Nine out of ten businesses fail within the first two years. The main reasons: Structure, strategy, and accountability.
When you’ve got millions of shareholders you must report to (like Apple, for example), Wall Street analysts break down your company and try to out-predict you, and you’re on a whole other level of business. Most small businesses don’t have that same pressure to perform, though, which can be both good and bad.
With my background on Wall Street, helping businesses raise money from investors, I’ve learned a lot of strategies that Fortune 500 companies use. In this post, we’re going to apply those to the common farm.
You can take these five steps to whatever level you want, but they’re essential to maximizing your business.
1) Know your exact production costs
You should know your production costs, down to the penny, for every commodity and field in your operation.
This is the budgeting side of things. Budgeting is step #1: it’s the first thing you do in building a business. What’s it going to cost to run this business, acquire a customer, or to grow a bushel of a crop?
This can get complicated, which is the whole reason the Cash Cow Farm Management Software was invented. It’s the easiest way to track where every penny is spent and made.
Whatever method you use, have a system where data can be collected in one place and help you drive real decisions that impact your bottom line.
2) Create a sales strategy
Unlike most companies, we sell commodities rather than products like iPhones or refrigerators. And grain marketing is a lot different from traditional marketing.
The biggest challenge for farmers is in forecasting production and having a sales strategy, where you’re taking into account your storage and logistics for basis, your insurance levels protecting future crop, price targets working with an advisor using futures options, and so on… You have to have a great strategy, or you’re going to fumble this thing.
I’m actually at the tail-end of writing a book about this. It’s called The Grain Marketing Bible: 7 Steps To A Bulletproof Grain Marketing Plan, and soon you can get a free copy. I’ve spent the last several months writing it.
3) Develop a board of directors
It’s good to ask advice from people who aren’t emotionally involved in your business. Having a board of directors is a perfect way to get that advice.
Your partners should definitely be on such a board. You should also have a few other key people: bankers, accountants, legal staff, mentors, and other successful farmers and entrepreneurs. You might not want your neighbor farmer on the board if he’s not a top producer or if you don’t trust him with certain aspects of your business, however.
A board of directors is a huge resource for being accountable to people. When five or six people say it looks like you need to build a grain marketing plan, you’re probably going to do it. Accountability is the main benefit, then having them ask you hard questions that you’ll have to dig deep into the market to answer.
Sometimes it can be like herding cats: everybody’s got their own lives or businesses. You can consider paying them a small stipend for their time and expertise.
Either way, accountability is how a Fortune 500 company stays successful.
4) Quarterly reports with your banker or accountant
For a farmer, “quarterly” might be more often than necessary. You might change it to an annual report. Your first few quarters might look bad if you’re financing and you sell at the end.
However, you should have at least one annual report of what exactly happened in your business. When you do an earnings report, you can glean key takeaways about what you could do better: five key points you did well and five you’re going to improve, for example.
You’re going to go far if you do that sort of reporting. Your banker will see you as an aggressive, intuitive businessperson.
5) Have a 5- and 10-year business plan
In the recent Tony Robbins documentary, Tony says, “People overestimate what they can get done in a year and underestimate what they can get done in two or three decades.”
That’s one thing that entrepreneurs and farmers need to be thinking about. There’s only so much you can achieve in a year, given your circumstances. But think ahead to the next 5, 10, and 20 years, and set goals for yourself.
Let’s say right now you’re renting farmland. You might have an 80-year-old farmer who owns land next to you. Maybe you should have a conversation, and let them know when they’re ready to hang up their hat, to keep you in mind. Forming those relationships now can pay off down the line.
If you’re a 50- or 60-year-old farmer, this works in reverse too. You’ve seen a lot, and you can build the next generation on your farm. Sit down with your children or other young farmers to put together a long-term plan. For them to successfully buy farmland, they will have to plan years in advance.
Start planting seeds early if you want great yields 5-10 years down the road. Run your farm like a Fortune 500 company: with structure, smart strategy, and regular accountability.
The opinions of the author are not necessarily those of Farm Futures or Penton Agriculture.