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Friday, December 19, 2008

The Value of Management

The other day, I was talking with a colleague about the importance of business planning and, more generally, business management, in the success of entrepreneurial endeavors. That person told me that most farm business owners simply don't have the time to develop a plan or review their records. This wasn't the first time I've heard this and it won't be the last. But this general notion requires a response. I'm going to write directly to the entrepreneurs who may be reading this...

If it's important to you, you'll take the time to manage your farm business. Farming, like any other business, is not a right. It's a privilege! You can't expect to succeed by simply growing or making things. If you're in the commodity business, you can't control price too much (maybe only through premiums offered by your cooperative), so keep looking for ways to control your per-unit costs. Farmers, particularly dairy farmers, tell me that they are tired of hearing us farm management Extension folks preach the importance of production efficiency. Well, in a commodity world, that's the one key gauge you need to watch if you are to succeed. Track your unit costs and keep searching for ways to keep them low. That's pretty much the whole story. It's all about management!

It's clear that differentiating your product results in an even greater management burden. Once you try to capture the value associated with direct marketing or other "value-added" schemes, you move beyond production efficieny into the world of promotions, customer service, choosing product prices, etc. You now have many gauges to watch and adjusting one often affects several others. If you are unable to manage in the commodity world, don't think for a second that switching into some other market venue will be the key to success. You'll need to ratchet up your managerial capabilities before you will succeed in that arena.

If you want your farm business to be here in 5, 10, or 25 years, you need to steer your business toward that goal. Many of you are doing exactly that. But we in Extension, government, or industry sometimes have done you a disservice by not pushing you harder. We need to tell you in no uncertain terms that producing stuff is a necessary, but in no way sufficient, step toward profitability. Managing that production, your employees, your finances, your risks, and your marketing efforts together will provide the best chance of success. That sounds an awful lot like a business plan, to me.

I firmly believe that there is lots of space in the market for all diferent types of farmers. Consumers want a diverse array of foods. Some want cheap food, some organic, local, top-quality, etc. Other consumers want to vistit some of your farm markets, festivals, and pumpkin patches. There is no shortage of opportunities. It's your decision on whether or not you seize any of them. That decision can't be made without taking time to manage your business.

I realize many of you are already top flight managers, ready to move forward with great success. But many of you have a long way to go, yet. Take advantage of all opportunities to learn more and apply it in your business. You'll soon learn that taking time to review your records and make decisions is much more valuable than you think. By doing this, you'll strengthen your business and our industry. Extension is here to work with you to develop your skills.

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