Wednesday, June 13, 2012

Of Mice, Men and Ag Entrepreneurs

When I was in elementary school, my eighth grade teacher was a huge John Steinbeck fan. Therefore, I read several of his books and stories during that year. One of these books, "Of Mice and Men" was particularly meaningful to me. The phrase which is the source for the title of the book "The best laid plans of mice and men often go awry" has been particularly useful to me.

As I have worked with farm managers through the years, I have learned that there is a wealth of truth in that idea, that no matter how well we plan, circumstances often change, which puts our plan in a shambles. This problem occurs not only in the day to day plans for a farm business, but can also wreck the overall business plan of an agricultural entrepreneur. For this reason, I have found that contingency planning is one of the most critical components to the planning process.

The entrepreneurs who succeed are not always the ones with the best business plan (ok, I just gave a heart attack to some of my collegues who write in this blog... let's see if I can redeem myself). The entrepreneurs and managers who succeed are the ones who not only have a sound business plan, but have also developed a solid set of contingency plans for any aspect of their business plan that is critical to the overall success of the business. The contingency plan is nothing more than a 'what if' exercise.

What if profits do not perform to the expected level?
What if our source of financing falls through?
What if our interest rates rise?
What if our business grows faster than we expect?
What if one of our partners decides to leave the business?

For each of these 'What if' phrases, develop a contingency, i.e. what you will do, if any of these potential business back breakers were to arise. Then, when (notice I did not say "if") you have a breakdown in one of the key components of your plan, you will have a jump start on getting back on track.

Contingency planning comes easier to some than others. Practice can help. Think through each day what you plan to do, and then immediately think through what you will do if something goes wrong (or excessively right!).

For example, if you plan to make three marketing calls that morning, what will you do if your first customer wants to buy all of your product? What will you do if none of the three are interested?

Others still have trouble thinking through contingencies. Some may be so convinced of the success and infallibility of their plans, that they cannot think of what could possibly go wrong. Others simply have limited experience with their venture. In either case, it could be worthwhile to bring in a third party to examine the plans and actively 'poke holes' into it, identify the areas where problems could arise, or other weaknesses.

As I sit down with farm managers and ag entrepreneurs to discuss their finances, I have observed a consistent trend. Those managers who have a solid plan of where they are heading with their businesses are most often much more successful than those who do not, the ones who let their business just 'happen to them'. Those few individuals whom I have known who not only have a solid plan for their business activities, but also have thought through the contingencies are the rock stars, those who take the punches and keep moving.

Do you have a set of contingency plans for your business?

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