Base Hits, Home Runs and the Business of Decision Making-by Dr. David Kohl

The business and economics of agriculture do not get any easier in a global environment that can be altered in a New York minute. Regardless of the size, enterprise type, or complexity of the business, every owner and manager's mindset will be tested, resulting in both successes and, in some cases, failures. The combination of Business IQ, EQ (Emotional Intelligence), and, perhaps most importantly, AQ (Adaptability Quotient) provides a balanced approach to objective rather than emotional decision-making.

Every business connected to agriculture experiences cyclical change as supply and demand for products and services shift. However, structural change can quickly alter competitive positioning, which in turn impacts cash flow, profitability, wealth creation, quality of life, and, in some cases, business legacy. These realities require business owners and managers to assess the competitive landscape, adapt based on the resources available, execute a well-defined game plan, and continuously monitor results. This process is the essence of AQ.

The grain, row crop, and specialty crop sectors are currently in the crosshairs of global competition. Much of this is driven by the strategic initiatives of the BRICS nations (Brazil, Russia, India, China, South Africa, and the additional countries seeking membership). Beginning in 2013, China invested approximately $1.3 trillion through its Belt and Road Initiative to build global infrastructure and strengthen agricultural trade relationships outside the United States and other Western nations. The objective was to diversify the world's food supply beyond reliance on a single major economic power. These long-term strategic investments now provide important context for decision-making, not only at the industry level but also for individual farms, ranches, and agribusinesses.

Fail Fast to Unlock Prosperity

The road to unlocking prosperity sometimes requires one to fail fast to minimize losses and reduce the risk of placing both business and personal aspirations in jeopardy. There are many tools and perspectives that can be employed to assist in objective decision-making.

Cost of Production/Break-Evens 

The development of farm-level budgets is an excellent place to start. Often, Extension and research data must be refined and customized to reflect the resources, management ability, and talents of the individual business. Determining the cost of production and breakeven levels under various price, yield, and cost scenarios brings greater objectivity to the decision-making process. Ideally, a business should cover both variable and fixed costs while generating an acceptable profit margin. However, if a business cannot cover its variable costs, particularly for more than one year, then failing fast must be seriously considered.

Are there other enterprises or diversification opportunities that can better utilize existing resources and fixed overhead costs in a more profitable manner? Diversification appears to be an emerging trend, with successful businesses often generating three to six sources of revenue to better weather both cyclical and structural change.

This is where enterprise budgets, combined with financial sensitivity analysis, establish the guardrails for decision-making. They help determine when to swing for a home run and when a series of well-executed base hits is the better strategy.

Base Hits vs. Home Runs

In some situations, swinging for the fences with marketing decisions can lead to strikeouts. Producers often beat themselves up, feel ashamed, or view themselves as failures for leaving money on the table when markets continue to move higher. As part of the fail-fast mindset, however, learn to accept the base hits, the small but profitable opportunities that steadily move your business around the bases toward long-term profitability.

The key is not to repeat the same mistakes and to develop the institutional knowledge that can be passed on to the next generation. At the same time, recognize that the next generation sometimes needs to experience failure to foster growth and sound judgment. One often learns twice as much from failure as from success. The objective is not to avoid failure altogether, but to fail fast, learn quickly, adapt, and move forward with greater wisdom and resilience.

Success Can Be Dangerous 

When you are at the top of the business cycle and structural change is working in your favor, it can actually be the most dangerous period for your business. One often hears that "It's a new normal" or that "this time is different." This is where complacency and a lack of attention to business fundamentals can set in, eventually resulting in a harsh reality check.

The beef industry is currently experiencing this favorable phase of the cycle, driven by strong demand relative to supply and structural shifts in the marketplace, such as consumers' increased preference for protein.

Many successful businesses have both a warrior who pushes the envelope and a worrier who provides checks and balances. This combination helps counter extreme decisions that can ultimately place the business in the economic ditch.

Advisors

One of the critical decisions that successful producers are increasingly incorporating into their game plan is the use of trusted advisors. Crop consultants, livestock specialists, agronomists, lenders, financial professionals, and business advisors are valuable resources that can be utilized both formally and informally. They often encourage you to critically evaluate multiple sides of a decision before taking action.

Select advisors who are not simply "yes people," but who are willing to occasionally challenge your thinking, ask difficult questions, and stretch your perspective.

As Hall of Famer Peyton Manning once said at a conference where I was also speaking, "You must be coachable, and sometimes you have to check your ego at the door."

Final Thoughts on Decision-making

• Don't let excuses or the blame game replace the execution of decisions and accountability for their consequences.
• Be cautious of the three pillars of a poor business culture: Arrogance, Bureaucracy, and Complacency. Ironically, the larger and more successful an organization becomes, the more susceptible it is to falling into one or all three of these traps.
• In decision-making, don't let perfection get in the way of action. When managing through challenging situations, start with the simplest possible approach and add complexity gradually, only as the situation demands it. 

As you enjoy the summer season, take time to watch the movie Pressure. It chronicles the critical D-Day weather forecasting decisions and illustrates how history could have been dramatically altered by a few key decisions. It is well worth watching and serves as a powerful reminder of the importance of sound decision-making.