A recent nationwide webcast for agricultural producers resulted in a question pertaining to the four pillars of a successful business model. Marilyn, a Midwest producer, asked, “Should any of the four pillars receive more concentration? Or, is one pillar the most crucial for success?” Let's begin by briefly reviewing the four pillars of a successful business model.
First is the pillar of resilience. This can include knowing your cost of production, having a sound marketing and risk management program, and exhibiting a strong capital and equity position for additional borrowing capacity.
Agility, the second pillar, is focused on working capital and a market for the production or service that a business offers. The balance of optimization, efficiency and diversification are other components of agility.
The next pillar is the entrepreneurial and innovation pillar. A business that has strength in this pillar will be people- and talent-oriented and aligned to a quickly changing marketplace. These businesses are intensely monitored at least quarterly or even monthly with a long-term journey of success in mind.
The final pillar is the business IQ. These businesses will have a written business plan. Time is spent on planning, strategizing, executing and monitoring the plan. Key performance indicators (KPIs) and benchmarks for production, cost, marketing, financing and general operations are established.
Ideally, a business needs balance in all four cornerstones of the pillars to be successful in the short- and long-run. With that being said, a value-added agriculture business will need to focus on the innovation, entrepreneurial and people aspects of the business. If not, these businesses can quickly become commodity market oriented. To avoid this, the business must be one, two or three products and services ahead of the curve. Often value-added businesses are startups or in a growth mode. This requires agility to capitalize on opportunities without jeopardizing overall success. Thus, working capital and diversification of markets can provide the necessary balance.
Young people entering into an existing business either via a family enterprise or a partnership will generally focus on the business IQ with a written plan for improvement. While this will not guarantee success, it will place the odds in one's favor.
Finally, weakness in one of the pillars is often offset with strengths in another. The COVID-19 pandemic has accelerated the importance of each for both growth and, in some cases, economic survival.
Please send your remarks to AgGlobeTrotter@accountlist.com. I would like to know what you are thinking.
Ag Economist Dr. Dave Kohl
Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA, and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension, and other popular publications.