Klinefelter: By the Numbers

By Danny Klinefelter
DTN Farm Business Adviser

About every 15 years, I've written an article dealing with victimism. The basic issue is that a lot of people waste time and energy feeling sorry for themselves and blaming others or circumstances for their lack of success rather than trying to learn how to do better or being willing to do things differently. Dr. Haddon Robinson once said, "If you want to get rich, invest in victimization. It is America's fastest growing industry."

I often describe it as the "coffee shop syndrome." There is obviously nothing wrong with getting together with your peers at the coffee shop or local restaurant. I have just observed there are farmers who are there almost every day and that if you listen to the discussions, they are almost always the same. It's like watching a soap opera; you only need to watch it about once a week to catch up on everything going on.

So why beat a dead horse? Because it appears we may be entering a period of lower profits and more financial stress. In those periods it is even more critical that people be proactive rather than reactive. The margin for error becomes much smaller and the time to act in order to capitalize on opportunities or address problems becomes much shorter. Just working harder and worrying more won't cut it. It may be a cliche, but the key to success lies not in working harder but in working smarter.

We all have a tendency to want to blame our circumstances on forces beyond our control. But numerous studies have shown that over the same time period, in the same area and producing the same commodities, some producers are making money while others are experiencing losses. In a six-year study I conducted, I found the top 25% were only about 5% better than the overall average in terms of production per unit, cost per unit and net price received per unit. That doesn't sound like much, but the top managers did it over and over again, and the compounded cumulative effort was incredible. Virginia Tech Economist Dave Kohl has noted in analyzing the 2012 FINBIN data out of the University of Minnesota's farm business management records, the net farm income for the top 20% averaged $844,000 and $14,000 for the bottom 20%. He also pointed out the difference has increased every year since 2003.

While it makes big news when an "alpha" farmer goes down, a far greater number of farms won't continue as operating entities because they aren't profitable enough to support or attract a successor, or as the result of management obsolescence in areas of increasing importance such as cost/managerial accounting, risk management, personnel management, financial analysis, alternative business relationship models, integrated information technology and the latest development in production practices/technology.

Colin Powell, quoted in "The Black Collegian," said, "There are no secrets to success. It is the result of preparation, hard work and learning from failure." The top managers I have gotten to know see change and challenges as opportunities and don't tend to view themselves as victims. They don't enjoy adversity, but they recognize that setbacks are a part of life. They learn from setbacks, make adjustments and move on.

Problems and change can create opportunities for those who figure out how to deal with them and are prepared to act in a timely manner. In fact, the definition of a strategic manager is one who anticipates, adapts to, drives and capitalizes on change. It is an economic reality that success requires continuous management improvement at the rate set by the competition and not by your own comfort zone. It goes back to the old saying that too many people make significant changes only when they feel the heat rather than because they see the light. As the rate of change accelerates, that's often too late. The best managers know that whenever they hear a competitor say they're doing something because that's the way we've always done it, then they have a competitive advantage.

For all of the reasons above, I believe it is more critical than ever that producers consider becoming a member of a peer advisory group made up of top-performing, forward-thinking individuals in order to address the issues involved in continuous management improvement on a timelier basis, in an environment that encourages more creative thinking and greater accountability.

If I accomplish nothing else in the last few years of my career, I hope I am able to contribute to peer advisory groups gaining traction and momentum in U.S. agriculture.

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Editor's Note: Danny Klinefelter is a professor and extension economist with Texas AgriLIFE Extension and Texas A&M University. He also directs The Executive Program for Agricultural Producers (TEPAP), a management short-course for farm producers held each January, and its alumni association, AAPEX. For information go to http://tepap.tamu.edu/…

(MZT/AG)

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