How many ranch businesses do you know that could pay cash rent for the land, borrow all the money for livestock and machinery, pay a decent wage and still make a profit?
The fact is most North American ranches only stay in business because they're subsidized. They're subsidized by inherited wealth, appreciating land values, off-farm income, working for less than it would cost to hire someone else to do the job, or by some other activity not related to livestock (i.e. recreation, timber, etc.).
Most ranch businesses earn a very low rate of return on the assets invested. We accept that as normal. But can you imagine a grocery, a bank or a hotel staying in business if it could not pay rent on the building it uses, cannot pay a competitive wage to the people it employs, and expects to get less than bank rate on the money invested in its inventory?
That's precisely what we consider normal in ranching. We don't expect ranching to be as profitable as other businesses. After all, we hear time and again that ranching is a "lifestyle" business.
Some lifestyle. Of course, there's the home on the range, wide-open spaces, working for oneself, etc. But, what of the economic and financial stress, the stress of uncertain prices and drought and the personal pressures from parents, children, siblings, our spouse and ourselves?
Statistics show that depression, divorce and suicide rates are highest in rural areas, and higher for farm and ranch families than other segments of the population. Wide-open spaces and independence don't go very far when you take medication for your ulcers, your banker is knocking at your door and no one in your family talks to one another anymore. A lifestyle business?
The title of Stan Parson's new book "If You Want To Be A Cowboy, Get A Job" sums it up pretty well. Stan's right when he writes, "If you want to ranch and be a cowboy - disaster beckons. The two just don't go together."
When you're a cowboy, your business is just a place to go to work. You invest years of hard work supporting the business. But, you're not supposed to be supporting your business, your business is supposed to support you. If it's not, you need to spend less time working in your business and more time working on your business.
Stephen R. Covey defines insanity as doing the same thing over and over and expecting different results. Not only do we do the same things, we do more and more of them. Our answer to poor profit, eroding range health and personal stress has been to work harder.
But, when you discover you're in a hole the last thing you ought to do is dig faster. What makes us think that continuing to work harder in our businesses to increase production efficiency will increase profit and strengthen our businesses? It hasn't worked in the past. It won't work in the future.
Working On Your Business In his book "The E Myth," management consultant Michael Gerber reports that a staggering proportion of start-up companies fail in their first few years. According to the statistics, 40% don't survive to see their first anniversary. Another 40% fail by the fifth year; 80% of the rest fail by the 10th year.
Ranching isn't exempt. Similar trends in agriculture have been masked by the internal subsidies described earlier. Due to subsidies, farm and ranch businesses take about 25 years to use up the accumulated net worth before they perish.
We blame factors beyond our control like the weather, low prices and high costs for these failures. But, if the prices or the weather really determine profit, why do some businesses survive, even thrive, in these conditions while others fail?
Depressed markets are a crisis for some but a profitable opportunity for others. It's not the situation but the way we position our business and the decisions we make that determine success or failure.
While the vast majority of start-up businesses fail, Gerber reports that franchise businesses have a 10-year survival rate of 97%. Why the difference? Simply put, franchise businesses have a clear-cut blueprint on how to run a business. The franchiser has worked on the business to build a business that actually works.
We are so busy working in our businesses (doing $5 to $10/hour jobs) we often don't ever get around to working on our businesses (the $100+/hour work). This is the work that determines the winners and the losers in any business, including yours.
It's critical to understand the difference between working in the business (WITB) and working on the business (WOTB). The technician works in the business, the businessman works on the business.
Most ranchers do a lot of WITB and very little WOTB. We're very good technicians. When it comes to roping a steer, vaccinating a cow, pulling a calf or seeding a pasture, we do a great job. The problem is that we may not do the right job.
Most of us are more comfortable doing the cowboy's work than the businessman's work. The primary reason for the failure of most small businesses, including most farm and ranch businesses, is inadequate WOTB.
Most producers I talk to recognize their business would be better off if they spent more time on WOTB. There are several reasons they don't.
* "I don't have time. I'm so busy working in my business that I don't have time to work on it." If we do get around to it, it's usually late at night and we're so tired from a day of WITB ($5/hour work) we may not be awake enough to do WOTB ($100/hour work) effectively.
* "I don't like the WOTB as much as the WITB." We tend to feel more of a sense of accomplishment after pounding fence posts all day than researching and developing a marketing plan. But, if you just want to be a cowboy, you'd better get a job with someone who gets the WOTB work done.
* "I don't know how to do it." That shouldn't be surprising. Your father probably taught you how to drive a tractor or dehorn a cow, but did he ever teach you how to create goals for the business or build a plan to achieve those goals? Every ag college has courses on animal husbandry, range management and business, but none teach you how to make and implement the strategic decisions that will determine the future of your business.
WOTB Meetings One of the keys is to hold regular WOTB meetings. Most of us have held staff meetings or family meetings where we lay out the work that needs to get done in the coming days or weeks (mostly WITB work). Sometimes, we even tackle some of the WOTB issues at these meetings, but the outcome rarely results in definitive action.
In contrast, WOTB meetings concentrate on strategy and the result is always a specific plan of action.
If you haven't held WOTB meetings before, your first meeting should focus on what you and the others involved in the business want personally. Next, focus on what the business will need to look like to meet those needs.
Once you have a well-defined vision for the business, WOTB meetings should be used to develop the strategic plan to achieve the vision. Once the plan is in place, you'll use your WOTB meetings to monitor your progress and tackle new issues.
In most family-run ranch businesses, WOTB meetings should be held once a month.When developing a strategic plan for the business, WOTB sessions may need to be held more frequently for a defined period.
Once you've decided how frequently to hold your WOTB meetings, the key is regularity. Don't allow operational crises or excuses to get in the way of planned WOTB meetings. Everyone in a decision-making position should attend WOTB meetings. In a small business it may be the whole staff.
The owner/president should prepare an agenda, which should be distributed prior to the meeting. He should also chair the meetings, making sure that they start and end on time. This usually means allocating time to each agenda item to ensure everything gets covered.
Structure and some formal procedures are important. The first item on the agenda is always the same - read the vision statement and goals. Read it aloud and take turns around the table. It's amazing what a powerful effect this has in keeping everyone focused.
Spend the bulk of the meeting discussing strategic issues. Don't put more than three issues on the agenda. Conclude the discussion of each issue by creating a written plan of action.
The plan should list the specific actions that will be taken, who is responsible to take each action and a deadline. For major projects, (i.e. the estate plan) break the project into smaller tasks and assign a deadline for each one.
Close the meeting with two final agenda items: "Worry Areas" and "Commitments." Worry areas are things that are bothering you. They may be big strategic issues or small WITB concerns. Ask each attendee to list their worry areas. Input from every attendee often brings quick solutions.
End the meeting by reviewing the commitments agreed to in the action plan. Each person should state what he/she has committed to do, and their deadlines. The person's name, commitment and the time frame are all recorded in the minutes of the WOTB meeting.
At the beginning of the next WOTB meeting, after reading the vision statement, take a few minutes for everyone to give an update on their progress.
Effective WOTB takes discipline and practice. But, it is the most important step toward increasing profit in any business, including yours. When a ranch is structured and run as a "for profit" business, ranching can be a great lifestyle. You may even be able to afford to be a cowboy now and then.
David Pratt, of Ranch Management Consultants, teaches the Ranching for Profit School. For more information visit www.ranchmanagement.com or contact him at 707/429-2292 or e-mail: [email protected]