By Bob Milligan, Dairy Strategies
If your business was getting filthy rich prior to the “turbulence X turbulence” of the last two years, you need not read further. For those of you (all of you) still reading, I need to change the title of the article to read, “It’s Not the World It Was Two Years Ago.”
I think most managers of dairy farms, other farms, golf courses, agribusinesses and all other businesses have been waiting – yearning – for the “turbulence X turbulence” to end so they will again face a business environment similar to two to three years ago. As I work with our farm and agribusiness clients and strive to understand the agriculture and business environment we are all facing, I become more convinced that even two years ago were “the good old days.”
To return to profitability and continue to prosper in the years to come will require “going to a new (higher) level.” To explain, let me address two questions:
1) Why is it not the world it was two years ago?
2) What will business owners have to do to thrive in the future?
Why is it not the world it was two years ago?
a. The hole is deep. Let’s use dairy as an example. The financial analysis completed by Farm Credit found that the 2009 average per-cow loss on the 544 Northeastern U.S. dairy farms was $386. Depending on production per cow, that is $1.30/cwt. to $2.00cwt. It will take most dairies two or more years to recover that loss and get back to where they were. Although those of you not in dairy were not hit as hard, most of you have lost some ground and, in some cases, large accounts receivable.
b. A new economic reality. I hope we will never again see the swing in economic conditions that we have seen in the dairy industry and in the general economy over the last two years. That said, nearly all of the conditions remain that created the swing: agriculture in the energy business, global market adjustments, inelastic price, the increasing rate of change. The oil spill in the Gulf and the economic crises in Europe add even more uncertainty. High unemployment will likely contribute to weak consumer demand and a sluggish economy for the foreseeable future. In addition, the continuing price variability potential and the lessons of the last two years are resulting in reduced availability of credit.
c. External threats have intensified. For reasons that we do not understand but need to, modern agriculture has become a punching bag of the media. Will Rogers may be best known for his quote: “All I know is what I read in the newspaper.” Today, the media is much more than the newspaper; however, the quote reminds us of the power of the media.
What will business owners have to do to thrive in the future?
a. Be much more keenly aware of the external environment. Wayne Gretzky is called “The Great One” because he is the greatest hockey player to ever play the game. He always attributes his success to passing the puck to where the player will be, not to where the player is now. Similarly, business owners – farmers, golf course superintendents, agribusiness professionals – must make decision based on their best judgment as to where their industry and the business environment will be, not to where it is today. To know where “the player will be” requires an understanding of the environment in which your business operates.
b. Take management to a new level. One of Albert Einstein’s most famous quotes is, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.” This quote applies to the current situation in the sense that we must take our management to the next level. This new level must include even more efficient and quality-focused (no defects!) operational management; however, the greatest strides in management are likely needed at the leadership level.
c. You cannot do this alone - A greater focus on your workforce. One of the greatest needs that has become apparent in businesses we have worked with over the last two years is more attention to the Chief Financial Officer (CFO) role. This higher level of management will require owners to focus more on the CFO and also the Chief Executive Officer (CEO) role. Since there are still only 24 hours in a day, this will leave less time for the more operation manager and labor roles. The result will be more reliance on other members of your workforce and also on your trusted advisors. Greater attention to attracting, retaining and developing an exceptional workforce will be key to success.
Are you frustrated yet?
Frustration that the recovery is so slow and so shallow is the prevailing emotion currently expressed by many farm and agribusiness owners. I am pretty certain, unfortunately, that the above only served to heighten that frustration.
While understandable, your must trade in your frustration for two other emotions – determination and focus.
I am very confident that you and other managers can move to the required higher level. The first requirement is recognition that change is needed. You must then summon the determination to compete under the new economic realities, and then maintain the focus necessary to succeed.
Next month I will focus on what is needed to manage at the next level. Full steam ahead.
Dr. Bob Milligan is Senior Consultant with Dairy Strategies, LLC and Professor Emeritus, Cornell University. His insights come from 35 years of working with farm businesses. He also was an award-winning teacher in the fifth-ranked undergraduate business program in the country. Bob lives in St. Paul, Minnesota. Contact him at 651 647-0495 or [email protected]. Visit his Web site at www.dairystrategies.com or www.aLearningEdge.com.