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The Distinguished Owner, part 1: Spending

October 11th, 2010

Bill ran a small dairy.  So small I wondered what I was doing—if he was beyond help.  Small, but savvy: he had the same doubts.  We ignored these and went forward, advisor and client.  His net worth was $150,000.

Our first work was to help Bill develop a business plan.  Not every owner has his own idea of what his firm should be or a deep view of how things should be done.  Bill did.  The business plan was created—realized is maybe a better word—to reflect his view.  For him the process was like a light turned on in the dark cave of convention.

Bill’s first move was to change his approach to spending on feed.  Industry wisdom said you adjust the ration to minimize cost (corn, hay, & sundries being highly volatile commodities).  His own view was contrary.  He believed that every change put cows off their feed until they re-acclimated and substantially shortened their milking life.

The first thing that happened was feed costs exploded.  But Bill didn’t cut, he spent—he stayed on his idea.  This was a problem for others.  As a true entrepreneur, Bill’s deep knowledge was not explicable by his education or training.  His spending ran against the “facts.”  What to him was reason to others was purely subjective.  His action and results were contrary to expert opinion and industry standards.

The first thing that happened was feed costs increased, a lot.  The second thing that happened was that milk production improved dramatically.  And a year or so later, the third thing that happened was the cows’ productive life increased by 40%.  In 10 years Bill’s net worth grew from $150,000 to $1,500,000.

His success would not quiet opposition; as with all others who achieve good results unconventionally, it would heighten it.  I’ll take up the reasons for that in a later session.

Go here for part 1 and here for part 2 of the full story told at my last salon.

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Bill’s is a good story.  He did what he thought made sense.  He did what fit him.  He worked through the reasoning.  And time proved him right.

Now I want to tell you why it worked.

The Bill story and this season’s series depend on understanding three things:

  • The successful entrepreneur is guided by and acts today on his own opinion about the future.
  • The economic basis for small business is efficiency of innovation, not efficiency of costs–the model of large business.
  • The principles and tools of management were developed for large business.

It worked because the action was based on his opinion about the future.  He was not guided by convention, how things are done.  He arranged things based on his own reasoning.  It may have seemed daring but he carefully set and tracked his course.

As a small firm his was not likely to succeed by applying the customary management techniques appropriated from large firms.  His change was an innovation, not an exercise in cost-cutting.  I have to say I especially liked what Bill did.  He demonstrated amazing possibilities even in commodity-based, capital-intensive industries.

He made a hard distinction adopting the tools of management while rejecting the principles of management.  More commonly, firms buy into the principles while rather incompletely adopting the tools.  They see immediate but temporary success from cost cutting; Bill saw success by dramatically increased value in the future.

Bill is one case of hundreds in my experience.  This happened almost 20 years ago.  His financial results are impressive.  He gave us the credit.  But we owe him.  Through him we came to understand what we are sure of today.  His mind and courage remain an inspiration.