Are You Always Running Out of Time?

This article is based upon the teaching of author Steve Chandler, whose work I admire and follow closely. However, the story is also based upon an actual Client relationship of mine.

On our way to an important bank meeting, my client turned to me and said, “I wish I had more time to prepare for this – I’ve been so busy I didn’t do a thing for the meeting.” “Are you kidding?” I asked. Busy? Doing what? So we analyzed it: 84 hours per week at the dairy, 21 hours firefighting, and 18 hours in meetings!

In a typical week, the rest of his time was spent playing defense – filling out numerous forms, answering many “urgent” requests, and returning calls. He was spending about 6 of the 18 hours in meetings, listening to others talk about what they’re going to do or have recently done. He spent about 45 minutes actually doing work on new projects he’s currently involved in. And he spent exactly 15 minutes a week on inventing his next breakthrough steps.

WOW!!! This is frightening! Is this why this client entered the dairy business? Hardly. What’s the solution?

*    Better Time Management – Perhaps

*    Better Prioritization – Probably

*    More Delegation of Decision Making – Definitely

*    More Outsourcing – No Question! Especially in the areas of government and environmental reporting.

The reason it’s scary is because if you do the math of what his business actually gets paid for, it’s precisely the opposite of the way my Client was spending his time. When he goes on vacation, those minutes of “urgent emergencies” just sit there, and nothing particularly horrible happens. And in the rare weeks when he doubles his big-thinking time, he’s likely to come up with an insight that will pay the bills for the next six months or even a year.

As author Seth Godin says: “So, do you really think you’re too busy to work on something remarkable? In fact, you’re actually too busy to do all that (non-urgent) emergency stuff.” Think about it!

Ahead of the Game!

I love the following quote from General Eric Shinseki of the U.S. Army: “If you don’t like change, you’re going to like irrelevance even less.” What is he saying? We’ve got to keep up with change! Be like the Boy Scouts, who are always ready to – “Improvise, Adapt, & Overcome!” Every producer has lots of new challenges: Higher Feed Expenses, Rising Insurance Costs, and more Government Regulations. We are in a constantly changing industry environment where decisions we made five years ago are not necessarily as effective as they previously were. It is time for each of us to take back the reins of the decision-making process and adopt a more proactive approach moving forward. Management consultant Peter Drucker stated that, “The best way to predict your future is to create it.” Yes, you’re saying, but how can I do that, since I’m a “Price Taker” when it comes to my milk price, and under the present circumstances? I’ll tell you how – get out from under those circumstances. Change your thinking. Alter your approach. It has been said that if you keep on doing what you’ve been doing, you’re going to keep getting what you’ve been getting…I contend that simply may not be true. In some cases, your results could be worse! So, what do we need to do?

  • Embrace change as you encounter it. Of course, we all like the familiarity of our normal day-to-day processes. At times, I am guilty of this, too. However, when things are changing as rapidly as they are in the dairy industry today, we run the risk of getting “run over” if we simply stand still.
  • You are thinking that you just finished restructuring your bank debt and have most of your vendor payables caught up (hopefully). You’re asking: “Can’t I stop and take a break?” My advice: Do so at your own risk.

Take the time to check all of your efficiency measures, and I do not mean just your costs/cwt. These are important, but be sure to look closely at other measures such as cows milked/hour, pounds of milk shipped/full time worker, the average age of your first lactation females at calving, and feed efficiency (pounds of energy corrected milk/pounds of dry matter fed). Improving these items could save your business. Think about it!

How Does He Do It?

In this blog, I thought I’d share some thoughts on efficiency.  The efficiency measure I want to discuss, though, is one tied to the conversion of assets into bottom line profits. Dairymen often ask, “I’m milking 600 cows and netted about $800 per cow last year.  This year I’m not even breaking even.  How does that young guy down the road with 3,000 cows and $6,000,000 of debt make it?”  After I ask them to clarify how they know that he has $6,000,000 of debt, I usually explain that the answer lies within the realm of productivity per unit or efficiency.  Another way to explain it is to look at their costs per hundredweight (cwt.) as measured by the leading accounting firms in our industry. The dairy industry is a volume business, marked by the need for efficient conversion of assets into bottom line profits.  Whether we like it or not, producers are “Price Takers” not “Price Makers.”  Dairymen ship their product to their cooperative or other processing company without knowing what they will get for their milk.  Unlike a “Price Maker,” such as an auto dealer who might be able to hold his inventory until he gets the price that he wants from a buyer, a dairyman sells a highly perishable product and thus needs to ship it for processing as soon as possible.  Unless he has the ability to process it into a storable form, such as cheese, and then sell it later, he must take what the market offers him on any given day.  That makes him a “Price Taker.” Thus, a dairy operation has two primary ways to influence its profit levels, either by increasing its volume of milk sold or by lowering its costs of production.  The following equation is one that I like to use to explain dairy profitability: Profit = ((Revenue/cwt. – Variable Costs/cwt.) X Number of cwt.) – Fixed Costs

  • Primarily the volume of milk sold per cow determines revenue.
  • Variable Costs include expenses that vary with the number of cows milked such as feed, some labor, supplies, repairs & maintenance, veterinary & breeding costs.
  • Fixed Costs include rent, debt repayment, most insurance, and professional fees.

What’s the message?  Spread your fixed costs (and some of your variable costs) over a larger number of hundredweights or cows and watch your profits increase. Perhaps a numerical example would help:                         >> Year 1 <<                                    >> Year 2 <<                                     600 Cows        3,000 Cows           600 Cows     3,000 Cows Milk Revenue/cwt.      $14.00             $14.00                         $11.50             $11.50 Less: Variable Costs   <10.75>           <10.05>                       <10.75>           <10.05> Less: Fixed Costs          <1.25>             <1.15>                         <1.25>             <1.15> Net Income/cwt.         $  2.00             $  2.80                         $ <.50>            $  0.30 X  200 cwt./cow         X  200             X  200                         X  200             X  200 X  Number of cows    X  600             X 3000                        X  600             X 3000 Net Income                 $240,000         $1,680,000              $(60,000)      $180,000 As you can see in the previous example, the larger operation does a fairly good job of spreading their fixed costs as well as reducing some variable costs per hundredweight.  Thus, it is apparent why the larger operation has the ability to service substantially more debt in a given time period.  Of course, in our current industry environment, dairies of all sizes will find it more difficult to make ends meet.  Regardless of herd size, all producers should keep a close watch on their costs per hundredweight.  These should be monitored on a regular basis both internally and via the accounting numbers from your CPA. To summarize, however, former General Electric CEO Jack Welch said it best when he advised:

  1. “Face reality as it is, not as it was or as you wish it were.” In essence, do the right things in your management system for the right reasons, but don’t waste time on those tasks over which you have no control.
  2. “Change before you have to.” This will assist you to stay ahead of the curve of change and position you to compete at a higher level. No doubt about it – You’ll be glad you did!

The realization is now – Written by Marketing Expert Seth Godin

*** I wanted to share a copy of Seth’s article with you, simply because I believe it has a fantastic message, one that could serve as a sound directive to get our country back on track in so many ways. I hope you enjoy his thoughts, which fit almost every industry: “New polling out this week shows that Americans are frustrated with the world and pessimistic about the future. They’re losing patience with the economy, with their prospects, with their leaders (of both parties). What’s actually happening is this: we’re realizing that the industrial revolution is fading. The 80 year long run that brought ever-increasing productivity (and along with it, well-paying jobs for an ever-expanding middle class) is ending. It’s one thing to read about the changes the internet brought, it’s another to experience them. People who thought they had a valuable skill or degree have discovered that being an anonymous middleman doesn’t guarantee job security. Individuals who were trained to comply and follow instructions have discovered that the deal is over… and it isn’t their fault, because they’ve always done what they were told. This isn’t fair of course. It’s not fair to train for years, to pay your dues, to invest in a house or a career and then suddenly see it fade. For a while, politicians and organizations promised that things would get back to normal. Those promises aren’t enough, though, and it’s clear to many that this might be the new normal. In fact, it is the new normal. I regularly hear from people who say, “enough with this conceptual stuff, tell me how to get my factory moving, my day job replaced, my consistent paycheck restored…” There’s an idea that somehow, if we just do things with more effort or skill, we can go back to the Brady Bunch and mass markets and mediocre products that pay off for years. It’s not an idea, though, it’s a myth. Some people insist that if we focus on “business fundamentals” and get “back to basics,” all will return. Not so. The promise that you can get paid really well to do precisely what your boss instructs you to do is now a dream, no longer a reality. It takes a long time for a generation to come around to significant revolutionary change. The newspaper business, the steel business, law firms, the car business, the record business, even computers… one by one, our industries are being turned upside down, and so quickly that it requires us to change faster than we’d like. It’s unpleasant, it’s not fair, but it’s all we’ve got. The sooner we realize that the world has changed, the sooner we can accept it and make something of what we’ve got. Whining isn’t a scalable solution.” I urge you to join me in making the changes we need to in order to succeed and prosper!

Developing a Future Course for Your Business

You’ve probably heard about the Harvard Business School study regarding the value of having clearly defined goals and a written plan designed to achieve them. 3% of the study’s respondents had a “written, specific plan” for what they wanted to achieve. 10% of them had a “general set of goals” with no definite plan. 60% of those surveyed had only “survival goals” that would allow them to live day to day. The final 27% had “no goals”. When the study was completed 20 years later, people in the 3% group with definite written goals had out produced the 10% group by over ten times. In fact, this 3% group had amassed greater wealth in those 20 years than the entire other 97% of those surveyed! Am I advocating that you should simply do this planning to obtain more money? No. Maybe your goal is to give more money to charity. Whatever it is, write it down. A written plan will provide you with a tool against which you can compare your actual results! Please allow me to outline several other good reasons to consider developing a written strategic plan for your dairy business. First, the process of developing your plan forces you to focus on what you and your team want for your business. I am confident that you will be much more pleased with the results you obtain if they are in line with what you desire: Think it through and write it down. Second, a written plan will help to keep you on track because it will serve as a guide for you to purchase everything you need to meet your business objectives and it can keep you from buying anything you don’t need to succeed. This is important in the area of large capital expenditures. Invest only in the expenditures you truly need. Let someone else purchase items not necessary to you meeting your goals. Having a written plan doesn’t mean you can never deviate form it. Like any good system of guidance, it is intended to keep you on track. It must also be flexible, allowing you to adjust to rapidly changing business environments, milk markets, or feed prices. This is particularly true as we enjoy ever improving technology, which gives us more accurate, up to date information, equipping us to make better decisions. One final reason to include a written plan in your quest to reach the objectives you’ve set for your dairy business is that you are busy. You need a plan to stay on track. Your written plan will provide you with the guidance system you need to ask, “How will this impact us getting closer to our goals?”  Being prepared to answer a question like this one will allow you to save time, save money, and avoid headaches!

“What would Albert Einstein do?”

I think you’ll agree that Albert Einstein was a very intelligent person. However, as the scientist who developed the Theory of Relativity, most of us would not have looked to him for advice in the area of strategic management or life philosophy. While that may, for the most part, be a reasonable assumption, I’d like to review one of his quotes because I believe it contains some very powerful advice for us today. “The thinking that has brought us this far has created some problems that this thinking can’t solve.” What was he talking about when he made this statement? I believe he was talking about a situation that was quite similar to what some people in the dairy industry are facing today. Doesn’t this fit the scenario of a producer who has fallen behind on accounts payable or other items this year? Whether this was caused by only low milk prices, whether it is the direct result of poor decisions being made or whether it occurred due to bad timing on the part of the dairyman, the situation still needs to be addressed and corrected. Einstein’s quote fits the business that got behind on Accounts Payable, but it is also appropriate for the person who has been historically successful but has been blindsided by lower milk prices. If you (or someone you know) are facing a situation similar to this, take some comfort that you are not alone. There are others who also have gotten behind during these past few months. Nevertheless, these problems still need to be corrected. Changing how you address this challenge can really help. First, start by communicating with the vendors to whom you owe the money. Most of them are willing to work with you if you express interest in remedying the problem. Realizing this will take some time, work out a plan you are comfortable with and stick with it. Not fulfilling your agreed terms and conditions will only hurt you and your vendor over the long term because it can damage your future credibility. Finally, remember that you didn’t get into this situation overnight. Thus, it is doubtful that you’ll correct it in two or three months. Stay positive and use some creativity to reach a reasonable solution. Once you have reached an agreement, start looking for other new ways of thinking that may assist you going forward:

  • Remember to spread those fixed costs over as many producing units as possible. In other words, always try to maximize the use of your facility to spread your fixed costs as much as possible.
  • Always strive to minimize variable costs where possible as long as it does not impact the productivity or profitability of your dairy herd. Always know your costs/cwt.
  • Be open to new ideas, and ask yourself, “How can we attain this goal?” When you seek the correct answer, operating under the assumption you will reach it, your mind will become amazingly preoccupied with finding a solution.

As I have said before, I believe you will be glad you did!

‘There Is No Try…Only Do or Do Not’

We are now in our seventh month of low milk prices. I’m sure you are tired of this low price period and its implications. Many people are stressed by their increasing accounts payable. This, of course, is normal. Remember that these low milk prices won’t last forever. Yet, I would also suggest we need to all move beyond the current dilemma and initiate action to complete a successful turnaround. I have heard the phrase “we can’t” too many times. For example: 1) “We can’t keep our milk prices high enough for long enough to even get close to our break-even point.” 2) “We can’t get our feed costs down to a reasonable level.” 3) “We can’t hire the right kind of people at our dairy.” 4) “We can’t get the appropriate financing to really accomplish what we want to do.” The list goes on. However, the truth is that you can overcome each of these barriers to success! You not only need to try, you need to adopt a mindset that literally says, “We are going to get this done!” Let’s look at the above list of items one by one.

  • Do you really think you cannot reach your break-even level? First, do you know what it is? If you already know, congratulations. If not, determine what level of milk price and/or production you need to reach in order to cash flow. We will soon be offering an on-line tool to accomplish this task. Make certain that this level will also cover the principal and interest you need to pay on your loans. Once you determine that level, you can use milk options to reduce your exposure to price downturns.
  • You think you cannot keep feed costs down? I have clients who are enjoying excellent feed prices. How do they do it? They study the market, stay in touch with people who can help them (because none of us can know everything…) and utilize the best nutritionists available. The combinations of these factors should assist you in keeping feed costs down. If you use a professional nutritionist, lean on them for their guidance. They can be a tremendous asset to you, and if they are not being helpful, maybe you need to find one who can more fully assist you.
  • What is it that makes for a great working environment? Everyone wants to be paid fairly. However, great working conditions go beyond that. How do your benefits and other job attributes compare with other employers? Do your people get sufficient time off to spend with their family? Employees will only be happy at work if they are satisfied with conditions at home, and how can they be pleased with their home life it they don’t have one? Communication becomes critical. It allows you to stay in touch with the needs of each of your employees. Allow time for their feedback.
  • You really can’t get the financing you need to accomplish the growth or other changes you want? First, have you clearly defined what it is you want to accomplish? Have you provided your lender(s) with a written plan that outlines your goals and any borrowing needs? I have worked with clients to complete the approval of many different financing plans with their banks. Many of these were plans for business growth and acquisitions, and a few of them were financial restructuring plans. They all required time, and each needed a plan that clearly outlined what we were trying to accomplish, what our proposed time table was, and what we expected to achieve in terms of cash flow and other financial results. Without a plan and some degree of flexibility, we would be doomed to meandering from one possible goal to another.

It’s time to get beyond excuses and develop goals and a plan for the future. Remember what Yoda so brilliantly exclaimed in the Star Wars episodes: “There is no try. There is only do or do not.”

Stepping over Dollars to pick up Dimes!

In my last Blog, I promised to address the importance of knowing your “Why,” and I assure you that I will cover that topic next time. However, I wanted to share a great debate/discussion that I heard just recently. I will cover the “Why” topic next time.

This discussion occurred when two people were discussing what expense areas really matter. The accountant suggested that all expenses are important, and the Nutritionist countered that the only one that really matters is feed expense, since it makes up 50-60% of a dairy’s operating costs. He justified his opinion by pointing out that reducing this cost by just 5% would yield $0.50-0.75/cwt cost savings! He went on to laugh at the producer who was busy saving 5% on the drugs used on his dairy. Heck, he pointed out, that only amounts to $0.02/cwt.

Our Accountant, on the other hand, quickly replied that every cost savings is beneficial. He was adamant in pointing out that 5% savings on all the other expenses a dairy pays can also yield $0.40-0.60/cwt. So, who was right?

Actually, they both were correct. With feed representing 50-60% of your expenses, any savings here can be crucial to your bottom line. This is even more significant if the savings come from reducing “feed shrink,” since this savings is close to free! It usually just requires better management of your feed program and its inputs.

If the cost of other items, including drugs used, exceeds your margin over feed cost, you will undoubtedly have a cash flow challenge. Thus, the Accountant was correct, too. What to do?

The answer is to monitor all of your costs. At the same time work to minimize all feed shrink, especially with high priced commodities and expensive silages. Finally, do make a point of measuring all of your costs. As I discussed in a prior blog, you need to know these cost numbers to make a profit. Visit my website at www.success-strategies.com to learn more. Anytime your expenses exceed the break-even level for your operation, you need to start studying them very closely. Your future depends on it!

What? High Interest Returns on your Money?

Ever wonder how to boost your interest earnings, especially with rates that banks pay you being so low? Granted, you may earn about 0.10% on any balances left in your account. Why not earn it another way by saving some money on interest expenses? There is still a way to do this. 

When your milk check comes twice per month, why not pay down your revolving lines of credit for a couple days, while you are deciding specifically what invoices you will be paying? While these earnings are not huge, they are far greater than anyone can earn on any funds sitting in a checking or savings account today. If your lines are at a rate of 4.25%, you can save over 40 times what the bank will pay you on any unused balances. Sounds like a good trade to me…

When your milk check arrives, assuming you have a revolving line of credit, you simply pay down the line, especially if it comes on a Friday or before a three day weekend, and then save the loan interest until you send out checks to your vendors. Just be certain that you have the funds back in your checking account before your checks written start to clear the bank. Otherwise, the overdraft fees will wipe out any savings you have had on your line interest.

You may also want to check with your bank to see if they have an automatic “Sweep Account.” A sweep account will do the same thing for you every banking day, ensuring that you minimize your interest expenses, while ensuring that your checks are always covered. This sweep process is done completely via a computer program, designed to save you money, just like the manual process I described above. 

That, my friends, is good for your bottom line. It represents Next Level Thinking!

Good Times Require Discipline, Too!

In the book Team Secrets of the Navy Seals written by an anonymous author who actually continues to serve as one of our U.S. Navy Seals and hence wishes not to reveal his identity, one of the most significant lessons expressed in the book revolves around our need for constant evaluation of “… whether you can afford to work with a ‘leadership challenge’ or whether it makes more sense to find a replacement” for that employee.  The author goes on to say that “If the weak Team member is truly a good person, try to find another job for them.  Do not keep them on for fear of hurting their feelings.  It will hurt both them and your Team.”

We are currently facing a similar situation in the dairy industry today.  As I write this column, we are enjoying some higher milk prices.  However, by the time you read this article, we could very well be seeing lower prices again.  While I hope that is not the case, it is always a possibility.  I recently had a client who felt the need to change his milking force’s days around.  During that process, one employee blatantly challenged my client that he wasn’t about to make the necessary changes, regardless of the outcome, and was prepared to leave if the changes went through.  As the saying goes, “Sometimes the only way to change a person is to change a person.”  That is exactly what occurred in this case, and as a result of this employee’s departure, I believe that both my client and his Team are better off.

I believe we are facing the same dilemma throughout many phases of our dairy industry today.  I realize that some decisions are really tough.  However, as my colleague and futurist Jim Taylor stated, “Wait for the future and you have no future!”  You’ve got to get going on this evaluation of all aspects of your business, and it’s not all about cost cutting either.  While we certainly do not want to overlook opportunities to cut costs in areas that will not have a negative impact upon our operations, there are other areas that deserve consideration:

1.)    Do you have the correct debt structure in place for your business?  Talk to your banker (or other lenders) to determine if your debt structure has been optimized.

2.)    Have you been using Milk Price Options?  They can provide a method for minimizing the damage during a downturn.  While you may find them somewhat confusing (as most of us do), they can be helpful.  Spend some time with other producers who have used them or with industry specialists who understand them.

3.)    Review the “efficiencies” of your current operation.  Are there items available that might boost production per cow with little additional cost?  Is there a way to milk more cows per hour or per man?  Today is always the best time to look at these items.

4.)    I hope I’m not too late on this one, but be sure to catch up on your Accounts Payables.  Use this time of higher milk prices to regain as much ground as possible in getting your bills caught up.  It takes some real focus, but you’ll be glad you did!

5.)    Finally, (and you knew you could not read an article of mine without this being mentioned) be sure to develop a plan for the future of your business.  Our industry, as is the case with most businesses, has become less forgiving of those who ignore the items listed above.  With that in mind, plan for the future that you want for your business.

As I have said many times before, you’ll be glad that you did!  Former Green Bay Packers Coach Vince Lombardi stated, “Winning is not a sometime thing – it’s an all-the-time thing.”  Make it part of your business planning today!