Next week I have a varied schedule. On Wednesday I’ll be in Boston addressing a high-end group of financial advisers at MIT. On Friday I’ll be in Des Moines addressing a gathering of family farmers. As vastly different as these two groups might seem, the points I’ll be making to them are surprisingly similar. Perhaps, this is because my career started three decades ago providing estate planning for family farmers. That’s where I learned many of the business lessons I’ve eventually applied to working with “C Suites” and board rooms. Good business is good business, whether conducted in a field or a skyscraper, whether wearing blue jeans or Armani.
Four lessons strike me as particularly well-learned from the farmers I have interacted with over the years. Now that agriculture is experiencing new wealth and vitality, we can all profit from reminding ourselves of the lessons learned from the American farmer – in good times and in bad.
Manage Risk: In the last 12 months in Iowa, we’ve seen it all. Last year’s devastating drought led to this year’s wettest spring on record. While the test last year was whether drought-resistant hybrids could stand up to the dearth of water, this year the problem was how to even get a crop planted in flooded farm fields. But such is the plight of the farmer. I learned early that farmers are not just stoic about risk; they deal with it. Consider:
- Hedging – 35 years ago I had a part time job posting futures “bid and ask” prices on a huge chalk board above the Minneapolis Grain Exchange trading pit. While today’s business press focuses on sophisticated computer generated financial hedge strategies, farmers for decades have quietly managed the risk of fluctuating commodity prices through the use of futures contracts.
- Insurance – My experience has been that farmers are good insurance buyers. They understand risk, and know that when you can insure a business risk you should do so. I’m not just talking about crop insurance. They also appreciate the value of life, disability and long term care insurance.
- Saving – The origin of the term “save it for a rainy day” has never been definitively determined. I like to think that it refers to the way farmers save money in anticipation of future bad weather. Farmers are not cheap; they are wise. They’ve suffered devastating weather, pestilence and upside down financial markets. Yet they’ve persevered. They’ve manage risk by anticipating and saving for it.
Embrace Technology: Farmers have always been cutting-edge with the use of technology. It’s just that they have been more focused on function than flash.
- When I first started as a financial planner, I bought a briefcase computer terminal that was used for real-time tax calculations and insurance quotes. In that pre-PC era, my Computone Keypact was the height of financial technology. I came to find out that this mobile technology was originally developed for hog farmers to stay current on pork futures.
- Years later, when I bought a mobile GPS for marine and geocaching use, my sister-in-law told me GPS-guided combines and tractors were a common way for farmers to assure precise planting and spraying of their fields.
- Time doesn’t permit me to detail the inventive uses of hybrids, herbicides and planting techniques employed by farmers. Suffice it to say I’m convinced farmers, particularly in the cold northern climes, spend all winter inventing clever new ways to eke out a few more bushels per acre.
Manage by Diversifying: A long time ago farmers came to realize that annual plantings of the same crop could exhaust their soil. They learned to diversify their plantings, set aside acreage, use no till techniques, and on and on. Their ability to diversify goes beyond farming techniques.
- They vary their distribution methods. Whether embracing organic growing or selling through farmers markets and coops, they are always looking for ways to differentiate and expand their operations.
- At the financial level, who better than a farmer to know you don’t put all your eggs in one basket? In a business where a 10 minute hail storm can destroy a year’s work, it makes sense to expand how a farm operation makes its money. Many family farmers I know supplement their direct farming income through related activities such as commodities trading, contract farming and cash renting some of their acreage. To provide financial security for the family, it is not uncommon for the spouse to work a desk job in town where better health insurance can be obtained.
Financial and Estate Planning: We can learn from farmer’s mistakes as well. I’ve had the misfortune of seeing firsthand how failure to plan has torn apart families and destroyed otherwise successful farming operations. Too often, siblings live in homesteads only one field away from each other, but don’t talk because of a dispute that arose when mom and dad died. Fortunately I’ve also seen how family farms have not only survived, but prospered, because of wise financial and estate planning. Planning which was typically initiated far in advance. Some examples:
- Putting the farm in a workable legal form has helped in the successful transfer of many a farm. Whether a family limited partnership or a full blown corporation, I’ve seen that having the farm titled as something, other than a sole proprietorship, facilitates effective transfer of property rights.
- It is a common scenario to have some children wanting to be involved in the family farm, while others seek their fortune in other endeavors. Inheritance equalization techniques can be used to help safeguard the family unit. These techniques divvy up the farm and other assets in a way that everyone in the family wins. See my column on inheritance equalization from earlier this year.
- More than anything else in estate planning, the best approach I’ve experienced is involving the family in the process. Few families can avoid some friction in planning for the disposition of the farm at the parent’s passing. If, however, the estate plan is discussed and communicated during calm times, rather than in midst of bereavement, a successful outcome is far more likely.
I may have done business in all 50 states and been in the board room of publicly held companies, but I’ve spent most of my life in fly-over states, rubbing elbows with farmers. We can all learn from their challenges and successes.