Minimum viable management isn't enough.
Prime Future 85: the newsletter for innovators in livestock, meat, and dairy
If we’re gonna do this topic then we have to follow the story all the way to the end. Are you in?
Last week an exceptionally forward thinking rancher said in a sustainability discussion that the lowest hanging fruit to level up the US cattle herd is for every calf to get an eartag. Not an EID, an old school humble visual tag.
That simple step, and marrying the calf's number with the cow's number, allows producers to get a handle on each cow's productivity and performance which allows them to manage their herd more precisely.
That simple step is the first baby step in shifting from managing at a herd level to an individual cow level. It is cattle 101, something the good & great (even mediocre) producers have been doing for decades.
Yet, you're telling me there’s a meaningful chunk of the US cattle industry that is not even tagging their calves?
The idea that tagging calves represents a meaningful way for a meaningful chunk of producers to level up is....alarming. And it should be alarming for the mediocre/good/great producers. If tagging calves is the bar, the bar is…low.
In a time where hyper-innovative producers are deploying advanced genetics strategies, intensive rotational grazing, or non-traditional marketing agreements, over on the other end of the spectrum putting a mere visual tag in every calf’s ear can be considered a proxy for minimum viable management.
Suboptimal cattle production isn't just an innocuous segment that has no effect on the rest. Poorly managed cattle are a drag on the whole system. And the impacts of the drag are worsening as the industry looks to address the big challenges.
This begs a few questions.
What is good management? It starts with a business approach, not a lifestyle mentality, which means things like:
Sound financial management.
Strong resource management - capital, land/soil, water, grass, livestock.
Clear KPI’s to manage and optimize.
Pursuit of excellence - however you measure it for yourself and your business.
“If a man is called to be a street sweeper, he should sweep streets even as Michelangelo painted, or Beethoven composed music, or Shakespeare wrote poetry. He should sweep streets so well that all the hosts of heaven and earth will pause to say, 'Here lived a great street sweeper who did his job well. '” - MLK
There are many excellence-oriented producers.
There are also many existence-oriented producers. (Synonyms in this context: mediocre, ordinary, status quo maintainers, hobbyists.)
And the gap between the two is widening. Imagine that at the extreme edge of excellence-oriented producers are those pushing boundaries in all areas or maybe even hounding feedyards and packers for individual animal data on how cattle perform in the feedyard and on the rail so the producer can use that data to iterate on genetics and produce a more premium end product. And on the opposite end of the extreme edge of existence-oriented producers are those still operating at a brand level (herd level), largely raising cattle the same way cattle were raised back in the day: low cost, low touch, no tech.
The easy thing to do would be to assume that large operations are better managed than small operations. In the United States, ~10% of cattle producers own 100+ cows, yet this segment owns ~56% of total beef cows. The average is ~43 cows, which means the average of the ~44% of cows is actually much lower than 43.
But herd size isn’t necessarily a good predictor. We have talked previously about an alternative mental model to think about quality of an enterprise than simply scale:
“Big business can be good, small business can be bad. Vice versa. Size is not the indicator of success and it’s definitely not the goal.
My hypothesis is that scale is a lagging indicator; velocity of business model innovation is the leading indicator of success.
I think the successful producers (or packers or xyz business) who will thrive come-what-may are the ones who don’t think of their business based solely in terms of the output (corn, soy, weaned calves, whatever), but rather view their business as a business model that is is in continual refinement. They constantly ask what's the process that most effectively generates the output. They think in systems that can optimized.
It seems that the really successful producers are the ones that have a vision of where they are going and how they will get there. There's no doing it this way because that's how we've done it, there's no growth for the sake of the growth. There is only relentless learning and improvement.
The great producers realize that they aren't selling just a commodity output, they are selling their business model."
Some portion of those <50 head operations are incredibly well managed operations that consistently send high quality cattle into the value chain.
And, some of those small herds exist for the fun of it, or so that someone's ego is flattered by the status symbol of owning cattle, or so that a landowner qualifies for an ag exemption, reducing their property taxes by assessing the productive value of the land rather than the market value of land.
But again, excellence oriented producers come in all herd sizes. The distinction is in their objective and their management framework.
Take a producer with a lifelong goal to improve their business and steward their resources and pass on a viable cattle business to the next generation like the producer on Twitter who said he was going to start writing an annual report about his family’s cattle business for the benefit of both current and future shareholders, presumably his children. Then take the producer who really just wants an excuse to wear a cowboy hat, or a way to reduce their property tax burden, or does this because it’s all they know and they raise cattle the way their grandparents did.
The two are not the same.
As one cattle producer puts it, "it isn't hard to be above average in this business."
In the past, it's been kinda easy for the excellent producers to ignore the existence producers, the below average producers. But as the industry leans in to address big problems (which happens to create opportunity for those at the front edge), the existence-oriented producers are creating a drag that could become an existential threat to the entire industry.
Which raises the next set of questions:
How do we level up the industry by bringing up the bottom x%?
How do you get producers to shift from existence to excellence?
How do you help those producers to level up or get out?
Maybe you don’t, maybe it is what it is.
Or, maybe you lobby USDA to pay them not to produce, or to produce something different. (Yes of course it's a terrible idea but don't act shocked - we've had crazier agricultural policies in this country.) Or, maybe you lobby to refine the ag exemption in the tax code (though sometimes its better not to poke the bear).
Changing behavior in a value chain often comes down to regulations 🥴 or market incentives, aka premiums & discounts.
As the aligned supply chain trend continues to grow and the variance increases from one aligned supply chain to the next as far as what farm/ranch level practices are incentivized, that could present an opportunity to incentivize these producers to level up...but only if they have a profit motive. Even then, there's a high cost of coordination with small producers. Perhaps there's a need for an aggregator platform to connect small producers with aligned supply chains.
Alternatively, as more innovative producers shift cattle into aligned supply chains, then more of the commodity value chain will be composed of cattle from existence-oriented operations. That doesn’t seem to be a good thing either, does it?
Look clearly I don't know the answer, I'm just spitballing. And clearly it's a complex problem.
What I do know is that as the industry looks to address the big problems like methane footprint, it’s going to take excellence across the entire value chain to be successful.
Anyone not striving for excellence is a drag on the beef industry.
Minimum viable management isn’t enough.
This extreme level of variance in production is largely only a cattle industry dynamic. Two questions:
If different than above, how would you define minimum viable management in beef?
What’s the proxy for minimum viable management in dairy? Swine?
Prime Future Book Chat
I love reading books about great leaders who build great businesses. And I love talking with smart people about the ideas from those books and how those ideas might apply in ag. So I thought I’d open it up to see if you might like to join me & others in doing this.
The book is Amazon Unbound: Jeff Bezos and the Invention of a Global Empire. Here’s the description:
“In Amazon Unbound, Brad Stone presents an excellent, deeply reported, vividly drawn portrait of how a retail upstart became of the most powerful and feared entities in the global economy. Stone also probes the evolution of Bezos himself—who started as a geeky technologist totally devoted to building Amazon, but who transformed to become a fit, disciplined billionaire with global ambitions, who ruled Amazon with an iron fist, even as he found his personal life splashed over the tabloids.”
Here’s how it’ll work:
To keep the conversation quality high, the chat will be capped at 10 people.
We’ll schedule a one hour video call in March for the book chat.
ICYMI, Prime Future 69: Lunatic Farmers & Velocity 🚀
The owner of a dairy was lamenting the rise of mega dairy systems and the risks they pose to small dairies like hers. How many cows does her dairy milk?
7,000
It's a laughable story except that this dairy farmer & her family have grown the herd from a few hundred to several thousand over the course of their career. They've struggled and strived, taken risk after risk to get where they are. And yet in their minds, they still identify as small, scrappy, insurgent producers trying to survive.
There's a dynamic that plays out across the ecosystem of food production where size matters. To everyone. A lot. There's an awareness (obsession?) about the size of suppliers, customers, processors, neighboring operations:
Big retailers want to deal with big food brands, not small insurgents. There are tangible costs to dealing with more suppliers, smaller suppliers, inexperienced suppliers with unproven track records, etc.
Some consumers want to buy food produced on a 'small family farm', whatever that means. (Why does 'family' have to imply a modest sized business? And who decides what size is the right size? And don't *all* small business to either evolve, grow, or die? I digress…)
Some (most?) producers would like to sell livestock to small(er) processors who have less pricing power than processors in an oligopoly have. (What if the packers got Standard Oil’d?)
Many producers fantasize about having more acres, or head of cattle, or poultry & hog barns.
There’s a special irony in the tendency among farmers to want to be bigger than neighboring operations. It’s almost a tendency to criticize the operators who run more acres or head than they do. (But is it criticism or envy? Sometimes the two look eerily similar.) It's like a Russian nesting doll situation where the 700 acre farmer judges the 2,000 acre farmer who criticizes the 15,000 acre farmer as too big. I’ve heard this lament from midsize farmers a few times recently and it raises some questions…How many acres is too big? How much profit per acre is too much? How much revenue per year is deemed over the top? These sound like questions that supporters of alternative economic structures would ask, not those who enjoy the benefits of a capitalistic economy….
The primary counter to the notion that small business > big is the idea of available resources. Who is in a position to commit more resources to ensuring appropriate nutrition - the backyard poultry farmer or the large integrator? Who is in a position to invest in technology that reduces deboning costs in the plant - the custom processor killing 50 head/day or the large plant killing 5,000 head/day?
The primary counter to the notion big business > small is, well, we just know this isn’t always true, right?
Big business can be good, small business can be bad. Vice versa. Some small businesses are amazing employers, some are terrible. Some small businesses are terrible suppliers, some big businesses are amazing customers. Vice versa.
I’m less intrigued by the external voices extolling or incriminating business size. I’m more intrigued by the view of producers, and what causes some producers to maintain status quo and some to find a model that allows them to scale.
Sometimes bigger is better, sometimes smaller is better…size is not the indicator of success and it’s definitely not the goal.
A recent Reddit thread on personal finance included a comment by a couple making $500,000/year who un-ironically identified themselves as a middle class family with middle class money concerns. It’s a similar dynamic with the large producer who still has the mentality of scrappy insurgent, maybe (likely?) that mentality is what helped them get where they are - what helped them do things their peers weren’t doing, to get different outcomes than ‘average’ producers.
Can we just admit that the obsession with farm business size is....kinda odd? Or at a minimum, it's not very helpful.
My hypothesis is that scale is a lagging indicator; velocity of business model innovation is the leading indicator of success.
The more commoditized the business, the stronger the pull to scale to reduce cost per unit. The more value oriented the business, the stronger the pull to create incrementally more value per unit. There's no clever analysis in those statements - those are natural forces that are a function of capitalism and a mature agriculture industry.
I think the successful producers (or packers or xyz business) who will thrive come-what-may are the ones who don’t think of their business based solely in terms of the output (corn, soy, weaned calves, whatever), but rather view their business as a business model that is is in continual refinement. They constantly ask what's the process that most effectively generates the output. They think in systems that can optimized.
(This is a great article on the founders of Premium Standard Farms, the ‘inventors’ of the mega farm / consolidation model in pig production and the mental models they put to work…some worked, some didn’t. Btw I’m still waiting for a good book about this phenomenon in poultry - can somebody write that plz? 🙂)
It seems that the really successful producers are the ones that have a vision of where they are going and how they will get there. There's no doing it this way because that's how we've done it, there's no growth for the sake of the growth. There is only relentless learning and improvement.
The great producers realize that they aren't selling just a commodity output, they are selling their business model.
Size is not the determinant of success. It’s about business discipline, management, relationships, processes, team, leadership, ambition. Successful producers have a vision for the future that they rally the team around, there's an ever evolving plan for increasing revenue per unit produced or decreasing cost per unit produced, or both.
I recently asked a really large operator how they grew their business over the last 20 years from something not at all uncommon to something truly extraordinary. Did they have access to capital that others didn't have? Some other advantage not available to similar producers? "I don't think so, I think we just do things in a different way than most people are interested in doing. We do a lot of things that aren’t uncommon for most growing businesses, they are just uncommon for production ag businesses. We have a yearning for learning. "
Let’s call a spade a spade - capital is abundant and cheap in 2021, as it has been the last several years. Ideas are a dime a dozen. It's everything else that separates the aggressive producers from the rest. (The rebuttal I’m expecting is what about the market, the weather, etc etc etc…..luck and timing play huge roles in ag, I’ll never downplay that. But there’s more to this phenomenon than that.)
I've referenced Allen Nation's book before, but germane to this conversation is a chapter on how farmers approach innovation with insights pulled from a 1962 book "Diffusion of Innovation" that studied extension efforts to get farmers to switch from open pollinated to hybrid corn post WW2.
"The innovative farmer is seen by his farm neighbors as a lunatic farmer. And a lunatic is not seen as a role model. As a result, what the innovator does on his/her farm is literally invisible to the neighbors. This is true even if the innovation is producing visible wealth. The normal reaction to unconventional success is the old it-might-work-there-but-not-here syndrome. The sad truth is that the vast majority of farmers prefer to fail conventionally rather than to succeed unconventionally. It is very, very difficult to be more innovative than the community in which you live.
Here's the really germane part: "No farmer referenced what a farmer smaller in acreage than themselves was doing as applicable or worthy of study. Everyone preferred to learn from someone larger than themselves." Isn't that fascinating?
There’s irony in that if you’ve made it this far, then there’s a huge chance that you are in the groups referenced in this last quote from Allen Nation:
"The innovators and the early adopters form approximately 15% of the total farming community. Interestingly this percentage is almost exactly the same as the number of farmers who earn an upper class income from agriculture."
I’ve recently observed some markers that lunatic farmers seem to have that indicate high velocity of business model innovation:
They ask questions. A lot of questions. They find smart people to ask questions. They find smart people in non-traditional places to ask questions.
They read. Not just industry magazines, they look outside.
They have a sense that what they are saying sounds half crazy, dare I say they know it might make them sound like a lunatic farmer.
They surround themselves with high quality people, high quality teammates.
They have a system they are building/running, a flywheel they are looking to spin faster.
They have some insight that most of their peers don’t, some belief that isn’t widely held.
They know new practices & ideas take time to implement correctly, so they allow margin (time, energy, $) to experiment.
I’ll wrap up today with a tweet:
