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Is Data Management Really Important?

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“Every company makes information management an afterthought.”

This was something a friend of mine said this weekend as we were chatting about everything from our
respective businesses, to politics and religion, to parenting. He qualified his statement using the vehicle
we were riding in as his example; “Do the (car) manufacturers build an information management system
into the dash of each car that they can charge more for? Of course not, because no one would pay for
it.” Essentially his message was that vehicle buying consumers are less interested in knowing and
measuring all of the vehicle’s varying functions and processes, they only want the basics. They just want
a vessel to get them where they’re going, one that looks good and is comfortable/fun to drive, and has
the power and/or efficiency they desire. End of story.

I challenged his theory as it would relate to other entities (especially large corporations,) and without
hesitation, he stayed his course. I really thought that larger corporations, those with hundreds of
millions or even billions in net worth, would have enviable information management systems and
processes. My friend said, “The focus is primarily growth & profits and how to accomplish it, with
information management being thrown together afterwards.”

I reflected on my own time in corporate Canada and the (sometimes) hodge-podge of reports I would
receive to (supposedly) help me better manage my branch or my client portfolio. Even though I didn’t
want to admit it, I knew my friend was right.

So, now you’re thinking that if big business doesn’t make its own information management a priority,
why should you? I’ll give you 2 words: working capital.

Strong working capital gives any business the cushion to make mistakes. It allows business to do things
less than ideal. This is not giving permission to be less than adequate, but it’s the reality of finance.
Lenders won’t run from a borrower that has done a less than ideal job of information management
when that borrower’s working capital is very strong.

“Very strong” working capital for your farm would cover 100% of your annual cash expenses. If your
farm’s working capital is not very strong, then the argument to not make information management a
priority is very weak. Very strong working capital is not permission to be lax on managing your data. No
entity in any industry should allow their business data to not be highly managed. The risk that this
creates is high, but the opportunity cost is higher yet.

Why are farm equipment companies, seed companies, fertilizer companies, chemical companies, etc. all
so interested in farm data? They recognize the opportunity cost of not being highly responsive to their
clients. You need to be interested in your farm data so you can be highly responsive to your business
opportunities. No one will manage your data but you.

Direct Questions

Are you allowing data management to be an afterthought? Do you have the working capital to support
this (lack of) action?

Have you considered the opportunities you could leverage if your data was highly managed? How many
opportunities have been lost over the years?

Do you recognize that saying “I don’t want those big multi-nationals to mine my data so I won’t compile
it” is a weak excuse?

From the Home Quarter

Large firms can get away with inadequate data management because they have the working capital to
cushion them from the results of less than ideal decisions. Small firms, such as your farm, likely do not.
(Small firms, by definition, are measured by market capitalization and number of employees, and usually
are those under $100million net worth and/or those with fewer than 100 paid employees.) Any
decisions on your farm that could be “less than ideal” will affect your working capital, positively or
negatively. The questions then become,

  • Was the positive impact to your working capital as good as it could have been (opportunity cost)?
  • Can your existing level of working capital handle a negative impact (risk)?

At the end of the day, highly managed data will support working capital and your ability to increase it.
Working capital will support your growth strategy and your wealth goals. The two are intertwined, and
in this current environment of high risk and tight margins, you cannot afford to be without either.

If you’d like help planning your data management process or strengthening your working capital, then call me or send an email.

GFP FI 2

The Drought Dilemma

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The smoky haze we started inhaling yesterday drives home more than ever just how dry it really is.
#Drought15 is the Twitter hashtag to learn about how bad it is beyond our respective back doors. By all
accounts, crops are suffering and market prices are starting to reflect it. Those who are in an area that
has been, and/or remains, too wet just might be coyly denying that they ever complained about the
rain.

While it is too early to get a handle on any semblance of accurate yield estimates, people I’ve been
talking with have tossed around phrases such as “July harvest” on lentils, and described wheat crops
that are ready to push heads despite only being approximately 2 feet tall. What might be in those heads
if another hot dry windy week prevails?

As a farmer, you are an optimist. Even the most pessimistic ornery old codger you can imagine is still an
optimist if he’s a farmer. If he wasn’t, he’d never put a crop in the ground each spring. But as optimistic
as “Well, if we get one good rain in the next 4-5 days” sounds, it’s not going to make it rain. Despite the
drizzle we’re seeing today, one rain does not make a crop. If you’ve got payments to make, payables to
cover, even payroll to meet, you might want to start thinking about how that will all get done if
#Drought15 persists.

  1. Speak with your creditors.
    They’re not clueless; they hear the weather forecasts and read the crop reports. But they also
    won’t assume; they won’t assume that you’ll have trouble making payments because your crop
    is not going to meet expectations. As far as they’re concerned, you’ll be fully capable of
    satisfying the obligations you promised to make when you signed the loan or lease
    documents…unless they hear otherwise.
    And remember, your lenders are not problem fixers, so coming to them after the trouble gets
    real makes it far more difficult. They have more opportunity to help when they can be proactive.
  2. Consider your options.
    Do you remember Growing Farm Profits Weekly Issue #9? “Life and business can often be like
    snowmobiling: when trouble is ahead sometimes you need to pull back and sometimes you
    need to stay on the throttle.” What is your best option considering your crop’s development to
    date? I recently read an article discussing the possibility of reseeding barley on fields that have
    been froze out or droughted out. Considering the dire need for feed this year, cattlemen will be
    interested in green feed or silage barley. Is it time to consider how that might pencil out?
  3. Change your plans.
    The decisions you made last year and the year before were based on the best information you
    had at the time. The current situation differs greatly and probably requires a new decision.
    Swallowing pride and allowing yourself to change/reverse/discard old decisions could be exactly
    what your business needs. Nay, it IS what your business needs because your business is
    constantly changing and so should your decisions. Knowing when to do so is just as important.

Direct Questions

How would you rate yourself as far as being agile to your financial obligations in light of poor crop
conditions?

How would your stress level decrease if you took 10% of the time and effort you spend on worrying
about the existing crop conditions and used it to contact your strategic partners and advisors to amend
2015 expectations?

Are you staunchly sticking to your past decisions or are you being flexible and responsive to the needs of
your business?

From the Home Quarter

About 17 or 18 months ago, I blogged about how we need to reset what our expectation of success
really is. After the record 2013 crop, the 2014 crop year was poised to be a real disappointment in
comparison. Considering so far this year we generally went from adequate or excessive moisture in
March to a drought by mid-May, I’d suggest we look at 2015 for what it is and be realistic about what
we can call success. To give you a glimpse of what I mean, in 2014 I was working with a farm that
projected an operating loss due to the excessive moisture, crop quality issues, dropping grain prices, and
high fixed costs. The comment during planning was “OK, so we’re expecting to lose only about $300,000
in 2014; that’s decent considering what it could be.” They reset their expectation of success based on
what they saw.

Take a good hard look at your current year, be realistic with expectations, and make changes as
required. We can help make sense of it, take the emotion out of it, and assist with establishing new
plans.

If you’d like help planning your farm for business and personal success, then call me or send an email.

excellence

Seeking Excellence

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This is a verbatim copy of Seth Godin’s daily blog from April 22, 2015:

Demand higher standards.

On a long flight a little while ago, I saw two couples watch movies while they let their six kids
run around like maniacs from take off to touchdown. A seven-year old actually punched me. (I didn’t return the punch).

A few days later, I saw the now-typical sight of kids in a decent restaurant eating french fries
and chicken fingers while watching a movie on a tablet.

And it’s entirely possible you have a boss that lets you do mediocre work, precisely whenever you feel like it.

I wish those kids had said, “Mom, Dad, raise your standards for me. I deserve it.”
And the sooner you find a boss who pushes you right to the edge of your ability to be excellent, the better.

Even if the boss is you.

I couldn’t help being captivated by this simple and direct message (Seth is famous for them.) In
agriculture on the Canadian Prairies, we’ve generally been just fine by being somewhere south of
excellent. We haven’t needed to be better in business because we use excellent production practices;
Canadian farmers are arguably the best producers in the world. We haven’t needed to be better in
business because money is cheap and easy to acquire; interest rates have never been lower and lending
terms continue to be very favorable. We’ve gotten away with being mediocre, or somewhere south of
excellent, in our business skills because “the average was just fine.”

We would be happy if every year we got average rainfall, average heat units, average weed pressure,
average yields, average prices, average input costs, etc. It would be easy to farm if everything was just
average.

But it’s not.

And if you’re average in your management of your business and all its risks, it is pretty tough to expect
excellent results. We’ve enjoyed a 7 year bull run on yields and prices which has permitted “average” to
disguise itself as “excellence.” Are we still comfy thinking that recent history is our new normal? I
listened to Dr David Kohl in person 4 years ago and he said then that these highs in yield and price are a
black swan, and not the new normal. “Normal” is “the average” and since the average has managed to
disguise itself as excellence over the last several years, what will happen when this black swan migrates
out of here?

When the black swan flies away and “normal” returns, “average” will not be sufficient. We will still be
excellent in production; we may still have cheap and easy access to money. As you read in Growing Farm
Profits Weekly on April 14, 2015, farming is a lot more than just production. And easy money is
dangerous when in the wrong hands. If there are no guarantees that Mother Nature will offer a growing
season to facilitate excellent production, it will take the excellent production practices for which we are
famous to just be average. That is “average” without its disguise.

As Seth wrote, the sooner you find a boss that pushes you to edge of your ability to be excellent, the
better. If you are your own boss, like you, like me, like all entrepreneurs, we must find a way to be
excellent.

Direct Questions

In what areas of your business is your proficiency less than excellent?

Have you greatly shifted the parameters of what you call “average?”

Considering all the risk you face each year as a farmer, can you afford to be anything less than excellent?

From the Home Quarter

The message here is not to suggest that anyone has intentionally done a poor job of running their farm.
What is being suggested is that the recent ag environment has permitted great success without
requiring excellence across all aspects of the business. I am supremely confident that will change, and
anything less than excellence through your entire farm will offer disappointing results.

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*The Innovation Adoption Curve www.b2binternational.com

Excellence is a choice. Have your competitors already chosen excellence? When it comes to employing
excellence in business proficiency, you want to be on the left side of the curve above. I have a mentor
who helps me to be and stay excellent. My mentor has a mentor who does the same for him. It’s not
easy, but it’s worth it. As I’ve said, and will continue to say, “Do what you do best, and get help for the
rest.”

If you want more than average, call me. The Department of Excellence is open for business!

farm

Why Precision Farming Should Start in the Office

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We’ve been hearing about precision farming for quite a number of years now. It’s common practice
among early adopters. It’s getting a lot of face time in the media. It is a strategic decision that should
elevate a farm’s production efficiencies to new heights not seen before.

Proponents say that variable rate is not a treatment, but a management practice. They would be correct.

I’ve watched in awe the business men and women who recognize the benefits of increasing their
acumen in a certain aspect of their farm. One of those is precision farming/variable rate and it is
awesome. In fact, I believe that in the future VR will be the second greatest determining factor affecting
gross margins, second only to marketing of course.

But what is more awesome is seeing those farms that have taken precision farming into the offices and
applied it to financial management practices. Think about this: it was early December 2013, right after
the largest harvest in almost forever, as commodity prices were already on a crazy carpet for a ride
down the trading charts. I was in a conversation with an aggressive 30-something farmer when he said,
“I’m looking forward to $8.50 canola and $4 wheat, because I know I can still make money at those
prices and a lot of guys can’t. That’s going to create opportunity for me.”

You’ll recall Issue #3 of Growing Farm Profits Weekly on Cost of Production? Well, this guy knows his
costs on everything, right down to the penny per acre. THAT is precision farming!

Now imagine how easy it is for this farmer to make the decision on if he should invest in variable rate
right now or not, considering he knows his costs to the penny across his whole farm. He can quickly and
accurately calculate the projected benefit against the capital cost to invest in the technology. He isn’t
making decisions on emotion. He isn’t making decisions on pride (being the first guy in town to VR his
whole farm.) He’s making decisions on an expectation of profit. And trust me, his net worth statement
shows that he’s made several profitable decisions.

Direct Questions

Your farm requires excellence in 3 areas: production, marketing, financial management. Are you
focusing heavily on one or two areas to the detriment of the others?

Are you meticulous where your skills and interest lie, and improvident elsewhere?
Would decisions be easier to make if you knew exactly your financial position at all times?

From the Home Quarter

It’s been said time and time again that “you can’t manage what you don’t control.” Precision farming,
whether it’s in the field or in the office, is all about taking full control; it’s about collecting and using
data. It is projected that when under full VR, your farm can reasonably expect to gain ~$35/ac in a
combination of costs savings and increased yields once the practice has been in place for a number of
years. How long will it take to achieve a $35/ac benefit from implementing precision farming in the
office? I’d say pretty quick, depending on how committed you are to it. Plus, the capital investment will
be a lot less too.

Cost of Production

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I got a little worked up last week when I saw a tweet that read “Cost of production matters in 2015 –
The Western Producer” and included a link to the article. Even though that wasn’t the article’s title, I still
had to sit down and scribe this.

Let me be very clear: cost of production matters every year. Period.

Cost of Production is the most basic principle that must be employed when making marketing decisions.
If you don’t have a clear understanding of your COP, then you are putting the survival of your business
at grave risk. Why? Because how would you know if you’re selling for a profit or not?

 

venne2

The WP article states, “A 38 bu. (canola) crop and a $9.45 price could yield $70 per acre before labour
and equipment costs.” That’s nice, but why would we not include our labor and equipment costs? Will
the crop magically seed and harvest itself?

COP only begins with your seed, chemical and fertilizer costs. It must also include all other operating
costs AND your fixed costs.

Now work back from your actual, or projected, yield and we come to the real figure that matters: unit
cost of production.

If you know that it costs your farm $6 to grow a bushel of canola, isn’t a $9/bu selling price a nice
target? By the way, that’s 50% ROI.

 

Direct Questions

What was your gross margin per acre in 2014?

Do you include your fixed costs when working out Cost of Production calculations? If no, why not?
How do you know what is a profitable selling price for your crop if you don’t know what it cost you to
grow it?

Do you discover whether or not you’re profitable only when you receive the accountant prepared
financial statements?

From the Home Quarter

In the simple calculation of “Revenue – Costs = Profit,” how can we be expected to make profitable
decisions without intimately knowing our costs? Every business that produces anything, from ocean
freighters to widgets, knows exactly what it costs to produce one item. Why doesn’t every farm know
their costs the same way?

As a special offer to the readers of this blog, I will conduct a Farm Financial
Review™ for up to 5 qualifying farm businesses at $475 (normally a $875 value.) This will include a
review of your 2014 financial results and a Cost of Production Analysis. Work must be booked by the end
of January and completed by the end of February. Please call or email for details.