Categories
Talent Management

Prime Future 116: “Nobody wants to work anymore”

“In 1930, the lauded economist John Maynard Keynes predicted that—due to productivity increases through technological advancements—the American workweek would shrink to just 15 hours by 2030. Decades later, a 1965 Senate committee said “nah, sooner”— and predicted that we’d be toiling just 14 hours a week by 2000.”

I lol’d when I read this paragraph in Morning Brew.

Keynes, Congress and even Tim Ferris (author of the 4 hour work week) seem to have miscalculated.

It’s Labor Day in the US so it seems timely to revisit what’s happening in the world of recruiting, hiring, and keeping talent, particularly in production and processing.

Here are a few miscellaneous ways employers are still rethinking all the work things in the current environment:

(1) Tyson has announced multiple experiments rethinking shift scheduling and other benefits to recruit & keep people at plants. From piloting flexible hours while still receiving full-time benefits to providing childcare, to building an “employee well-being center” at one plant. This is, um, not pre-2020 normal packer behavior.

(2) Starbucks is rethinking its store layout to reduce labor demand and labor strain, aka to make it easier to make that skinny vanilla latte which has the added benefit of making it faster for the customer to receive their order. What’s good for the person doing the work is good for the person paying for the work to be done? Interesting…

The Starbucks example doesn’t fit into the category of livestock production and processing but it does raise an interesting question of how facility designs might change in the future as another lever to pull in the labor equation.

(3) It’s an n of 1, but there was even a story about a farmer rethinking what they produce because of limited access to labor, shifting from labor-intensive dairy to labor-light cow-calf production. While there’s likely more to that story than labor, it does go to show how central this labor issue can be to business models that work, or don’t.

(4) And then, of course, there are all the announcements around investment in automation CapEx projects at processing plants to reduce, or at least shift, labor. No surprise here as cost and availability of labor are making automation investments pencil out in a way that they would not have even a couple of years ago, particularly in beef plants where higher carcass variability, compared to poultry or even pork, has long been the reason for less automation.

It seems like almost everyone is rethinking almost everything about how work gets done.

I recognize that humans are incredibly complex in their decision-making about where to work, how much to work, what their next best alternative is, etc.

And yet, I still wonder if when employers say they can’t find people to work, what they are really saying is “I can’t find people to work at the price I’m willing to pay.”

Markets don’t lie, ya know? Including labor markets.

Few things get under my skin like when people complain about ‘kids these days’ or the equivalent, sometimes it sounds like “nobody wants to work anymore”. Maybe it’s human nature to do that, or maybe we humans are not only bad at predicting the future but at contextualizing the reality of the past…

A Brief History of Nobody Wants to Work Anymore 🧵

I hiiiiighly recommend scrolling through that Twitter thread but here are the punch lines…let’s just say the complaint ‘nobody wants to work anymore’ is not a new thing:

What an ironic time to be alive 😉

ICYMI Prime Future 75 (link)

Nobody knows how the future of work will work.

There is no such thing as “The Cattle Market”. There is a price for live cattle futures contracts, or this week’s average price of bred heifers at the local sale barn, or the average price of feeder calves at Oklahoma City in a specific week. We could go on and on with specific sub-markets across regions and categories, none of which are “The Cattle Market”. Markets are local and specific…also true for labor.

“The Labor Market” isn’t a real thing.

Labor markets are local; yet simultaneously, in a world of more remote work and increased flexibility, the market for talent is global.

It’s all relative to any individual’s next best alternative.

Yes, we’re talking labor today. The challenges, the chaos, & the principles to get from here to there….whatever ‘there’ ends up looking like knowing that none of us can see much more than faint outlines of the future of work.

But we’re going to use the word talent instead of labor because this whole thing is about people; the trick is how to get the best people to take your job and keep it. That’s not a new problem, but it has been exacerbated in the last 18 months as ‘The Great Resignation’ has unfolded, with droves of people leaving bad jobs, crummy bosses, and uncompelling companies behind. No one really knows where this massive realignment leads or what the workplace of the future looks like but things are uncertain and the stakes are high.

Caveat: The activities involved in turning livestock into meat & milk are physical; they happen in the real world not the virtual one. You can’t have a WFH pen rider, a remote based employee on the deboning line in a plant, or a Zoom based truck driver transporting pigs from farm to plant. The worlds of front line physical work and office based ‘information economy’ work seem to be moving further apart (for better or worse), yet many of the challenges facing company leadership for both types have a lot of crossover, especially the monumental challenges of recruiting & retaining talent.

How to recruit and retain talent today is a tricky question with zero easy answers. But leaning into the trickiness and wrestling with it is a great place to start.

The thing about The Great Resignation is that most people are going somewhere; they are just leaving one company to go play on someone else’s team. So the question is, are people running to your company or away from it?

Today’s conversation is not about unemployment policy, federal vaccine rules, inflation, or any of the other factors outside a business owner/leader’s control. Those things are what they are. The worthwhile conversations are about how we navigate this new world and its many complexities, focusing on the controllable levers.

Humility: are you looking in the mirror?

When people leave your organization, what’s the conversation in the management meeting? If it centers around ‘people these days’ or ‘those <insert generation> don’t know how to work’ or lamenting government policies or anything else outside of the people in the room, well….the next few years may not go well for you. I believe there will be long term implications of choices being made now, of postures being taken. To be clear, I’m not necessarily talking about company policies, I’m literally just talking about management attitudes. I’m betting my $$ on the management teams who’s conversations sound like this:

  • “We haven’t done it before, but what if we….”
  • “We need to learn more about how to structure it, but could we….”
  • “We’d need to experiment a bit, but perhaps we could work with people to….”
  • “What’s 1 thing we can learn from their departure?”

Winning in a chaotic talent market is not about having all the answers, it’s being willing to wrestle new questions.

And that takes humility. Sometimes a lot of it.

I like the way my friend Jim Bishop, founder of Conjunction Leadership, describes it:

At the core, the entire “Covid experience” enabled people to understand the value of their time. Now suddenly individuals were able to understand the opportunity cost of giving up their time.  While working at home, they realized that an extra hour could be invested into what was most important to them. Almost in unison, employees across the globe are using this moment in time to assert what is important to them and with a “labor shortage” as wind in their sails, taking it upon themselves to create the life that they’ve wanted all along.

However, most ill-prepared organizations are caught flat-footed and stand to lose talent during this time.  Organizational leaders that have stubbornly dismissed The Great Resignation as something dreamed up by “entitled employees who’ve gotten spoiled during the last 24 months” will certainly lose.  They will numerically lose numbers of employees as well as physically losing the hearts and engagement of those who simply feel too trapped to leave.  Simply put, they’ve got to stop believing that they own the employee’s time for a set number of hours per day – an archaic mindset and belief rooted in the industrial revolution when employees “clocked in” for their jobs and today results in the unhealthy practice of presentee-ism.

Jim’s comments are right in line with the takeaway from a recent WSJ article, “How a side hustle can boost your job performance”:

“Organizations want exclusive rights to their employees, but perhaps that idea of ownership is misplaced,” says Dr. Sessions. He believes that if companies restrict moonlighting, they risk losing employees. “People need to choose their own path outside of their day jobs,” Dr. Sessions says. “For some, that means pursuing career development, personal fulfillment or just engaging with new and interesting people in a side hustle—all of which can elevate their moods and be beneficial to their regular jobs.”

What are some of the upsides of this massive realignment?

It seems like all the headlines focus on the downsides of The Great Resignation, but every cloud has a silver lining…

  • In a world of options, people who show up every day are showing up because they choose to be there. When people in my orbit complain about a role/company for months on end, I’m asking them when they are going to do something about it…especially right now. The upside of people having so many options today is that if people are showing up its because they want to show up. (Ok its that or they couldn’t get a job elsewhere but let’s assume you didn’t hire many of those in the first place😬)
  • Will there be new perspective gained & other benefits from office folks pitching in on the front lines? From fast food to grocery stores to factories, there have been several examples over the last 18 months of management & office staff being called to the front lines. I have to believe that getting a fresh perspective could have huge impacts on how these business operate at the front lines, whether Trader Joe’s having all office hands on deck to staff cash registers or KFC sending the office troops to stores to cook chicken.
  • Opportunities in rural areas. I love that WFH means people can do big city work from small town places. I don’t want to risk sounding like a bad country song writer here, but I love this point.
  • Incentive to tap non-traditional talent pools. I think the two most wildly underutilized & widely available talent pools in general are stay at home moms who are college educated with great work experience but want part time / flexible hours, and the recently retired who have great experience & want to contribute somewhere without full time stress.
  • I recently heard on a podcast that companies who go back to in the office full time will probably lose 1/3 of their people, and companies who go fully remote will probably lose 1/3 of their people. Which means we’re likely to end up in the hybrid model as the dominant work model, and there’s so much we don’t have solved for that model. We really don’t know yet how the future of work will work so this is an opportunity to re-evaluate assumptions. We’ve been swimming in the same work assumptions since the 1920’s and we haven’t really had a good reason to hold up the assumptions to examine them. Now we have to do so. What’s true about how we work that is critical vs what’s true about how we work that is just what we’re used to? Time, place, people, scope, terms, processes….it's all up for a revamp…

…just how ‘up for a revamp’ are old assumptions? The Hustle put it this way in a recent article aptly titled, “To reinvent work, we have to destroy the clock”:

The pandemic has accelerated conversations about remote work, hybrid scheduling, and 4-day workweeks (an idea that has been trotted out since at least the 1970s and never stuck). But some scholars propose a more radical alternative to time-based work: destroying the clock altogether and just getting stuff done.

That means working when we’re at our best, and around our family and health priorities, instead of from 9 to 5, or 8 to 6, or longer to try to impress our boss.

When someone asks us how many hours we work every week, we should all have the same answer: I don’t know.

That same article describes the Best Buy experiment with a concept called Results Only Work Environment, which rested on 2 key concepts: autonomy and accountability. On that experiment:

Many employees didn’t work less — some reported working more — but they felt in control. They skipped out of the office for the occasional afternoon matinee, took conference calls while hunting, and picked up their kids from school.

This is the hard part about results-based work:

  • It comes unnaturally to executives and managers, given their contributions (how much does delegation and leadership really count for?) are difficult to gauge.
  • They also have the most to learn and the most to give up as they grant greater autonomy to employees.

That’s really what time-based work schedules have been taking away from us: our freedom.

By losing the structure of time and focusing on the results, we can get freedom back. Freedom to take care of children or elderly parents. Freedom to exercise. Freedom to start a new hobby. Even the freedom to do our best work.

But even in a new world, some old principles still apply.

Here are some favorite mental models around retaining talent – if you’ve experienced these in the wild then you know why they matter:

  1. Always be recruiting. I’m not talking externally, I’m talking internally. Just like the lowest cost customer to acquire is the one you keep, the lowest cost top talent to acquire is the one you keep.
  2. A players recruit A players, B players recruit C players. In remote based teams this dynamic is multiplied.
  3. Good managers help their people get where they wanna go inside the company, great managers help their people get where they wanna go inside or outside the company.
Ok those are some ideas for employers.

A big idea for employees:

McKinsey estimates that 75% of companies in the S&P 500 will fall out by 2027.

75%! That is staggering. And it means that it's wildly risky for any employee to assume their employer will exist in the future.

The industry is the new company. Here’s what I mean by that – you and I both know people who see their network (the career relevant, meaningful set of relationships) as existing within the confines of the organization. That’s not only myopic, it’s toxic for your career (and for company culture, but that’s a separate discussion). Meaningful networks don’t exist just within the confines of a company; the real relationships are the ones that span companies and time. Your real network is the list of people you call when your role gets cut, your company gets acquired, you’re looking for talent, or you’re looking for feedback on a business idea. Cultivate that list with generosity. It’s a big world of opportunity and options and really smart people doing really great work on really cool stuff.

A final note for us all

According to Axios, “more than half of frontline grocery store employees have plans to leave their jobs due to pandemic-induced burnout. The pandemic revealed how much we rely on low-wage, frontline workers, but it also exposed the ugly ways in which these essential workers are treated by employers and consumers alike.”

…a good reminder that simply being kind can be a competitive advantage.

Categories
Uncategorized

Prime Future 115: Building the (sales) machine as you fly

Let’s talk about building out a sales capability within a startup. This is so tricky because, by definition, you are building the sales process & capability from a blank piece of paper. Just straight up building the machine as you fly it.

Below is a laundry list of things I’ve learned about building out a sales capability from my own experience as a sales rep, as a founder (early sales can’t be outsourced), and as head of commercial scaling up a SaaS sales org…and from great mentors and other resources.

Some of the below is from my playbook, and admittedly a lot of this is what I wish had been in my playbook sooner….aka things I’ve learned by making all.the.mistakes. And the thing about the art & science of sales is that the more you learn the more you realize how little you know.

The caveat to the list below is that everything in sales is contextual; none of these will work all of the time but most of them will work some of the time, depending on the context.

Building a sales organization is about building a capability, a machine that will repeatedly produce predictable results. A constantly evolving machine that needs constant refining.

My overarching goal in building a sales machine is to build in ways to accelerate learning velocity – as individuals, as a team, and as an organization.

You can get as complex as your heart desires, but sales does not have to be complicated. Basic frameworks can be super helpful. These range from hiring to training to sales meeting structure to sales process.

(1) “Tell me about something you’ve recently geeked out about learning.”

I will forever and always believe that curiosity is the single best predictor of success in a salesperson. I want to know that a salesperson is intellectually curious about…anything. I always ask this question in the hiring process. If they aren’t curious about non-customer things, they are unlikely to be curious about their customers.

(2) “Tell me about a recent example where you received feedback, implemented it, and what the outcome was.”

This is another interview question. I will forever and always believe that the appetite to seek feedback, hear feedback, and implement feedback is another predictor of success in a salesperson. Too arrogant or set in their ways or closed-minded to change? Hard pass. The ability to take feedback is a proxy for the rate of learning. And by taking feedback, I don’t just mean from their manager, I mean from their peers and much more importantly, from the market.

(3) Red flag if customer facing candidates don’t negotiate their own comp.

If I’m hiring someone for a commercial role in which they are responsible for selling value to customers in exchange for dollars, I fully expect them to negotiate their own comp package. Why would I expect them to be able to ask customers for more money on behalf of the company if they can’t ask for more money on behalf of themselves?

(4) Hire salespeople in pairs.

Especially early in the commercialization of a new product or service, if you hire 1 person and they don’t make progress then you don’t really know if it’s the person or if it’s the product, the pricing model, etc. But if you hire 2 people at the same time and 1 is successful and the other is not, then you have a better idea. (Though if you hire 2 reps and neither is successful, you need to take a good look at the product & go to market because maybe it’s not ready for prime time!)

(5) Be very very clear whether your company needs farmers or hunters.

Farmers are the sales reps that have the crucial skills of maintaining relationships, over years or sometimes decades. Hunters are the sales reps that take you from 0 customers in a market or region to your first 10 customers. If you are an upstart, by definition you need hunters first. Of course, there are exceptions, but in general, farmers don’t make very good hunters and hunters don’t make very good farmers. Resource accordingly.

(6) Don’t over-index for someone that looks/sounds/acts like your customer.

This is common in agtech companies, particularly with founders who are not from ag and have maybe struggled a bit to build credibility with early customers. You want your customers to accept your salespeople so you hire people who look and act and sound like your typical customer. The problem is this only works if those people have the capabilities to go with the persona. If not, you could be burning valuable dollars and time in a mis-hire.

(7) Practice like you play; sales role plays make everyone better.

Most anyone who’s been in sales has been forced to role-play sales scenarios and likely hates doing so. But sales role plays are really effective ways to practice how you’ll play in the big game moments, and create opportunities for peers to coach each other up…and since anytime we teach we learn more ourselves, there’s this powerful acceleration that happens for the entire team simultaneously.

Role plays don’t have to be extensive, it can be as simple as 10-minute drills in a team Zoom call where a prompt gets thrown out “You’re in the 2nd meeting with x prospect who has y objections, how do you handle those objections?” 5 minutes to role-play, 5 minutes of peer feedback and we’re on to the next person.

These are so valuable because they force you to go from ‘here’s what I would say’ to ‘let me practice saying it’….which is way harder. And maybe it leads to a team brainstorming about how to handle some scenario that continues to come up again and again…..its’s all about accelerating learning velocity. And it only works if the team is filled with relentlessly curious individuals who have the humble confidence to seek & accept feedback for the purpose of getting better faster.

(8) Planning matters, even for experienced teams. The best sales meetings are usually the best prepared.

Even if all you do is jot down at the top of a note page the 1-2 objectives of the meeting, and the 2-3 key questions you’d like to ask to accelerate the sales process. Its really easy to get lazy and skip this planning step, which often ends up being disrespectful to the prospective customer and disadvantageous for the salesperson. This is also one of those sales organization cultural things – either it’s expected that we as a team are planners or it’s accepted that we wing it.

(9) Respect your customer’s intelligence.

I reeeeeally hate it when sales people use superfluous adjectives to sell me on something. Don’t tell me what to think about your product. Present me the information or the data or the case. I can make up my own mind and reach my own conclusions, thank you very much. It’s as simple as reframing things from “x feature is so awesome because it lets you do y which is really fantastic” to “x feature allows you to y, how could you imagine that capability impacting your process?” Too many positive adjectives makes me cringe at best, distrustful at worst….I don’t think I’m alone in that.

(10) Be aware of how much time you talk in the conversation.

It’s hard to learn and uncover what’s important to your customer if you’re sucking up all the oxygen in the conversation. Pay attention to how much of the conversation are you talking or the prospect talking. Are you taking up 90% of the air time? 80%? If so, maybe don’t act surprised when the prospect ghosts you. Side note – maybe this is a good awareness exercise for personal relationships as well… Also, the caveat here is that it depends on the nature of the meeting, where you are in the process, how well you know the prospect, how much trust has been established, the prospect’s conversation style, etc. But the general principle still holds.

Sales Process:

I was trained in consultative selling skills as a brand new baby sales rep and I believe in it so wholeheartedly for almost any type of sales but especially for products and services that involve complexity and/or ambiguity and/or complex value propositions. It’s all about understanding the customer’s context to more effectively solve it, aka identifying the right customers and customer situations to create actual value.

The foundation of a sales process is how we run individual sales meetings which then gets layered into the larger sales strategy, and the skeleton of those meetings should usually be the same regardless of the content, beginning with a stated purpose of the meeting.

(1) “The purpose of this meeting is….”

Most meetings are a waste of time because the purpose is not clear, so state it up front. What are we all going to get out of this time, especially the prospective customer?

I love the framework of Purpose, Benefit, Check:

  • Purpose – state the reason for the meeting
  • Benefit – state the benefit to the other person(s)
  • Check – confirm everyone is aligned about the use of time

So it sounds something like this, “The purpose of this meeting is to explore x so that we can make a decision about y. What else would you like to accomplish in our time today?”

My hypothesis is that 30% of meetings would become emails, and 70% of meetings would be more productive if every meeting started with “the purpose of this meeting is….”

Having a clear Purpose-Benefit-Check sets the tone of the entire meeting. Having this written down ahead of time increases the odds that it will come out how you want it to instead of a jumble of words.

(2) Advance the meeting on purpose.

You know what the purpose of the meeting is because you’ve stated it and everyone agreed to it. Now be thoughtful about how you might get there!

One part of advancing the meeting is asking smart, well-worded questions that expand & accelerate the conversation…

(3) Level up from close-ended to open-ended questions.

Only use yes/no questions rarely and on purpose. 99% of the time an open-ended question will be a higher-yielding question. There’s a big difference between “is your feed conversion where you want it to be?” and “what’s your philosophy for managing feed conversion?”

Exercise: have a peer join you in a meeting and keep count of how many yes/no questions you ask, and how many open-ended questions you ask. Chances are you’re asking more close-ended questions than you realize, or would like…most of us are. It takes awareness and practice to build the muscle of asking quality questions.

(4) Level up from open-ended to high gain questions.

There are open-ended questions that open up a conversation, and then there are high-gain questions that lead to magic. Here are some examples:

  • What are your top 3 issues managing feed conversion today?
  • If you had to choose 1 of those issues to solve, and you had an unlimited budget, how would you tackle it?
  • If you could solve that issue, what would it mean for your business? Your budgeting? Your operations? Your board of directors?

The catch here is that you only get to ask so many high-gain questions in each meeting or else it feels like an interview. And in my experience, most people do not think of good high-gain questions on the fly. So this is REALLY a place to plan ahead.

(5) So much momentum gets lost in sales processes because the ball gets dropped in the follow-up.

Close the meeting with a summary and next steps. Then send an email with a summary and the next steps. Then do the next steps.

(6) In most B2B contexts, unpaid pilots = uncommitted customers that are hard to convert to paying customers.

It’s not about the revenue, it’s about the psychology of the user: what's free doesn't feel as valuable as what we've paid for.

(7) Quantify the pipeline as early as possible.

This lets you identify trends around bottlenecks and what’s working or not working. However rough the data is, however limited the systems are….even estimates are better than nothing. This can be as simple as:

  • Leads
  • Qualified Leads
  • Demo
  • Proposal submitted
  • Contract signed

(8) Create shared language on the team.

Having 1-2 anchor books that every new hire reads and that we refer back to as a sales org can be really helpful in anchoring everyone to the same language and ideas…another way to accelerate learning velocity. Here are a few of my favorite resources:

Ok that was a lot and it barely scratches the surface, but I hope you found at least 1 helpful nugget.

The rebuttal to some of this is that it sounds robotic and formulaic at first glance, but that’s why you practice and iterate and make it your own until it is completely natural and genuinely fits your approach.

Really effective sales people have really effective systems and processes, so do really effective sales organizations.

It’s like the James Clear quote:

“You do not rise to the level of your goals. You fall to the level of your systems. Your goal is your desired outcome. Your system is the collection of daily habits that will get you there.”

A huge part of the fun in building out a sales capability is stealing from existing playbooks what you can, modifying where you need to, and creating what’s missing for your specific customer/product/market….all part of building the sales machine as you fly 😉

What are your 1-2 favorite sales principles?

Categories
Meat Processing

Prime Future 114: Meatpacking isn’t rocket science.

It’s weird how often people/media say that meat supply chains broke during COVID.

Were supply chains stress-tested? Absolutely.

Did supply chains bend? Yep.

Did supply chains break? I don’t think so.

Consumers being forced to settle for a flank steak because the ribeyes are cleared out does not mean the supply chain broke, nor does being forced to settle for bone-in chicken thighs instead of boneless. These are objectively #firstworldprobz.

For those whose worldview says that supply chains broke, the go-to solution seems to be more localized, regional supply chains. To these folks, the cohort of soon-to-be-built processing plants looks like a golden next era of the meat business.

Then there are those who see packers as the source of all evil in the livestock value chain, those wretched keepers of the margin. To these folks also, the soon-to-be-built processing plants might also appear to mark the beginning of a golden era.

All that to say, there are a lot of folks cheering on the development of these new regional plants. As am I, if for no other reason than because competition makes everyone level up.

And yet, there's a phenomenon that has played out across the US beef industry for a few decades. Here’s how it goes:

  1. The cattle cycle swings margin to packers
  2. Cattle producers think “hey, they can’t have all the margin”
  3. Cattle producers think “meatpacking isn’t rocket science, we should buy/build a plant and capture some of that margin ourselves”
  4. Cattle producers pool their money and buy/build a plant
  5. The cattle cycle swings margin to cow-calf producers & feeders, away from packers
  6. Cattle producer-investors declare bankruptcy on their processing business
  7. Repeat at the next swing in the cattle cycle

With more recent announcements about plans for building regional packing plants, I’ve been thinking about some of the traps those plants will have to deftly navigate in order to avoid step 6 above.

Here are 4 watch outs for upstart meat processors:

(1) Sourcing cattle. With the drought in the US shrinking the cow herd by the day, the next 24-36 months could be a reeeally tough time to be establishing a processing business when competing with not only the big players but also a growing number of regional players for a smaller pool of cattle. Smaller supply + higher demand is great for producers but tough for processors…especially upstarts.

But cattle markets are local, and depend on the triangulation of (1) where these plants are located, (2) where the cattle they will source are located, all in relation to (3) where the big 4’s plants are located. This location triangulation becomes all the more critical the higher transportation costs are, and the tighter cattle supply is.

(2) Competitive margins. These regional plants processing fewer head per day than their larger counterparts will have higher processing costs per pound, simply because of the math of spreading fixed costs across more pounds. And if you can’t compete on cost, then you have to remain competitive via topline revenue which means either premium programs or some other path to higher sales price per pound. The big players largely play the commodity game with the mountain of meat; these emerging plants will have to create and play a different game.

(3) Carcass balance. Sourcing cattle and processing them efficiently are big enough challenges, but perhaps the biggest challenge of all is selling the entire carcass. Anybody can sell high-value middle meats, it takes a well-oiled sales machine to sell the entire carcass, even more so to do that at premium prices.

(4) Ability to recruit & retain talent, at all levels. Several hundred million dollars in capital projects for automation investments have been announced by the big 4 in the last few months, because of the labor crisis. Both accessing humans to do work, and the cost at which the humans are willing to work in a processing plant. This is not a small problem. This is not ‘build it and they will come’. A labor strategy right sized (read as: plan for higher wages than you would have even a year ago) for the current labor market is critical.

I wanted to test my hypothesis of the above traps with industry experts who’ve actually managed large-scale beef plants and know what it’s like to manage the business of buying cattle, processing and disassembling carcasses, and navigating customers relationships.

As someone who knows the beef processing business well, Nicole Johnson-Hoffman said, “I would agree with your watch outs and add that complexity is a factor. Unless you have a large organization to spread the costs across, you struggle to afford the high cost of compliance and sophisticated talent.”

Meatpacking may not be rocket science, but it is wickedly complex.

Another industry friend added, “It’s all about double shifting to be the most efficient. That’s a big battle and takes a lot of start-up capital for many years to turn the corner on profits. At first, you lose more the more cattle you kill as a total but you have to kill more cattle to ever get over the hump. It’s a double edge sword.

Carcass utilization is the biggest link to packer profitability. You need international sales channels for items, plus retailers, plus food service. You need all 3 to balance the carcass. Plus hide, blood, rendering products that pay the bills. On top of that is the case-ready piece. If you’re building a plant and not thinking about cutting the final product to a retail/food service customer then you can’t last playing the commodity game with the big 4. But you have to have a customer to do case ready.”

There is a reason meatpacking has seen so much consolidation; it may not be rocket science but it is a deceptively challenging business.

Now for the bull case for these new plants:

  1. If large cattle producers are invested in the plants, then that should increase the ability of the plant to secure cattle even when the big 4 are paying more for cattle than the regional plant can. The producer-investors will have a different level of economic commitment.
  2. There are more opportunities than ever for branded programs and unique selling propositions that target a specific customer segment in a specific market.
  3. Some argue the market has structurally changed in recent years with packer consolidation and that the cattle cycle is no longer the same. Maybe so. Maybe that structural change will mean these emerging packers will be operating in a different environment than prior attempts at this playbook with a higher probability of success.
  4. I’m always going to be on the side of people making bold moves. I hope these moves pay off and that these producer-investors get Scrooge McDuck rich, start acquiring competitors, and keep growing until they themselves are considered big players who need shaking up by the next generation of upstarts. Circle of life.

Time will tell whether this time was different, whether this really is a new era in US meatpacking🤞

Meat industry folks – what did I miss here? What would you add?

Categories
AgTech Animal AgTech

Prime Future 113: The boogeyman of first mover advantage

Netflix launched their streaming service in 2007 and has 220.7 million subscribers.

Disney+ launched late 2019 and now has 221 million subscribers.

Hmm, seems like Disney could be to Netflix what….

  • Facebook was to MySpace or Friendster, both early versions of social media.
  • DoorDash was to Webvan, the grocery delivery company that raised a boat load of venture capital, IPO’d, & went out of business in the dot com bust.
  • Walmart was to Piggly Wiggly, inventor of the modern supermarket format.

The idea of first mover advantage gets all the love, but I’m increasingly convinced of the power of second mover advantage.

My favorite example of second mover advantage in agtech is AgVend, who were second movers to Farmers Business Network’s first move in bringing ag retail online.

Farmers Business Network, a farmer-to-farmer network and e-commerce platform, was founded in 2014. My understanding at the time was that they were setting out to create transparency in the ag inputs market in two ways, 1) by capturing actual price data from farmers in exchange for access to other farmers’ input price data, and 2) by creating a direct to farmer model that cut out the traditional ag retailer by bringing the transaction of purchasing inputs to the FBN marketplace.

They’ve since raised $929 million in venture funding and expanded into several verticals. But in 2018, FBN had only raised $194 million in venture funding and was still squarely in the business of disrupting the traditional ag retail model.

The story goes that the CEO of FBN stood up in a room full of ag retailers and said, “you think I’m the boogeyman? I’m worse than the boogeyman.”

That quote sounds like a badly written line from the movie The Social Network, but more importantly that was the backdrop against which Alexander Reichart, CEO of AgVend, and his cofounder began to map their plans as the second mover in this still emerging category of ag retail e-commerce.

I recently caught up with Alexander and asked, how do you think about the role of second mover advantage in the AgVend story? Here are some insights he shared:

“When starting AgVend, we knew there was a missing link in the basic digital infrastructure around commerce, communications, payments, and research about products. We looked at other models in the markets, mostly compared to FBN. But the premise we disagreed on was that they came in and said there’s no reason this should be a 3 step model, we can go direct to grower and we can cut out the retailer. After working with the retailers and listening to growers, and understanding the fundamentals of logistics in the industry, we decided there’s a real need for the retailer. Its not efficient and there’s a lot of fat, but we didn’t say let’s throw the baby out with the bath water and cut out the retailer.

We realized the Amazon for ag would serve only a very small segment of transactional customers so the ag retailer is who you need to be empowered. Second mover advantage was super helpful to learn from their model and created a foil; Amol (FBN CEO) rattled the cage for retailers which prompted retailers to look for other options."

Another interesting thing about AgVend is that a couple of years into the company’s life, they pivoted from a modified marketplace to a platform for retailers, allowing retailers to white label the software so their customers can access their own grower portal. They describe this as building “the technology that keeps the most innovative ag retailers, distributors, and suppliers connected to their customers.”

Where the FBN model was about disrupting ag retailers with technology that cut off the retailer-grower relationship, the AgVend model was about helping ag retailers access technology to enhance the retailer-grower relationship.

I also asked Alexander, how do you think about business model innovation?

“Listen to your customers, build a good business, and then scale. If you just shut up and listen, people will tell you. If you don’t go in there thinking you know better and you don’t go in undervaluing the person you’re speaking with, they’ll tell you what the problems are.

Since we can build anything, as far as software, the hardest part of the job is figuring out what we should build. There’s always a shiny new opportunity, and we think ‘let’s go chase it’. But then we ask the question, why are we uniquely positioned to win in that market? If we can’t answer that question, then we look to find the best players to partner with and build really strong collaborations.”

My hypothesis is that not only was FBN actually good for AgVend, but the formation of AgVend was likely good for FBN. In April 2022 articles were published that FBN would be filing to IPO soon, so obviously they’ve found ways to make their model work.

The truth is that very few markets are really winner-take-all markets.

So its not surprising that multiple models can work, especially in a market as large as North American ag retail.

There seem to be two primary benefits to second mover advantage:

  1. Second mover gets to learn from the first mover – both the right moves of what’s worked and wrong moves of what hasn’t worked or doesn’t seem likely to work long term.
  2. First mover gets the benefit to the newly created category of a second mover - competition can grow the pie of the category and the perception that the category has staying power.

To add a bit more nuance to this discussion, here’s a recent thread by @jmatthewpryor:

Is there really a First Mover advantage? Are you in a Moat or Minefield market? 🧵👇
Image

Matthew goes on to explain his hypothesis about the context of market structure:

So maybe first mover isn’t always best, but neither is being the second mover always best. Sounds about right!

In the spirit of learning out loud, I will reluctantly share a story about my naivete and why this whole discussion lives rent free in my mind…

One of the first companies I wanted to start but chickened out on was in 2015, I heard friends talk about wanting to buy part of a beef but they didn’t have the freezer space to buy a whole or half carcass. So what if we could build a model where you would ship meat directly to the customer on some sort of predictable schedule? And hey, people are talking about local so what if it was locally sourced beef?

I was already questioning the viability of the business model I had in mind and then I saw that some company called CrowdCow had raised several million dollars. They were using all the same words I was. THIS WAS IT, THEY HAD BEAT ME TO THE PUNCH AND WON THE GAME.

I share this because when I first got into agtech ~2015, I thought that once you saw announcements about a company raising venture capital that that was it – the category had been won. The game was over. LOL & cringe, of course that couldn’t be further from the truth.

Obviously that joke is on 2015 Janette who didn’t move forward on that venture because if the D2C market is still in its early days today, it was embryonic way back then. And probably the best thing for the category would have been multiple companies getting funded, with second and third and fourth movers innovating to find profitable business models that could scale. Live and learn 🙂

What’s your view on second mover advantage vs first mover?

Any good examples? I’d love to hear them!

Categories
Business Model Innovation Leadership

Prime Future 112: Growth: DNA trait or decision point?

Sanderson Farms began as a humble farm supply store in 1947 while Wayne Farms traces back to a feed milling operation started in 1895. I wonder what the founders of these businesses would have said their ambition was for these companies, way back when? You probably saw the recent announcement about the newly merged Wayne-Sanderson Farms, now the 3rd largest poultry producer in the US.

On the one hand, it’s hard to imagine that the early founders of what are now the biggest companies in the space set out to become what they became.

On the other hand, growth orientation is a DNA trait. Or is it?

We recently talked about the Business Model Canvas and the 9 building blocks around business model innovation. It’s a great framework, but I think there is a 10th building block that’s missing: ambition.

The last several years I’ve had one foot in ag where economies of scale continue to drive consolidation, and one foot in tech where startups create a vision to someday become a billion-dollar company to raise venture capital.

In both worlds, sometimes it seems like growth is the answer…no matter the question.

Why is it that some organizations hit the ground running towards scale either by leveraging the business with debt or by selling portions of the business as equity, while other businesses rock along for decades or generations without taking risk?

I think much of it has to do with ambition. The ambition level of the founder, investors, board, and/or leadership team. When I spoke with Greg Bethard, CEO of High Plains Ponderosa Dairy, I asked him how he thinks about growth. Here’s what he said:

“Growth is not for everybody. We have embraced growth; as a business our ownership has decided we want to grow. We’re all in it to get a good ROI, and I look at this as if we want to attract partners to invest in our business so we have capital to grow then we need to deliver a good ROI.

If you aren’t growing it gets harder to deliver a good return because your equity levels get higher. Its really hard to get a great ROI if you own a lot of your business and have very little debt. But if you are growing all the time and fairly highly leveraged then you can get a good ROI.

Now that comes with risk, obviously the higher the risk you should get a better return. Every partnership has to decide how much risk they are willing to accept, how leveraged are we willing to be, and you have to find the happy spot where everyone is comfortable.”

Greg mentioned a book that he and his board read as they began scaling the business, No Man’s Land: Where growing companies fail.

“No Man’s Land is that period when a company is too big to be small and too small to be big.”

The author describes No Man’s Land as the awkward teenage phase for a company. The majority of the book is about how to move through No Man’s Land effectively, but the author points out that companies have a decision point of whether to move into & through No Man’s Land.

Not every company is going to make it out, not every company should even try.

I think this has applications for both ag producers and tech founders. In a venture world that celebrates growth at all costs and an ag industry that assumes economies of scale are always the best path to profit, there’s the sometimes ignored idea that not every company can scale and/or not every company should scale.

There are two questions:

  1. Do you want to grow the business? That’s a personal preference question.
  2. If so, should you grow the business? That’s a financial & business model question.

And these questions are only relevant when the founder is more interested in working on the business rather than working in the business. If the founder would rather drive tractor than find new customers, or rather work cattle than recruit talent, or rather write lines of code than think about how to reduce CAC….then maybe growth isn’t the path.

But where growth is the intentionally chosen path, No Man’s Land lays out 4 traps that entrepreneurs run into and ideas for getting past those traps. Here are my takeaways:

Trap #1: Market misalignment

  • Market misalignment is “when a gap opens between the promises made to customers and the operations required to satisfy them.”
  • Careful consideration has to be made about which promises to extend to which customers. Chasing any customer may be fine in the early days, but it will wreck a business trying to scale.
  • The correct decisions here will keep you growing through No Man’s Land, while the wrong ones will kill you. Deciding which promises to make to which customers is strategic planning in its essence.
  • Scale the system for value delivery by breaking it down step by step to make it repeatable, and profitably.

Trap #2: Companies in No Man’s Land risk outgrowing their money.

  • Undercapitalization is not a cause of death, it is a symptom of being perceived as too risky to raise capital.
  • “What most entrepreneurs fail to realize is that the growth itself generates the need for capital. Look around and you’ll find many rapid-growth firms that are rolling in profits, yet have no cash on hand. Even when a business is and remains profitable, growth requires infusions of capital, for the very reason that growth eats up cash flow.”
  • Equity investors need confidence in the upside potential, while lenders need confidence that the downside risk is managed. Choose wisely which path to take.

Trap #3: Companies in No Man’s Land usually outgrow existing management.

  • To make it through No Man’s Land, companies have to make the switch from hiring cheap labor to hiring someone trained as an expert to do the thing. This usually means hiring someone who learned how to do the thing on someone else’s dime and can immediately step in to begin executing.

Trap #4: Companies in No Man’s Land often outgrow their model.

  • You have to know how your company will make money as you scale, how will you be more profitable at higher volumes? Do the math. Let the math provide another important indicator of whether this business should be scaled up.
  • “Distribution channels – the mechanism to identify and acquire a new customer – are often by far the most expensive components of the business model, costing even more than delivering the value proposition.”
  • “Is your business viable at greater and greater scale, or do you risk growing yourself out of business? Are the fruits of growth work taking the risk of making infrastructure investments up front?”
  • As a machine for making money and creating value, how does it work now and how will it work at scale?

“If an entrepreneur doesn’t find a way to get through No Man’s Land, the company goes back to being small or goes under.”

I appreciated Greg’s recommendation because the book gives a helpful framework for thinking about the predictable risks of growth, but perhaps the most helpful are the questions about when and why to make the intentional decision to grow, or not grow. To grow and scale towards becoming an Industry Giant, or to refine and improve to be a Small Giant. Neither better or worse, just different objectives based on the business and individuals. Neither has the corner of the market on high ambition.

It’s only in the last couple of years that I’ve even entertained the idea that maybe growth is not the only measure of success, or the absolute measure of ambition. Books like Built to Sell: Creating a Business That Can Thrive Without You or Small Giants: Companies that Choose to Be Great instead of Big offer alternatives to the idea that scale = success.

There are other measures of success, including balancing financial objectives with impact objectives or with lifestyle design.

One of my favorite things about spending time with producers of all stripes is that you know when you’re in the presence of excellence. You know when you’re talking with a cattle feeder who is completely dialed in and optimizing every aspect of their business, or a seedstock producer who is proving out a new business model, or a poultry company that is rethinking what ‘best in class’ even means. Sometimes those are the big companies and sometimes those are the companies that you just know will overtake the big guys someday in some way in at least some markets, because they’re just better.

So maybe excellence is the real ambition flex.

Categories
Markets

Prime Future 111: Is that premium for actual quality, or just peace of mind?

There’s a West Wing episode where the new hired gun campaign manager for President Bartlet is asked how the campaign is going to sell an unpopular new policy. The campaign manager replies that they just need to do it “the same way PT Barnum sold a truck load of white salmon; by sticking labels on that say ‘guaranteed not to go pink in the can’.”

I just spent the weekend with friends who are parents of young children. Although my friends (and family for that matter) don’t quite know what I do, they know I love all things livestock, meat & dairy so naturally, they had some meat & dairy related commentary.

The first topic was the friend who gave a thorough category review of frozen chicken nuggets with a piercing analysis concluding that Tyson’s all-white meat dino-shaped nuggets reign supreme among parents and children. Apparently, this is sacred ground and substitute products have no place. Hats off to you, Tyson Foods – if my friend gets a dino nugget tattoo I will be zero percent surprised.

The second topic was the friend who recently did a massive amount of research on baby formula because of the formula availability crisis. She went all the way down the rabbit hole trying to identify the very best option on the market. She asked if I knew of a specific type of dairy farm in Europe that is widely recognized by Internet experts as the superior source for ingredients in infant formula.

The questions behind the question were, “does this certification that I’m paying extra for mean that I’m buying formula that really is the highest possible quality for my child? Am I paying for actual quality or is someone just trying to make me feel good or feel like I’m buying high quality?”

I obviously had no idea. I’d never heard of that certification but when I looked it up, it sounded like it was certifying practices that exist on most dairies and/or would have little to no bearing on the quality of milk output. (I didn’t say that to her though – my assumption is that if people want to pay for something that has real or perceived value, that’s the beauty of the free market.)

But the other friend in the conversation started peeling the layers, and asking more questions about common marketing phrases around meat and dairy including the differences in pasture-raised and cage-free eggs.

We were casually kicking these things around (and yes I was trying super hard not to go into full Nerd Mode) when one of them said, “look I don’t know what happens on the farm and I don’t mind whatever it is, I just want to know if something is worth paying extra for or not.”

She then made the analogy that in Arizona, school districts can go through the 3rd party accreditation and audit process to receive an “A+” label. It’s a thorough and resource-intensive process, and often school districts right up the road from a formally certified A+ school can be doing the same right things but the neighboring school didn’t go through the expense and hassle to get the stamp of approval. The same quality of "product", but one has a stamp of approval and one does not.

This conversation with bright and curious customers of meat and dairy got me thinking about what might be true of marketing in the meat and dairy case:

Value is in the eye of the beholder. And yet, consumers are at the mercy of what they are told….by brands, by influencers, by media.

You know I don’t think the answer is to “educate consumers” or make farm experts out of every person who walks in a grocery store, that’s an absurd objective that sets everyone up for frustration and failure. No one wants to hear us ag people when we activate Nerd Mode!

And yet, when an information vacuum exists, someone fills it. Most consumers are not stupid, but neither do they have the context to be subject matter experts with well-developed BS radars.

So how do we solve for the consumer’s desire for quality, or for a specific attribute, without dumping 160 years of research on them at once?

Ultimately the responsibility falls on brand managers who are marketing a product via a brand, aka monetizing a specific set of features and benefits to a specific set of potential customers.

That’s where the whole suite of decisions are made that send signals downstream to consumers about what to care about, and upstream to producers about what to produce. But sometimes marketing fails.

The 2 most grievous marketing failures being:

  1. Where there is a quality difference and the consumer doesn’t know about it (and the producer doesn’t get paid for it). A marketing failure of UNDER marketing.
  2. Where there is NOT a quality difference but the consumer is told there is a quality difference, and expected to pay more. A marketing failure of OVER marketing.

To use the West Wing / PT Barnum analogy, maybe white salmon really is better or maybe we’re just slapping a label on something and calling it better. Smart consumers wanna know the difference.

What do your people say about how they choose meat and dairy products to buy?

Oh, and 10/10 recommend this backdrop for contemplating the complexities of the modern food system:

Categories
AgTech Animal AgTech Venture Capital

Prime Future 110: Rising from the averages: a cattle story

“If the cattle industry is to survive, it must adapt to new customer demands and scientific knowledge to create a better product. The industry’s real challenge is to produce a constant product of high quality. Today with fewer than half of cattle grading Choice, we are not producing the kind of product the consumer wants.”

Cattle feeding pioneer WD Farr penned those words in the mid-20th century. I think he’d be delighted to know that today more than 90 percent of cattle grade Choice or Prime. How did the switch flip?

WD Farr saw that one of the limiting factors for the beef industry was inconsistency in the eating experience for the consumer. There was no standardized grading system so packers had no mechanism to incentivize cattle feeders and reward them for high-quality, market-ready cattle. He noted:

“The beef industry works on averages. The poor, inefficient animals in every herd drag down the good animals. I do not believe any industry can exist on averages for a long period of time.”

So WD and other cattle feeders rallied the industry to support the formation of a national carcass grading system and decades later, we consider the inconsistency problem solved.

Some cattle feeders had a vision, rallied the industry, and put the systems and incentives in place to fix the problem.

Now a generation of cattle feeders see a new set of unsolved problems on the horizon, including reducing greenhouse gas emissions and managing natural resources.

Today we explore the key issues these cattle feeders are seeking innovative solutions to, by exploring why these issues have risen in priority and why they are not simple problems to solve.

First, some background. The Beef Alliance is the group of cattle feeders leading the charge. Its mission is to “support & guide innovation, drive industry-leading research, and engage strategically with industry stakeholders to preserve and enhance the U.S. cattle feeding segment.” And they’re dialing up those efforts with the upcoming Beef Alliance Startup Challenge, specifically to connect innovators who are solving these gnarly problems with prospective customers and decision-makers, cattle feeders. But more on that later.

Oh, and these new problems are in addition to the ongoing search for tools to improve animal welfare and health, operational efficiency, animal nutrition, and production efficiency that will be high priority forevermore.

There are 5 considerations as we think about that list of problems.

  1. Why has figuring out the GHG emissions question become an urgent issue for cattle feeders?
  2. High quality + reasonable price + _____ = customer expectations
  3. Why is GHG emissions an incredibly challenging problem to solve?
  4. In the absence of direct mitigation tactics, can indirect improvements get the job done?
  5. AND solutions

Let’s take them one by one. <cracks knuckles>

This week’s newsletter is a Sponsored Deep Dive with the Beef Alliance. Here’s my commitment to Prime Future readers as I incorporate occasional Sponsored Deep Dives.

(1) Why have GHG emissions become an urgent issue for cattle feeders?

Because reducing GHG emissions is important to their customers. Because packers, retailers & foodservice companies are making boardroom commitments, including:

  • Tyson: Achieve net zero greenhouse gas emissions across global operations and supply chain by 2050.
  • JBS USA: Achieve net-zero GHG emissions by 2040.
  • Cargill: Achieve a 30% GHG intensity reduction across North American beef supply chain by 2030 (measured on a per pound of product basis from a 2017 baseline).
  • Walmart: Zero emission by 2040.
  • McDonalds: Net zero emissions by 2050.

Keep in mind the perspective of Greg Bethard of High Plains Ponderosa Dairy, “We very much believe if we can produce milk and beef at a lower carbon footprint then we’ll have markets available to us that others will not. And that means opportunity. Whether or not you agree politically isn’t the issue, if our consumers want food produced in a certain way and we can do it profitably, then we’d be silly not to do it.”

Some quick level setting…

The 3 main greenhouse gasses are: (1) Carbon dioxide, (2) Nitrous oxide, and (3) Methane – largely from manure and enteric emissions. AgNext explains further:

  • Direct greenhouse gases from livestock total 3.8% of U.S. man-made emissions.
  • Enteric methane accounts for 30% of U.S. methane emissions.

(2) High quality + reasonable price +  _____ = customer expectations

Meat consumers have become accustomed to a consistent experience every time they hit the meat case at their grocery store of choice. That has become table stakes.

And strong demand even at record meat prices has shown just how important animal protein is.  While everyone’s sense of pricing is skewed at the moment, safe to say that all things being equal, people prefer to pay less than more…sorry to state the obvious.

But increasingly there are other expectations besides price and quality. Whether it’s animal welfare or lower emissions or how the animal was finished, there seem to be increasing expectations around what’s available at the meat case. This isn’t new, but it seems to be dialing up and more segments with stronger conviction are doing the dialing….which could/should mean more opportunities for hyper-niche marketing to meet those demands.

But ultimately, it’s an AND expectation of high quality + reasonable price + <insert attribute here>.

(3) Why is GHG emissions reduction an incredibly challenging problem to solve?

This entire space is nascent, it’s what I call an ‘assumptions on assumptions’ situation. In the absence of agreed-upon rules of engagement or when is the baseline year or even baseline measurement methodology or any of the other key assumptions, we end up with assumptions on assumptions which is….tenuous.

There are science and technology questions like having reliable tools to measure at reasonable cost, and then there are the alignment questions of what a win looks like.

And then assuming a GHG emissions win, there’s the ultimate alignment question of how the spoils are divided across the value chain.

These are neither easy scientific questions nor are they easy coordination questions.

It will take time. It will take investment. It will take focus. It will take patience.

It will take trial and error.

(4) In the absence of direct mitigation tactics, can indirect improvements get the job done?

We think in terms of financial fixed costs, and the magic that happens when you increase volume and spread those fixed costs out across more units of production. The fixed cost per unit decreases.

But the same concept applies to natural resource use & impact. Where the equation is ‘natural resource usage / total pounds of beef produced per animal’ then the fixed natural resource costs are diluted across more pounds.

It’s also funny because when we think about incremental improvements in any given year, they often sound like not much. But when you put them in the arc of history, consistent incremental improvements can be wickedly high impact. The Beef Alliance points out, “Between 1961 and 2018, the U.S. beef industry has reduced emissions per pound of beef by more than 40% while actually producing more than 60% more beef per animal.”

The best case scenario is for cow-calf producers and cattle feedyards to have a wide array of tools available to them, those that will directly decrease GHG emissions and those that create an indirect decrease of GHG emissions by improving efficiency.

(5) We need ‘AND’ solutions.

When the energy in the diet is lost to methane emissions, it’s costly for the producer AND it’s negative for the environment. So it stands to reason that solutions that reduce methane emissions *could* be good for the producer AND good for the environment.

If increasing soil organic matter by 1% increases the water holding capacity by 3.7%, then it stands to reason that for producers pumping increasingly expensive water to irrigate, that increasing soil organic matter could be good for environmental objectives AND good for the bottom line.

My point here is that sustainability objectives do not automatically imply a financial tradeoff must be made, where in order to satisfy sustainability objectives the producer will have to be worse off financially. I’m not operating with blind optimism and I recognize there could be those situations, but I think its a reasonable expectation that many solutions will be good for the producer and for the environment.

We need to hunt these ‘AND’ solutions down like the golden tickets they could be….and that’s what the Beef Alliance is doing.

This is a space where nuance is critical.

What about the nuance around the fact that for the methane emissions conscience consumer, grain-finished cattle are better than grass-finished cattle. This is such a narrative violation. It’s a contrast with the surface-level assumptions about beef production, and it’s just one example of how a sustainability objective could turn tolerance of efficiency-creating practices into an open-armed embrace of those efficiencies.

I think good things happen when the right people connect. And by good things, I mean better solutions on shorter timelines. It takes a long time to build a startup, typically 7-10 years. And a large reason for that is the early wilderness years when founders are wrapping their arms around the problem and the market and looking for people to share feedback and insights that could save a founder years spent chasing a misguided solution or sub-optimal early market.

Imagine if you could cut the wilderness years phase of a startup down by 20% or 50% just by getting them in the right rooms with the right people to have the right conversations. For industry, that could mean solving million-dollar problems years earlier than otherwise. That dual benefit is ultimately the objective the cattle feeders have in mind here.

“The Beef Alliance Startup Challenge provided a great opportunity for Resilient to connect directly with industry leaders. It’s fantastic to see the biggest players not only supporting new innovation but also designing a conduit for startups like Resilient to interact directly with the end customer. It’s clear the Beef Alliance hopes to create an innovation ecosystem to bring forth new technologies that can address critical challenges in the beef industry.  Winning the award served as critical validation for Resilient’s microbiome products and technology, which helps attract outside investors and adjacent industry players that want to support upstream innovation in the food supply chain.”

– Chris Belnap, founder of Resilient Biotics, winner of the 2021 Startup Challenge

If you are a founder working on cattle problems, throw your hat in the ring by applying here:

Beef Alliance Startup Challenge

It seems that progressive producers are jumping in to create opportunities out of their customer’s unmet needs as it relates to GHG emissions. These producers that are engaging are playing the long game with an optimistic view, rather than being defensive.

This brings us to one last WD Farr quote that is as true today as it was in the 1990s:

"During the next decade, those who are not willing to be optimistic and forward thinking will be lost in the dust of what promises to be the greatest century the world has ever seen."

What a time to be alive 😉

Categories
Alternative Meat

Prime Future 109: Without vision, the people perish.

We’ve talked about reasons the plant-based meat mania party seems to be winding down, but let’s talk about why the party even started, let alone turned into a full blown Great Gatsby style rager.

(RIP, plant-based meat mania.)

I attribute plant-based momentum to the clarity of vision of Pat Brown, founder of Impossible Foods:

“Plant-based products are going to completely replace the animal-based products in the food world within the next 15 years. That’s our mission. That transformation is inevitable.”

We can disagree with the quality of that end game, but we cannot deny that Pat cast a crystal clear vision.

He painted a picture of a future state that he could see; a potential reality that invited people into its journey. His vision created energy; it rallied investors, employees, and early customers.

And that stands out because it feels like an increasingly rare skill. Because it seems like there’s an absolutely stunning lack of leadership in a lot of places right now <gestures vaguely at the world>.

Lack of leadership shows up in government leaders more concerned about winning votes today than the long-term health of an economy, in corporate leaders more concerned about their next promotion than long-term value creation for customers, in community leaders more concerned about gaining power than building a future, in institutions more concerned with survival than executing on their purpose.

Lack of leadership seems to almost always have a selfishness to it, a cowardice about it. Did they not know the right decision to make? Or did they not have the backbone to make the hard decisions? Is it a lack of imagination or a lack of courage?

Most leadership books are trash, IMO; normally when I read about leadership I go to biographies of great leaders. But I’m currently reading the book 15 Commitments of Conscious Leadership – it has some juice to it.

One of the big ideas is to face the world as it is, not as we want it to be:

“As long as we believe that there is a way the world should be and a way the world shouldn’t be, life won’t work according to our beliefs. What if there is no way the world should be? What if the world just shows up the way the world shows up? What if the great opportunity of life isn’t in trying to get the world to be a certain way, but rather in learning from whatever the world gives us? What if curiosity and learning are really the big game, not being right about how things should be?”

The solution proposed by the author is taking radical responsibility. “I am responsible for my circumstances.”

We see radical responsibility in every great leader we can name, right? (Should we all just get “I am responsible for my circumstances” tattooed on our right arms?)

I think all of this is why I’m so drawn to the Lunatic Farmers who are casting a vision in their own organizations and bringing those visions to life, because in a world with a dearth of leadership….in what sometimes feels like an industry with a dearth of leadership, Lunatic Farmers are a complete breath of fresh air.

In an industry that does a lot of pearl-clutching and fear-mongering from within, Lunatic Farmers stand out because they’re busy turning that thing everyone else is freaking out about into a new market, a new customer, or a competitive advantage.

Sarah Nolet of Tenacious Ventures made the astute observation that while other industries talk about the future, much of agriculture tends to talk about the past. Not that we shouldn’t learn from the past but yikes if that’s where we get stuck instead of looking forward.

Yikes if leaders are talking more about the past than creating a vision for the future.

Without vision, the people look back.

Much of the livestock, meat, and dairy industry needs some inspiration, needs a vision. A vision for a future that is good for, and creates energy for, producers and their customers, all the way to consumers.

And it’s not “thank a farmer / educate consumers” or “feed the world.” That ain’t it.

Without vision, the people perish.

Categories
Business Model Innovation

Prime Future 108: 9 blocks, limitless combinations

There are only 4 sustainable business models in tech: • ads • selling hardware • selling software/services to consumers • selling software/services to businesses If your favorite tech startup isn’t making money in one of these ways then it isn’t making money, period.

Set aside whether or not this is oversimplified, how would it read if it were about business models in production agriculture?

Today we are building on the idea that lunatic farmers have a high velocity of business model innovation, by looking at some specific examples from a wickedly impressive lunatic farmer, and 1 helpful framework.

Greg Bethard, CEO of High Plains Ponderosa Dairy, recently joined me in a wide-ranging conversation from how he thinks about growth and risk management, to his atypical path to managing a progressive dairy business, to some of the special projects he and his team are excited about. I highly recommend the entire interview, but here are a few particularly interesting pieces of their high velocity dairy business model.

(1) High Plains Ponderosa has partnered with Shell in a methane digester project to turn cow manure into renewable natural gas. This is turning *literal* waste into a new revenue stream while massively improving the GHG emissions profile of the business; instead of that manure emitting methane from lagoons as a liability, it is now an asset generating useful energy. For the magic of mentality, consider Greg’s words:

“We very much believe if we can produce milk and beef at a lower carbon footprint then we’ll have markets available to us that others will not. And that means opportunity. Whether or not you agree politically isn’t the issue, if our consumers want food produced in a certain way and we can do it profitably, then we'd be silly not to do it. We’re trying to find the spot where we can lower our carbon footprint in a way that is profitable for the business and lowers our cost or increases our revenue.”

Whether or not you agree politically isn’t the issue, if our consumers want food produced in a certain way and we can do it profitably, then we’d be silly not to do it. – Greg Bethard 🔥

(2) High Plains Ponderosa has aggressively built out their beef on dairy program, using dairy genetics on their highest quality females to produce replacement heifers and then using beef genetics on the remainder of the herd to produce calves that will perform better in the beef value chain. As Greg said:

“This is about creating a quality stream of high-quality beef that grades really well. What’s different from traditional beef is that we know everything that’s happened to the animal every day of its life, from the time it was conceived until it was harvested. We can tell the story and we can control production practices. Calving in traditional beef production is seasonal but we have the same number of calves born every day, year-round.”

This is a move towards increasing value by expanding the business’s market access:

“I’m not after premiums for these programs, I’m after market access. In today’s ag market, it’s about getting consistent high-quality product so customers want our product. You can’t just build a dairy and hope someone buys your milk, or raise calves and hope someone wants to buy them.”

(3) Greg believes in the superpower of low-cost production and has put people, technology, and systems in place to achieve that goal. Greg expanded on this:

“Dairy is a manufacturing industry. You have to keep your plant full and your factory full and run at capacity. The big diluter is fixed cost for fixed costs like labor and equipment, so you have to get more product out the door to get costs lower. Not getting low-cost by being the cheapest, but rather by getting reasonable productivity in the cows and keeping parlors full.”

‘Low cost is better than high cost’ may seem as generic of a statement as ‘buy low sell high’ at first glance. But, to Greg’s point, there are two flavors of low cost:

  1. Low input cost. The objective of the low input cost approach is to minimize expenses. Find the cheapest feedstuffs formulated into the cheapest per ton cost, keep labor expenses low, and avoid new technology that requires a cash outlay. There’s no equation to solve, this is simply about keeping expenses as low as possible, even at the detriment of performance.
  2. Low cost of production. The objective of the low-cost production approach is to minimize cost of goods sold. In the case of a dairy, that’s the cost to produce each pound of milk. The equation here is cost of goods = (fixed costs + variable costs) / total production. The producer in single-minded pursuit of low-cost production doesn’t mind increasing expenses when it results in increased yield and/or quality in a way that ultimately either reduces costs or increases revenue.

The words ‘low input cost’ and ‘low cost of production’ may be similar but the philosophies are clearly miles apart, and the business models are miles apart.

So what do we really mean when we say, business model? I like this definition: “A business model describes how an organization creates, delivers, and captures value.”

It’s the whole enchilada. It’s not just the sum of the pieces, it’s how the pieces work together; how the system functions to take dollars invested and spit out more dollars.

The Business Model Canvas is a good framework with 9 building blocks that add up to a business model:

  1. Value Propositions
  2. Customer Segments
  3. Channels
  4. Customer Relationships
  5. Revenue Streams
  6. Key Resources
  7. Key Activities
  8. Key Partnerships
  9. Cost Structure

One reason I love business model innovation is that there’s a ‘sky’s the limit‘ feel to it.

Those 9 blocks can be individually changed, or be combined in new ways….there are so many dimensions along which to innovate, a seemingly limitless set of potential combos. Like giving 10 people the exact same Legos and each person being able to build something unique, and uniquely valuable.

So why do so many business models in production ag not only look the same as one another but the same as their ancestors? Ahh, that’s for another day.

But do you see Greg’s ideas in those building blocks?

  • The methane digester project with Shell is both an example of #5 adding a new revenue stream, and #8 key partnerships.
  • The beef-on-dairy program is an example of drastically dialing up the value proposition of calves not needed for replacement heifers, so #1.
  • And the disciplined approach to low-cost production is obviously #9 in action.

All that to say, my conversation with Greg further reinforced this:

“My hypothesis is that scale is a lagging indicator; velocity of business model innovation is the leading indicator of success.

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. They constantly ask what’s the process that most effectively generates the output. They think in systems that can optimized.

The great producers realize that they aren't selling just a commodity output, they are selling their business model."

Oh, and this discussion so far has just been in thinking about production business models, not about the business models for those who sell products & services TO producers which might also be on the brink of innovation. One recent example is a Swedish company that sells a feed additive to reduce methane that partnered not just with producers, but with all value chain participants (through to the retailer) around a product that can be marketed to meat shoppers who care about low methane emissions.

Is that a scalable model? Depends. If the retailer wants an exclusive product, then the scalability of the model depends on the growth of the retailer. But tbd.

However this is the first example I can think of meat case marketing what’s IN meat, rather than what’s NOT in meat….so that’s definitely intriguing.

What a time to be alive😉

Question for you: who & what are the business model innovations in your space?

Categories
Uncategorized

Prime Future 107: Lunatic farmers, velocity, & the 1% rule 🚀

The content below is from one of my favorite Prime Future editions from 2021. In the coming months, we’ll build on the concept of the lunatic farmer and how they give us glimpses into the future.

But as you read about lunatic farmers & the idea of business model velocity, keep in mind these words from James Clear:

It is so easy to overestimate the importance of one defining moment and underestimate the value of making small improvements on a daily basis. Too often, we convince ourselves that massive success requires massive action.

Meanwhile, improving by 1 percent isn’t particularly notable—sometimes it isn’t even noticeable—but it can be far more meaningful, especially in the long run. The difference a tiny improvement can make over time is astounding. What starts as a small win or a minor setback accumulates into something much more.

Now imagine how this 1% compounds over a 40-year career or over 5 generations of a family business or over 100+ years of industry evolution…so much lunacy.

Oh and if the context clues so far weren’t enough, “lunatic farmer” is my highest and best praise, a term of endearing admiration and total respect.

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, and neighboring operations:

  • Big retailers want to deal with big food brands, not small insurgents. There are tangible costs to dealing with more suppliers, it 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 businesses 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 in continual refinement mode. 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 something I saw on Twitter:

In fast-evolving industries, there aren’t really any experts. There are perpetual learners and, over time, those individuals accumulate an advantage over the “experts.”