Overcoming obstacles in today’s ag economy, for most farmers, involves growth. But growing from a small operation to a big business is about more than acquiring land or hiring employees. It requires an entrepreneurial mindset.
Doug Tatum, a growth investment expert and longtime corporate executive, offered strategies for farmers looking to grow their operations at DTN’s 2019 Ag Summit.
For more than two decades, he’s led, advised and studied organizations that he describes as “too big to be small, too small to be big,” an experience that led to a book, No Man’s Land: Where Growing Companies Fail.
“It is legal and perfectly ethical to stay small and make money,” Tatum said, emphasizing that small companies can be successful. But if growing from what he describes as a small business, with $6 million or less in revenue, to a big $20-$30 million company, he describes four key principles that farm leaders must keep in mind:
Tatum said those 4 Ms can help businesses who are navigating what he calls No Man’s Land — the time in between being small and being big where many businesses fail — align the business to the market, meaningfully update management practices, optimize the business model and attract money.
Opportunities Arise Among Chaos
Agricultural markets are in a time of fluctuation, Tatum said, highlighting trends like the continued popularity of organic, the decline in grain and oilseed incomes, and significantly, the sharp increase in farms at the smallest scale aimed at serving consumers directly. These changes pose a risk to some, but also present new opportunities for the farm entrepreneur aiming to grow.
When it comes to management, company culture is a factor that many organizations blame for their failure, without having a good idea of how to effect change, Tatum said.
He spoke extensively on the culture of the inner circle, the group of people that a farmer most depends on when making decisions. For small businesses, and family businesses in particular, the most important trait of those in the inner circle is loyalty.
But for a business to scale up, the key to that inner circle has to be performance.
“It is brutal,” Tatum said, to remove important personal connections from your business. Yet a growth business needs experts in the inner circle who have already grown or managed organizations at a larger scale. He said those experts help “you increase the speed of decision, you increased the accuracy of decisions, and you lowered the risk of decisions.”
Tatum also offered a framework for farm entrepreneurs to think about the costs of hiring new employees at any level. A $56,000-a-year employee, when capitalized, would be an equivalent investment as a $300,000 machine. When work gets busy and there’s an instinct to hire, Tatum advises caution and suggests running the numbers on that investment first.
Developing A Model Within Changing Markets
From seasonality to regulation to changing consumer habits, few sectors deal with higher levels of change, intensity of change, and risks than small businesses in the ag sector. That make it a challenging model similar to high fashion and technology, Tatum said.
“When you say you’re a commercial farmer, you are way, way more sophisticated than a normal business person.” Farmers particularly excel in terms of capital allocation, but to take the next step toward growing the operation requires an “I can do that” mindset.
“Entrepreneurs get out and make promises around things they haven’t done before, and when they meet those promises, they discover their value propositions,” Tatum said. Successful entrepreneurs find a way to make things happen, building the skills and competencies they need along the way.
With thousands of investors across the country, Tatum says farmers can and should be looking for ways to attract some of that money to their farms, through investment, partnerships or working with the organizations that are driving the industry forward. With billions of dollars in their pocketbooks, these investors own as many as one in five companies in the U.S.
They’re consolidating the customers and suppliers farmers work with, and Tatum says for the savvy farmer, there’s a lot of opportunity to stay involved in what’s changing above and beyond the farm level.
Overall, Tatum prompted farmers to think more about how they can reduce and limit risk in their operations, emphasizing that it may not be through growth. Lowering risk increases the value of a business, he said, but it often requires new skills as well as tweaks to the business model and management style, which just isn’t the right move for every organization.
Farmer CEOs who want to grow their business also need to avoid what he calls the “Tyranny of the Urgent.” One of the first step to surviving No Man’s Land is to get the business to a place where daily fires on the farm can be delegated, delayed or minimized so leaders can focus on executing long-term goals.
“Working harder, as a strategy, doesn’t build enterprise,” he said.