Throughout his career, Dr. David Kohl, professor emeritus, Agricultural and Applied Economics at Virginia Tech, has worked with agricultural enterprises from all over the country. In a webinar, hosted by the Professional Dairy Producers of Wisconsin (PDPW), Kohl outlined the 10 practices that top-performing CEO dairy producers follow.
1. Business profit success formula: P=O+C+L+M2
In this formula, profits (P) are generated from keeping overhead costs under control (O), knowing the cost of production (C), having working capital (L) and managing the margin (M2).
2. Profit plan: 60-30-10 rule
A good CEO has a plan in place for the business’s profits. Kohl suggested following the 60-30-10 rule where 60 percent of the profits are used to grow the business or to make it more efficient, 30 percent is allocated for working capital, and 10 percent is enjoyed by paying it out through family living expenses or dividends.
3. People plan: 40-20-40 rule
Understand that 40 percent of your team is comprised of good, solid employees, 20 percent require mentoring and the other 40 percent likely needs to be replaced.
4. Victims and know-it-alls
“Stay away from the victims and know-it-alls,” he said. “Otherwise they’ll drag you down.”
5. Prioritize goals and management
Make your goals and management a priority in your daily activities.
6. HUT principle
Follow the HUT principle – hear, understand and take action. Failing to take action is probably the biggest strategic weakness for most farm managers, he said.
7. Training and development
Consider allocating 1 percent of revenue to be applied towards training and development for everybody involved with your business.
8. Advisory team
Establish an advisory team that meets on a regular basis – at least quarterly or semi-annually.
9. Better trumps bigger
“Remember better is better before bigger is better,” Kohl said.
10. Relationship lender
During times of volatility it is important to have a good, solid relationship lender that follows the three Cs of lending – conservative in the good times and courageous during the tough times to be consistent all of the time.
“You have to have a constant, consistent lender that’s not all about the lowest interest rate. Do they understand the industry, your business, your family, your specifics, your goals and your needs?” he said.
By adopting and following these 10 principles, dairy producers can improve their performance as a CEO. PD
Hear more from Dr. David Kohl in this related article: "Grade your financial and business performance."
