Hey there, thanks for joining me again this week.
So it’s strategy week here on the Small Farm Nation podcast. And nothing says “strategy” more than business planning, so that’s the focus this week.
Now, what do people usually say is the first thing you need before going into business?
They say a business plan, right? Doesn’t matter if it’s your mom, your brother, a banker or someone you meet in the coffee shop. They all drink the same Kool-Aid and start chanting, you need a business plan, you need a business plan.
Like lemmings. Like all the people today who chant, you need to define your ideal customer, you need to define your ideal customer. Basically people hear something, think it’s authoritative and just repeat it.
On the surface, it makes sense that we’re told to create a business plan. Because real businesses have business plans, and we want to run a real business, right? But, have you ever seen a comprehensive business plan? Have you written a business plan? And, be honest…do you have a written business plan for your farm?
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I’m not saying that planning isn’t necessary, even helpful. But “traditional” business planning is overemphasized, in my view. Just as a college education often is.
And, listen, I’ve written and reviewed a ton of business plans. Many of them well over 100 pages long, full of internal and external analysis, capital allocation plans, key performance goals, market analysis, financial projections, contingency plans, human resources and marketing plans, SWOT analysis, Gantt charts and so on. And you also see a lot of emphasis on exit strategies, which not many new farmers are interested in. Which is too bad. Not because they should necessarily aspire to sell their farm businesses. But because they should build and run them as if they would. That way, they’d be much more successful.
But back to the point about business plans. Why did I create these plans, and were they useful?
Well, most of them I created because I had to. I worked in a Fortune 500 company and we had to create plans to persuade a board of directors, lenders and investors, to make capital allocations.
Later when I founded my own business, I had to create the plans to facilitate funding from venture capitalists, angel investors and banks.
But the key phrase here is “I had to”. So, I did. But what happened to the plans after I created them?
They got filed away, in the old days. Later as technology took over, they got stuck in a digital folder. But in both cases, they collected physical and digital dust.
In the corporate world, the business plans were useful for upper management to admonish me if I missed projections. They could say, “here’s what you said you’d do” and point to any gaps that existed. Fortunately, that was rarely the case for me, but that was how the plan was used.
When dealing with lenders, especially banks, with my own business, the business plan supposedly established that I was serious about my business—because I had obviously put a great deal of thought into my strategy.
Of course, my financial projections always looked exactly like everyone else’s. In other words, like a hockey stick. Hockey stick financial projections. A hockey stick financial projection is one that shows a slow or flat start, and then magically rockets up for future years just like the blade of a hockey stick.
We all do this. Entrepreneurs can’t help themselves. We’re too optimistic. We create spreadsheets, make projections of how we’re going to add customers every month, every quarter, and add new products or raise prices.
So we’ll continually sell more and earn more. Then, when we look at it and say, “that’s too good to be true,” we create additional models.
“I’ll create a conservative, a realistic and an aggressive projection,” we tell ourselves. So we do.
And then we get on to running our businesses.
And find that, almost always, our plans were flat out wrong.
These over-the-top business plan templates may be helpful if your business is raising capital. Or if you’re seeking serious lending, I’m sure your lender will require it. But, for 90% of us, at least, they are a waste of time.
So, today, I’m going to walk you through a simple planning guide that will help you answer everything that’s important, and chart your farm down a successful path. And, get this—you only need to answer eight questions! That’s it, 8 questions and you’ll have your business strategy laid out.
But before I walk you through those questions and the one-page business plan, let me go through a few reasons for why I don’t think you need to waste time on traditional business planning.
- The first reason is that focusing on a business plan may interfere with you ever having a business. Why? Because spending too much time planning can lead to paralysis by analysis. I’ve seen LOTS of folks who wanted to start a business, farm or otherwise. So they set to writing a business plan, usually with one of countless business plan templates. Then the would-be entrepreneur writes a first pass, and edits, tweaks, tweaks, tweaks and basically falls into a loop of ready, aim, aim, aim, aim, aim, aim—and they never get started. And you want to avoid anything that impedes your ability to start with your business. So, do you think I’m saying you shouldn’t plan a strategy for your business? Of course not! What do you think I am, crazy? No, you should have a plan. But it should be a very simple, actionable guide more than a plan, and I’ll walk you through exactly what you need in a moment.
- Another reason you don’t want to waste time on a long, drawn-out business plan is that businesses NEVER go as planned. You know that. You win, you lose—you have big advances and big setbacks. So you pivot, make adjustments and figure things out as you go. Look—businesses are dynamic and ever-changing. But business plans are static in nature and lack flexibility. So what the hell good are they unless you’re gonna go in and change them every week? And if you are, what do you need the plan for anyway? Just make the necessary changes to your business and get on with it.
- Finally, another reason to stay away from traditional business plans is that they can lock you in, psychologically. Because once you write something down—like, maybe you’re gonna raise heritage turkeys—then you think you have to stick with it. When, otherwise, you may recognize in short order it’s a bad idea and you can make an adjustment. Let’s think of this another way. It’s October, so let’s talk football. So imagine the absolutely despised, hated New England Patriots are playing my Pittsburgh Steelers. Bill Belichick, the evil coach of the hated, cheating Patriots creates a game plan to beat my honest, hard-working Steelers. But when his team falls far behind in the first quarter do you think he says, “well, I’ll just keep doing what we planned because I wrote it all down?” Hell no! He’ll make adjustments on the fly WAY before going into the locker room at halftime, his quarterback, Tom Brady will deflate the ball, they’ll come back and the refs will award them the game. So just as an NFL coach needs to be flexible and make adjustments in real time based on what they’re seeing, so do you. Their game plan is just that…a back of the napkin guide.
So, if you don’t need a traditional business plan, what do you need? In football, you need a game plan, of course. For your farm, I think you want to start with a one-page business plan. If you’re part of the Small Farm Nation Academy, you’ve no doubt seen my lesson on this and have probably created your own.
If you’re not part of the Academy you can still watch my lesson on it and get your own FREE one-page business plan template. Just hop over to smallfarmnationacademy.com and sign-up for the FREE training series. I’ll walk you through how to create your own plan and give you a template for you to customize.
For now, let me just describe the process. And I’ll dispense with all the gobbledey gook and business jargon. Let’s just concentrate on the EIGHT key questions that I think you need to answer.
These 8 questions make up the grid of the one-page business plan. Picture a 3X3 grid. The 8 questions fill those boxes, surrounding you in the center box in the grid and your ultimate competitive advantage.
So here are the 8 questions you want to ask yourself.
- Why are you farming? This is your mission. You want to ask yourself, what am I passionate about? What are my goals? What do I hope to accomplish with my business? WHY is this important? Your personal answers to these questions will galvanize into your mission. When you answer them clearly and honestly, you’ll know exactly why you want to start your business.
- Who will care and why? These are your customer segments, the folks who will buy from you and support you. Here’s what you want to answer. Are you targeting a local, regional or national market? If you’re targeting a niche, what niche are you targeting? And rather than thinking of an ideal customer, what do your target customer segments have in common? What do they each want from you? Is your customer the end user…the consumer? Or is it a wholesaler, distributor or retailer? Do your target customers need education…in other words, do they already know they have a need for what you’ll offer, or do you need to make them aware and educate them?
- How will you go to market? As a farm business, you’ll have many options. Will you sell via farmers markets, a farm stand, online with e-commerce, via distributors, to restaurants, via a CSA or buying club, or what? Importantly, is your distribution channel aligned with your chosen competitive advantage? We’ll get to that in a moment.
- What will you sell? These are your revenue streams; your products. So, you want to answer, what products will I sell? How will I price them? How does my pricing strategy compare to competitors and alternatives? Will I have one fixed price per product or product unit (per pound, for instance)? Or will I offer discounted prices for larger orders?
- What is your cost structure? Here you want to ask yourself, what are the critical costs in my model? What are the most important metrics? How will I measure those metrics daily/weekly/monthly? What key resources could increase in cost that I have no control over? Feed costs, for instance. How can I respond if costs increase? What are my fixed costs that I can’t reduce or eliminate? What variable costs can I manage?
- What alternatives are there to you? This is where you assess the competitive landscape. Ask yourself, how do I define my marketplace? Who else offers what I will offer in my marketplace? Those are your direct competitors. It could be a grocery store, even though your farm business looks nothing like a grocery store. Also ask yourself, who are the indirect competitors—the alternative choices my customers have? Who are the potential new competitors that could emerge?
- What determines your success? These are your critical success factors. Here you’ll want to answer, how can I effectively attract customers? Will customers pay the prices I need? Can I navigate regulatory hurdles? Do I have the necessary legal structure, accounting and insurance in place to protect myself? Can I produce a product consistent with the quality I’m promoting? Do I have access to contingency and funding resources should I fail to achieve projections?
- How is your farm business unique? This is your defensible competitive advantage. This is really important and I want you to address this before ever starting a business. Choose your desired advantage, then execute to make it a reality. Here you’ll ask, what is my defensible competitive advantage? By defensible I mean just that. What advantage can you create over competitive forces that you can DEFEND. For example, if you start a local pastured poultry business and offer fresh, pasture raised chickens, can you defend that as an advantage? I’d say, NO, you can’t. Because what’s to stop someone else from popping up and doing the same the moment they see how successful you are. You also want to ask yourself, “am I executing a value strategy (high price, differentiated offering) or a cost strategy (low price, low costs). That’s a hugely critical question because you must choose between the two. Finally, ask yourself this. Why will customers choose me over competing alternatives (other farms, supermarkets, growing their own food, etc)? Why? When you answer these questions, you’ll know your competitive advantage and why you’ll be successful, even before you start. And if you can’t answer them, you’re not likely to succeed.
So, those are the 8 questions. And you can answer each of them and all the sub-questions I just listed on a one-page business plan like the one I’ve created for you.
This plan is important…kind of like the blueprint to your house. It doesn’t mean you can’t refine it later, but I can’t think of anything more important to the success of your farm business than thinking through these key questions and arriving at how you will achieve your competitive advantage.
Again, if you’d like to watch a video of me taking you through this exercise, and get your own free one-page farm business plan template, just hop over to smallfarmnationacademy.com and sign-up for the FREE training series.
I hope you sign up and get it. This one-page business plan will simplify your business strategy and force you to focus on what’s really critical to your success.
Grab it now at smallfarmnationacademy.com, and position yourself to get growing.
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