However, nothing replaces person to person interaction.

Recently, the Canadian Association of Farm Advisors (CAFA) hosted a conference in Regina. It was the first that CAFA has held in Regina in 5 years. The topic was “what the top farms are doing” in the face of current challenges and opportunities. Nine different presentations filled the agenda on all of the most critical topics that farming businesses must manage. Coincidentally, the topics are very similar to those of businesses in other industries.

Easily half of the people in attendance were people I had not met prior to this event. The feedback from attendees was very positive on not only the quality of the content presented, but also of the people in attendance. Many new connections were made.

Clients have expressed to me that one of the many benefits I bring to their business is a network of experts whose expertise is different than mine: lawyers, accountants, lenders, marketers, etc. I give much of the credit for that to the opportunities created by having membership in a professional organization. It is still up to me to make the most of the opportunity, but the organization does provide an open door.

It is from this networking that I have compiled a list of experts who I trust will do good work for my clients.

On the other side of the argument, many people take the position that they won’t refer their customer to anyone for fear of that referral not doing right by their customer and reflecting poorly on them for making the referral. While I cannot argue with emotion like that, I will suggest then that you do a better job of networking so that you have greater confidence in the people to whom you are referring your customers. If you leave your customer to find their own expert elsewhere, that person might be referring your customer to someone other than you!

Plan for Prosperity

In our ever connected world, it is more and more important to develop business relationships that are complimentary and mutually beneficial. We cannot be an expert at everything our clients need; trying to do so would make us generalists and leave us unlikely to truly satisfy any of our clients’ needs. Whereas if we remain a specialist with a developed network of other specialists whose expertise is different, yet complimentary, to our own, then we are better able to provide value to our clients in a variety of ways.

When is your next networking opportunity? I’m always interested in expanding my network; give me a call for a coffee sometime!

Customers

A foundational rule of the investment advisor world is KYC: Know Your Customer. When I was a part of that world, it was paramount that Know Your Customer protocols were religiously adhered to. The main tenet of this requirement was that an advisor could not offer proper investment advice without first knowing some very important information about their client: age, retirement goals, income, risk profile, and net worth are but a few of the critical details that must be signed off. No exceptions. By offering advice and/or selling investments to a client without proper KYC, the advisor is risking his or her career. Yes, it is potentially that severe.

Who are your customers? What do you know about them? Do you know enough about them to be able to anticipate their needs? Is their business growing? What are their challenges?

Who are your potential customers? What do you have to do to find them, attract them, keep them? This is a lot like dating; pursuing a courtship you might say…

The list of anecdotal evidence as to the importance of customers is long, as is the list of reasons why keeping your existing customers is easier and less costly than constantly finding new ones.

How do you market to your existing clients? Your future clients? Anecdotal, but it is amazing how often you can hear it said from an existing customer, “Oh, I didn’t know you had that!” Do your clients know about all the products and services you offer?

People appreciate being appreciated. Often as simple as a Thank You note, appreciation cannot be undervalued in your eyes. Convert your clients to “raving fans” and they will do your marketing for you by telling others about how good you are. Give them a hat or jacket, and they become a mobile display of your branding.

Service sells. It sells more products. It sells more service. It sells an incredible number of books. Often times it can even sell a crappy product…several times over! Most importantly, service creates loyalty. What are your service standards? Do you have an established procedure for how you provide service?

There are many ways to segment customers, but for this conversation the important distinction we will draw on is whether your customers are relationship customers or transactional customers. One isn’t better than the other. Wal-Mart has built a global empire on doing business with transactional customers. Other retailers try to create relationships with their transactional customers by implementing loyalty programs (Ref. Canadian Tire money, PC Optimum Points, etc.) Again, it is not that one is better than the other; what is important is that you know which space you play in. If you are a relationship business but treat your customers as transactional, you are probably losing customers and wondering why. If you are in a transactional business but you treat your customers as relationships, you’ve probably got incredibly happy and loyal customers which might confuse why your net profit margins are so poor.

To toss out one more anecdote, “Customers are your reason for being in business.”

Product or Service

Whether your business deals with products, services, or both, it is best to know what you do best, which of your offerings is most profitable, which is least profitable, and where to dedicate your time. This can only be done with accurate data on business performance (we will discuss more about Information Management in Part 2.)

Where does your product or service fit on the value chain? Do you manufacture from raw materials? Do you retail to the final user? Do you provide logistical solutions? Are you providing ancillary services somewhere along the value chain? Every step in the process is important, some more than others. If the link you occupy can be internalized (consider Wal-Mart (again) which owns its own trucking fleet) or eliminated altogether, taking some time to examine your business’ future would be advisable.

How do you market your product or service? Is your marketing reaching the right audience? How do you know? As mentioned above, if any of your current or future customers says, “I didn’t know you had/did that!” then marketing offers tremendous growth opportunity!

I cannot recall where I heard it, so if any readers of this post know who said it first, please let me know so I can provide attribution:

“Innovate or die.”

-please help me fill in this blank

Any product or service that is not under consistent evaluation for opportunities to innovate will find itself on the trash heap of great ideas/products that failed to keep up! Apple was making a run at being the largest company (by market capitalization) in the United States, if not the world, from consistently introducing a new product that was nothing more than innovation to an existing product (which an innovation of a previous products….and on and on…) In this day and age where the consumer has an insatiable appetite for the new & improved, latest & greatest, “give it to me right now”…well, innovate or die takes on a very important meaning.

What is the return you are achieving on the investment you have made in your product or service? Keep in mind, your investment is more than monetary; it also includes time. The time you spend on low profit products or services will leave you less time to invest in the higher profit products and services that you offer. Remember, this time investment must also include family time lost (or otherwise allocated.) Obviously, businesses cannot just ignore anything that does not provide the highest profit, but knowing where your best returns are stemming from will allow you to maximize your return on investment.

Plan for Prosperity

Last week we offered six facets to growth; this week we delved into two of them and provided nine sub-topics, each of them a growth opportunity. By looking into any of these subtopics and leveraging the growth opportunities you have available, can you improve your entire business by 1% this month? If you can do that this month, can you do it every month. An improvement in your whole business of 1% per month means that your business will have grown by 12.68% more than if you had done nothing. That’s 12.68% better than you would have done, 12.68% better than last year, 12.68% straight to your bottom line.

Who’s ready to get growing?

The analogy ends there. A tree can only grow one way: bigger. Our business must grow many ways.

“Better is better before bigger is better.”

-Danny Klinefelter, Professor and Extension Economist, Texas A&M University

Over my nearly 15 years as a lender and business adviser, I have seen dozens of examples of businesses that grew in only one way. These businesses are not industry specific, they are quite agnostic actually. From construction to farming, from trucking to consulting, many businesses drive themselves straight into the arms of failure simply because they overlooked getting better before they rushed out to get bigger.

The graphic represents a snippet of the numerous facets that drive growth. All have a significant effect on the success of growth aspirations. This graphic is certainly not exhaustive; we are merely dipping our toes in the water. However, each spoke in that wheel has numerous sub-topics, and like a diamond, the many facets have varying purposes, importance, and brilliance.

RE: Customers – How can you grow your customer base? What do your customer like about you? What do they dislike? How do customers find you? How do you find them?

RE: Product/Service – What is your product or service? Is demand growing or shrinking? Which is your link in the value chain (IE. do you manufacture the raw product or do you retail to the final user, or somewhere in between?)

RE: Finance/Cash Flow – Are you financially strong enough to support and sustain the growth you desire? Will the growth you desire help or hinder your cash flow? Can you access the financing you need?

RE: Human Capital – Have you built a team of highly valuable people who drive results in your business? Will your business operate just fine in your absence? Do you people have the ability and desire for more responsibility?

RE: Information Management – Do you have systems in place to provide you with current and accurate information readily available anytime, specific to working capital, accounts receivable & payable, inventory, days to cash, etc?

RE: Management Capacity – Do you, as the manager, have the capacity to literally handle the growth you desire? What skills do you have that are better used in another part of the business? What skills are you lacking in your current role?

Seventeen questions related to six facets of growth; if you were to answer them with brutal honesty, is there room to improve on any of them? Is there opportunity “to grow”? If it is true that better is better before bigger is better (HINT: it IS true) then we’ve just provided you with six major factors in your business where growth can occur. There are more, but if you’ve looked after these first 6, the results will amaze you.

Plan for Prosperity

Growth is not a result or a destination.
It is a process.
It is a mindset.
It is a culture.
It is complex.
It is difficult.
It is worth it.

It shouldn’t have gotten done.

But the thought of missing a Tuesday for the first time in 172 consecutive Tuesdays has me doing something I probably shouldn’t be doing. I should still be in bed. I’m very weak.

Actually, I should be in Boston to attend a conference I’ve been looking forward to for a year. But, illness can have a way a derailing all of our best laid plans.

Over the last week-and-a-half, both of my children have been affected by a different iteration of  the virus that is currently going around. My oldest took the least of it; my youngest was nearly hospitalized. I managed to dodge it, until I didn’t. It caught up to me on Sunday, the day that was all planned out: tidy up work before my trip and, of course, pack for the 5 day venture. As my condition worsened, I made the call at 5pm to cancel my travel plans. By 8pm, I was headed for emergency.

This has been the first time I haven’t gotten out of bed in 2 whole days since, well, that story is a little personal.

I have heard a disappointing number of business owners over the years express how they need to hold on to the reigns and keep control; their justification is that they need to be needed. They feel that their purpose is to control the business. How unfortunate.

What happens to the business of an owner with that mindset who suddenly took ill? Does the business stop? What should be told to customers, employees, suppliers?

If you are a business owner, ask yourself the following to gain some insight into your business continuity plan:

1. Can your business run without you there every day?
2. Is there someone, or several others, who know what you know so that your business can operate uninterrupted in your absence?
3. Do you have health insurances (disability, long term care, critical illness) to cover your personal financial obligations during an illness so that you won’t be draining cash from your business during that time?
4. Do your loved ones and/or your key people know who to contact and what to do in case of your severe illness or sudden passing?

As a solo-preneur, I am my business. If I’m not working it, my business stops. So for the last few days, things have stopped. Can your business afford to stop?

Plan for Prosperity

There are few guarantees in life, and yet it happens too often that we don’t plan for that which is guaranteed. Maybe us weak humans have difficulty facing our own mortality? Maybe it’s something more narcissistic? No matter what it is, we’re all going to get sick now and again (whether it’s a minor illness from which we recover or something more serious) and we are all going to die…someday. If we aren’t prepared for the inevitable, the people left behind are the ones who will be hurt the most.

Take some of that (perceived) unpleasantness onto yourself and do this hard work so that you can save your loved ones, your employees, and your legacy the pain of trying to keep things afloat while you’re out of the picture.

When word began to spread during the evening of April 6, the feeling of shock touched everyone. A Junior “A” hockey team in their charter bus on the way to play Game 5 of the league semi-final series collides with a loaded semi tractor-trailer.

Shock instantly turned to devastation. Twenty-nine on the bus. Fifteen would perish. Ten of those lost were players on the team, aged 16 to 21.

It took me until the next morning to be able to gather any sort of rational thought. The realization that so many families would be more profoundly affected than most any of us can imagine can take some time to sink in.

Then the world took notice. To make an already told story short, in less than 60 hours people from around the world have donated, at the time of this writing, nearly $6million to help support the families of the victims of this horrible tragedy. https://www.gofundme.com/funds-for-humboldt-broncos

I lost one of my oldest friends in our senior year of high school. She was a passenger in a car, unassuming on a Friday afternoon, her dad’s birthday of all days, when a tragic collision took her…three weeks before her 18th birthday, six weeks before her high school graduation. It will be 25 years next month since she’s been gone.

Life is fragile, it can change in a blink, and must not be taken for granted. Facing our own mortality is not easy; it is something that young men playing junior hockey, nor my old friend, had not likely given much thought.

None of us is immune to the tragedy that the world can bring our way. If tragedy strikes your business, how will it carry on? Are all your affairs in order? What if you or a key person in your business didn’t come home tonight?

Plan for Prosperity

Proper business planning has us strategizing on how to handle the “what if”. This type of preparation also applies to our person. Get your will, powers of attorney, and organ donor card in place; share your wishes with your loved ones; don’t take the inevitable for granted.

And hug those you love…often. Life is never fair, and is always short.

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.

It’s a phrase best known for describing the highest quality wines, spirits, and liqueurs.  Those who produce such fine beverages are known to maintain unwavering quality in their attention to detail, ensuring that each bottle meets the highest standard for which they’ve become known. Connoisseurs know which brand is “top shelf” by its reputation.

Same can be said for restaurants. At a client reception, I witnessed great care from our service staff to ensure every order was correct, on time, and to their diner’s expectations (even better to be above those expectations.) The entertainment factor was brought into play during desserts when special coffees that donned towering flames were prepared right in front of us. Everyone had a wonderful time, and the tip showed our appreciation.

“Top Shelf” is synonymous with quality. This moniker can be applied to almost anything from cars to clothes to food or to service. We all aspire to enjoy something “top shelf” once in a while.

Of course, top shelf does not matter to all people all the time. Some things in life just need to be economical. Would you pay $5 for a can of “top shelf” soda pop from a boutique brand when you can drink Coke or Pepsi for under $2? It’s unlikely you’d get in line to pay premium rates on your electricity bill, and no one would choose to pay $15 per pound for bologna…”top shelf” or not.

The contrast is determining where we will settle for “economical” and where we desire “top shelf.” In the commodity business, and yes if you produce grains or livestock you are in the commodity business, it is easy to get into a pattern of “everything economical.” This is because you sell the commodities you produce at the lowest price the market is willing to pay that day…because it’s commodity! And so, that thinking permeates through your entire business driving you to search for the cheapest option: fuel, fertilizer, parts, insurance, repairs, professional services, etc. You’ll notice that equipment did not make that list; somehow equipment remains the anomaly that defies the theory of “everything economical.”

Would the management of your business be considered “Top Shelf”? If it was to be rated by experts and evaluated by professionals, how would you measure up? Are you okay with “everything economical”, or when it comes to your legacy, your family and your business, should “top shelf” be the minimum requirement?

To Plan for Prosperity

If you deserve “top shelf management” in your business then elevate your skills or seek it out externally. Relentlessly adhere to consistent “top shelf” quality in your management systems, information, and decisions. Recognize where in your business you should be “economical”…but (spoiler alert) it should not be in your management.

Like top shelf booze, you too can be known as a top shelf manager by reputation…if you develop the habit of “unwavering quality in attention to detail” just like those whose product is found on the top shelf.

Things aren’t all roses in agriculture lately. Sure there are some who are doing quite well, and of course the recent drought gets the credit for any 2017 results that were sub-par, but what about those who still did okay during the drought? What about those who are still sub-par when everything is firing on all cylinders?

A recent article on DTN titled Skating on Thin Ice summarizes the message of Dr. David Kohl, renowned ag economist, at the National Agricultural Bankers Conference earlier this month. Dr. Kohl has been advising ag bankers for over 40 years. He’s got some chops.

His prediction (in summary): there will be clear winners and losers, the losers being the bottom 30% of all producers.

What makes the bottom 30%? They barely make a profit, have burnt through most (or all) of their working capital, and are beginning to burn through their equity. Dr. Kohl suggests that a farm in this position consider exiting before all equity is gone.

It was back in 2016, over a year ago now, that rumblings were coming out of the US Mid-West about farm lenders tightening up on credit approval criteria. I tweeted the following:

Dear #westcdnag
Does anyone think this can't happen here? https://t.co/LFYEMg1Cb0

— Kim Gerencser (@KimGerencser) September 15, 2016

We’ve already seen an increase in interest rates from the Bank of Canada, and we are to expect more according to messages from our federal government. But do not think that your interest rate can only be changed by the BofC. Lenders set interest rates according to how your business is risk-rated. If you’ve already burnt through your working capital and have moved on to burning equity, you are considered to be high risk and will be charged interest accordingly.

Land value appreciation has propped up many farms that have a history of poor operating profits.

Remember when we talked about how the commodity super cycle (2007-2013) allowed below-average management skills to generate above-average results? (Ref. Vol.3 /No.44 Happy Halloween) Even those producers who were not able to produce a profit from operations could still show that equity levels were increasing because their land was appreciating. This created a false sense of security, and a false sense of accomplishment.

Notwithstanding what is going on in US ag lending, the landscape in Canadian ag lending can change.  The bank’s desire to support businesses that cannot generate profit from operations is limited. Are you on the radar?

To Plan for Prosperity

Allowing your relationship with your lenders to be anchored by land value appreciation only, and not profit from operations, could make you a subject for a change to your borrowing terms. How would your business be affected if your interest rates increased by 1%, or if your credit limits were reduced by one-third? If your current lender views you as high risk, other lenders will too…

In this age of hyper-political-correctness, to hear of some schools that are “cancelling” Halloween because of the risk that some costumes might “offend” or “scare” someone is taking us down a path that we may not be able to come back from. I’m not a proponent of Halloween, but I’ll gladly encourage anyone who wants to take part in it to do so, and anyone who doesn’t can also do so. What we need to remember is why we do it, even if we don’t love it…IT’S FOR THE KIDS!
It’s THEIR imagination and THEIR excitement that must not be squelched just to satisfy our guilt over ________ (fill in the blank).

Thank you; now onto the real business at hand.

Getting dressed up in a costume creates an outlet for us to be something we’re not, or maybe something we wish we could be. (As a kid, I wanted to be a pro-football player and might have dressed up as such for Halloween.)

Over the last several years in western Canadian agriculture, “average management” has been dressed up in a costume of “excellence.” With high yields and high commodity prices, even average managers were more profitable than they had been in the long term…maybe ever.

Dr. David Kohl uses the term “black swan” to describe the recent commodity super-cycle because, like a black swan, it is “not the norm.”

A black swan is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict;

Source: www.investopedia.com

While we might be inclined to associate black swan occurrences with negative deviations from normal, in the case of the last 10 years in agriculture, we’ve experienced a positive deviation from normal. The danger came when many participants in the industry believed that what was happening wasn’t actually a black swan but “the new normal.” Many long term decisions were made based on short term results. True to the black swan definition, the onset of the commodity super-cycle was predicted by very few, and even fewer still predicted it would last as long as it did. Maybe it was the fact that it did last longer than a year or two is why people started to believe it would never end…?

The unpredictability of this black swan continues to cause angst among players in the industry. Some are soldiering forward as they have for the last several years with full expectation that the black swan will return. Others are are in full damage control mode, or even panic mode. Others yet are patiently waiting for the opportunity that always follows the economic cycles.

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

– Kim Gerencser

I started making that statement way back in late 2012. The message then was to take advantage of the current up-cycle to solidify your business in preparation for the upcoming down-cycle (because bulls are always followed by bears, which are followed by bulls…it is how cycles work.) Being greedy during an up-cycle brings up another old adage, “Pigs get slaughtered.”

To Plan for Prosperity

When preparing your 2018 projections, compare your projected expenses to your worst revenue in the last 10 years. Is there a negative gap? How big is it? What needs to be done to cover it? Alternatively, is there a positive gap? How big is it? What needs to be done to protect it, or even to leverage it so as to make it wider?

The exercise proposed above is comparable to removing a Halloween costume. While things look one way outwardly, what is actually happening underneath, at the surface, can sometimes be much different and will tell the true story.

Happy Halloween!

PS. Don’t wear your Halloween costume to your banker meeting.

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.

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…?