DECISIONS, DECISIONS!

We are all faced with numerous decisions every day. Simple as it sounds, your daily decisions begin with deciding what time you will be getting up in the morning, what you will wear and what you might have for breakfast. Then, I would suggest, the big decisions need to be made: What cows need treating today? Should I add another employee? Can I afford that new tractor? Sometimes you can defer these decisions. However, often they need to be addressed immediately. The problem with delaying decisions is best summarized by Adam Hanft in his article entitled “The Risk of Doing Nothing” in the December 2002 issue of Inc. He was discussing the absence of action on the part of Montgomery Ward (remember them) as Wal-Mart grew from 125 retail stores in 1975 to become one of the largest companies of any kind in the world. Mr. Hanft reviewed how Folgers and Maxwell House did little or nothing as Starbucks redefined coffee as an “experience,” rather than just as a beverage. He added that “there were numerous points along the way where any of these companies could have broken the continuum of paralysis – but at each point the consequences of change were judged greater than the risk of doing nothing.” He goes on to say: “That’s what’s so insidious about the absence of action: no single decision to delay or defer ever appears monumental at the time. Inaction also takes time for the contours of its dumbness to be revealed, so it rarely punishes current management; only the future gets mortgaged.” So how and where does this fit within the realm of your dairy operation? This is an excerpt from my 2005 book entitled A Roadmap for Success. See if, perhaps, you can find yourself in this story: “3:00 a.m. Your herdsman approached you earlier today about an offer he has received. He has been approached about taking his 200 cows and 140 heifers (about 20% of your total herd) and moving them to another dairy where the owner is getting up in years and would like to take on a partner in an effort to fill his new facility. While your herdsman is not anxious to leave, this represents a positive opportunity for him. He will make considerably more money and will immediately become a partner in both the herd and the land & facility at the new place. He has been a great herd manager for you. He has been a solid team player, loyal and conscientious. You wonder if you could even find an equal replacement. You are adamant in your statement to him that “this is just not the way things work around here.” You really hate to see him go, particularly since your cash flow seems quite tight. However, he has offered to stay, but only if you provide him with a $45,000 retention bonus so that he can purchase a new home not far from your operation. He feels that will help compensate him for the “proposed” ownership plan that you started talking about 15 years ago… You rationalize that you could simply borrow the $45,000 on your herd loan, but it’s the principle of the matter, you reason. Perhaps you can discuss this with your banker when he (or they) arrives later today. 3:10 a.m. To divert your mind from this, you start thinking about the value of your ranch or farm. It is a great place to operate, you reason, one where you hope to continue your business for a long time. After all, you do have two sons who are in Junior High now and whom have expressed an interest in continuing the operation. However, you are hearing rumors of many changes in the neighboring regions. There are new homes being built just nine miles east of you. While these developments are planned to go only eastward from where they currently are, the winds from your farm location could create a problem for these residents. You and one of your neighbors had resisted establishing an “agricultural zone” 10 years ago, thinking that might prevent your land from being bought for development in the future. Now, he is in financial trouble with his bank and has his place on the market for $500,000 less than you paid for yours four years ago. 3:30 a.m. The dairy again: You have had some inquiries or you haven’t had them… The most successful A.I. firm in your area has inquired about your availability. Either way, you worry that if you leave now, what will that mean for the future of your sons in this business? If you hold out, will you be leaving a lot of money on the table? Could this industry implode if you hold on? Will your sons really want to come home after five and six years of school, respectively, plus another four years of college? How could they possibly even know at this point? After all, they are only 14 and 13 years of age. You try to go back to sleep. 3:50 a.m. Your banker has been calling to follow up on a letter that was sent to all of his borrowers. The “directive” you received by mail two weeks ago sits like a rock in your stomach. They expect you to come with up with five-year goals for your dairy, along with a five-year plan for achieving them. You have been told that you will need to provide marketing plans for your milk, an outline of feed needs and potential contracts, an overview of labor laws and your compliance with them, and a Nutrient Management Plan and any plans for future business growth or an exit strategy. While this all may not seem like such an unbearable task, they have informed you that their new Division Director (since being acquired by another Super-Regional Bank) will be reviewing your quarterly results to determine if you are staying on plan. Unfortunately, you are already familiar with this Director. In fact, you have had a “run in” with her at your prior lender six years ago. You recall that she seems to have had an unrelenting memory for most of your earlier discussions.” Does this producer have some decisions to make? Yes, absolutely. Can he put these decisions off? Sure. However, he enters a whole new arena of risk if he does. How long can he keep his herdsman if he does nothing? What about the future of his dairy operation? Can it continue successfully? What if the bankers show up and he is not prepared to discuss his plans for the next five years? Sometimes, you just have to make a decision without delay. Are you going to get them all right? No, none of us does. However, the good news is that you don’t have to make the best choice every time – just most of the time. Even Warren Buffet makes some poor decisions, but I think you’ll agree that, on the whole, he has made a lot of great ones. When you are faced with an important decision, I suggest you use the following practice, which was introduced to me by CPA Albert Nunes from the accounting firm Genske Mulder and Company. Ask yourself these four questions:

• What is the best thing that could happen if I do take this action?
• What is the worst thing that could happen if I do take this action?

• What is the best thing that could happen if I don’t take this action?
• What is the worst thing that could happen if I don’t take this action?

If you go through this process and then, if at all possible, sleep on it, you will probably come up with the best decision for you. A lifelong friend of mine introduced me to the abbreviated version of this decision model in 1976. He said to ask myself: “What’s the worst thing that could happen if I take this action? Can I live with that outcome? If so, go for it. If not, then I better rethink my intended course of action.” Whether you opt for the longer version or choose the abbreviated one, put these steps into practice today. Even in difficult economic times, you need to make tough decisions. You cannot keep your finger on the “hold button.” If you do, at best you risk being left behind. At its worst, this can lead to an economic disaster. Just put your self in the situation of the Client described above in the banking scenario. What if he ignores the bank’s request for an action plan? He could potentially lose his financing or even worse. Ironically, I wrote my book in 2005, but this scenario is a good description of what some producers are facing today. Never allow yourself to be put into that type of situation.