Would You Meet Me Upstream?

I recently completed an outstanding book entitled Upstream, which was written by Dan Heath. He is a Senior Fellow at Duke University’s CASE Center and has co-authored a number of excellent books with his brother Chip. You may even recognize some of them: Made to Stick, Switch, Decisive, and The Power of Moments. I’d highly recommend that you read this book in the near future.

See if you can relate to his opening story in Chapter 1.

“You and a friend are having a picnic by the side of a river. Suddenly you hear a shout from the direction of the water – a child is drowning. Without thinking, you both dive in, grab the child, and swim to shore. Before you can recover, you hear another child cry for help. You and your friend jump back in the river to rescue her as well. Then another struggling child drifts into sight… and another… and another. The two of you can barely keep up. Suddenly, you see your friend wading out of the water, seeming to leave you alone. ‘Where are you going?’ you demand. Your friend answers, ‘I’m going upstream to tackle the guy who’s throwing all these kids in the water.’”

A public health parable (adapted from the original, which is commonly attributed to Irving Zola)

This is a great example of “Upstream Thinking.” Have you ever noticed that we seem to spend a lot of time and money “fixing” problems, essentially those challenges that we are seeing “downstream” in our business? As you’ve heard me state many times, I firmly believe the following:

  1. If you measure some item in your business (e.g. Cash Flow), you can indeed understand it. It equips you to catch severe cost increases quickly before they get out of hand. Since these changes directly impact your break-even levels, they flow directly toward the “bottom line.” As I’ve said before, you can also use these cash flow measures to set your milk price floor within the Dairy Revenue Protection program.
  2. If you understand your cash flow, you can control it. You’ll know exactly what steps to take to positively impact it. Looking at your break-even levels, you can determine just exactly what changes you need to make in order to achieve improved profitability.
  3. Finally, if you can control it, you can improve your cash flow results. Isn’t that the objective of every business operation?

Well, whenever we identify a measurement that appears out of control, we should consider if we can go one step beyond this “downstream” measurement. Can we move more “upstream” and determine what is actually causing our problem? Here’s a simple example. Recently, one of my Clients was faced with higher than normal calf losses. These higher losses were the “downstream” measurement. At first, we thought that it may be due to changes at the calf ranch. However, as we moved “Upstream,” we determined that the machine used to pasteurize the colostrum being fed was only functioning at 60% efficiency. In other words, 2 out of every 5 days, it was not working correctly. This may shock you, but the employee that ran the faulty equipment noticed that it seemed to be failing. Unfortunately, he never bothered to tell anyone else. Hence, the challenges that arose “downstream.”

I’m sure you can think of other possible areas in your business that seem “off” in some respects, whether it’s a higher than normal “Cost/cwt” or another “Efficiency” measure. I would invite you to join me as I start to continually move my Clients “Upstream” in the next 12 months. Until then, what items in your operation are seemingly “out of kilter?”

Going back to the original question, “Would You Meet Me Upstream?” please give some consideration to this new type of thinking. It definitely will make a huge difference. If I can assist you with this process, please contact me at john@success-strategies.com or 209-988-8960. Best Wishes for a joyous Holiday Season and continued prosperity in the coming year!

When Will You Find Time?

This is a question I recently asked a new Client of mine. Please allow me explain my thought process. During our initial discussions and analysis, we had discovered several areas of his operation that needed some ‘fine tuning.” In other words, they were unintentionally off course in terms of their costs. Please take my word for it. They were way too high, in comparison to other producers.

To provide you with some background, his production was solid, and most of his expenses were admirable in comparison to industry guidelines. However, his Feed Expense and Cost of Supplies were both well above where they should have been. I had originally assumed that they were two separate challenges. However, as it turned out, they were both traced back to a common source.

For years, in an effort to save money, he had used the same Nutritionist from a local feed company. However, while saving the $1,000/month fee of a neutral third-party Nutritionist, he was spending thousands more on Feed Costs. His Supplies expense was also being impacted by the use of some “Pixie Dust” powder that was being added to the calves’ rations. Please don’t ask me why it was included in his Supplies cost. I assume it was placed there as a result of its’ “medicinal benefits…”

Now, understand that any Nutritionist can run into these same challenges and then need to make some changes. The difference here was that his current feed advisor wasn’t willing to make the necessary changes. With the guidance of another Nutritionist, this producer lowered his Feed Cost by $0.40/cwt and decreased his Supplies Cost by $0.10/cwt. Now, this change generated $10,500 of reduced costs per month. After paying the new Nutritionist $1,000 per month, his bottom-line return was still boosted by $114,000 per year.

Now, while the net impact of this change was dramatic, my point is not to pick on his former Nutritionist. This situation could happen with almost any advisor. The significance really revolves about the willingness of this producer to fully analyze these sizeable cost variances and then actually take the steps to improve his results. How much money had he left on the table because he was “too busy” to make these changes? Our industry is one with thin margins in most years. That is precisely why it’s so important to take action today! Do you know the best time to plant an Oak Tree? The best time was 20 years ago, but the second-best time is today.

Going back to the original question, “When Will You Find Time?” your very survival depends upon this type of thinking. Based upon my experiences of the past 22 years, it will make a huge difference. If I can assist you with this analysis process, please contact me at john@success-strategies.com or 209-988-8960.

Why Don’t You Just Go Away?

Hopefully, I caught your attention with this question. Please allow me to explain. Read on & see 3.a. below. Cal Newport in his fantastic book Deep Work defines “Deep Work” as:

 “…the ability to focus without distraction on a cognitively demanding task. It’s a skill that allows you to quickly master complicated information and produce better results in less time. Deep work will make you better at what you do and provide the sense of true fulfillment that comes from craftsmanship. In short, deep work is like a super power in our increasingly competitive twenty-first century economy.”

As you attempt to wrap up 2020 which has, at times, been very challenging, this focus on “Deep Work” becomes very crucial. Here are a couple of questions for you to consider as you strive to finish strong this year:

  1. What items went right this year? We probably all tend to dwell on what items went “sideways,” but think about and write down what went well. Was your production per cow better this year? Could it be, going forward? What’s your profitability look like, especially in light of the CFAP money from USDA? Are your 2020 costs in line? How about Labor costs? Did your 2019 investments pay off? What else would boost efficiencies?
  2. What needs to change? Are there better cost controls you need to put in place? For more on that specific topic, please see my October 14th NLT blog entitled “Why Bother?” Do you need to maximize Labor Efficiency, i.e. become more productive, especially in light of rising labor costs? How about your debt per cow, especially as we consider the strong possibility that, at some point in the future, we will see lower milk prices…? Do we need to decrease your debt levels?
  3. Most important, ask yourself, What’s Next? Treat this like “Deep Work,” because that is precisely what it is. My recommendation includes the following:
    1. Go Away! No, I’m not telling you to get lost. Just simply get away from your everyday distractions and do some “Deep Work” on your business, using the information above as a guideline.
    1. Focus on what, specifically, you want to see next year! Yes, I know it’s only late October or early November as you are reading this, but soon the Holidays will be upon us, and will you find time then? Not likely…
    1. While you are in solitude & focused: What specifically do you want to accomplish next year? Who is involved? What steps do you need to take? By when? Do your proposed changes require some financial analysis? If so, please contact me if I can assist you.
  4. Take the time to focus on this “Deep Work” now. Your future success depends upon it!

If I can assist you with any steps of this process, please contact me at john@success-strategies.com or 209-988-8960.

Why Bother?

Ouch! That is the question I was asked by a producer in December 2018. Please allow me to put his question into perspective. He had suffered through four consecutive years of low milk prices, continually growing expenses (despite our supposedly have only “minimal inflation”), and no profits. These factors were the basis of his question, “Why bother?”

My response was fairly straightforward. If you measure Cash Flow, you can understand it. If you can understand it, you can control it, and if you can control it, then you can improve it! His reply? “Yeah, right…”

However, in my consulting during the past 22 years, I have experienced the difference that measuring items such as your cash flow regularly can make:

  1. If you measure it, you can indeed understand it. It allows you to catch severe cost increases quickly before they get out of hand. Since these changes directly impact your break-even levels, they flow directly toward the “bottom line.” You can also use these cash flow measures to set your milk price floor within the Dairy Revenue Protection program.
  2. If you understand your cash flow, you can control it. You’ll know exactly what steps to take to positively impact it. Looking at your break-even levels, you can determine just exactly what changes you need to make in order to achieve improved profitability.
  3. Finally, if you can control it, you can improve your cash flow results. Isn’t that the objective of every business operation?

I can’t emphasize the significance of this formula enough. The example I used above was just for cash flow, but it can also be applied to any number of other operational measurements. Here are a few examples:

  1. Financing – This type of CF Analysis has impacted a large number of my Clients during these past 22 years. Frankly, it has impacted every one of them to be more profitable. If there are any exceptions, that producer wasn’t very serious about making any changes. They were hoping for a miracle, getting better without changing anything…
  2. Nutrition – I believe that most Nutritionists do a great job. Given the dairy producer’s Revenue & Expense levels can equip them to do an even better job of helping you become more profitable. The resulting break-even levels of your cash flow analysis will tell them exactly what you can spend on feed and still make money. The days of just maximizing milk production “at any cost” are over. This tool of cash flow analysis can assist you & your Nutritionist to be even more successful!
  3. Advisors – Whether we are talking about labor efficiency or any number of managerial items, cash flow & break-even analysis will provide you with the tools you need to make smarter decisions. For example, what is the impact of adding one more employee in the milk barn on your CF or break-even levels? With this information at your fingertips, you will know. Considering that milk prices haven’t really increased anywhere near the proportion that your expenses have during the past 40 years, improved efficiencies are absolutely crucial!

Going back to the original question, “Why bother?” your very survival depends upon it. Based upon my experiences of the past 22 years, it will make a huge difference. If I can assist you with this analysis process, please contact me at john@success-strategies.com or 209-988-8960.

Moving Beyond Survival!

Wow! This has definitely been a tumultuous year in the dairy industry, following the COVID-19 pandemic’s impact. However, if you are reading this, you’ve survived it, and that’s fabulous, but what’s next?

What new items, if you achieved them, would substantially push you forward? What would represent a major breakthrough for your Business, your Team or your Family?

You don’t need to be Superman to get this done. Even Muhammad Ali, one of the best boxing legends of all time, had limitations, but that didn’t hold him back. His limitations became obvious when he was flying somewhere in the world, and the flight attendant kindly asked him to put his seat belt on.

Ali, never one who was short of witty responses stated, “Superman don’t need no seat belt.” To which the flight attendant replied, “Yeah. Well, Superman don’t need no plane either…”

My point? As you approach these new areas & challenges, think it through and start small. Lay out your game plan, and then start with small steps. So, what if you stumble? It’s no different than learning to walk. If a baby falls while walking, we don’t put that child back in their crib and say, “That does it. You blew it. No more walking for you. We’re not trying that again!”

Of course not. We encourage them to try it again and again until the child gets it right and can walk on his or her own. And, then we celebrate that achievement, too. Yes!

Likewise, when you’re lifting weights, you wouldn’t start with 120 pounds. No, you’d start small and build you way up to that 120 pounds level. You wouldn’t train for a marathon by running 26 miles on day one. You’d work up to that by race day.

You need to clearly define your objective, your goal. Then, you outline the small steps that will help take you there. What do you want to pursue this year, as you move forward? Only you know the answer to that question. Take your time, take small steps, as needed, and move closer to your dreams. This was best summarized by author Kendra Adachi in her book The Lazy Genius: Embrace What Matters, Ditch What Doesn’t, and Get Stuff Done. She states:

“When you start big, you give up before you even begin, but the smaller the step, the more likely you’ll do it. The more you do it, the more you’ll keep doing it, making it a meaningful part of your daily rhythm which is the point. Embrace the power of small steps. They matter, they count, and they’re the best way to create habits around what actually matters to you.”

Best wishes with your success plan. If I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

Succeeding in Spite of the Opposition!

Do you ever get frustrated with negative people? I know I do. You know the type I’m referring to – the ones whose “glass is always half empty but never half full…”

My lovely bride of 38 years shared a passage with me that came from a book she was reading entitled Girl, Wash Your Face by Rachel Hollis. Now, I cannot tell you a lot about the book because I didn’t actually read it. However, she spoke very highly of the book, and I think it contained some valuable lessons that I want to share with you.

Why do some people succeed at tasks, while others fall short of their goal? Rachel Hollis sums up the failures quite well. She states, “It’s simple, actually. It’s not about talent, skill, money or connections. It’s because when they went after their dreams and came up against a roadblock, when they experienced rejection, or when someone or something told them no…they listened.”

I ran into the same thing 22 years ago when I was considering the development of my consulting firm Success Strategies, Inc. Many said, “John, why would you leave a successful banking career for the uncertainty of having your own business?” I had a dream and followed it.

I never asked anyone else to manage that dream for me. Whenever I wasn’t sure what might be the future outcome of a decision, I would weigh out the pros and cons, consider the potential likely outcomes, and then make the best choice that I was capable of. As the character Gimli stated in the Lord of the Rings movies before going ahead with their battle plan & rescue mission, “Greatly outnumbered. Certainty of Death. What are we waiting for?”

How does this apply to your business & life? Here are some gems from Rachel Hollis:

  1. “I am successful because I refused to take no for an answer.”
  2. “When it comes to your dreams, no is not the answer. The word no is not a reason to stop. Instead, think of it as a detour or a yield sign. No means merge with caution.” Just re-evaluate your position & direction.
  3. “It’s all about perception.” Is your perception accurate? Is it factual? In my case, I was so sure that my Success Strategies concept would work, I went ahead and left banking, its good salary & benefits package. I had enough savings to last for 12 months if things didn’t work out, but we never used those funds.

What plans do you have that you want to pursue, either in your current operations or in some new avenue? Why not start today? I wish you the best of success, and when you encounter the “no’s,” evaluate your plan to make sure you are still on course. With regard to those “No’s,” here is one of my favorite quotes:

“The dog barks, but the band marches on…”

If I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

From a Distance, it looks like…

I recently read an interesting article in Inc. magazine by Bill Murphy. It talked about the value or cost of “Social Distancing,” which seems to be a hot topic these days. Yes, these are trying times with the rules put in place to offset COVID-19’s impact, but as we go through our regular routines, perhaps there are some valuable points for consideration.

He referred to recent research led by Dr. Barbara Lee Fredrickson, the head of the Positive Emotions & Psychophysiology Lab at UNC. She and her team surveyed 600 Americans to ask about their daily activities to see if there was any correlation with their overall emotions.

Interestingly, they found that survey participants who had spent time in the prior 24 hours “passively scrolling through social media or interacting with others purely through chat or texts,” reported feeling negative emotions. Those surveyed who felt positive emotions included people who had exercised, relaxed (e.g. with a hobby), engaged in spiritual activities (contrary to the limitations imposed by some politicians…), interacted with others face-to-face, or went out of their way to assist others!

The overall message of Dr. Fredrickson is this: Instead of “Social Distancing,” let’s implement a program of “Physical Distancing & Social Solidarity.” How can you implement this in your business? Here are a few suggestions:

  1. Encourage your employees to exercise, even if it means going for a daily walk.
  2. Help them to connect with others, with caution, of course.
  3. Let them engage in “self-care” & “spirituality” activities.
  4. Show them, by example, how to help others, even when it’s less than convenient.

Granted, you and I cannot necessarily change the whole world, but we can absolutely have a positive effect upon the people we lead. It’s certainly worth a try. Why not start today? I wish you the best of success!

If I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

Are You Adequately Covered?

As the cost of buildings on your operation continue to rise each year, you certainly wouldn’t think of not covering their replacement with adequate insurance. Yet, have you done the same thing with the primary source of revenue in your business?

For most dairymen, Milk Sales represent 85-90% of their total revenue streams. This would seem completely prudent, given the increased levels of volatility in the dairy markets… It’s been almost two years since the introduction of the Dairy Revenue Protection (DRP) Program, but are you using it?

If you study the program, it is a fairly straightforward method for placing a floor under the milk price you receive at your dairy. You can choose to protect your Class 3 price, your Class 4 price or you can use your components as the basis for protecting your milk price, assuming that fits your operation better. The key question here is – Have you looked into DRP yet? If not, please do so soon.

I believe you can go ahead up to five calendar quarters. Of course, since the price protection is based upon the use of “Put Options,” which place a floor under your prices received, the longer into the future you contract, the greater the cost of those Put Options will likely be. Their cost can also increase when markets are more volatile (such as this year…) and if you select higher price coverage levels (e.g. $18/cwt vs. $16/cwt.)

However, there is some good news on the cost front. Currently, the federal government is subsidizing the cost of the DRP options by about 40-45%, so if an option costs $0.60/cwt in the open market, your net cost through DRP will likely be about $0.36/cwt. So, how do they pay out?

At the end of each quarter, if the market prices have been higher than those you had set as a floor in the DRP program, these Put Options will expire unused, and, unfortunately, you will receive a bill for the cost of that quarter’s Puts. That’s the bad news. The good news is that since the market was stronger than the level you had set for coverage, you should have been receiving higher milk prices & thus be able to pay this premium. And, please remember that you can do less than all of your milk; I believe you can also set this up with multiple tiers of coverage, e.g. 25% of your milk one week and then another 25% the following week. The costs of the two 25% coverages may be different, but as long as you contract before the required deadline (around the 15th of the month before the next quarter begins), you’ll be covered for the level you select. You can also go into your DRP account every day, if you wish, to monitor your progress/potential payout levels.

Is this DRP program perfect? Probably not. I’m certain that if we study it long enough, we can likely find some characteristic we don’t like… However, it can put a “floor” under your overall milk price received, the premiums are government subsidized, you have numerous different input factors that you can use (e.g. Class 3, Class 4 or Components), and you don’t even pay the premiums until the month following the quarter for which you were covered. As a result, you can pay the “premiums” out of the DRP coverage you received or out of the higher milk prices you collected if your DRP coverage didn’t kick in.

Yes, you will be out the cost of the Put Options, but do you call your insurance agent at the end of the year if your house doesn’t burn down, despite having it insured? I didn’t think so…

Given the higher levels of volatility due to market conditions, unforeseen events such as COVID-19, or disdain for some variables in our trade agreements, don’t you owe it to yourself to be covered? Take action now! I wish you the best of success!

If I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

Throw Me to the Wolves…

I recently read a quote from the famous playwright & philosopher Seneca that stated:

“Throw me to the wolves, and I will return leading the pack.”

As we discussed in my last blog/article, our industry is currently at an “Inflection Point.” Essentially, that means that we are a point of major change, one that completely alters the way in which we must think and take action. As a result, we must take positive steps in order to avoid being “run over.”

Thirty years ago, a producer could survive (please note that I did not say “thrive…”) by doing a solid job of breeding and managing cows for maximum production. Feed costs were quite reasonable, and while a dairyman didn’t necessarily get rich, he could pay all of his bills and service the mortgage successfully.

Forty years ago, many people held the same jobs for their entire career. There was job security for life… Today, job descriptions are constantly changing, we see lower levels of company loyalty, and many change careers regularly, either out necessity or a desire to seek new opportunities.

Realize that many factors have changed, both within and outside of our industry. Thus, our best approach to succeed is to follow the advice of the Boy Scouts and simply, “Improvise, Adapt and Overcome!” We absolutely need to come to grips with reality and prepare for constant change.

What changes do you need to consider?

  1. On Labor Efficiency: Have you considered the positive benefits of Robotic Milkers, Robotic Feed Pushers or other forms of automation? Have you considered their cost vs. their effectiveness & efficiencies?
  2. Your Marketing Program: Do you have an effective Marketing Program for selling your milk at a price that provides you with a positive profit? Consider the Dairy Margin Coverage Program (DMC) or the Dairy Revenue Protection Program (DRP) for your business.
  3. On Reproductive Efficiency: Are you using the tools that are available to you to ensure that your Pregnancy Rate runs in the 25-30% level? Synchronization and Double Ova-Sync programs can help you maintain your Days-In-Milk (DIM) at a level that is consistently in the 160-165 Day range. That’s where the “money” is!
  4. Knowing Your Break-Even Levels: Do you really know your operation’s Break-Even levels for Milk Price, Feed Costs & Milk Production levels? If not, take steps today to grasp a better understanding of this information. It can guide you to greater profitability!

Returning to the Seneca quote above, we need to realize that we all get “thrown to the wolves” occasionally. That is almost a given in life today. The variable is how you deal with this process. Do you adjust your course or just give up out of frustration? Make the changes suggested above, and I believe you’ll thrive as you move forward. Our industry is changing very rapidly, so don’t delay. Take action now! I wish you the best of success!

If I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

 “Throw me to the wolves, and I will return leading the pack.”

                                                            Seneca, Playwright & Philosopher

Choose Wisely!

I recently was reading about a presentation by Damien McLoughlin, marketing professor at the University of Dublin, within which he explained that our industry (in fact, all industries) are currently at what he describes as a “Strategic Inflection Point.”

What other potential options have arisen over the past several years in the dairy industry? How about robotic milkers? What about robotic feed pushers? What about price insurance programs such as DMC or DRP? Have you adopted them yet?

This was most recently inflicted upon us by the COVID-19 outbreak, and he explained that at some point, all businesses will face an inflection point that significantly alters the way we think or act. Obviously, COVID-19 has caused this with the restrictions placed upon us for travel and the increased use of Zoom meetings and other online tools.

Mr. McLoughlin states, “After an inflection point, all bets are off; the industry changes. The forces that drive that change are rarely a surprise, and the change, which appeared to be so gradual, then suddenly comes into play. And the opportunities are there for those who are ready.”

He added, “We’re in a time of enormous challenge, but challenge always presents opportunities.”

What type of opportunities currently exist for you? Are there some in terms of expansion, increased efficiencies, or higher levels of price insurance? What strengths do you have going for you? Are you currently well prepared or do you need additional resources? What advantages do you have? Who else can you consult with on this challenge?

Have you developed your own strategy to succeed at a higher level? Our industry is changing very rapidly, so don’t delay. Take action now! Choose wisely…

If I can assist you in any way, please let me know at john@success-strategies.com or 209-988-8960.

 “When I was young, I always said I wanted to be someone. Now that I am older, I wish I’d been more specific.”

                                                            Gilda Radner, Former SNL Comedian