Perspectives

DBA board president Greg Siegenthaler

Standing atop a mountain range in Colorado, I looked down at a series of hilltops collectively called the three sisters. From up there, it’s easy to see that there are three hill features on a ridge that leads to the valley floor below. But when standing in a saddle, under a cliff between two of those hilltops, it’s hard to tell what direction the valley floor is and through the trees, really hard to see the top of the mountain range. Perspective. 

One of the traits often overlooked in good managers is the ability to change perspectives, to look at things in a different way. The leaders that possess this skill tend to find more creative solutions while building a successful culture in their operations. 

Beyond the bottom line 

When you look at your financial statements, for example, are you able to change your perspective? As the owner and manager, you’re typically drawn to the bottom line. Did you make money or did you lose money? Did you gain net worth or lose net worth? But that’s not the only perspective.  

 As you come down off that mountain range and dig deeper into those numbers, your operating expense ratio may present the first change in perspective. That is, how many dollars did you invest in operating expenses to generate your revenue? Was it more or less efficient than last year? What side of the expense ratio is it? That is, is it a change in revenue or a change in expenses that moved the needle? What caused the change? Was there a particular expense that caused the issue? What can be done to improve that area?  

A different view of debt 

While not always the first thing a manager looks at, another number that adds perspective is one your banker looks at: debt repayment capacity. While many believe the banker first looks at collateral, the reality is debt repayment capacity is more important. Why?  

If the banker is relying on collateral values, it means the assets have to be sold to repay the debt. It’s important to have loans secured, but repayment capacity is far more important. Repayment capacity is simply how many dollars you have available for every dollar of debt payment required on an accrual adjusted basis. (for the full definition, please refer to the Farm Financial Standards Council’s Farm Financial Guidelines for Agriculture at FFSC.org).  

The rule of thumb here is that you need to have $1.25 of funds available to repay every dollar of debt. That gives you an operating cushion to build working capital and put equity into capital projects. While it’s an important ratio to your banker, it’s not always the perspective a manager has. But the most successful managers fully understand how important this number is to their operation’s future.  

Understanding team dynamics 

The great managers understand the perspectives of their teams. They get that everyone loves being on a winning team, so they reinforce what makes the team win every chance they can. They understand that their team may not fully understand all the numbers on a financial statement or what ratios matter most, so they create key performance indicators (KPIs) to help their team understand what they can do to drive winning performance.  

The great managers add perspective about why they are tracking pounds of milk per cow, yield per acre, shrink and other metrics. They effectively communicate why it’s important to follow the farm’s standard operating procedures. They connect the dots for employees from KPIs to winning performance. They find creative ways to incentivize performance by understanding what matters to their employees. Consistent feedback and positive reinforcement are keys to driving a winning culture.  

Embrace different perspectives 

Do you understand the perspectives of your buyers? While the consumer is certainly fickle and sometimes misinformed, the reality is that they drive the market. Understanding early what they want and need may help you capitalize on emerging trends, potentially positioning your operation to access new markets and revenue streams.  

Finally, the leading managers understand perspectives change with market cycles. When times are good it’s easy to see the mountaintop and think it will always be good. When times are bad, it’s easy to see the valley and think we’re headed there to stay. Our tendency in agriculture to think “this is the new normal” can lead to some bad decisions during either side of a cycle. Keep asking yourself, what fundamentally changed or didn’t change? Seek out other perspectives to help you understand where we are in the cycle, what possibilities lie ahead, and plan for them. Whether it’s keeping the upside open on your market positions or locking in more inputs, having multiple perspectives can be a real value. 

Perspective matters. The top-notch managers are good at seeing things through the eyes of others, helping them lead more effective teams and be better prepared for the future. Climb those mountain ranges! 

Brad Guse (715-305-1910, bradley.guse@bmo.com) is Director, Production Agriculture, U.S. Food, Consumer and Agribusiness, BMO.