Good Habits of Successful Farmers

January 6, 2013 10:41 AM

The following information is a Web Extra from the pages of Top Producer. It corresponds with the article "Jump to the Front." You can find the article in Top Producer’s January 2013 issue.


As farm size increases, so does the demand for business management skills relative to production skills, explained Danny Klinefelter, Texas A&M professor and Texas AgriLife Extension ag economist, at the Executive Women in Agriculture conference last month. Today’s environment is characterized by an increased rate of change and a reduced window of opportunity; farmers must be able to capitalize on opportunities.

"What separates the top 10% of managers from the top 25% is tiny," Klinefelter said. "This means we can’t have people following the production cycle. You can’t afford to disengage from parts of the business during certain times of the year."

Klinefelter offered the following tips to jump ahead of the competition; however, he stressed the importance of prioritizing and making time to follow through.

1. Coordinate Revenue. This is basically cost management. If you have a budget or the ability to make a decision, do something. Make money and still have an upside. The key here is knowing or projecting your costs. Try to cover all of your costs at 80% of production. It’s real hard to go broke if you never lose money. Once your costs are covered, you’ll continue to make money and have the confidence to make a move when the market presents an opportunity.

2. Think Through "What-If" Scenarios. What could happen, and what would you do if it did? Think through the 4 Ds: death, divorce, disability and departure. Do you have a succession plan if one of these were to happen? What if you lost a key employee? What if you lost a major contract or lease? What if input costs doubled? Any of these things could happen; know your path forward because they happen quickly. Think about the different scenarios and how they play out.

3. Monitor and Analyze. Look at the projected budget versus the actual budget, and watch the variances throughout the year. For too many farmers, it’s a beginning-of-the-year and end-of-the-year exercise. You want to correct problems and capitalize on opportunities; timing is a big thing. If there is a problem and the opportunity is there, fix it –- before it grows. Hindsight is 20/20. It’s not just a look at what’s happening. Every number in the budget ought to come from a set of assumptions. At the time you review the budget, look not just at what’s happened to date, but what’s changed about your assumptions. Should you change your plan? You’re not a government agency; once they have a budget, they’re stuck with it for the next 12 months. This is a guide—modify it. Also, look at things from multiple perspectives.

4. Conduct Autopsies. Look at the results of key decisions, whether they went right or wrong. Which assumptions were wrong? Were there corrective actions that could have taken? Look at the macroeconomy, not just the region or the U.S. Identify what you learned. What are the reasons? These are also called debriefings. If something went wrong, sit down and look at it. Keep a written summary.

5. Benchmark. Most producers have no clue how they stack up against other producers. There is always something that somebody else is doing better. If you don’t know what it is, how can you make it better? It’s not just about finances. It’s much bigger than that—compensation, production practices and marketing plans. The whole purpose is to get better and learn from others.

6. Follow the 80:20 Rule. Eighty percent of your results come from 20 percent of what you do. It’s that way on almost everything. Do first things first. So many people never reach their long-term goals because they spend too much of their time doing second things first. Prioritize. Delegate or hire it done. You can’t do it all. Outsource it. Join in with others to do it.

7. Understand the 5% Rule. Top producers are about 5% better than the average. The bottom 25% of producers is only about 5% below average. The compounding effect of 5% is unbelievable. Baseball is an excellent example. You have a guy with a lifetime batting average of 300; he’s going to be in the Hall of Fame someday. If he does this for a number of years, his annual income is about $15 million. Take the average starting position player in major league baseball –- his average is about 250. That’s all the difference there is, and he makes about a $1.5 million. Not bad, but he has to make the team every year and he’s not going to get endorsements. People are scared of him coming up to bat. Do you know how many more hits the 300 hitter gets versus the 250 hitter? One. He hits the ball one more time out of 20, and he’s growing like this because he does it over and over and over again. We read and talk about people who are the exceptions. These are the people to look at. The most successful people are the ones who just beat the average over and over again.

8. Analyze What to Stop Doing. The most successful companies spend as much time analyzing what to stop doing as they do deciding what to do. Look at resources, time, capital; where are you spending it? Smart people get the right people on the bus in the right seat and the wrong people off.

9. Follow the E Myth Principle. Every business has four constituencies: suppliers of goods and services, buyers of goods and services, employees, and funding sources. You need to do independent research on each one of those market's sales. Ask questions like "What is it that most frustrates you in doing business with people like me? What bugs you about farmers?" Figure out each group’s top three to five frustrations. If you can reduce or eliminate those frustrations, you become the employer of choice, the borrower of choice, the supplier of choice –- just by not doing things that bug people.

10. Peer Advisory Groups. These are reciprocal advisory boards. Eight to 10 producers sit down and talk about your operation, and then you do the same for their operation. There are four states of knowledge: what you know you know, what you know you don’t know, what you don’t know you don’t know, and what you think that just ain’t so. Challenge your ideas and beliefs. Peer groups help you see the bigger picture, expand your access to information, draw on different strengths and experiences and compensate for weaknesses.

Read more coverage from Top Producer's 2012 Executive Women in Agriculture conference.

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Spell Check

1/28/2013 03:37 AM

  I take exception to your first 4 words Julie. Our farm has not increased in size for over 20 years, yet we are successuful. Your assumption that a farm must increase in size to be successful is flawed. It's no wonder you guys fawn over the Stamps of the world. The best farmers are the ones who covet their livestock, soil, and community.

1/28/2013 03:37 AM

  I take exception to your first 4 words Julie. Our farm has not increased in size for over 20 years, yet we are successuful. Your assumption that a farm must increase in size to be successful is flawed. It's no wonder you guys fawn over the Stamps of the world. The best farmers are the ones who covet their livestock, soil, and community.


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