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will your family put u out of biz

Mental capacity and consolidation

Farm consolidation is very important in the future, but does the next generation have the ability to take it on?

At a recent seminar a participant asked, “Will there be enough desire and mental capacity to take on the farm and agribusiness consolidation that is likely to occur in the next five to ten years?” This is a very prevalent question given that the current economic reset is resulting in consolidation, growth, and accelerated transition in the agriculture industry.

First, let’s examine mental capacity. As farm and ranch businesses become larger, one of the biggest challenges is moving from being a doer or technician to a manager. This often involves at least one or two people in the business being responsible for developing efficient systems and coordinating production, marketing, finance, and human resources. This is often a very big shift in mindset for the person who has historically been the doer or technician in the startup phase of the business. Historically in working with the agriculture industry, less than 25 percent of business owners can make the adjustment for the long run.

There are several common traps for those business owners who are not able to make the adjustment to becoming a manager. These include not being able to accomplish results through people or delegating finance and marketing functions to others. The individual starting or growing the business may also follow the mode of passive manager, or their time and motivations may be centered on production and technical tasks to produce their way to profit.

In some cases, the older generation fails to teach and hand over the reins to the younger generation who may have the management skill set. This results in excess negative energy being devoted to transition planning, resulting in suppressed profits.

The adequacy of mental capacity is being revealed in the current economic cycle. When commodity prices were high, complacent businesses were still able to make a profit despite good business management practices being a low priority. Now, in the downturn, these same businesses are being exposed because they lack the chief financial officer and/or chief operating officer type of management skills necessary to manage through the current economic times.

In solving this issue, important questions must be asked about the stakeholders. These questions can be labeled as the “GWC’s.” Do they get it? Do they want it? Do they have the capacity to manage the demands of a larger business? When the business management team exhibits these characteristics, the probability of success increases dramatically.

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