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Surgery With A Chain Saw

pratt@ranchmanagement.com (Dave Pratt) — 2012-05-08T16:10:10Z

Ranching For Profit School instructors work with people in the evenings after class to help them apply the tools they learn in the school. A lot of people take advantage of these sessions to project their stock flow, calculate enterprise gross margins and project profit or loss for their ranch. When you throw in the full cost of labor and land some of the ranches aren’t as profitable as people assumed. One participant suggested that we teach CPR before the class so people can revive one another after they see the economic reality of their situation.

One participant worked hours three nights in a row crunching the numbers on scenario after scenario. His ranch was making an economic loss of a little over $100,000 and he was determined to turn things around. He used our 7 step planning process to project figures for one scenario that showed a healthy profit, but he was still frustrated. When I asked what was wrong, he replied that he had no confidence in his projections.

“Are your income and cost estimates off by 100%?” I asked.

“No way. They are better than that,” he replied.

“Could they be off by 50%?" I asked.

“No. They are closer than that,” he said.

“How about 10%?” I asked.

“They very well could be,” he worried.

I suggested he try one more scenario. I asked him to cut all of his production and price estimates by 10% and increase all of his costs by 10%. As soon as he’d run the numbers for this scenario relief spread across his face. Crunching the numbers this way he saw that his ranch would break even (> $100,000 better than the status quo).

We can’t know precisely how many calves we will wean, what price they will bring and what our costs will be. Does that mean there’s no value in planning? President Eisenhower could have been talking about ranching when he said, “In preparing for battle I have always found that plans are useless but planning is indispensable.”

I tell people in the Ranching For Profit School that when you are looking for deadwood in a business, do surgery with a chain saw, not a scalpel. If you think $10,000 is the difference between a good year and a bad year, you are mistaken. It was never going to be a good year.

Rotational Overgrazing

pratt@ranchmanagement.com (Dave Pratt) — 2012-05-02T18:32:11Z

Nearly 15 years ago I surveyed over 300 commercial cattle producers asking them questions about their grazing practices and their attitudes about change. One hundred twenty of them (40%) identified “rotational grazing” as their primary method of managing cattle on pasture. Over 80% of the rotational grazers reported having fewer than 8 paddocks per herd. They weren’t rotational grazing, they were rotational overgrazing.

Overgrazing is grazing a plant before it has recovered from a previous grazing. There are two ways to overgraze a plant; stay in a paddock too long or come back to the paddock too soon. It takes a minimum of 8 to 10 paddocks per herd to give plants an adequate recovery period and keep the graze period short enough so that the animals are gone by the time the pasture is recovering. With fewer than 8 paddocks per herd you are rotational overgrazing.

Eight to ten paddocks still may not cut it. The relatively long graze periods that are required during slow growth often support mediocre animal performance. Shorter graze periods mean animals are moving to fresh feed more often and it generally results in better performance. But that takes more paddocks. How many more? Usually at least 14-16 paddocks per herd.

That may seem like a lot, but you probably need more than that. While you can stop at least some range degradation by eliminating overgrazing, many clients use even more. By using more paddocks they are able to dramatically increase the carrying capacity and promote rapid range improvement. It typically takes at least 25 paddocks per herd to get that kind of result.

If 25 paddocks seems like a lot, just wait. I had the pleasure of spending an afternoon with Emry Birdwell and Deborah Clark on their ranch near Henrietta, Texas. They run stocker cattle in pretty big herds. Last year they started with 3 herds of 1,500 head using 50 paddocks per herd…that’s right, five zero. As the severity of the drought increased they realized that to give the grass more rest and keep graze periods short, they’d be better off combining the herds. They wound up with 4,500 cattle in one herd moving through 150 paddocks. When I was there they were moving the herd twice a day. By lengthening the rest, keeping graze periods short and increasing stock density, Emry said they were able to get an extra month of grazing from the ranch before they destocked. It also decreased their work load. (It takes less time to move one herd of 4,500 animals than it does 3 herds of 1,500.)

Spring has seen plenty of rain come to the ranch this year but the benefits of running one large herd were so big that, drought or no drought, Emry and Deborah are continuing to run all the steers in one mob through their 150 paddocks. When I visited they had 3,500 in the herd with plans to expand in the coming weeks to 4,500.

To some people having 25 paddocks per herd, let alone 150 paddocks per herd, seems impossibly complicated. Our experience is exactly opposite. It simplifies management by offering graziers more control and more options over when and where to graze. Having more paddocks doesn’t constrain management. It makes management possible.

Click here to hear Emry talk about using large herds and to see what moving 3,500 steers at one time looks like.

The Most Fundamental Change Of All

pratt@ranchmanagement.com (Dave Pratt) — 2012-04-09T19:32:57Z

In a recent ProfitTips I wrote that most ranchers are self-employed, not business owners. I explained that when someone is self-employed they don’t own a business, they own a collection of assets and a bunch of jobs. Their focus is on themselves. They have to work to make money. It is hard for them to leave for extended periods because there is always a lot to do, and if they aren’t working things don’t get done.

In contrast, if we own a business we have systems through which labor uses the business’s assets to produce results for a customer and positive cash flow and profit for the owner. The focus is on a customer and the business continues to work even when we aren’t there. Interestingly, when our focus shifts from ourselves to our customers, we get better results for ourselves.

One reader asked how someone could go about “changing the operation so that they become business owners.” That’s a great question. Most people look for change "out there," but this change must start in us. Making the transition from self-employed to business owner requires a fundamental paradigm shift. It is more about how we think and feel than what we do.

When I teach Steven Covey’s 7 Habits of Highly Effective People course, I introduce the “See – Do – Get” process for making change. Simply put, I won’t get different results until I do things differently. I won’t do things differently until I see things differently.

To get the results that most of us say we want financially and personally I think most us recognize we will have to do things differently. Intellectually we know that the jobs involved in raising cattle are different than the jobs required to run a successful business that raises cattle. But the barrier to transforming our ranches into successful businesses is this: Even if we recognize the ranch is a business, we don’t see ourselves as business men and women. We see ranching as our job and our ranches as our place of work. The essential paradigm shift from moving from being self-employed to being a business owner is to see our ranch as our business and ourselves as business men and women.

You may own your job if….

pratt@ranchmanagement.com (Dave Pratt) — 2012-03-26T20:44:54Z

In the last ProfitTips I asked you if you owned a business or a job. I offered Robert Kiyosaki’s criteria from his book Cash Flow Quadrant: Could you leave for a year and come back to find your ranch working even better than when you left it? If so, Kiyosaki says you own a business. If not, you own your job. But that’s only one way to look at it. Here are some others:

Would you react to a new idea that would increase your profit by thinking, “When will I find the time to do that?!” If you would, you own a job and the last thing you need is another one. A business owner would think, “How can I get someone to make that happen?”

If you sold the ranch would you only be selling a collection of assets? If you were selling a business, in addition to the assets you would be selling documented production, sales, finance and management systems that show how to use those assets to serve customers and produce a profit.

Does your ranch have a purpose beyond profit and does it serve someone other than you? The purpose of a business is to serve a customer. Only by serving a customer can a business make a profit and serve the owner.

Does $2,450 (the tuition for the Ranching For Profit School) seem like a lot to spend on professional development? It is a lot to spend on doing your job better but it’s a drop in the bucket to invest in building a better business.

Have you ever said: I really ought to manage this as though it were a business? This phrase acknowledges that the ranch isn’t a business. We can act as though it is for a while, but it isn’t sustainable to pretend.

Does your ranch make an economic profit? Without the subsidies that most ranchers use to survive (e.g. off farm income, inherited wealth, working for less than it would cost to replace themselves), would your ranch be able to cover all of its costs and have a healthy return on investment? If it isn’t profitable, it isn’t sustainable. In fact, it isn’t even a business. It’s a hobby. Most ranches are very expensive hobbies.

If you are ready to transform your ranch into a real business, then you are ready to take or repeat the Ranching For Profit School.

Get Out Of Here

pratt@ranchmanagement.com (Dave Pratt) — 2012-03-14T00:37:30Z

In Cash Flow Quadrant, Robert Kiyosaki describes four ways of making money. The four quadrants are:

Employee, where you earn a paycheck working for someone else.
Self-Employed, where you own your job and work for a lunatic.
Business Owner, where your company produces a profit by producing something of value for a customer.
Investor, where you receive a return in exchange for providing funds for the business owner to build his or her business.

Most ranchers are self-employed. What’s the difference between being self-employed and being a business owner? Night and day. Kiyosaki boils the difference down to one question: Could you leave for a year and come back to find your business working even better than when you left it? If so, Kiyosaki says you have a business. If not, it’s just a job.

If a year seems extreme, then how about 6 months? 3 months? 1 month? Does this definition really apply to ranching? I think it does. The number one reason people give for not attending the Ranching For Profit School is that they “…are too busy and can’t get away for a whole week.” If that’s the case, you don’t own a business. Your business owns you.

Driving Fast

pratt@ranchmanagement.com (Dave Pratt) — 2012-02-21T22:41:59Z

I recently heard John Reed, former chairman of the wall street giant City Group, interviewed about the financial crisis. Prior to the financial meltdown he was one of the proponents for deregulating the financial industry. Now he believes things have gone too far and that while over-regulation slows down the economy, too little regulation causes it to crash. He made a compelling argument.

I particularly liked one analogy he used. He said that he once asked his children, “Why does a car have brakes?” They responded by saying “to slow it down and to stop it.” He told them, “No. A car has brakes so that you can drive it fast.” If you got into a car that had no brakes how fast would you want to drive it?

Over regulation is a problem. But in our zeal to relieve the burden of too many rules, let’s recognize that some rules are necessary both in our businesses and in our industry. If the car represents our business, the road represents the environment in which our business operates. When I drive on I-80, I recognize the value of having lines delineating my lane and rules of the road that we all agree to abide by. Can you imagine driving without them?

One Size Doesn't Fit All

pratt@ranchmanagement.com (Dave Pratt) — 2012-02-07T22:26:07Z

We get a cross-section of livestock producers at the Ranching For Profit School. In 2011 we had outfits with more than 10,000 cows and others with less than 100 attend the course. When it comes to enterprise selection and structure, most of the small places look like miniature versions of the large ones. That’s a problem because size matters and what works for the large scale producers isn’t always a good idea for folks working at a smaller scale. One size doesn’t fit all.

One of the things limited-scale producers should challenge is their replacement strategy. Like most of their bigger neighbors, most small scale producers assume they should raise their own replacements. Assuming that a cow/calf enterprise is best suited to their situation (a dangerous assumption), most small scale producers are well advised not to raise their own replacements. The gross margin per unit of heifer enterprises is usually significantly lower than the margin per unit in the cow herd they support. When capacity is limiting, it is hard to economically justify having an enterprise with a relatively low gross margin. Of course, if you don’t know your enterprise gross margins, decisions regarding enterprise mix and structure can only be based on guesswork and emotion.

Some argue that they have special genetics. This claim is similar to the results of a recent survey in which 90% of American drivers felt they had above average driving skills. By definition at least 40% of them are wrong. I’ve been told by geneticists that producers with fewer than 400 cows simply don’t have a large enough of a genetic pool to select from to claim an outstanding breeding program. This doesn’t mean that it isn’t possible to raise quality cattle on a limited scale, but the deck is stacked against it.

There are economic realities every business must face. We must keep overheads low, the margin per unit high and recognize that size matters. If we are limited by scale, a limitation that is usually self-imposed, trying to produce profit by copying the business model of larger scale neighbors rarely works. One size does not fit all.

Constraints Are Self-Imposed

pratt@ranchmanagement.com (Dave Pratt) — 2012-01-24T19:22:46Z

Most small and medium scale producers who want to increase profit would be well served to challenge their assumptions about scale. Small isn’t beautiful and it is almost as much work as big. It doesn’t take twice as much labor to run 800 cows as it does 400. The interest and depreciation on your pickup truck isn’t dependent on the number of cows you carry. Whether you have 80 cows or 800, you still only need one pickup. Let’s say that the interest and depreciation cost is $4,000/year. That comes to $5 per cow for the 800 cow outfit and $50 per cow for the 80 cow place. This poses additional challenges to earning profit for the limited scale producer.

A lot of us assume that, because we only own so much land and it may be hard to rent in our area, our land base is the limiting factor determining the size of our operation. We know that for the sake of our land, livestock and profitability we must not overstock our land. But if we don’t want our land base to limit us, it doesn’t have to. We can lease cattle to other people or contract with someone to custom graze for us. As Stan Parsons says, “Constraints are self-imposed.”

C.S.O

pratt@ranchmanagement.com (Dave Pratt) — 2012-01-10T22:36:31Z

CEO means Chief Executive Officer. A CFO is the Chief Financial Officer, the COO is the Chief Operating Officer and the HRD is the Human Resources Director. We are familiar with most of these terms, even if some of us aren’t always clear on the distinction between one and the other. What about a CSO, a Chief Sustainability Officer?

Name the company: DuPont, Georgia Pacific, COKE, if it is among the 100 largest companies in the world, it probably has a Sustainability Officer, and if it doesn’t have one, it will soon. Many MBA programs now include sustainability training
.

That should come as no surprise. The cost of using energy and water continues to increase. The public’s tolerance of spending public money to clean up messes created by private companies while those companies pocket record profits, has eroded. That has created a demand for people who can help reduce a company’s carbon foot print and take advantage of opportunities in the “new” green economy.

Creating a separate CSO position in these companies makes sense, but it belies a growing truth. That good business is green business. No one should know that better than ranchers. If we erode or impoverish the soil, production will drop unless we replace the lost fertility with chemicals. Either way it affects profitability. It isn’t just a direct relationship between ecosystem health and economic health, it is the same relationship. As I wrote in an earlier ProfitTips, we ought not be talking about economics and ecology as separate topics but eco-nomics or econology.

I like the way Joel Salatin puts it. He says, If our farms aren’t fun, aren’t profitable and are too much work, our children won’t want them…romancing the next generation is the ultimate test of sustainability. With that in mind, the CSO has to ensure that the business is profitable and financially solvent (the role of the CFO). They need to see to it that people are treated fairly and are effective in their roles (the job of the HRD). They need to make sure that the business is productive and profitable and that resources and infrastructure are maintained so that production and profit can be sustained indefinitely (the role of the COO). It looks to me like the CSO is the CEO of the 21^st century.

Business is Business and Family is Family

pratt@ranchmanagement.com (Dave Pratt) — 2011-12-20T19:29:31Z

As families come together for Christmas, it is appropriate to discuss the balance in our lives between business and family. In a healthy family business there is a clear line separating business and family. In other words, business is business and family is family.

But in most family businesses the line between work and family gets blurred. Am I talking to my parent or the CEO? My daughter or my employee? In ranching, where you live inside your business, the line may be nonexistent. When you are at home, you are at work and when you are at work you are still at home.

This boundary between work and life is important. Without it, what we do becomes who we are. If what you do is who you are, who are you when you stop doing? How do you make the transition to the next generation? It often happens over Dad’s dead body, literally. Without the line between work and life, how do you hold family members accountable in the business without having a food fight at Christmas dinner?

The line between family and business becomes sharper when we hold regular WOTB (Working On The Business) meetings. WOTB meetings focus on the important issues facing the business. They provide an effective forum for having business discussions and making strategic and tactical decisions.

It is probably unrealistic to keep business related discussions out of the bedroom and away from the dinner table. If you are lying in bed staring at the ceiling in a cold sweat at 2:00 a.m. worrying about your cash flow, you need to be able to express those concerns. But that’s WATB (Worrying About The Business) not WOTB. If you had held some effective WOTB meetings you’d be sleeping at 2 a.m. That is especially important this time of year because that’s about the time Santa usually tries to do his thing. If Santa skips you this year, you may need to do more WOTB next year.

Merry Christmas and Happy New Year!

Demand Your Money Back

pratt@ranchmanagement.com (Dave Pratt) — 2011-12-07T00:02:03Z

Recently I wrote about some alumni who increased the carrying capacity of their property using cell grazing. One alumnus who doubled the capacity using cell grazing said “It’s like getting a second ranch for free.” That might be slightly overstated because increasing the capacity of a ranch with cell grazing usually isn’t completely free. It often requires capital outlay for water development and fencing. While that usually costs pennies on the dollar relative to buying another ranch, it is still important to be judicious with those pennies.

We advise our clients to insist that capital development projects give a 100% return on their capital investment within one year. In other words, before you invest $50,000 in fencing and water development this year, make sure that that project will increase your gross margin by $50,000 this year. If it won’t provide a 100% return, find an alternative investment that will return 100% or consider another way to make the investment. For example, if you were to put $20,000 of your own money into the project, financing the balance, the project would only have to yield $20,000 to achieve a 100% return on your capital.

Every time I introduce this principle at the Ranching For Profit School I get a lot of skeptical looks. I’m sure some people think I’ve lost my mind. Their advisors have told them that capital improvements that pay for themselves in five, seven or even ten years are worth making. But in ranching, where our biggest financial problem is that a disproportionate amount of our money is already locked up in fixed assets, that isn’t good enough. Demand a 100% return on capital investments!

To hear how Kyle Marshall applied cell grazing principles to increase his carrying capacity, click here.

Can Cows Pay For The Ranch?

pratt@ranchmanagement.com (Dave Pratt) — 2011-11-22T23:31:47Z

This morning I had a call from an alumnus considering a big move. He is thinking of selling his place and relocating. He has his eyes on a property in another state and asked me, “Can the cash flow generated from a cow/calf operation make the land payments?”

As a general rule, I figure a cow can pay about 1½ times her value for the land it takes to support her. So, if a cow is worth $1,000, and assuming she has a decent gross margin, the cash flow she generates should be able to cover the land payment for property valued at $1,500. If it takes 10 acres to carry a cow, that means the value for grazing is $150 an acre. Good luck finding that! Of course if you have a better gross margin, you can afford to pay a little more. A crummy gross margin, and you’d better improve your gross margin before you think about buying land.

The land he was considering was priced at $6,000/cow. Using the “1.5 x Cow Value” rule, that is roughly 4 times what he can afford to pay based on the annual income from a cow/calf enterprise. The land isn’t necessarily over-valued; it is just over valued for grazing. Water, mineral, wildlife, the scenery and other attributes of the property all contribute to its overall value.

People who buy ranches often cite the long term appreciation of the land as the rationale for the investment. But appreciation won’t create cash flow to make the payments. If we want the purchase of a ranch to work financially we need to look for ways to capitalize or concessionize these values. Concessionizing means developing an enterprise to create income from an unused resource. Capitalizing means divesting yourself of a resource you don’t intend to use (e.g. selling an easement).

If we can off-set the value of our purchase by capitalizing some assets and create some income from other enterprises, the cows won’t have to make the whole land payment themselves. In this case there wasn’t anything obvious that could be capitalized or concessionized that would make a significant difference.

In the last ProfitTips I wrote about alumni who doubled their carrying capacity using cell grazing. If this is possible on the ranch I was being asked about this morning, rather than being able to pay for ¼ of the land payment, grazing may be able to comfortably make ½ of the payment.

But be cautious. I warn people about being overly optimistic about the improvement they will make through cell grazing. I advised the caller this morning, that if he thinks he can increase the capacity by 100%, pencil in a 50% increase. After all, while you can make an educated guess about the potential, you won’t really know how much the capacity will increase until you start cell grazing. Even then, unless you can point to areas that are currently underutilized, you shouldn’t increase the stocking rate until you’ve increased the capacity and that may take a few years. In the meantime, you still have a land payment to make.

There are often compelling, non-economic reasons for buying land. Perhaps it helps consolidate holdings, simplifies the operation or provides security, protecting the rest of the property. These are all good reasons to consider the purchase, but let’s not kid ourselves. Even with cell grazing, the price of land is usually well above the value of the grass. However, capitalizing or concessionizing resources combined with cell grazing can make buying a ranch a smart financial move.

Two For The Price Of One

pratt@ranchmanagement.com (Dave Pratt) — 2011-11-09T00:22:23Z

Would you like a free ranch? This summer I had the pleasure of visiting several Ranching For Profit School alumni ranches from Texas to Montana and points in between. Most are applying cell grazing and are producing impressive results. Cell grazing involves giving paddocks adequate rest, keeping graze periods short, increasing stock density and adjusting the stocking rate annually and seasonally to match the carrying capacity. It is not a grazing system, but a set of principles that, applied with a little common sense, works in any grazing environment. John Schipf from Highwood, Montana is one of the alumni I visited with this summer. He’s been using cell grazing for about 4 years. He credits it for doubling the carrying capacity of his property. John said, “It’s like getting a second ranch for free.”

You’d think with these kinds of results, more people would be using cell grazing. A lot of ranchers use some kind of grazing rotation. Most assume that because they move animals from one place to another that their pastures are getting healthier and they get some economic benefit. The truth is that most ranchers get little if any ecological or economic benefit from their rotations. In fact, most rotations don’t even prevent overgrazing. A rotation with fewer than 8 paddocks isn’t rotational grazing. It is rotational overgrazing.

Some ranchers tell me they resist cell grazing because they don’t want to look at a lot of fences or open a lot of gates just to get from point A to point B. They assume it’ll be more work, constantly moving cows from one pasture to another.

Most of the alumni who see big improvements in carrying capacity use at least 25 paddocks per herd. Some use as many as 40-50, yet the fences are barely noticeable. Some alumni are starting to use Spider Fencing, which consists of 16 gauge high tensile wire and super high quality fiberglass posts. With a simple homemade adaptation to the under carriage of a 4-wheeler or a pick-up, you won’t need to open gates to drive from one place to another. You can drive right over the fence. Click on the links to see photos of spider fencing.

Spider Fence Spider Fence Brace Spider Fence Cell Center

To provide more paddocks per herd, rather than building more paddocks, most alumni start by combining herds. This doesn’t increase labor, it reduces labor. After all, it takes less time to check one herd of 500 cows than two herds of 250 cows. But the bigger breakthrough comes from increasing the carrying capacity. In John’s case, doubling the cows in the herd on the same land base didn’t increase labor; it just changed the way labor was used.

Derek Schwanebeck is one of the alumni I met with this summer. Using cell grazing he’s also been able to double his carrying capacity. I like the way Derek described the change in the workload with cell grazing. He told me, “These days we work our minds way harder than we work our bodies.” Click here for a video clip of Derek Schwanebeck discussing cell grazing on his ranch.

If you are ready to work your mind and see big improvements in your land, your life and your bottom line, we are ready to work with you at the Ranching For Profit School.

We Lost A Pioneer

pratt@ranchmanagement.com (Dave Pratt) — 2011-10-25T22:18:16Z

Dick Diven, helped dozens of Ranching For Profit School alumni determine the optimum timing for calving and slash their feed costs. To Dick, “ranching with nature” wasn’t just a throw away phrase. It was the pathway to profitability in the cow/calf business. Dick pioneered this pathway.

For the last few years Dick had been battling cancer. After several failed attempts to contact him over the last six months I feared the worst. I learned last week that Dick lost his battle earlier this year. Because he’s been in my thoughts lately I wanted to share with you some of the powerful principles Dick identified and used to help many of our alumni reduce costs, improve production and increase profit.

Dick pointed out that deer, elk, bison and other wild members of the family Bovidae are seasonal breeders. While we have selected away from this phenomenon in the domestic members of this family (e.g. cattle, goats and sheep) Dick showed that photo-period still has a strong influence on the fertility of all wild and domestic ruminant species.

Dick presented data showing that at 40ºN (the Kansas-Nebraska border) a cow in body condition score 6, calving in February, would take an average of 73 days to start cycling. Calving in June, an identical cow would start cycling in just 38 days. He showed that the closer calving is to the summer solstice, the shorter the postpartum interval becomes. He also showed that the further north you go, the more extreme the difference.

Research shows that cows are relatively infertile during their first estrous cycle. It is important that all cows cycle at least twice during the breeding season and three times would be better. Since a cow’s estrous period is 21 days, this means that the post partum period must be less than 43 days.

It is easy to see that the February-calving cow, with a postpartum period of 73 days, has a problem. She’s about to become hamburger. More to the point, the rancher who has that February calving cow has a problem too. He raises or buys high priced replacements and three years later sells them as culls.

He can either try to feed is way out of this jam (adding one condition score will shave about a week off of the postpartum period) but that’s expensive and doesn’t make up the full difference. The resulting high feed costs and cow depreciation costs make most ranches unprofitable. Dick showed people how to change that. For tables showing the relationship of latitude and calving season to the postpartum interval click here.

We incorporated Dick’s concepts into the Ranching For Profit School almost 30 years ago. In fact, Dick wrote the nutrition chapter in the book we use as prework for the school. I’ll miss Dick as a friend and a colleague. Our industry has lost a pioneer.

The Emotions of Drought

pratt@ranchmanagement.com (Dave Pratt) — 2011-10-11T22:44:57Z

Drought impacts land, animals, money and people. In relatively minor droughts it usually has the greatest impact on the first three, but when times get really tough, it is the people drought hits hardest.

Anytime I’m anywhere near North Platte, NE I make it a point to call up Marlene Moore. In addition to being a Ranching For Profit School alum and a founding member of our Executive Link program, Marlene is a good friend. We drove around the ranch several years ago when the region was deep in what Marlene referred to as a “300 year drought.” Marlene had completely destocked. After visiting Marlene, I talked to another rancher a few miles away. He asked if it was true that Marlene had destocked. When I told him that she had, he responded with resignation, “Really? Boy, I wish I could do that.”

Ranchers are often in denial about the severity of the situation, until all of the grass is gone. Even then it seems like many love their cows more than their grass. When ranchers destock, they rarely destock severely enough. If you only have half of your normal grass, you ought to destock down to half of your normal herd. The abuse pastures suffer from overstocking during drought often results in a long term reduction in carrying capacity.

You can’t feed your way out of a drought. As the drought continues the price of cattle drops and the price of feed goes up. Even if it made short term economic sense to feed (which it doesn’t), the economic consequences of the long-term reduction in carrying capacity can be catastrophic. If you knew that it was going to rain next week, next month, even next year, you might be able to make a case for feeding. But we don’t know when the next soaking rains will come. Most arguments for avoiding destocking center around wanting to preserve “special” genetics. But 9 times out of 10 the cost of maintaining those genetics on your ranch will lead you to the poor house. You can’t feed your way out of a drought.

Too often we wait until we are in drought to think through our options. The longer we wait, the fewer options we have. Making matters worse, the emotions we experience in drought can be paralyzing. This is why it is crucial to make a drought plan before things get dry.

Marlene and I took a tour around her ranch this summer. With a big herd of healthy, rapidly growing heifers grazing belly deep in grass, I asked Marlene to talk about her experience with drought. She said that by far the biggest impact of drought is emotional because your emotions “drive or inhibit everything else you do, whatever check you write out, whatever cattle you buy, whatever infrastructure you put in.”

Looking at the Shamrock ranch today shows that making the right decisions during drought pays, especially when compared to ranches that remained overstocked. Marlene’s experience reinforces that it isn’t the situation, but what you do about it that counts.

For a paper highlighting the Ranching For Profit drought principles <click here>. To hear a brief conversation with Marlene Moore about the emotions of drought <click here>.

Recreation

pratt@ranchmanagement.com (Dave Pratt) — 2011-09-26T21:34:41Z

In the 7 Habits of Highly Effective People course recreation is pronounced, re-creation. It seems appropriate to write about this now because when you read this I will be in the second week of a trip to Europe with my wife to celebrate our 30^th anniversary.

I remember Bud Williams talking about never needing to take a vacation if you love what you do. That may be true for some people, but it isn’t for me. I feel like back-packing trips with my son, Jack, strengthens our relationship. I believe that adventures with Kathy, traveling to places we’ve never been, experiencing other cultures and embracing new challenges, increases my effectiveness in the other things I do.

In ranching we tend to wear “not ever taking a vacation” like a badge of honor. I’ve heard many ranchers proudly claim, “I haven’t taken a vacation in 10 years!” Only to hear their spouses sigh in dejected exasperation, “I know.”

Perhaps they don’t really want to take a vacation, although that’s not the message I see from their spouses. I think it’s more likely that they can’t get away. Not being able to leave the ranch for a week is the single biggest reason people cite for not taking the Ranching For Profit School. Hard work and long hours are part of the ranching culture. But it is also part of our downfall because working at an unsustainable pace is, well, it is unsustainable. You can’t build a sustainable business on unsustainable effort.

Perhaps Bud Williams is right. If you love what you do, maybe you don’t ever need to take a vacation. But wouldn’t it be nice to be able to?

Editor’s Note:

You will learn more about increasing your personal effectiveness at the 7 Habits of Highly Effective People course Dave Pratt will be teaching in Colorado Springs, October 6-8. This is the last 7 Habits course we plan to offer through RMC. Click Here for more information on the class.

Big Rocks

pratt@ranchmanagement.com (Dave Pratt) — 2011-09-13T23:57:36Z

My niece, Kelsey, got married last Saturday. The title of this article doesn’t refer to the size of the diamond on her ring. It doesn’t even refer to the place she was married, which was on top of a huge granite dome above 7,000’ elevation in the Sierra. But it does refer to something that her wedding made me think of. It is one of the simple, powerful principles from the 7 Habits of Highly Effective People course that has had a great influence on me.

The most frequent constraint Ranching For Profit School alumni cite to getting things done is not enough time. Of course time is fixed. Since we can’t make more of it, we can only be more effective with the time we have. But how will we ever get to the important WOTB work if our days are filled with seemingly endless WITB? That’s a good question and one I have struggled with myself.

We are all driven by the clock. But to be highly effective, we need to use a clock and a compass. Of course the clock represents time. The compass represents direction. The clock stands for efficiency. The compass stands for effectiveness. If we live by the clock our lives will be filled with urgent things and the WOTB work is likely to go undone. Using our compass for guidance, it becomes possible to set priorities and do the WOTB.

You create a compass by identifying your purpose in the form of a mission statement. There are some very practical tools we use in the 7 Habits program to help people identify their purpose and write their mission statement. The process involves clarifying your priorities and identifying the principles and values by which you want to live your life. It involves recognizing your talents and strengths. It also requires that we identify the roles we play in our lives and the outcomes we want to achieve in each of those roles. We call the things we want to achieve in each role “The Big Rocks.”

We each play many roles in our lives personally and professionally. For example at work I have the role of business owner, teacher, boss, writer, salesman, mouse killer and a dozen other things. In my personal life I have roles of husband, father, brother, friend, hiker, musician (or, perhaps more accurately, noise maker) and more. Kelsey just added “wife” to her list of roles.

In each of those roles there are outcomes I want to achieve and things I need to do to achieve them. These things are the “Big Rocks.”

If you are tired of letting WITB drive your life, I recommend you try this:

1. Identify 7 of the most important roles you play in your life. Make sure at least 3 of them are in your personal life and at least 3 of them are in your work life.

2. For each role imagine the ultimate outcome you’d like to achieve. It can be helpful to think of someone who would be affected by your achievements in this role. Ask yourself how you would like this person to describe your success in this particular role 20 years from now.

3. For each outcome identify one or more significant steps you’d like to take this month to make progress toward that outcome.

4. Schedule those steps on a calendar or planner. (We give each participant in the 7 Habits Course a Franklin/Covey Planning System Kit that includes a planner for scheduling their months, weeks and days.)

5. Each week confirm the blocks of time you will devote to the big rocks and schedule the little rocks (WITB) around the big ones.

6. Each day take 10 minutes to translate the weekly schedule to a prioritized “to do” list for the day.

It may seem like this takes a lot of time. It’s been taking me 30 minutes at the beginning of each month to plan the month, another 20 minutes at the start of each week to plan my week and 5-10 minutes each morning to plan my day. All totaled that comes to less than 5 hours a month. That is less than 1% of my time. I find that spending 1% of my time to reduce my stress and increase my effectiveness during the other 99% is a good return on my investment.

If you would like to learn more about this and other processes to increase your personal effectiveness I strongly recommend you attend the 7 Habits of Highly Effective People course I’ll be teaching in Colorado Spring, October 6-8. This is the last 7 Habits course we plan to offer through RMC. Click Here for more information on the class.

You Can't Starve Profit Into A Business

pratt@ranchmanagement.com (Dave Pratt) — 2011-08-23T16:57:54Z

Ranches with the highest productivity per cow are not the most profitable. In fact, according to our benchmarking, they are often among the least profitable. Ranches with extremely high cow productivity generally rely on a lot of inputs. As I explained in the 5/11 edition of ProfitTips (Square Pegs & Round Holes), input and inputting costs are often greater than the value of production attributable to the inputs. Spending your way to profit is like trying to borrow your way out of debt.

Just as you can’t spend your way to profit, we mustn’t be penny wise and pound foolish. Small things can make a big difference. For example, we eliminated hay feeding on a California ranch. We accomplished this by stockpiling pasture, rationing our winter grazing and providing a fall/winter supplement with degradable protein for just under $20/cow. The degradable protein stimulated rumen microbes so that they would more efficiently break down lignified forage. By spending $20/cow we were able to improve the gross margin by nearly $200/cow. (Gross margin measures the economic efficiency of production).

The essence of the livestock business is converting solar energy into harvestable animal products. Our goal should not be to maximize productivity or minimize costs. It should be to optimize the economic efficiency of this conversion. In the proper amount, at the appropriate time, a few inputs can go a long way to improve this conversion. Stan Parsons, the founder of Ranch Management Consultants, was right when he said, “You can’t starve a profit into a business.” Nor should we try.

A False Opportunity

pratt@ranchmanagement.com (Dave Pratt) — 2011-08-08T03:20:13Z

In response to my last ProfitTips one reader wrote that he found it hard to set targets and that he felt that if he could just make a little more each year that someday he’d be satisfied. While we may not phrase it quite the way he did, his approach is the way most of us go about trying to improve our situations. We are so busy working we find it hard to set targets and create a plan to achieve them. But "more" is not a number and "someday" is not a time. Both a measurable number and deadline are required to have meaningful targets.

Without a profit target it is impossible to know where to aim and people tend to follow “false opportunities”. In other words, let's say we come across an "opportunity" to run another 50 cows or 100 more steers 20 miles from home. There's nothing wrong with that, if that's what we need, but too often we pursue things that give us only a fraction of what we need to achieve our ultimate goal. If you add one small "opportunity" after another you may think you'll eventually "make it." I think just the opposite is true. I think you'll be so busy and stretched so thin you'll kill yourself, if not physically and financially, then emotionally and spiritually.

It is even worse when the time and resources we invest in the false opportunity distract us from finding the breakthrough that could have made a real difference, something that would enable us to run 500 more cows, or 1,000.

Perhaps you can achieve your life and business goals with 100 cows. Maybe it will take 1,000 or maybe 10,000. Maybe you should own them, maybe not. Maybe it can't be done with cows. I don't know what it will take to achieve your goals. The problem is neither do you, unless you have clearly defined them. Money is only important in that it helps us achieve some of our goals. You'll find it is a lot easier to achieve those goals if you clearly identify them and set some quantifiable, time-bound targets.

What's Your Profit Target?

pratt@ranchmanagement.com (Dave Pratt) — 2011-07-26T22:33:37Z

A Ranching For Profit School alumnus was talking to me about his financial goals. I asked how much profit he wanted to make. He told me he figured he needed $20,000 to live. I reminded him that his salary or draw must be deducted as an overhead cost before calculating profit. I asked again how much profit he wanted. It was clear he didn’t have a target when he said, “I guess $10,000 would be good.” I asked what he would do with $10,000 profit. He said he’d never had any reserves and he’d use it to start a savings program. “So your profit is to build financial security,” I said. Then I asked what he’d do if he made a $20,000 profit? He said that he’d pay down his debt. “So your profit is about building financial security and to get the debt under control,” I said. Then I asked, what would you do if you had a $50,000 profit?” In an instant he said that he’d go on a golf vacation. “So your profit is to build financial security, to get debt under control and to reward yourself,” I added. Finally I asked, “What would you do with the money if your business made a $100,000 profit.” Without blinking an eye he named an organization to which he’d said he’d like to make a big donation. “So your profit is to build financial security, control the debt, reward yourself and support causes you believe in.”

After a pause I asked him again, how much profit he wanted to make. He didn’t seem as satisfied with a $10,000 target as he had been moments ago and he named a much higher target.

Money is not a very effective motivator. Money is only important when put in the context of what it will be used for. Monetary targets are important, but having a clear picture of how the money will be used when those targets are achieved is much more motivating.