The Virtues of Speed

For a fascinating example of speed and action combined, just watch what happens in the pits at an Indy car race. As outlined in Fast Company’s book The Rules of Business, there are four primary rules that guide both the driver and his pit crew in their respective roles.

 

“The faster you go, the more you need to talk.” Everyone needs to be clear about what is going to be done by whom and when. Constant communication is vital. Strong communication can present the difference between success and failure. When you are running a business, sound communication between participants, including key employees is crucial.

“Don’t panic when someone overtakes you early on. Stick with what got you here.” If you complete a goals and disaster agenda outline, you should be well prepared to stay on the track to success. Plan your work and work your plan.

“Whatever it takes, stay in the race. Keep moving and fix problems on the fly whenever possible.” Yes, stuff happens, so stay prepared to make adjustments. Maintaining a positive attitude can often make the difference.

“Make the most of downtime. It is inevitable that there will be some downtime. Make the necessary repairs and reenergize.” I admit that in my hectic professional role this is often one area that I overlook, too. However, we need to take the time to recharge our bodies and brains so that we continue to exhibit clear thinking, i.e. a good night’s sleep and an occasional trip to Starbucks to just think is not a crime…

To survive and thrive, we need to move faster, act more decisively, and respond more courageously. There has never been a better time to increase our efficiencies. Just because you have always done something in your operation, such as raising your heifers on site, does not mean it makes the best sense today. Consider all the relevant factors – cost, environmental pressures, employee impact and other issues. Then decide what works best for you.

Are there some “roadblocks” in your operation? Are there items that are affecting your overall performance or productivity? Could today be the best time to change those items? Are you tracking key efficiency measures such as?

  • Cows per full time employee
  • Pounds of milk per cow per day
  • Feed Cost per cow per day
  • Number of days in milk for your herd (This tells a lot about your breeding, your number of fresh cows and other factors.)

You decide which factors are most relevant for your operation. Compare your results to the rest of the industry but also compare this year’s results to your business performance in prior years. This will tell you whether you are going forward or backward. Knowing this can be critical to your financial results. So, take a close look. I think you’ll be glad you did!

You Won’t See How to Reach Your Goals

David Allen, in his book entitled Ready for Anything stated:

“You won’t see how to do it until you see yourself doing it. Our brain’s pattern-recognition mechanism is triggered by the images you identify with and the focus you hold. You see the outcome first, and then you are unconsciously made conscious of information. If you won’t see yourself having or doing something until you see how to do it, you’ll never recognize the methods, though they are all around you. Notice what you notice and how you make that happen.”

Allen says: “I am continually amazed at how often I forget about our astonishing ability to create what we want by what we envision. Outcome thinking and the willingness to visualize something’s being true before it’s physically present is a master skill that we all could probably develop to a much greater degree.”

I recently pulled out a long term life plan that I had developed about ten years ago. I was amazed at how many of my goals I had reached, some of them without even realizing it. Wow! What was happening here? My plan included finances, work, and family items.

Allen added: “Those images for years had sparked and supported my significant choices. Some of the pictures weren’t very exact, in terms of what I achieved. I never really got to a proficient level of playing jazz flute, as I had drawn. But much of the little mural was quite exact about what has come to pass. Some of my visions were pure fantasies when I had them. But I allowed myself to draw the blueprint.”

Why does this work? Two lines of thinking include:

  1. “Your automatic creative mechanism is teleological. That is, it operates in terms of goals and end results. Once you give it a definite goal to achieve, you can depend upon its automatic guidance system to take you to that goal much better than you ever could by conscious thought. You supply the goal by thinking in terms of end results. Your automatic mechanism then supplies the means whereby.” – Maxwell Maltz
  2. “If you limit your choices to what seems possible or reasonable, you disconnect yourself from what you truly want, and all that is left is a compromise.” – Robert Fritz

Getting the results you want requires that you start to visualize them. As Dan Sullivan, my Business Coach and president of The Strategic Coach™ stated:

“Getting results doesn’t take much time at all. It’s not getting the results that takes up all the time.”

Think about it, as you begin a New Year!

Take a Lesson from Jeb Bush

Dairy farmers have a solid business lesson to learn from a prior article in the Wall Street Journal written by Jeb Bush, former governor of Florida, in which he discussed his state’s efforts to reform education and how difficult the process really had been. He stated, “The reality of reform is vastly different from the theory, and change is a lot harder than it looks. But there are a few rules for real reform that makes it possible.” I realized many of the same rules apply to making certain we have our dairy operations “reformed,” especially after prosperous years like 2014.

“The first rule is that when you run for office, you need to say what you’re going to do and then do what you said you would.” The same rule applies at your dairy when you need to make necessary changes for three reasons: Your survival may depend on it. Your management team is counting on it. The implementation of the changes you’ve discussed with your team can only improve your results if they are actually carried out. Your banker is expecting it. These points become even more crucial if milk prices soften. It is quite common for high milk prices such as we have seen this past year to lead us to increase our expenses because “we can afford it.” When milk prices drop, we need to be careful that expenses are still in line with lower revenues.

“The second rule of reform is that if you don’t measure it, you don’t care.” While, on one hand, this might sound harsh, it really is true. If you are not tracking your financial results on a regular basis, you can’t be too concerned with your outcome. I suggest you should outline your plan for what you will do to improve the weaker areas and implement changes to make more positive financial returns.

“The third rule is that big reforms require long-term commitment.” This is also true on the part of the dairy operator and his banker(s). I was asked an interesting question at a conference where I was once speaking. My presentation was entitled, “Taking Your Dairy to the Next Level.” I presented a case study of one dairy’s financial turnaround that we had successfully completed. A member of the audience asked how long it took to complete the client’s financial recovery process. I explained that the complete process took more than two years. We need to exhibit great patience while completing two tasks – planning our work and working our plan. Just be certain that you have a clearly defined plan!

“Another rule – the fourth – is to communicate what you’re doing…” This needs to not only explain what you are doing but also why you are doing it. It is essential that this communication extends to your management team, banker(s), CPA, employees, vendors, and family. Increased communication yields greater commitment from each of your key players and will be crucial to your continued success.

“The fifth rule is that success is never final and reform is never finished.” This is true not only in a financial turnaround process but with everything we do. You either get better or worse, because we are not operating in a static environment. Many things are changing so we need to adjust our course to stay on track. What worked just five years ago might fall short today.

Since the challenges in any industry arrive at our doorstep often without prior warning, use your professionals and your team to your fullest advantage. Follow their lead and “stay the course” to further success. You’ll be glad you did!

The Search for Meaning

Throughout the crazy events sometimes surrounding us, it’s often difficult to find meaning – in effect, to make sense of things that are occurring every day. Victor Frankl was a survivor of the Auschwitz Concentration Camp in Nazi Germany. Many entered Auschwitz; few survived. Victor Frankl in his book entitled Man’s Search for Meaning explained that the key to survival was that people needed to do six things. There may be some guidance for us, too.

First, he said, “Realize that the game of life has changed.” Isn’t that applicable today with our worldwide economic situation? As Frankl stated, the old game is over, a new game has begun. That’s true for the dairy industry, as well. We’ve got to operate under a new set of assumptions because the old game is over. Be open to change – it’s already coming!

Second, every day, you must find something beautiful. For Victor Frankl, from his cell, he could see a mountain range. For us, maybe it’s a sunset.

Third, every day, you must find something humorous, something funny. For Frankl, it may have been the way one of the guards walked. As you face the stress of working through the current dairy downturn, find some humor each day. We all need it.

Fourth, every day, you must find something to be grateful for. Instead of focusing on what we’ve lost or what you don’t have, focus on what you do have; something you are grateful for!

Fifth, every day, you must find some way to be useful. For Victor Frankl, it was helping others by listening to them. What will it be for you? How can you be useful to someone or to our industry today?

Finally, every day, you must find something to help you prepare for the future – a big goal, for example.  We all need a bigger goal beyond this current experience. For Frankl, what kept him going was his goal to write his book: Man’s Search for Meaning.

As Dan Sullivan, founder of The Strategic Coach organization says, “All progress starts by telling the truth.” So, remember, as Victor Frankl stated, realize the game has changed. We’re in a new experience. The sooner we realize this, the sooner we’ll be able to rise above it. Also, don’t forget the other five steps to success:

Every day, find something:

  • Beautiful
  • Humorous
  • To be grateful for
  • Some way to be useful
  • A reason to prepare for the future – A Goal!

Try this today. I think you’ll be glad you did!!!

COMING UP WITH THE NECESSARY CASH

One of the most common problems faced by many businesses today revolves around their ability to obtain the financing they need. This challenge becomes even more pronounced when we are faced with a tight lending environment. Since 2008, this has been compounded by the Sub Prime Mortgage mess and its related financial issues! This certainly has magnified the importance of maintaining a solid banking relationship.

Whenever one of my clients or a prospective client I am working with gets turned down on a loan proposal, it is imperative that we review the facts and explore “why?”

  1. Has your business been profitable in the past?
  2. How reliable are the numbers in your financial reports to the bank? Are they CPA prepared?
  3. What do your current cash flows look like? Have you completed some projections? Do the projected trends look positive or negative?
  4. Realizing I have mentioned this before: What are your plans for the next 12 months?

Business magnate and motivational speaker W. Clement Stone stated, “If you employed study, thinking, and planning time daily, you could develop and use the power that can change the course of your destiny.” This is worthy of consideration for any business.

I have never seen a loan turned down without reasons. All loan officers have a dual and often difficult role to play. They are attempting to accommodate your need for loan funds, while protecting the assets of the bank. If your lender is not willing to explain their reasons, there are other financing sources around. Sometimes a change in scenery is good for both parties.

  1. Financial History of Losses: This can be countered by a plan to implement changes.  Suggest changes in your operation that make economic sense! Make sure you are making changes to get back to profitability.
  2. Lack of a Clear Plan: Author Basil Walsh said, “An intelligent plan is the first step to success. The man who plans: a) knows where he is going, b) knows what progress he is making, and c) has a pretty good idea when he will arrive.” Have a defined plan and established goals for your business!
  3. Maybe they are RIGHT! This possibility is tough to accept, but maybe we need to consider other options. Every successful business plan should also contain a clearly defined exit strategy to be implemented if necessary.

A banking relationship is crucial to your success! Be prepared to show improvement in your operation’s results and to illustrate a clearly defined plan with solid historical numbers and sound cash flow projections in order to acquire the financing you’ll need!

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!