Indiana’s Sonny Beck realized his seed business might not be around if he didn’t have a plan for growth. Today, it’s in the survive and acquire category.
Different strategies help farmers achieve goals
What is success? Some farmers might define success by looking at the size of an operation; others might define it by the amount of debt owed; and still others would define
it as the ability to bring younger generations into the folds and pass on the farm. Success and growth come in many different forms.
For Brian and Kelli Eglinger, who farm in Augusta, W.Va., success is being debt free and comfortable. In 1996, the Eglingers both had full-time jobs but were presented with the opportunity to purchase 120 acres from Brian’s grandfather. At 21, Brian took out a loan with USDA’s Farm Service Agency to help make the purchase possible.
"We were scared to death," Brian says. But with a plan and hard work, the couple had the farm paid off in five years. "You have to be dedicated to paying it off and make the most with what you have," Brian says. "The first couple of years, we were doing good to just maintain everything."
Together, the Eglingers created a 10-year plan for the farm, outlining where they wanted to be. Brian wanted the farm to generate enough income to allow him to transition to a part-time job. The Eglingers also wanted to build their dream house.
To add value to his West Virginia farm, Brian Eglinger built a breeding barn to supply eggs to Pilgrim’s.
Eventually, Brian was able to take a part-time job doing paperwork for the county farmland protection program, which allowed him to spend more time getting things done on the farm.
To justify the expense of a new hay baler, Brian calculated that he needed to custom bale about 800 bales for neighboring farms for a few years.
In 2003, Brian and Kelli built a 300' by 42' broiler breeder layer house with Pilgrim’s Pride. The house supports 7,000 hens and 700 roosters. During peak season, the Eglingers collect between 6,000 and 7,000 eggs each day.
Today, Brian works full-time on the farm and cares for their three children. Kelli has kept her job as a nurse practitioner at the local hospital. In addition to contracting with Pilgrim’s, they have about 30 cow-calf pairs, farm about 170 acres, sell hay and have a small apple orchard.
"I’m happy with how far we’ve come," Brian says. "We are comfortable, and I enjoy the freedom that farming full time gives me."
The Eglingers say additional expansion is not out of the question down the road, but for now, they
are happy stabilizing what they have.
Achieving growth is a complex and difficult equation. Only a small number of companies succeed in their attempts at sustained growth, according to Bain & Company, a global consulting company that helps management teams create high levels of economic value.
Their research shows that too many businesses: a) leave money on the table in their core entity, b) fail to optimize cost and revenue opportunities, c) need to expand their horizons when selling into mature markets and/or d) hit a wall in their traditional business lines and need to renew their core.
One business that has mastered the art of sustained growth is Beck’s Hybrids. For Sonny Beck, president of Beck’s Hybrids in Atlanta, Ind., success meant staying in business.
"I didn’t think about growth until I received Purdue’s Distinguished Agricultural Alumni Award in 1992," Beck says. "They asked me to prepare a paper as part of a panel discussion focused on the future of small- to medium-sized seed companies."
Booming Business. In 1991, there were more than 250 seed producers, he says, noting that fewer than five brands can survive in a given market. Of that, two to three make up 50% of the market. "My dad saw 80 car companies narrowed down to 12," Beck says. "That’s how capitalism works. Farmers are about the last independent people left. Capitalism drives businesses toward this model."
When Beck presented the paper, he broke it down, explaining that one-third of seed companies will be sold, one-third will merge and the other one-third will survive and acquire.
"I went home after the presentation thinking about which category we wanted to be in," he says.
In order to be successful, Beck knew his business needed to cater to the customer; trade, buy and sell technology; trade research; be the best negotiator and manage sustained growth.
In 1992, the company hit a threshold. From there on, Beck set the wheels in motion to achieve 20% growth each year for five years.
Beck asked himself and his team, "What do we do better than others, and what can we do better?"
"We were great at working with farmers and growing stuff," Beck says. "We had to transition from a production company that happens to sell product to a marketing company that happens to produce product. But we had to have growth so we could have the partnerships."
In 1996, Monsanto Company chose Beck’s Hybrids as one of 250 licensees of Roundup Ready.
For five years, the business grew by 21.7%, Beck says, noting that they didn’t stop there. Today, Beck’s employs 394 people. Four years ago, they employed 170, and the prior four years, they employed 80.
Beck says he’s tried to learn from the mistakes of others because he knows he won’t live long enough to make and survive them all. "I watch others closely," he says.
A student of business, Beck is highly competitive and looks for others who are, too. "I look for
people who want to win," he says.
Business Breakdown: Types of growth strategies
Identifying growth strategies for your farm should be part of the farm’s strategic plan, says Don Hofstrand, Iowa State University retired Extension value-added and agriculture specialist. Growth can take many forms. Hofstrand outlines the most common growth strategies. These include capacity expansion, replication, intensification, diversification, specialization, integration and networking.
With capacity expansion, the current enterprises are expanded, he says. This means more acres of crops or more head of livestock. Capacity expansion takes advantage of economies of size. Efficiency is also achieved because management is focused on existing enterprises.
Replication is a form of capacity expansion. Here, the existing operation is replicated in a different location. This strategy is often used for livestock operations when further expansion at the current location is not feasible.
Another form of capacity expansion is intensification. Here, the real assets of a business are modernized, which allows more production to be pushed through a fixed asset base, Hofstrand says.
Diversifying is another form of horizontal expansion, but instead of expanding existing enterprises, new ones are added. Diversification might make use of economies of scope and other synergies between the enterprises to achieve low-cost status.
Unlike diversifying, specializing involves reducing the number of business enterprises. These few enterprises are expanded through a horizontal strategy, such as capacity expansion, or a vertical strategy, such as integration.
Integration might move you forward into processing products or commodities, or it might move you backward into the inputs and supply sector. Hofstrand says this strategy often involves a group of farmers working together to move up or down the supply chain.
Networking involves working with others to gain advantages not available to individuals. It allows businesses to leverage the activities and resources of your business and might also increase efficiency.
Farmers should remember that growth strategies are never pursued in a vacuum, says Keith McFarland, an entrepreneur, former Inc. 500 CEO and author of The Breakthrough Company. "Being willing to change course in response to feedback from the market is as important as implementing a strategy in a single-minded way," he says.
For more information about business strategies for your farm, visit www.TopProducer-Online.com/Farm_Strategies.
- February 2014