Four cornerstones of success in farm business
Thin margins and extreme economic volatility force agriculture producers to be at a higher level in their management mindset. Over the years, the management mindset generally has been made up of four cornerstones with the first being the process of planning, which is often done informally and locked in one’s head.
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This is followed by strategizing which is often relegated to a short-term focus with a firefighting approach on the latest issues and the most urgent matter rather than the most important aspect in the business.
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The third cornerstone is execution, which for many producers has historically been based on emotion, recent headlines, or feeding off what the neighbors are doing.
The final cornerstone of success is monitoring. Unfortunately, many producers are only monitoring financials once per year when tax planning comes to the top of mind.
The higher level
A trend being observed amongst producers attending seminars and conferences is that they are taking a more deliberate approach to these four cornerstones. Proactive owners and managers spend at least 10 percent of their time applied to formal planning.
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Now, managers at a “higher level” conduct strategic planning using time away from the business with many stakeholders and sometimes outside individuals such as lenders, crop experts, livestock consultants, and facilitators to stimulate discussion. The key is these outcomes are put into a written plan with specific strategies, actions, and measurable metrics.
The higher-level manager will use these plans and strategize to assist in connecting the dots for objective, rather than emotional, decision-making. The written plans and strategies provide the guardrails of possible outcomes. It also provides documentation of institutional memory for future planning and decision-making.
The final cornerstone is often the difference maker. Monitoring the plan utilizing key performance indicators (KPIs) is an important cornerstone. These metrics could be in production, operational efficiency, marketing, risk management, financials, or labor management, productivity, and satisfaction. In many businesses, these KPIs are monitored monthly, or at least quarterly, so that adjustments in the plan can be made.
Bottom line
The bottom line is that the formality of the four cornerstones of the management mindset is going to the next level. This improves the odds of business success in a turbulent agriculture economic environment.
Contributed by David Kohl
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