An MBA Mentality

As I dive into this topic, please don’t mistake my attitude toward education. I believe an educated society is crucial to the proper operation of our government, to the advance of society, and to a civil public discourse. However, through my years in business I have found that often, there are attitudes which come with a formal education that are counterproductive to business productivity.

A large portion of my career has been spent in sales or sales related activities. My formal title has never been salesman – it has been manager. Managers should be fully engaged in the sales activities of a business or it is likely the business will fail – whether it is retail, wholesale or a service business.

Many organizations – especially large ones – believe that the best managers have MBA’s (Master of Business Administration). From a logical perspective it makes sense. Find someone who has been formally educated in how to run a business and let them run your business. The problem comes when the MBA manager has no practical experience in the day-to-day function of the business itself. They have the head knowledge, but lack the heart knowledge. They know the tools but they don’t know the business – at least not from the hands-on level. Generally their understanding is conceptual in nature – not practical.

Why do I bring this up? Because it seems that I often spend an inordinate amount of time educating my suppliers on the realities of agriculture.

The MBA manager mentality is often one that is focused on the numbers or benchmarks. It is focused on “objective” measurement of factors which indicate progress in the business. This can be things such as the number of sales calls made, the number of contacts at a Trade Show, the percentage of gross margin -- both average and per sales, and similar easily measurable statistical indicators. They have been taught techniques for handling particular situations that regularly occur in business – like competitive pricing issues – and respond according to the “book” answer. The problem is that they have never walked in the shoes of their sales force or of their customer.

The last item is the key. The most successful people that I know understand their customer. They have either been involved in a business similar to what their customer does, or have spent enough time with their customer to understand their business or situation. They look at their own business through the eyes of their customer. They take time to see what their customer sees and adjust their business accordingly.

Do we do this in agriculture? Do we see ourselves from our customer’s point-of-view? When was the last time you spent time examining your operation from the outside? When was the last time you walked through the grocery store and took a hard look at your product – whether it is beef or cotton or wheat – from the consumer’s perspective? How does the quality of your product compare to competing products? What about price?

We are seeing a number of fundamental shifts in our economy. Fuel prices will soon drive dramatic changes of behavior in how we conduct business and in how consumers allocate their dollars. Transportation costs will force many things to be produced locally that have historically been shipped long distances – such as produce. Are we in agriculture merely riding the tide of the ethanol boom or are we preparing for the inevitable changes that the energy economy will drive?

We are good at managing the numbers. In today’s business environment, if a farmer or rancher can’t manage the numbers he’d better have a second job to support his habit. But, are we good at seeing our industry from the perspective of non-farmers and ranchers? If we educated the public to our business and educated ourselves to what the public truly wants, could we do a better job at providing for their wants and needs? When we can do that, there will be plenty of rewards for the effort. Don’t just focus on the numbers of your business; understand your customer and adjust accordingly.

Also published on Common Sense Agriculture, Conservation and Energy.

Market Psychology

This evening I was visiting with a friend of mine who is a commodities buyer for a very large feed company. He commented about how crazy the market was today. So, I asked him what he was talking about. He said, "corn futures jumped 16 cents on the news that it froze in Missouri. The crazy thing is, they haven't even planted corn in Missouri yet! What could it freeze out?"

The futures market is a very psychologically driven market. It has happened numerous times with cattle futures based on rumors of BSE or some other disease being found. It makes no logical sense to someone in the cattle business. It shows the influence of speculative traders that buy and sell based on psychological factors, not on reality.

The same thing happens in the stock market. Stocks that are totally unrelated to newsworthy events about a business, or industry, are often impacted as much or more than stocks that should directly be effected by a particular news item. It makes sense when the stock of a chip maker falls because its biggest customer is struggling with sales. It doesn't make sense when the entire lending industry is impacted adversely by news that a particular sub-prime lender is heading toward bankruptcy.

It is the individual who understands "mob" psychology that will often do well in the stock market -- at least in the short run. I personally believe that such market gyrations should be ignored and investment should be based on business value, sound management and a strong plan. Time should be taken to understand an industry and the factors that affect it before putting money into it. Gambling based on "gut feeling" is a sure way to lose. That "gut feeling" is often indigestion caused by worrying about an investment that had no real merit in the first place.

Futures markets are a tool for protecting the price of a commodity that one owns, or plans to own in the course of their business. When used properly, they can be a form of insurance against cash price moves based on real-world events. The stock market is a place to invest in well-managed companies that need additional capital to expand. It is a place that requires a long-term view for success. It isn't a place to ride the capricious price swings of a psychologically driven market in the hopes of a windfall. In that environment, only the professionals win.

The markets have always intrigued me. I guess it is part of the same thinking that caused me to major in Agricultural Economics in college. On the micro, or firm level, economics is just a way to evaluate decisions on how to best utilize the resources that you have at hand. On the macro, or system-wide level, economics is frequently heavily influenced by psychological factors. What drives consumer decision making? Are they always rational in their choices? Do businesses always make wise decisions? -- and on and on. The people side of it often creates the greatest uncertainty. Maybe that's why we hear so much about Consumer Confidence Levels and similar measures of people's attitudes about the economy.

I've always enjoyed watching people and puzzling over why they do the things they do. I don't think I'll ever figure it out though. If I did, I'd be wealthy from playing the games in the stock market.