How Fragile Is Your Business – Thoughts on Strengthening a Business in Uncertain Times (FSFS203)

 

This episode is influenced by the Coronavirus, how everything is changing around us, and how it has changed my perspective about everything.

This is an episode of questions where I’ll talk about things I think we should be talking about when it comes to running a business in a world that isn’t devoid of uncertainty.

20 Questions to Determine if Your Business is Fragile (04:35)

“Maybe this world is a little more fragile than we thought.”

 

1.) How does your business do in a booming economy and in a recession? (06:00)

Some businesses do well when the economy is thriving. Expensive restaurants and luxury goods for the average person do well in a booming economy but suffer in a recession. For a lot of us small business owners, we’ve been riding the wave that is the booming economy.

If you’ve only started your farm within the last 5 years, then you’ve only been farming during an economic boom. Do you have some sort of recession plan in your back pocket? Say, switching crops, or bundling product as a value pack rather than an ultra-premium item?

Look at your products themselves. Are they something someone absolutely needs to have?

2.) Who are you selling to? (12:55)

Are you selling to one specific market, or do you have several target markets? You should have diversity in terms of who you’re selling to. When the time comes that one of those customers or groups of customers falls on hard times, the others could pick up the slack.

3.) How do you advertise? (15:15)

Say you advertise via Facebook, which is a proprietary platform. It can change policies, rates, etc. any time. Instagram is great for a lot of farmers. But what if Instagram changes, and it stops working?

What do you do?

If you’re putting all your eggs in one advertising basket, you could be in trouble.

Are you missing new ways of advertising because you’re sticking to the tried and true? What if that platform stops working and you stop getting responses?

Limiting how you advertise can make your business fragile. It’s easy to say, “if it’s not broken, don’t fix it.” But what happens if it does break and you can’t fix it? Or you fix it, but it doesn’t work as well anymore?

Look for new ways to reach your market, and always try to evolve based on what works and what doesn’t.

4.) How do you deliver your product? (19:10)

Do you do pick-ups? Deliveries? If you take it to the customer, what happens if you can’t do that? Maybe a natural disaster happened, or your car broke down, or maybe you just can’t drive. What then?

If you use a courier, what if that channel shuts down?

Is there fragility there? Is there something that could go wrong?

5.) Where do you sell your products? (21:10)

Is it under someone else’s control? Or is it under your control? A farm stand on your property is more or less under your control.

If you sell in a farmer’s market, you’re selling your products under someone else’s control—they set the hours, they do the advertising, they pick the location. You are inherently fragile because you just show up to that space. You can control your booth, but you can’t control the greater market.

A grocery store is under somebody else’s control. Restaurants are the same way. How well you sell depends on how well they sell.

Where you sell your product could be shut down for a reason you can’t control.

6.) What does your supply chain look like? (25:15)

How vulnerable is your supply chain? The raw materials, supplies, and ingredients that go into producing your product. What if the costs for those go up, and you have no choice but to take that price? Do you pass that cost onto the consumers?

What if you’re dependent on trucking, or freight, or UPS, what happens when there’s a disruption on that?

What if you can’t get that one variety that you and your customers have always loved? Do you have alternatives for it?

Water and electricity. What if there’s a disruption in the supply or if the costs skyrocket? Can you pay thrice the price of water last year?

Think about all the inputs that go into your farm operation and look at each one. What if that went up in cost? What if I couldn’t get that for a month?

7.) Key Equipment Risk. (31:05)

That single piece of equipment that is key to everything. What if it breaks down?

If you’re a livestock farm and you have $50,000 worth of meat sitting in that freezer, what’s the back up plan when that freezer dies? What if it dies when you’re away for the weekend? And it’s the hottest day on record? And the compressor on that freezer’s an old one that’s hard to get parts for? And the guy who needs to fix it is booked solid?

What are you going to do?

Identify your most important pieces of equipment on your farm that would really be a challenge to live without.

If that breaks down, can you get parts for it? What if you can’t get parts and you can’t use that equipment anymore? Is there someone who can fix it? Can you or somebody on your farm fix it?

8.) Political Risk Exposure. (33:25)

This may not be a huge issue on small farms as is it for businesses like us. Say you’re importing something form a different country. If there’s trade war, tariffs, or whatever reason we can’t import, it’ll really affect our business. It could be country to country, state to state, city to city, or county to county.

If you’re selling meat, you can’t sell across states unless you have a USDA-certified processor handling your meat.

Politics can affect farms. Take the trade war with China. A lot of large-scale corn and soybean farms are hurting because having China off the market means losing 40% of the soybean market, so now the prices are going down.

This isn’t in your control, but you should be aware of how you’re exposed.

9.) Key-Person Risk. (35:10)

How much of your busines is tied to one person? If that person goes down, what will happen to the business? Who will take over?

Your best people at any given task should cross-train everybody else on your team, so anyone can step into any role should the need arise. If someone goes down and someone else replaces them, sure, your production might go down, but you won’t come to a screeching stop.

If someone isn’t involved in the business with you, but they’re in your life in a big way (maybe a spouse or a partner), at least make them familiar about your business and your accounts so they would know what to do if something happens.

Keep the people in your life informed.

10.) Seasonal and Weather Risk. (39:40)

Certain businesses are summer-dependent. What if it’s cold and rainy? Other businesses are winter-dependent. What if it’s hot and there’s no snow?

What will you do then?

If you’re a strictly field-grower, you might want to consider investing in infrastructure to take away some of that weather risk and make it into something you can control.

 

11.) How narrow is your band of products? (40:45)

If you’re just selling microgreens, and nobody wants microgreens anymore, you’re in trouble. If you’re selling microgreens, salad mix, and root vegetables, you’ll still be able to sell salad mix and root vegetables.

“Specialization is great until it doesn’t work anymore.”

You get great efficiency from specializing, but the cost of that efficiency and getting really good at one crop is vulnerability.

And having more options will always mean anti-fragility. I’ve realized there’s a very fine line between too many options and not enough options.

Think about Dunking Donuts. They specialize in donuts, but within those donuts, they’re always thinking up new varieties.

You can try coming up with a different kind of tomato, or a different color of corn.

We’re focusing on this narrow band, but we’re keeping everything there interesting. Are you doing that with your vegetables?

12.) Specialty Products. (45:15)

This is more of a livestock thing than a vegetable thing unless you’re making value-added products.

Say you’re selling bratwurst with your meat, but someone else is putting the spices in. Is that product yours or is it someone else’s labeled as yours? It’s more theirs than yours—they came up with it, after all.

What if they go out of business? What if the key ingredient is suddenly unavailable? Or if the recipe changes? You should know how to make those yourself.

If you’re just labeling products are yours, you have to be cautious because you’re dependent on somebody else’s business to give you products to sell. You might not know how a product is made or what goes into it, which means you won’t have control over how it’s made.

Where are the risks for those? Are you planning workarounds for those risks?

13.) How fad-ish are your products? (47:40)

Kale was super popular at one point, but we all know that fads come and go. What happens if that fad changes? It’s not a problem for some farmers since they could just replace that crop in the rotation.

But if you’re putting out value-added products and that fad changes, you’re in trouble.

See if what you’re selling is a solid product that people actually want. Can it stand the test of time, or are you riding on a fad?

14.) How inventory-heavy is your business? (49:05)

If sales slow down month to month or week to week, what are you doing with your inventory? Is it shelf-stable?

This might be more of a question for value-added and storage products rather than fresh vegetable products, but this can be challenging for a lot of farms. Meat farms can fall under this as well.

Do you have enough to handle growing sales? Because it sucks when you turn customers away because you don’t have enough product.

At the same time, you don’t want too much inventory because that’s money just sitting there on the ground.

15.) How much brand loyalty do you have? (50:50)

Do people buy from you because it’s convenient, or do they buy from you because it’s you? Will they support you if you were more expensive than the booth beside you? Will they support you in a time of need?

Are you just the generic brand that is putting out products, or are you a brand that’s part of a community?

If you don’t have much brand loyalty with your customer base, what can you do to build that in a genuine, heartfelt way?

16.) How financially secure is your business? How much debt do you have? How much cash do you have on reserve? (53:30)

If you have a lot of debt in a time like this when your business could slow down, that’s not a nice place to be. If you don’t have much cash on reserve at a time like this, it’s not a good place to be.

17.) How long can your business last with zero sales just running on cash reserves? (54:00)

In a perfect world, I would go for zero debt and a few months’ worth of cash reserve to keep the business going.

18.) How thin are your profit margins? (55:20)

If your business has razor-thin profit margins, your business is fragile.

There is no room to absorb any shock from input price sensitivity. If anything from the things we’ve talked about today changes and your costs go up at razor-thin profit margins, you’re suddenly going from profit to loss on every sale.

“This is why charging enough for your product is important. You want to make substantial profit on everything you sell for times like this.”

It’s times like this you should be thinking, “where am I at financially?”

What financial storm can you weather without really being in trouble and having to shut the business down?

19.) How mentally strong are you? (58:15)

You might be saying, “why is that on the list? Why does that make me fragile?”

Say you sell at farmer’s markets and all the farmer’s markets are closing—you’re probably stressed out. What if you’re already stressed out about the business? It’s just stress on top of stress, and it’s just going to make things worse.

Do you have enough mental bandwidth to make good decisions under pressure?

Make sure to step back and take breaks. It’s not always better to work more.

20.) What if…? (01:00:40)

What if we have a pandemic like this? This might not turn out to be bad, but what if it turns out to be terrible? How can we position the business to survive?  What if we had an earthquake? A hurricane? A drought? A flood?

Think About It

These are all questions on my mind that weren’t there a week ago. Putting this episode together, I realized how important these things are. 

The time to prepare for panic is not when the panic comes. It’s long before it does.

These are things to think about over the course of this year to next year. Constantly revisit and rethink about this.

I hope this episode got you thinking. I hope you, your family, and your business weather out this Coronavirus pandemic as best as possible. Health-wise, business-wise, I wish everyone the absolute best.

 

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FSFS203_BusinessFragility

Diego: [00:00:00] Thanks for listening to the show today. I'm your host Diego, D I E G O. This is a special episode of farm, small farm smart with the way that everything is unfolding in the world with the coronavirus and how everything is changing on a day-to-day basis. I figured I would adapt the podcast. Like the rest of the media is having to adapt.

Today is a episode that has been influenced by the Corona virus and everything that's happening around us and how it's changed my perspective on the world. Because this week on this Friday the 13th, I'm thinking about things that I wasn't thinking about a week ago. This episode is about what I'm thinking about.

And what you should be thinking about when it comes to running your business in a world that is really never void of uncertainty. Today's episode is an episode of questions. And today we're thinking about what if it's currently March 13th, 2020. And if we went back just one month ago, And if I would have said to you that in the very near future States would shut down schools statewide, the NBA would shut down.

March madness would shut down. The NHL would shut down. Borders would be closed. Travel bands would be put in place and cruise operators would shut down their business for 30 days. If I had said that was going to happen in the near future weeks. Just a month ago, maybe even two weeks ago, maybe even a week ago, if I would have said that you would have said, you're crazy.

What if has happened here? We are just a month later, Friday, the 13th, and a lot of the world is shutting down due to the coronavirus. If has became a reality. And today we're asking what if this episode today, like the Corona virus has evolved very quickly. These are things I wasn't thinking about a week ago, and now I am in a very big way.

I was sitting down today thinking about things and I put this episode together and you're going to hear it just a few. Short days later, this is an episode of questions not answers. I don't have the answers to these questions, at least as it's going to pertain to your life in your business.

That's your job. The goal of this episode is really to get you thinking. About things that you should be thinking about when it comes to your business. If you've thought about these things in the past, great. Maybe I can help you think about them more at a deeper level. If you haven't thought about these things, then hopefully I am putting these on your radar at a time that it's not too late to recover from.

Most people listening to this are solo preneurs, small business owners, entrepreneurs, you don't run huge companies, huge corporation. So you really have to think about how you manage your business. And you have to be very careful about how you manage your business because it ties to your life in a very direct way.

Sometimes it is that business that provides all the means of support for you and your whole family. Given the importance of that business to your life, to a solo preneurs life and how important my business is to my life. This episode is about the fragility of business, the fragility of your business, the round 20 questions that you need to be asking yourself about your business.

It's trying to determine how fragile your business really is and how you can hopefully make it more anti-fragile. I think this whole Corona virus and how it's unfolded has shown that maybe the world is a little

more

Diego: [00:04:42] fragile than we thought we take a little bit too much for granted, and maybe we should prepare a little more.

Not just by taking stuff off a store shelf and putting it on our shelf, but mentally preparing and planning strategically when it comes to our business, these aren't drastic changes. I don't think these questions are going to really provoke, drastic, or rapid changes, although some might be. They're not really the speed boat zipping through the water.

These are more aircraft carrier questions, things that you're not going to need to think about now, but have plans in place to slowly turn that big ship over the course of months and maybe a year.

I'm not sure any of this thinking can help save your business given what's going on in the world today, but it might make your business better. The next time this does roll around because inevitably something like this will happen again. So question number one. How does your business do. In a booming economy and

in

Diego: [00:06:01] a recession, some businesses do really well when the economy is thriving businesses that really thrive off discretionary income do well when there's a booming economy.

If you go back to the housing, boom. Restaurants like cheesecake factory did really well because people are pulling all this equity out of their houses. They felt rich, and they were just going out to eat it pricey or restaurants, and they were feeling rich and spending money.

But then when the recession hit, these businesses really suffered. they were hurting luxury goods, not for them. The Uber rich for the average person suffer an a. Recession and do well in a booming economy, but in a recession, other things do well. I think people tend to garden in recessions. They look more at home.

How can I say save money? So how did you, your business function in a booming economy and in a recession, they're not going to be equal. Get what you do. When do you tend to do better? And this may be hard to assess. Because if you've started your business over the past five years or even 10 years, you've only really seen

your

Diego: [00:07:20] business operate in a booming economy.

We've been in a bull market since the market bottomed. After the 2008 stock market crash, it's been 12 years of up 12 years where the economy has just been booming. For a lot of us as small business owners, we have been riding the wave that has been the economy in a rising tide, floats all boats. The rising tide has lifted all of us.

now it's time to, take off the training wheels, put on your big boy pants because things might get really real. If we head into a recession. I think there's going to be a lot of economic consequences of what has happened already surrounding the Corona virus and the restriction of activity.

My co-host on the grass fed life podcast, which focuses on livestock. His name's Darby Simpson. He's a livestock farmer in Indiana. He started his farm back in 2009 ish. So he was in the boom, but he was in the beginning of the boom, when it still maybe felt like a recession. And he thinks that farmer's markets did better for him when the economy wasn't doing so well, because people were cooking at home, they were trying to save money, cook their own food versus eating out when the economy was doing really well, when there was low unemployment.

They will reading out more. They weren't cooking at home as much. And the farmer suffered. I'm not going to say that's a hard, fast rule. Logically. It makes sense. It might make sense in your market if the economy turns compared to what it was. And we do go into a recession, how is your business going to survive?

How's it going to behave?

Are

Diego: [00:09:18] there things you can start to think of now to gear up for a recession? Not that you can plan on a recession or bet on a recession, but just prepare for it. Do you have some sort of recession plan in your back pocket? If the economy goes into a recession, maybe we want to grow these crops, or we want to start using this type of.

Marketing language when we talk to our customers or we want to try and change up. Our approach to selling bundles of product is like a value pack versus trying to make something ultra premium. And then look at your product itself. What are you selling? Is this something someone has to have a look at the business that I have paper Pako.

Do people have to have this equipment, if push came to shove, we are in the Corona virus. Apocalypse, do you have to have what I am selling? No, if I'm being honest, you don't have to, it makes your life easier in a non extreme situation, but in an extreme situation, what I sell is expendable. So I could expect a downturn.

If things got really bad.

You as a farmer. What about you? Is your food really something someone has to have? And you gotta be honest here. Don't tell me while we're raising food, people have to have it. Some people are selling garnish, disguised as food. It is not bulk calories. Salad mix, which makes up the biggest product of most small farms in a push come to shove recession.

I'm not sure people have to have that. Okay. I made that all day, but it is very different than bulk calories, like proteins, starches, and oils. Like people are going to have carbohydrates. Like potatoes or wheat or corn no matter what, they're probably gonna have to have protein in the form of dairy or meat.

I get there's vegans, but are they going to need to have salad, turnips and microgreen mixes and sunflower shoots, maybe not. how do you adapt as a business? What can you do to survive in a downturn for this question? And for all questions I'm bringing to the airwaves in this episode, I don't think there's easy answers and I don't think you need to come up with an answer right away.

A lot of these questions will be answered in the book of experience that you accumulate over the course of your lifetime in business. Maybe you can talk to old timers in terms of how they dealt with these things. If you can't solve these problems right away, that's okay. I think it's understandable, but think about them, have some idea of how you would perceive, so you're not panicking when you do have to deal with the situation.

Question number two, who are you selling to? Are you selling to one specific market or multiple markets and by market, target market, your customer, different people buy at different times for different reasons. Some farms might specialize in selling to middle-aged women who liked to cook gourmet meals, but they might also sell to schools.

So there's some diversification there. Who is your primary customer? Is it just the average farmer's market consumer? Is it just the store? Is it selling to the bougie grocery store? Is that going to survive in that economic downturn? Are they going to be buying as much? Is your customer, the millennial.

That likes to get creative on the weekends and play top chef at home cooking, gourmet lamb chops. Another example from my business would be like we sell the market gardeners. Do we sell the homesteaders and gardeners? Not really. We really sell the one group market gardeners. If market gardening as a sector has a setback.

We're in trouble. So this has me thinking maybe I should be looking to sell to more gardeners and homesteaders. There's obviously pros and cons to that. It's not a one-way street. It's not just, now you sell to them and all your problems are solved. You're also now managing maybe different product.

So just think about who are you selling to? Are they in one group? Were there other groups, if they're restaurants, are they all the same type of restaurant or if their stores are they all the same type of store, maybe literally the same brand of store. Should you have some diversity there in terms of who you're selling to in case one of those customers where that group of customer falls upon hard times, then the other customer picks up the Slack back.

Question number three. How do you advertise? You might be thinking well, how does advertising make my business fragile? let's say all your advertising is done via Facebook. That's a proprietary platform. And if

Facebook

Diego: [00:15:20] ever goes away, Changes their policy cranks up, their rates changes how their ads are viewed, which they've done a ton just since I started the conference back in 2011 ish, there's been a lot of changes.

If you're putting all your eggs in one advertising basket, you could be in trouble. Instagram has were great for a lot of farmers, but if Instagram changes and it doesn't work, what are you going to do? Would have technology changes or sentiment changes. my space was a big thing. When I got out of college, 2005 ish, it was all about my space.

And some of you might not even know what my space is long gone sentiment might change people just might. I hate these platforms. I think you've seen that a lot with Facebook people just getting off Facebook. Are you. Are you missing new technology and new forms of advertising? Not necessarily like the latest thing, like Tik TOK or something like that, are you just missing news?

Two ways of advertising because you're just sticking with the tried and true, like our, we just advertise on Instagram or we just advertise to our email, the danger in that. That is what if that platform just stops working. What if suddenly you're not getting responders back from that platform within all these platforms, there's really low hanging fruit.

And at some point you, you harvest all the low hanging fruit and there's, everybody's bought something from you or could sign up for a CSA has, and you keep going back to that same audience to sell them a CSA. And a lot of them might be in the CSA. How do you expand that audience? Limiting how you advertise can make your business very fragile, easy to say, this is working.

If it's not broke, don't fix it. But what happens when it does break and you can't fix it or you fix it, but it just doesn't work as well anymore. So your advertising needs to be. Evolving, maybe trying new things and that could even be your advertising message. So let's say you're just advertising on Instagram.

Are you always posting the same things on Instagram? And I'll tell you the post I see the most of is people take their CSA box and they need to lay it out on some table and take a picture of it. Like every farm does that or they take or selling our CSA, here's 12 weeks of CSA pictures that we made in Mexico gram lined up in a grid.

It looks like noise after awhile. Isn't there a way to maybe display this information differently, to maybe make it a little more eye catching, looking out of these companies like butcher box and some of these other aggregator companies are advertising. They're trying a whole bunch of things.

Obviously they have a lot of money behind them. But they're looking for a formula that works, and they're not afraid to experiment if your advertising is stagnant or stale, whether it's working or not, that does make your business fragile. Try new things, look for new ways to reach your market and always try and evolve based on what's working.

What's not

the fourth question you needed to be asking. How do you deliver your product? Meaning how do you get it to the customer? How does it go from you to the customer? Do you take it to the customer or does the customer come to you or both? If you take it to the customer, maybe that's in the form of going to a farmer's market.

Maybe that's in the form of a delivery. What

happens

Diego: [00:19:25] if you can't do that? Maybe it's a natural disaster type thing. The roads are closed. Maybe it's a, you just can't drive your vehicle breaks down. If you can't get your product to the customer and you always bring your product to the customer, there's some fragility there.

If the customer comes to you and they can't get to you because roads are shut down or your driveway's flooded, or some reason that's a problem. Is the exchange of product from you to the customer dependent upon on you? Or is there an intermediary there, meaning you sell it to a store? The store sells it to the customer, or you put it in a box, FedEx or ups picks it up.

That's really our business. We're dependent upon ups. Obviously I could switch to FedEx. I could go USP S some other carrier. But we're dependent upon an outside channel to get product to you. What if that channel shuts down? So how are you getting the product to them? Is there fragility there? Is there something that could go wrong?

Do you want to have customers used to getting delivery all the time and then suddenly you got to switch them to pickup only that's hard. Or do you want some blends? Sometimes it's pickup, sometimes it's delivery. We do both

the next question. Where do you sell your product? Is it under someone else's control or is it under your control, a farm stand on your property? It's more or less under your control? Obviously, there are some local regulations you have to abide by, but it's. As long as you're following them, you can open when you want.

You can close when you want it's under your name troll. If you go to a farmer's market, you're selling your product under someone else's control, they set the hours, the advertising, they pick the location, they're responsible for parking. They can select who comes and who doesn't, who joins the market and who doesn't.

You are inherently fragile because you just show up to that space. You can control your booth within the guidelines of the market, but you can't control them. The greater market, a grocery store that's under somebody else's control. You sell to the grocery store in really how much the grocery store sells of your product.

Determines how much you sell the grocery store. If they sell a lot of your product, they're going to be buying more. If they can't sell a lot, they're not going to buy very much at all. So you're depending upon how well they can market their brand, how well they can sell product in their store. And a lot of times it comes down to just the relationship between you and the produce manager.

Doesn't like you, they're a jerk. You might not be selling their restaurants. Same way. You're really dependent on how well that restaurant can do. And there's that chef relationship chef goes away if goes to a different restaurant. maybe you lose the business at that restaurant. When a new chef,

I have a website under my control, I can do what I want in terms of advertising, make what product available. I want set prices, all that. I don't have to turn to someone to say, how can I run this? A lot of you in how you're selling you're restricted and that's not a bad thing, but it just might make your business fragile.

Does it. And you need to round that out by taking some way to make your business more under your control. With this coronavirus, a lot of public gatherings are being shut down. I feel really bad about farmer's markets shutting down and a lot of farmers are going to suffer because of that. If you're only selling at farmer's markets and farmer's markets get shut down because of this or whether that's a fragile model.

I know farms are scrambling to put

up

Diego: [00:23:51] online stores and set up delivery and things. I like that. It's a great idea. And if you're a farmer's market only seller, I would be thinking, gosh, what else can we do over the next year to remove some of this fragility? Because it's a huge one. Farmer's market manager hates you.

They changed locations. The market stinks you're out. If your business is really dependent upon them, it's not a good place to be in where you sell your product. Could it be shut down for some reason that's out of your control. That could be government mandate. Like we're seeing now it could be the private owner just says we're closed.

The store says, forget it. we're going to go. Chick-fil-A we're closed on Sundays. Sorry. The restaurant we're going to dinner only are not buying as much product of where you sell your product is under someone else's control or it could be shut down out of your control. It's a problem. One question that I've been getting from a lot of growers is what's your inventory look like?

How's the supply chain look like if we're buying paper pots and it's good right now, both are good. We have a lot of inventory in the supply chain looks stable. As of today, you should be asking yourself this question of your business. How vulnerable is your supply chain for products and inputs?

You're probably a price taker here for many of your raw materials, your ingredients, your supplies that go into producing your product, like you most likely don't have a lot of swing to go to Johnny's and say, you need to make seeds this much. I need to get it lower. Where a feed mill, I need feed at a lower cost.

You're just going to take it. If you are raising pastured poultry, you're going to be buying a whole bunch of grain. What do you do with factors totally out of your control. Drive the price of grain up. Now your feed costs are going up and you just have to take that price. Can you pass those rising costs onto your customers, or are you already at a maximum price that you could charge for your product?

And we'll get into that. That's another worry later on, but there is an upper limit to what you can charge there. Isn't an upper limit on what your input costs are because some of those can be way outside of your control. How vulnerable are you for that? For somebody like me, I have to get products from someone else to resell.

We do make some of our own stuff now. But even that stuff requires raw ingredients like plastic. So I am vulnerable. If I can't get plastic to make nursery trays, look at yourself as a farmer inputs, who's supplying them. How are they getting them to you? If you're dependent upon trucking or freight or ups to get them to you?

What happens if there's a disruption in that ups goes on strike. The supply chain gets disrupted. How is it affecting you? Let's say you really love one brand of, or one variety of seeds. This is the tomato we grow. Our customers love it. We sell it to chefs every year. What if there's a bad year for the companies that grow the seed and that's just not available next year.

Do you have alternatives? Have you tried them to know if there are any good. Here's what gray one salad Nova. What happens to your farm? If you can't get salad, overseed, have you ever thought about that? Do you have other forms of salad, mix lettuce you could turn to, do you have equipment to see them? Do you know, the growing practices, are you experimenting with a different variety here or there just in case sell, never sell Inova ever goes away.

Now I know Salah Nova is coming out of a big company, but what if that company did go out of business? What are your alternatives? You should be thinking about these things, water electric. What if there's a disruption in the water supply? What if water, like we've seen in California goes through the roof and you have to pay for it, but you're paying three times as much as you had to last year.

Can you survive that electric? What if the grid goes down? What if electric costs go up? Are you vulnerable to that? Compost. Here's another huge one. How many farms are dependents or at least think they're dependent upon outside sources of compost? What if you can get all that compost or even worse? What if that compost is bad, really bad?

This happened to a farm that I know they got a bad batch of compost, so bad. That it really slowed down their production and it cost them tens of thousands of dollars in lost production. Not like a small mistake, like tens of thousands of dollars in lost production. If you are getting compost from somewhere, how do you know it's good?

I have, are you testing it? Are you checking it? Are you asking for their tests or are you just taking it blindly? What if it's bad? What, if you get a bad batch or tainted batch in your production for that year, or for a few months, goes through the floor and you can't grow anything, are you checking that to make sure it's good organic standards?

This is a big one that comes up with the paper chain. What if organic standards change for anything you use? What if they get stricter? Are you prepared for that? Think about all these products and inputs that go into your farm operation and just look at each one and say, what if that went up in cost?

What if I couldn't get that for a month? What would business look like asking these questions? Coming up with ideas, at least brainstorming these things. What could you do? Another question to ask is key equipment risk, that single piece of equipment that is key to everything. What if it breaks down? The thing I think of is walking cooler or the freezer.

If you're on a livestock farm, if you have $50,000 of meat sitting in a freezer, What's the backup plan. If that freezer dies. And of course it's going to die when you're away for the weekend and it's also the hottest weekend and on record and the compressor on that freezer was an old one. It's really hard to get parts for in the guy who needs to fix it.

Yeah. It's so hot. His booked fixing everything else and really the grocery stores need help too on their compressors and they pay a lot more. So he's over there. What are you going to do? Look at your farming operation, identify the most important key pieces of equipment that your farm could not live without, or would really have a challenge living without if that piece of equipment goes down or breaks.

What's the plan. Can you get parts for it? Do you have spare parts on hand of the major stuff that's gonna break. Maybe that's a tire. Maybe you just need needed spark plugs around it. Some other piece on that machine or that piece of equipment that you notice is always going to break up a blade. What do you do if you can't get parts and you can't, you use this tool anymore, you can't use this piece of equipment anymore.

So it's older. It's something that somebody made and you picked it up secondhand or, and you can't really remake it. Is there somebody who can actually fix it? Let's say you're not even in town and you could fix it, but is there somebody on farm who could fix this thing? What's the backup plan of this goes down.

Is there redundancy here? Look at your most vulnerable areas of the farm. Maybe that's the germination chamber. Maybe that's the greenhouse that you're heating. What if your greenhouse heater dies? I'm not saying you have to have a spear greenhouse heater sitting around, but what if it does go down? Is there any backup plan?

Look at key equipment risk on your farm. Another potential risk area is political risk exposure. I realize this might not be as big for small farms as it is maybe for a business like us. We're importing from another country from Japan and there's ever any sort of trade more tariffs for whatever reason we can't import it's going to really affect our business.

It could be country to country. It could be state to state. It could be city to city or County to County. If you're selling meat, if you're selling meat, you can't sell across state lines unless you have a USDA certified processor handling your meat. So you're exposed to some political risk, maybe not a big one, but one worth, at least considering how could politics affect what we're doing.

In a big way. This is affected a lot of large scale corn and soybean farms. This year, this trade war with China has basically taken China off the market for crops like soybeans. China was buying a lot of soybeans to feed the animals over there. Suddenly they can't buy them anymore because of this trade war.

They stop. There goes like 40% of the soybean market. And now there's a glut of soybeans and the price is going down. These things can happen. How might it affect what you're doing? Think about the political risk, not in your control, but you should be aware of where are you exposed and if it did happen, is there a workaround?

Is there a way out of it,

a big one for businesses in our scale, the solo preneur, the small-scale entrepreneur is key person risk. How much of your business is tied to one person or two, two people. Sometimes it's a husband and wife. Sometimes it's just one farmer. If that person goes down, if that person goes down with an injury, gets sick, or God forbid dies, what's going to happen to the business.

Who can take over. Does somebody know how to do ABC process or was Joe the only one, whoever did it and now Kate has to take over and she has no clue how Joe did it while he was the miracle tomato man. He always grew the best tomatoes. And, but no nobody ever got trained on how to do it. Your best people at a given task.

Should cross train everybody else on your team. So anybody can step into any role. So somebody goes down, quits gets hurt, whatever the operation doesn't miss as much of a beat is if people learn up to speed, you might slow down, but you don't come to a screeching stop.

Another one, just for may preparedness standpoint, a life planning standpoint, let's say you are in a situation where you're in a partnership, husband, wife, you have kids. And let's say that the wife runs the farm. The husband just has an outside job. Again. God forbid, let's say the wife passes away.

Does the husband know what bank accounts. She had for the business, have any idea of what was going on in the business or vice versa if the husband's running the business and he passes away, does the wife have any concept of where to start to just wind the business down? If your partner, your spouse, if somebody else isn't involved in the business with you, but they're in your life in a big way, like a marital way or a partnership way.

At least make them familiar with here's where I have accounts. Here's where you can find information about the business. If something happens, call this person, is there some sort of succession plan you want that remaining person to know where to start? If you did pass away, I was a financial advisor. It was shocking.

How many times a husband would die? And the wife would have no idea of what he owned, where it was, what was going on, no clue. And it became sometimes this forensic investigation to try and help her to fig to piece all the pieces together. here's, he had an account here and we've got to consolidate it all together and she's Oh my God, why do you have 12 accounts?

Keep the people in your life informed. Keep your employees informed, cross train people. If one person is the main salesman, the marketer for your company, that's fine. Elon Musk is the face of Tesla. Steve jobs was the face of Apple. And when Steve jobs died, yes, it was sad, but Apple didn't die. they had enough of a brand there.

But if your brand really is about you and you go away, where does that leave everybody else in the business? If the business is too dependent, operationally marketing wise, branding wise on one person, that's a huge risk. It might be the riskiest thing on this whole list, because it just takes a little bit to take one person down the flu, the regular flu, an injury, or God forbid something like the coronavirus and they're down.

And maybe the business goes down with them. You have to avoid this keepers and risk at all costs. Another risk that you need to really be thinking about is seasonal and weather risk. Certain businesses are summer dependent. And what if you have a bad summer? It's cold. The trainee, certain businesses are winter dependent.

We have ski Hills out here in California. Some years there is no snow and it's too warm to really make snow. What do you do? You're screwed. Farm, sir, following the weather here. it's something, but you guys know too hot, too cold, too much rain, not enough rain, your weather takers. For the most part, you can insulate yourself somewhat by the weather and go undercover with Caterpillar tunnels, with hoop houses, that type of thing.

If you're strictly a field grower, now you're at the mercy of the weather. You have all this seasonal weather risk. Might it be worth investing in some infrastructure to take away some of that risk. This is one of those ones where you can control it, think about where you might be exposed. Another thing to think about is how narrow the band of products are you selling?

This would be the microgreens operation. If you're just selling micro grains. And nobody wants my Corrine's anymore. You're in trouble where if you're selling microgreens and salad mix and root vege, you can still maybe sell salad mix and root vege. Specialization is great until it doesn't work anymore.

It is great to be the vest sweet corn grower in your County, but at some point. Sweetcorn is going to go bear market. Nobody's going to want it where there's going to be a bad sweet corn year and you're really hurting. This is the corn and soybean conundrum that many farmers are in. You grow soybeans.

It's a bad year for soybeans. You're in trouble. You get great efficiency from specializing. You get really good at something. But the cost of that efficiency, the cost of getting good as you are very vulnerable, more options is always going to mean anti-fragility. And I realized there's a very fine line between too many options.

And not enough, you look at a company like Starbucks or Dunkin donuts or McDonald's and think what you want of them. But you can say they really specialize in one thing, Dunkin donuts, coffee and donuts, Starbucks, coffee, McDonald's burgers, but they're introducing new products all the time. They're trying to keep people interested.

This is one other thing you specialize in something it's eventually people are just saying, I don't want any more of your sweet corn. It's good, but I can't eat any more corn. Give me something different color, corn, different flavor, corn, something else besides corn, Dunkin donuts. they always have new donuts.

They're advertising new drinks at Starbucks. McDonald's new sandwiches. They're trying to keep it fresh. Are you training your customers to be looking for something new and exciting all the time, or you roll out the same eight products every week at the farmer's market, we have radishes, turnips salad, mix carrots, cherry tomatoes.

We have that from May 1st, till October 1st. Enjoy it all. It's always the same. Eventually people were sick of that stuff. And again, I get there's some danger, there's some nuance with changing up colors of tomatoes or offering variety, but you want to keep it fresh microbrews, do a great job of this constantly changing around the beers that they have.

They're partnering with other breweries coming up with unique combination, different in beer, easy to mix stuff. I get that. I think a lot of meat producers, if you had the ability to create value, added meat, brought worst or sausages could do this, you mean limited release, extra spicy, limited release Serratia bras this week, and then two weeks from now limited release blueberry Brotts, whatever it is.

You're keeping it interesting for people you're expanding your narrow band of what you do. in a cheating way. It's like that Harry Potter tent that he goes into and it looks like a 10 on the outside and you go inside and it's this lavish huge area that you would have never expected was inside that tent.

That's Dunkin donuts or donuts and coffee. But within donuts, we have tons of variety within coffee drinks. We have a ton of variety and we're constantly changing it up. So we're focusing on this narrow band, but we're keeping everything in that narrow band. Interesting. Are you doing that with your vege?

Maybe you don't have to, maybe your sales aren't suffering, but Mike, they do better. If you made it a little fresh, you had the veggie of the week, really pushed, Hey, we're changing it up here. We're trying some new stuff. It's not always the same carrots, specialty products. Do you have them? This is an area to be really worried about.

This is more of a livestock thing than I think of edge thing, unless you're doing some sort of value add with your badge, like making preserves or catch up or something like that. If you're selling broths, that is your meat, but someone else is making them, someone else's putting the spices in. Is that your product or is that somebody else's product?

Is it truly yours? Was it someone else's labeled as you of it's more theirs than yours? They came up with the recipe. They control what goes in, even though you might tell them they're ordering it and buying it, and they're putting it in there at a certain ratio. What if they go out of business? What if a key ingredient that they always used goes away or goes way up in cost.

What if something within that recipe changes, if you don't understand how those things are made from a culinary standpoint, you're really just to take her here. You're taking what they give you, and if they change it up and it sucks, you weren't ready for it, and you should know how to make those broths yourself.

If your Bree branding stuff is yours, you need to be really cautious because you're just a reseller. You're a price taker in this you're dependent upon somebody else's business to give you product to sell. You might not know how that product's made what goes into it, or have any control of what goes into it.

Costs wise or ingredient wise. material wise, be careful here. If you're selling products from another farm, it's a great idea in theory, but what if you can't control everything, but how much control do you have over how they raise that food? How they process the food, how they handle it. If you have specialty products like this or another farm's products.

Where are the risks? Are you planning for those? Can you work around them?

Another thing to think about is how faddish not fat fad at a D I S H is your product, how much of a fad is it? There might be some real popular vegetable. I think kale might've been that way. At that point, it was super popular. What happens if that fad changes? Not so bad for some of you farmers on these short term crops, you can just take that bet out of rotation, plan something else.

But if you're doing value add, and that fad changes you're in trouble, we've seen fads come and go. look at fidget spinners. I remember when those things were on Kickstarter and people are raising tens of thousands of dollars. To produce fidget spinners. And now like you can't give them away.

Nobody wants them. They were so amazing when you first saw them. why does anybody want that real popular thing you see now, whether you go to target or online, then keto products. I get the benefits of ketogenic diet, but. This seems like a fad that a lot of people rush into, these fads, they suck people in microgreens might be a fad, be careful.

Is this a solid product that people actually want? can you see this surviving the test of time? Or are you riding a fad? Be honest with yourself here.

Another question to really be thinking about is how inventory heavy is your business. If sales slow down any week to week, month to month basis, what do you do with all your inventory? Is it shelf stable? If sentiment changes around that product that you sell, how do you get out from under all that inventory that you have?

Again, maybe more of a value add product or a storage product question than a fresh vege question. But this can be challenging for a lot of farms. Meat farms can fall under this. You have 55 hams in the freezer. Suddenly nobody wants to buy a ham. Let's say, I don't know that suddenly, I think it's the normal thing.

What do you do with it? How do you get rid of it? You don't want to take a bath and eat all that cost or you don't want to eat all that ham. How can you move out of it? So look at your inventory is a big risk. Do you have enough to handle growing sales and really never turn customers away? Because that's the worst thing you have somebody coming to you.

They want to buy from you. They want to give you money and sorry, I don't have any product right now. Been there, done that. It sucks. But on the flip side, you don't want too much inventory because that's money just sitting there on the ground. And if the world changes, how can you get rid of that inventory?

Another question to ask how much brand loyalty do you have, do people buy from you just because it's convenient or do they really buy from you? Because it is you,

would

Diego: [00:50:39] they support you? If you were more expensive than the booth next door, the farm next door, would they support you in a time of need? Are you just the generic brand that is putting out product or are you really being a brand that's part of a tribe,

a

Diego: [00:51:04] community, a CSA develops a lot of.

Brand loyalty with the people who stick within the CSA. A farmer's market might develop some brand loyalty to where somebody orders from you online. There might not be much brand loyalty from there right away. It's convenient for them. That was it. There's no face to face. They don't know you. My kids take classes and they've taken some classes with the same instructor for about three years.

And I feel like some of those instructors are really part of our family. And now with this coronavirus scare, they're shutting down those classes. And a lot of these instructors they're hourly and they're not going to get paid. And we tried to do what we can help out because we care. Not because they asked her because we had too is just, we felt.

Like it was the right thing to do.

So how much loyalty does your brand have with your customer base? If you don't have much, what can you do to build that in a non sleazy way and in genuine, heartfelt way, that's only going to take time. I think a lot of you have bought product from us because of the content that. We've provided over the years and I am grateful for that.

Now we start to move into some real higher order questions. These might be some of the most important ones on the list. At least they are in my mind.

A question to ask is how financially secure are you as a business? How much debt do you have? How much cash do you have in reserve? If you have a lot of debt in a time like this, where your business could slow down, that's not a good place to be. If you don't have much cash in reserve at a time like this, That's not a good place to be.

How many weeks could you last with no sales? zero sales one week, two weeks, a month, three months. How long could your business go with no sales? Just riding on its cash reserves.

I would shoot. In a perfect world to have no debt and a few months worth of cash reserves in the bank. This is for the business, not living expenses business, only a few months worth of cash in the bank to keep the business going. For many of you who live on your farm, you probably don't have that high of carrying costs on your farm.

Like I have a warehouse, I have to pay rent on that every month. Unless you're leasing your farm, you pay your mortgage.

So if you didn't have sales, how long could your business go? And obviously this is going to flow through to your personal life. You're going to want to ask this same question on the personal side too. There's really two sets of books here today. We're just talking business. So you have your business books.

You're asking this, but you should really be asking this on the personal side, too. One thing to think about when you think about how financially secure you are is how thin are your profit margins? If you have razor thin profit margins, you are fragile as all get out. Yeah. Because there is no room to absorb any shock.

From input, price sensitivity. Any of that things we've talked about today, change in your costs. Go up at razor thin margins. You're suddenly going from profit two loss on every sale. This is why charging enough for your product is important. You want to make a substantial profit on everything you sell four times like the Corona virus.

What if you're a volume business, what if you just sell wholesale wheat grass to a grocery store chain? Like whole foods

volume has to be dialed down. There's a

wheat

Diego: [00:55:58] grass, health scare with Eco-Line or something like that. Whole foods is we're not selling any more wheat grass, somebody debunks, a wheat grass health. Benefits thing. If you're a volume business and volume dies down, you're in trouble. Walmart gets 10 people that walks through the door and one day they're hurting your local shop or boutique that gets 10 people that walks through the door.

That might be a normal day. It might be fine. A restaurant, a local restaurant that gets 50 people in for a dinner service. Maybe that's good for them. McDonald's is 50 transactions in a day. They're losing money.

It is times like this. You really need to be thinking about where am I at financially? And, Really saying that kind of command, like you should be thinking about this. It's very important. I sat through the 2008 stock market crash saw a lot of money disappear in days. Had clients call panicking in yelling.

It changed my perspective on finances forever. Carrie. Minimal debt, keep cash on hand. What does your financial situation look like? What storm could you weather financially without really being in trouble and without having to shut the business down?

Another thing I really want you to be asking yourself now in, throughout the farm season, how mentally strong, or you may be saying, why is that on the list? Why does that make me fragile? let's say right now, viruses hitting you sell at farmer's markets and your farmer's markets are all closing.

That's probably going to make you pretty stressed out. But what if you're already stressed out about the business? Now it's just stress on top of stress is gonna make things worse. Are you so maxed out and run down that when disaster strikes you're just going to, or do you have enough mental bandwidth?

And mental strength to make good decisions under pressure. Think about the worst parts of your season, the busiest time, when that's going to be no, say, Hey, your irrigation goes off. It shuts down your greenhouse, then system doesn't work and everything in it. Fries. Add that on top of your already busy workload, you're already busy mental situation.

It's going to be terrible. And these things are going to come up. Corona virus is coming. Other things like that are coming. If you are always pushing the limit of your mental capacity in terms of how much stress you are putting yourself under when outside forces apply. A huge amount of weight on top of that, it's going to break, make sure you step back and take breaks to try and reset.

It's not always better to work more. One of the most fragile things is our will to endure, especially when things aren't going right. When things start going wrong. It feels like they come in bunches. It's not just one thing goes wrong. A lot goes wrong. How can you handle that? Are you strong enough to handle it?

Or are you too fragile? The last thing you should be asking about your business is what if blank? What if. We have a pandemic like this, and this might not turn out to be bad, but what if we have one that turns out not to be bad? What if we have one that turns out to be terrible? How can we position the business to weather the storm, to survive, to provide help for maybe people in the community?

What if we have an earthquake? What if we have a hurricane, a drought flooding? Think about some outside the box, whack job scenarios. What would your business look like? Just run through them.

These are all questions that are on my mind that weren't a week ago.

And I'll say maybe I've gotten lazy. Maybe I hadn't really thought this all through, but in doing some thinking today, putting this episode together, I really realized how important these things are. As you see people panic in the stores and buy everything up. I think you're seeing a lot of business owners.

Internally panic as well. Will the time to prepare for the panic is not when the panic comes it's long before. as I said in the beginning, this is an aircraft carrier looking to turn. You're not looking to really make your business less fragile for the Corona virus, although you could. No, some short term things I think you could do would just be don't spend money unless you have to pause.

But these are really things to think about over the course of the next year. And then constantly revisit, rethink about, talk with other farmers about this. We're living in changing times right now. it's really interesting and scary to see how this whole Corona virus is unfolding. And if there is a plus in all of this is that these events often make people take stock of where they're at in think about, Whoa, this is real.

This could happen. This was the episode of questions. I hope it gets you thinking. I hope you, your business and your family, whether out this whole coronavirus scare as good as possible. Health-wise business-wise. I wish everyone the absolute best. Thanks for listening until next time. Be nice. Be thankful and do the work.

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