s done few favors for himself with his recent actions.

“Imaginary Harry” exercises great discipline in how he manages his business. He has a strategy that was constructed with the aid of his trusted advisors. He is confident that his strategy is the best way to achieve his family, business, and financial goals. As such, he establishes operating plans each year that follow his strategy; he maintains a capital expenditure (CapEx) plan that follows his strategy; he sticks with the cash flow and financing plan that follows his strategy. He’ll always politely listen to the pitch of those who are trying to sell him something (because everyone wants Harry to be their customer) but if it doesn’t fit into his strategy, Harry doesn’t buy.

Strategy is not written in stone. Strategy is a a concept as much as it is a plan, and as the CEO you need to be able to adjust your strategy when the environment changes.
Discipline is a character trait, a behavior, that equips a person to avoid distraction and stick to the plan, and as the CEO you need to be able to maintain discipline when warranted, but also be able to permit flexibility when needed.

To test your disciplinary mettle, the next time you face a distraction, ask yourself the following:

  1. How will this decision affect my strategy (my goal) of achieving ___________?
  2. Will this have a positive or negative impact on my cash flow and profitability?
  3. Is this a “want” or  a “need”?

To Plan for Prosperity

As defined by Merriam-Webster, strategy is “a careful plan or method for achieving a particular goal usually over a long period of time,” and discipline is “a way of behaving that shows a willingness to obey rules or orders.”

The strategy is yours, you created it. To not maintain discipline to your own strategy is aptly described by Marshall Goldsmith in his book Triggers: “(you’re) failing a test that (you’ve) written!”

 

Strategy

Strategy

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In the last two issues through prose, we’ve contrasted two differing approaches to managing growth opportunities in a farm operation. “Fictional Fred” shot from the hip, taking more of a “ready, fire, aim” approach to business. That style has a time and place, and even if it isn’t your core modus operandi, there may be situations where you need to act fast to take advantage of an opportunity before it’s gone. In most businesses, however, a gunslinger approach such as this does not make for a long term sustainable enterprise.

By contrast, “Imaginary Harry” ran his business with more precision. He understood that the best way to improve profitability in a commodity production business was to stringently manage all that he could control, recognizing that there is so much that cannot be controlled.

Fred wanted to get bigger, but he overlooked being better. Harry wanted to get bigger only if it made him better.
Harry has a defined strategy that he is acting on, and he is making more money because of it.
Fred’s strategy, if he even has one, is loosely put together, and like that of a sweater of similar description, would come apart completely at the first snag.

Define Your Strategy

A business operating without a strategy is eventually caught up in “the spin-cycle.” Like a clothes washing machine, around and ’round it goes: daily tasks and routines repeated each day, weekly repeated each week, monthly repeated each month, yearly repeated each year. As days, weeks, months, and years go by, without direction and strategy the time marches on and business results fail to meet expectations. Then who is to blame? Let the finger pointing begin!

If your strategy is to be the biggest, then declare it. Make it your success criteria.
If your strategy is to be the least indebted, then declare it. Make it your success criteria.
If your strategy is to continue the family legacy and take over the family business then declare it. Make is your success criteria.

To Plan for Prosperity

The point is not to tell you that your strategy is right or wrong; the point is to HAVE a strategy.
Having no strategy is like shooting targets with a shotgun: you’ll hit something, but it might not be what you wanted.

passion

Passion

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“A business without passion is merely a job.

A passion without business is merely a dream.

Making a business of your passion is a bountiful success.”

This morning I was in an email conversation about “mastering your craft” with a fellow business advisor, an incredibly intelligent woman who also happens to be one of my best friends. It reminded me about one of the points I would make during my many speaking engagements over this past winter: sometimes passion is not enough.

We’ve heard it and read it before. It falls out of the mouths of motivational speakers everywhere. It is seen regularly on daytime talk shows, infomercials, and of course, the interweb. “Follow your dreams…harness your passion…” What if passion is not enough?

There are many who venture into “business” who are either ignorant or willfully blind of the financial and management side of “business.” Often they believe that their skill and their passion are all that is necessary to be successful in business. As Michael Gerber wrote in The E-Myth, “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 that it just isn’t true. In fact it’s the root cause of most small business failures.”

Just because you’re a great cook does not mean you should open a restaurant.
Just because you’re a great welder does not mean you should start a manufacturing company.

This is not to discount the importance of mastering your craft. Realizing on your passion is a gift too few of us ever get to realize. BUT…if you intend to make your passion into a business, you need to know BUSINESS!

I don’t know anyone anywhere whose passion is “cash flow,” but it is an integral part of business that must be intimately known, or the gap from startup to liquidation could by mighty small.

To Plan for Prosperity

During many of my speaking engagements this past winter, I’ve suggested that a simplified strategy can be 1) Find what you are passionate about, and 2) Determine if you can make money doing it. Passion on its own is not enough.

There is a difference between “business owners” and “people who own businesses.” The former are entrepreneurs; the latter have bought themselves a job. Despite “The Entrepreneurial Myth” as Gerber defined it, all hope is not lost for those who have fallen into it. The people who will be most successful are those who can admit they need help in areas where their passion does not lie.

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

 

 

Cycles

Cycles

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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™”

 

Complacency

Complacency

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You may recall the anecdotal story of an old fisherman sitting on a pier casting and catching all morning. With each catch, he’d pull out a small ruler to measure it. Some fish he’d keep, while others got thrown back. Upon closer observation, we learn that the ruler is broken and only measures to 9 inches; on top of that, any fish that measures more than 9 inches is thrown back while the smaller fish are kept. When confronted, the fisherman admits that his frying pan is only 9 inches in diameter.

When I was farming, on a number of growing years we put up some huge yields, bigger than my dad ever grew. His feedback was, “It’s too much (crop). What are going to do with it? There isn’t enough bin space!”

In both stories, we see examples of where there is a lack of interest or intent to be better, bolder, etc. And if something did not fit the narrow view, it was discarded as being more work that it was worth. Yes, progress brings about new challenges that differ from those we are familiar, but the opposite (meaning status quo) will eventually lead your business into its death-spiral.

Complacency is an incredibly dangerous business condition. You can’t always see it coming. It may be contagious. Treatment is sometimes difficult if sufferers refuse to consider they may be affected. Complacency causes your business to stop growing. It creates an environment where too often heard around your farm are the 6 deadliest words in business: “We’ve always done it this way.”

To Plan for Prosperity

  1. Know what you do best, and keep striving to do it better and better.
  2. Acknowledge what you don’t do well and get professional help with it so that it doesn’t become your Achilles heel.
  3. Recognize that GROWTH is not just size and scale. Seek out multiple ways to grow.

“Do what you do best, and get help for the rest™” is one of the cornerstones of my advisory work with clients. Complacency can be dealt with quickly with the right help, positive results can be had, and the “habit” can be broken.

MISmanagement

Operational MISmanagement

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I recently had an experience on my least favorite Canadian airline which was so bizarre that laughter was all I could do in the moment.

The original plan was as follows:

  • 5:50pm Chicago to Toronto;
  • 2.5 hour layover at Pearson, relax, eat, maybe get some work done;
  • 10:55pm Toronto to Regina.

While waiting to board the 5:50pm flight, watching time tick on and on, and even though our plane was at the gate and empty, there was still no one boarding the aircraft at 5:50pm. Yet, the information screen at the gate insisted that our flight was “on time.”  I snapped this picture and tweeted it.Operational MISmanagement

At 5:55pm, an announcement was made: due to runway construction at Toronto airport, our departure from Chicago was being delayed until 9pm. We were instructed to go relax, find something to eat, and come back to the same gate at 8pm. (If you’re keeping track, that is a three hour delay which would have us landing in Toronto at 11pm…5 minutes after my flight home was to leave Toronto for Regina. Clearly, I’m not going to make my connection.)

After to speaking face to face with an airline “customer service agent” (you can infer that the quotes are meant to imply sarcasm) I was informed that there were no other flights on other airlines that might get me to Toronto to make my connection. When asked who would be picking up the cost of my hotel room in Toronto since it was clear my connection would be missed, the response was “We (the airline) don’t do that. But I can give you a food voucher for here (Chicago O’Hare), just be back by 8pm to board this flight.” He hands me a $15 voucher, which was about enough to buy a bottle of water and a piece of gum in O’Hare…

As I begin to circle around to find somewhere to eat, I find myself walking right past my gate, and see a line of people boarding the plane!! The information screen at the gate now says the flight will leave at 6:50pm (If you’re keeping track that is 1hr delayed from the original schedule, but a full 2hrs ahead of what was we were told 15 min earlier.) So I board the plane.

Despite the posted 6:50pm departure time, an announcement from the flight deck is made at 7:15pm: “We’re just waiting on a few passengers and then we’ll push back from the gate. Due to runway construction at Toronto Pearson, we will be unable to reach our gate in Toronto upon arrival. So we’re going to push back and sit on the tarmac in Chicago for 1 hour; we can sit on the tarmac here or in Toronto, it really doesn’t matter. So you know, it’ll be about 1hr from push back to liftoff.” I still can’t understand why we needed to board just to sit in the aircraft when we could have remained in the terminal and actually had something to eat…

Finally we have inched our way to the runway. Wheels up at 8:10pm. One hour flight to Toronto, plus the time change, and we touch down at 10:10pm. Because it’s Toronto, there is 15 minutes of taxiing; we’re at the gate at 10:25. I have 30min to clear customs, clear security, and make my connection home. Now if only the 22 rows in front of me on the flight had been courteous enough to let those of us with a connection off the plane first… To their credit, the airline did request that other passengers without a connection remain seated. No one complied.

long lineMy legs still ache from being at a dead run, with luggage and wearing a suit coat, for what seemed like a mile despite likely only being half that. My Nexus card allowed me to bypass the 308 people in line at customs (I was at a dead run, no I didn’t stop to count them) and thankfully at 11pm, there was no line at security. I am grateful to my fellow passenger coming from Chicago, just as late as I, trying to catch his connection to Montreal. He new where to go to get to our concourse (his departure gate was 2 down from mine.) I would have been lost had I not been following him.

They closed the doors to the jet bridge as I ran up to my departure gate. Through gasped breath, I explained in 2 sentences why I was late (regretfully, I may have used a few expletives.) The gate agent was without a doubt the best person I’d been in contact with from this airline on this day. She let me through, I boarded, and got home as planned.

 

To Plan for Prosperity

Operational MISmanagement costs airlines millions of dollars and immeasurable goodwill. Just have a look at United Airlines’ woes over time… Here are my questions relative to my experience described above:

  1. Runway construction at Pearson did not start unannounced on that day. The airline would have known about it for a long time. Why would we only be notified AT the time of original departure (5:50pm)?
  2. How can a 3 hour delay turn into a 1 hour delay in 15 minutes?
  3. Why rush to board only to sit on the tarmac for an hour before liftoff?
  4. People actually missed that flight, and in my mind it was because the airline told them to come back to board at 8pm but was now leaving the gate by 7:20pm. Part of the delay pushing back from the gate was because their luggage was being removed from the plane. I can’t even formulate a question for this, it is so asinine!!
  5. I was likely to miss my connection due to no fault of mine, yet the airline wouldn’t offer to pay for my hotel. How much do they value their passengers?

M-I-S is capitalized because if refers to your Management Information System. Your Management Information Systems, whether you’ve formally addressed them or not, are put to the test as you approach spring seeding. Tracking inventories (seed, fertilizer, fuel, parts, etc.), people (who is operating what & where), and cash (keeping vendors paid, moving grain as required) are all part of your M.I.S. Lose control of one piece of your M.I.S. and see how things are affected.
What are the impacts of seeding too soon, seeding too late, missing a pesticide application window, running out of fuel, or running out of capital…?

You have a system to get your crop seeded, to get it harvested, to manage all aspects of your business in between. It keeps your business running without a glitch, or in the case of a hiccup it provides adjustments to get back on track.

If Air Canada has any sort of “system,” it’s not working. I’m not sure how they stay in business. They could benefit from a good business advisor…

Who is your customer

Who’s Your Customer?

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Twitter was (are you ready for this) “all atwitter” recently over the forcible removal of a passenger from an overbooked United Airlines flight.
I recently picked up on a Twitter conversation where a farmer was railing on “family farms” that are bigger than the family can operate (his logic was around size & scale of a farm that needs hired help is no longer a “family farm.”) His argument focused on how consumers hear “family farm” yet see large businesses that are worth millions, and how that could affect credibility.
I spent this past weekend in Las Vegas; my first time. It was easy to spot variations in customer service that range from excellent to hardly adequate. (FYI: I specifically chose to not use the term “barely” adequate because in Vegas, that has no many other meanings…)

One might think I spend too much time on Twitter. Actually, I find myself spending less and less; I am not an ideal social media marketer.

Regarding United, they made the decision to overbook this flight (and probably hundreds of others in any given week.) They knew it would inconvenience their customers and might even lead to a firestorm on social media (which it did.) By these actions, United has done a poor job of understanding its customers.

The farmer twitter bit about how consumers might perceive the message of “family farms” has some merit. We’ve learned that consumer perception need not be confused with facts (this is known as the post-truth phenomenon) and no matter the message, truthful or otherwise, belief rules all. Notwithstanding all that, the agriculture industry has done a poor job of connecting with consumers to create sufficient trust to ward off this post-truth B.S. we’re now swilling in…

Service in Las Vegas, a city built on tourism, is varied. Cocktail servers in most casinos were terribly uninterested and submissive, while dealers were all pleasant and engaged. The hotel housekeeping staff always offered a smile and “Good Morning!” to everyone that passed by. Servers in restaurants were generally outstanding.

Recognizing who your customer is and how to connect with them stems from culture. Culture is driven by the organization’s leadership, and is reflected in the environment it creates for employees to interact with customers.

To Plan for Prosperity

It matters not if you are United Airlines, a farm, or a Las Vegas hotel & casino, your customer are not your shareholders, your employees, or your suppliers. Your customers are those who purchase or consume your product or service. Your customers are how you monetize the work you do. How are you making it easier for your customers to want to do business with you?

 

CYFF

CYFF (Canadian Young Farmers’ Forum)

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Greetings from CYFF

The Canadian Young Farmers’ Forum brings together farmers from across Canada. This past weekend in Ottawa, they held their annual convention and invited me to speak as part of their agenda.

There were many takeaways from the event; here are a just a few, with my perspective following in brackets.

  1. Agriculture is incredibly diverse right here in Canada. (We shouldn’t just stay in our little echo chamber with others who produce the same as what we do.)
  2. Even with such diversity, young farmers face similar challenges across all sectors and across all provinces & regions:
    1. Building and protecting adequate working capital is difficult (I’ll keep preaching the importance of this;)
    2. Profitability is cyclical (we may have heard this before;)
    3. Competition is increasing for land, labor, etc (and they’re stressed out trying to figure out how to handle it;)
    4. Small farms struggle to compete with large scale & well capitalized operations (yes, there are large potato, berry, vegetable, dairy, poultry, & egg farms like there are large grain and cattle farms, and competing with them for land and labor is just as tough;)
    5. Young farmers feel lost when trying to determine if/how their parents ever plan to slow down/retire (this also applies to every other family business, not just farms.)
  3. The desire to learn more and be better is strong (learn, unlearn, relearn.)
  4. The desire to take part in something bigger, such as industry groups with lobby or policy influence, is significant.

CYFF is for farmers under 40. Based on the passion of these young farmers, and their desire to learn & be better at everything they do, I think the future of agriculture in Canada is in good hands.

To Plan for Prosperity

The issues you face, the challenges you struggle with on your farm are the same as almost countless other farms. The relief and comfort seen on the faces of these young farmers when that became evident was obvious. They felt less stressed and less alone when they realized that they are not the only ones feeling the angst, the despair, or the helplessness that dogs their personal situation at home.
Don’t sit alone and wallow in your own anguish over what challenges you in your business. Sharing your trials and tribulations will not only help mentor the passionate successors to our industry, it may help you find comfort in knowing “you’re not alone.” It might even turn up a solution.

dashboard view

Dashboard

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What’s on your dashboard?

If you’re thinking about your trucks & tractors, the answer might be anything from gloves to a coffee mug to a clip for the rifle.

What I mean is “what are you watching on your dashboard?”Truck Dashbaord

  • Oil pressure?
  • Coolant temperature?
  • Exhaust temperature?
  • Seeding Rate?

All of these are important, and no doubt they all get significant amounts of your attention.

What are the consequences if any of these go into the RED?

 

What about your BUSINESS dashboard?

  • Working Capital?Financial Dashboard
  • Debt:Asset or Debt:Equity Ratio?
  • Unit Cost of Production?
  • Gross Margin?

What are the consequences if any of these go into the RED?

 

Which set of gauges get most of your attention? A failure on which set would be catastrophic?

When I was still farming, the first day of seeding in 2014 had one of these go into the red, only I didn’t know it because the gauge failed. In short, the tractor needed an engine overhaul because of severe overheating. Did it break the farm? No. Did it make seeding extra costly, and take longer than otherwise would? Yes. Did we survive? You betcha.

To Plan for Prosperity

We tend to do what we do best, what we like to do, and what we understand. Understanding the safe range, the limits, and the consequences of oil pressure or coolant temperature running into the red is something that is ingrained into us as youngsters who were imploring that we be able to run equipment. Yet, if no one teaches business owners the safe range, the limits, and the consequences of running their working capital or gross margin “into the red,” how will they know what to watch, or to watch at all?

For an intensive strategy on setting up and monitoring your business dashboard, call or email me anytime.