Building Business Strategy on the Farm

by Darren Frye
Water Street Solutions

Strategic planning is a way for farmers to make the most of a limited number of business cycles… and learn from them.

People initially get involved in farming because they love to produce a crop, work with livestock, or both. They’re passionate about producing high-quality crops and livestock—and equally passionate about working for themselves in a highly entrepreneurial environment. But in today’s swiftly evolving ag world, there’s another piece of the puzzle farmers must manage: the business demands of their operations.

On today’s farms, the farm leader is faced not only with the demands of growing a great crop and producing quality livestock, but with many of the same challenges that Fortune 500 companies must address to build their businesses: human resources, finances, marketing, risk management and succession plans.

The farm leader’s role is moving from highly-skilled production worker to business leader—much more like a corporate CEO than the manual farm laborer of the past. As farm operations grow in size and complexity, many farms are working to attract, hire and retain employees. With these shifts has come a greater need for the farm leader to set a clear strategic direction for the operation, similar to what many business organizations have done for years.

Big Goals, Bigger Decisions
Engaging in strategic planning is a way for the farm leader to set the vision and answer the question: “Where are we headed?” In the past, most farmers had a sense about what they envisioned for their operation, but typically, those thoughts would stay in the mind of the farmer. They weren’t usually shared with other members of the operation—perhaps not even with the next generation already working on the farm and hoping to own it one day.

The vision and plan certainly weren’t shared with employees or key partners, like the farm’s banker, landlords or vendors. But at the time, decisions on the farm weren’t as large and didn’t have quite as much at stake. Competition for prime farm ground wasn’t as fierce, and the numbers weren’t as big. The commodity markets didn’t make huge swings in a single day. There weren’t five to 10 different families relying on the farm as a source of income.

But many of these market factors have evolved in the past 20 years. Today, there’s a major need for all stakeholders—family members, employees, key vendors and partners—to understand the farm’s goals and where it’s headed. It’s important that everyone has a clear understanding of the farm’s strategic plan so they can all pull on the rope in the same direction, creating more forward movement for the operation.

Farming: Harder Than Running a Factory
In grain farming, a full business cycle happens only once a year; for a cattle operation, it’s two or three cycles per year. That means a farmer plants and harvests the crop—the two most crucial production activities—only about 40 times in his or her entire career.

That’s not a lot of opportunities to perfect one’s business processes. It’s quite different from factory production, for example, where a factory might be able to turn a new cycle each week. That creates 52 chances each year to refine the process and produce the highest-quality widget possible. This rapid business cycle facilitates faster learning.

Imagine you start farming on your own when you’re 25 (which would be very early in the ag industry). No one is an expert when starting out on a brand-new business venture; it often takes a few years or business cycles to ascend the learning curve. Once you have the basics down, you only have about 35 business cycles left—in your career—to perfect your processes and business.

As long as a business leader continually reflects on outcomes and takes action on that learning, he or she can improve the business. Usually, an organization will learn more from a failure than a success, as people typically reflect more carefully on something that goes wrong than what goes right. Farmers have to be very good at learning as much as possible from everything they do—success or failure—because they have such a limited number of chances to “get it right.” Strategic planning is a way for farmers to make the most of the limited number of business cycles and learn from them.

A Proactive Approach
Taking a cue from corporations and nonprofit organizations that have created strategic plans, more farms are working to articulate their core values and assess their vision and mission. They work to translate those key statements into goals, as well as the activities that need to happen to achieve these goals.

In this plan, the farm leader or leaders define what success will look like for the operation in the future they envision—and that becomes the compass for where the farm is heading. However, because no one can tell exactly what’s coming next in agriculture, the farm’s strategy must be flexible and adaptable in an agile way.

Guided by the strategic plan, the farm leader can take a proactive, overall approach to everyday operations, rather than dealing with each individual crop year as it arrives. Employees understand where the farm is headed and the role each person plays in getting there. The farm leader can share pieces of the farm’s plan with key vendors and partners—such as their lender, accountant, and those they rent farm ground from—so all key stakeholders have a clear understanding of the farm’s goals and how they can help achieve them.

This plan becomes the rallying cry for the whole farming operation, giving the farm leader a set of criteria for all of the decisions that must be made. As those decisions get bigger and the farm adds more employees and moving parts, it’s the best way to keep everyone moving forward together. As the industry continues to become more business-minded, farms that choose to do strategic planning now will be well-positioned for the future… for whatever tomorrow brings. iBi

Darren Frye is founder, president and CEO of Water Street Solutions. Headquartered in downtown Peoria, the firm helps farmers achieve success through financial analysis, insurance, commodity marketing, strategic planning, human resources consulting and legacy planning.

Subscribe to Peoria Magazines

Add new comment