Economic Development

The Fight Against Poverty (and Hippos.)

hippo-yawningThere’s a tragic and amusing story behind the title of Ernesto Sirolli’s book, Ripples from the Zambezi.

As a young man, Sirolli worked with groups sent from Italy to Africa for “economic development.” As was the tradition (and unfortunately still is), one group went in search of problems to fix, in this case along the Zambezi River. They found that the locals had no agriculture, despite fertile soils, and determined to bless them by introducing Italian farming.

A few days before harvest time, the Italians were quite proud of themselves. They had taught (or at least demonstrated) agriculture along the river, and saw an abundant crop in their future. Unfortunately the local hippopotamus population saw the same thing. They came out of the river and ate the crop.

“Why didn’t you tell us about the hippos?” asked the Italians? The answer came calmly: “ You never asked.”

And therein lies the problem with billions of dollars of “economic development” funding supplied by wealthy countries around the world. “They never asked.”

Michael Matheson Miller covers the same topic from a different angle in the Poverty Cure series, where several businesses in struggling countries face competitive pressure from the “relief efforts” that flood their market with free goods.

So, what is the solution? According to Sirolli, it is called “facilitation.” Instead of marching into a deprived area on a mission, his team now hangs out at the local coffee shop. There they learn what entrepreneurial initiatives already exist, and offer to support them. The locals, who are more clever than we give them credit for, then do the work with a little support, wisdom and encouragement.


PS.  For more from Ernesto Sirolli, consider spending 17 minutes on his remarkably amusing Ted Talk:


How to save the Family Farm: “Put Your Name on Your Work!”

That phrase, commonly associated with frustrated elementary school teachers, is also priceless wisdom for any entrepreneur.

On the contrary, ignoring that idea results in the death of the small farm.

Allow me to illustrate with two stories:

In the first story, Farmer Sharp has three cows. He feeds them well and milks them efficiently. A truck from a generic milk brand (let’s call them Dairy Inc.) picks up his milk daily.

In the second story, Farmer Donaldson also has three cows. He also feeds them well and milks them efficiently. But, instead of selling his milk to Dairy Inc., Farmer Donaldson has it processed according to local regulations and sells it in grocery stores and at farmer’s markets using his own label, Donaldson’s Dairy. Farmer Donaldson puts his name on his work.

I oversimplify the dairy industry here to make a point: One business model has the capacity to be profitable, while the other doesn’t. Why?

When customers buy milk from Dairy, Inc., it doesn’t matter much to them who produced it. To them, the brand they know and trust is Dairy Inc., not Farmer Sharp. For that reason, Farmer Sharp is in perfect competition with the other farmers supplying Dairy Inc. (Perfect competition, according to my dear economics-trained wife, means that he is selling a good that is identical in quality to everyone else.) Subsequently, Dairy Inc. has the luxury of selecting suppliers by price, which means the price goes as low as it possibly can without driving every supplier out of business. The least efficient do go out of business. The most efficient (think big guys) may make some money. But everybody else (that is, every dairy supplying Dairy Inc. that isn’t the most efficient) is working on slim or zero profit margins.

Meanwhile, Farmer Donaldson has his own customers that know his brand. He is in especially good shape if his brand is distinctive in quality, story and appearance. That distinction may be as simple as being the only small, family-run dairy in town.

In summary, Farmer Sharp is forced to grow big (efficient) or go broke, while Farmer Donaldson gets to create value for his customers with a friendly brand.

That may make the difference between the beginning or the end of the family farm.



What’s Your Problem?

Here’s a small secret of business: You need a problem. To be more clear, somebody ELSE needs a problem, and the purpose of your business is to solve it.

One of my first business ventures was a lawn mowing company that I started in college. The business plan was very simple: I bought a mower, borrowed a trailer and leased a garage in exchange for mowing the lawn in front of it. Then I printed fliers advertising my services, and distributed them to mailboxes in the fanciest neighborhood in town. This seemed like a good plan, until a wealthy-looking fellow in a Dodge Viper pulled up to my parked Jeep to give me a little insider info: “The homeowners association mows our lawns, son. You’re wasting your time.”

In that neighborhood, there was no problem to be solved. They already had a GOOD mowing solution, and it even happened to be free.

A problem can be local, like a lack of decent Mexican restaurants in small-town, Kansas. Or a problem can be much larger, like a lack organic wine grapes in Northern California. But if there is no need for a better (or first) Mexican restaurant, or no need for more grapes, there’s no reason to build a business that provides either of those things.

I’m surprised at how often this “secret” gets ignored. How often do you see a new restaurant, surrounded by other restaurants, close in 6 months? Was there a need for another restaurant? There may have been, if the others were poorly run. Otherwise, a new restaurateur is wasting his time. (Also, he should start with enough cash to survive more than 6 months without revenue, but that’s a blog for another day.)

Brewing beer or making pizza is a hobby, if it doesn’t solve a problem. If I start a brewery because I like to brew, but nobody has a lack of excellent beer, it won’t be much of a business.

Some of the best companies in the world solve problems people never knew they had, like Henry Ford’s Model T (horses were too slow), Apple Computer’s iPod (MP3 player’s were awkward and bulky), and Garmin’s Vivofit (fitness bands had terrible battery life and limited water resistance.)

Fortunately, there are plenty of problems to be solved, needs to fill and variations of existing solutions to invent. For every one neighborhood that doesn’t need a better lawn service, there are 10 others that do.



80/20 Vision

When I first took a sales job at a retail plant nursery, it came with a list of existing accounts.  Some accounts were great (easy to work with, profitable and great providers of referrals).  Other accounts were a real drag (difficult and unprofitable.)

My first reaction was to appreciate the good accounts, but spend most of my time “fixing” the bad ones.

That was a bad plan.

In any given company, 20% of the customers will likely account for 50% of the business.  It goes without saying that the remaining 80% account for the other half of the business.  My reaction was wrong for two reasons:

1.  It assumes the “Top 20” are already having all their needs met, and won’t generate more business.

2.  It assumes that there are no other customers available in the world.

Both assumptions are obviously silly.  But strangely, sales people (and small business owners who are by default sales people) make my mistake all the time!

A much better response to a list of 100 customers is:

1.  Who are the top 20? (Based on sales, but also factors like the quality of the relationship and referrals.)

2.  How do I rock their world with remarkable service and products that solve problems?

3. Where can I find 80 more like them?

Note that spending more time on the “Top 20” means taking attention from somewhere else.  Take that time away from the bottom 20%, the grumpy ones that don’t buy much anyway.  What would happen if your worst customers stopped buying?  Very little.  Please consider this permission to ignore them.

Side Note:  The idea of the 20% assumes that a small farm or business has multiple customers.  That’s on purpose!  Selling to a single customer, or selling at an auction where Mr. Market dictates the price, is scary business.  Finding multiple customers is the only way to run a stable business.



The Finest Burger in the World?

If you visit Queenstown, the self-proclaimed Outdoor Adventure Capital of New Zealand’s South Island, it won’t be long before a local or fellow visitor suggests that you eat at Fergburger.  Image

The person recommending the establishment will likely include the fact that Fergburger claims to serve the world’s finest hamburger, and the recommender will likely submit his or her opinion as to whether or not the claim is true: “yes they do,” or “no they do not” actually serve the world’s finest hamburger.  In my experience, there is no correlation between the likelihood of the dinner recommendation and the recommender’s personal opinion of the quality of the burger;  lovers and haters will both point you in the right direction to try it for yourself.


Queenstown attracts 1.9 million visitors per year for skiing, biking and hiking in the mountains surrounding a giant, beautiful lake.  That’s not bad for a city of 16,000 people.  And most of the visitors seem to visit Fergburger.  Needless to say, the city and the burger place  do very well for themselves.

So how do the owners of Fergburger do such a fantastic job?  I don’t know them, so this is speculation, but here are a few observations from my own visit:

1.  Location. Fergburger is in a fabulous location in a fabulous town.  And why not?  If I were to start a burger joint, (or berry farm, or brew pub or equestrian center), shouldn’t I put it where the people are?  With 1.9 million tourists, its likely Fergburger would get some guests by pure chance.  And they increased the odds by setting up shop at the bottom of the gondola leading to Ben Lomond, Queenstown’s most significant hiking, skiing and biking trail.

2.  Basics.  Fergburger has a great staff, great ingredients and a classy interior.  They get you in and out in a hurry.  The restrooms are clean and the cook is smiling.  No failures on the basics inhibit the experience.

3.  Focus.  The moment Fergburger claims to have the world’s finest burger, something happens.  Hint: This is often what makes the difference between a good company and an extraordinary one.  Suddenly the staff has a focus.  The guests have a reason to visit.  The owners know where to invest.  “Do we spend money experimenting with new salads, or displaying modern art on the walls?  NO!  We make the world’s finest burger!”  And the only purpose of the restaurant is to connect the world with that magnificent fact.

Now for the burning question:  Does Fergburger actually serve the finest burger in the world?  That is a very personal matter, really.  In this humble farmer’s opinion, after scaling Ben Lomond to 5,300 ft. and landing back down at Ferg’s front door, the answer was definitely yes.




Creating Life Baaaah-lance


Steven Covey wants us to balance P vs. PC.  What on earth does that mean?  He speaks of Production vs. Production Capability in his book, The 7 Habits of Highly Effective People.

Focusing only on Production Capability is like the life-long student who keeps getting more degrees but never applies them, or the well-fertilized garden with nothing planted. 

An example of focusing only on Production (that I am very experienced with) is overgrazing your pastures in order to raise sheep. 

When the sheep first arrived at Six Sigma Ranch, we had no experience with sheep.  What do you do with no experience?  Learn from Youtube . . . .  oh, and read books and seek the advice of experts.  Still we were not prepared for the experience of watching pasture.  We moved them from pasture to pasture as they ate the grass . . . . . all the way to the ground.  The next year, what were once healthy pastures had become full of unpalatable weeds, star thistle and foxtails.  We broke the balance of Production vs. Production Capability.

 The same is true of myself.  If I cram my schedule to the brim, I squeeze out ‘Production’ from myself but hurt my Production Capability.  It is not long before I realize that I am doing lots of stuff, but nothing really important.  By giving myself enough time to hang out with my family, read good books, exercise and pray, I maintain my own personal balance of Production vs. Production Capability.




Trading in the $4,425,925 Pick-Up Truck

I met with a discouraged farmer recently.  Let’s call him Farmer Jones.  In summary, Farmer Jones was concerned that “there ain’t no money in farming!”  We talked about options for increasing margins and decreasing risk (both good topics for another day), and then I left him leaning on his pick-up truck, pondering the impact of increasing feed prices on his bottom line.

As I got home, a thought struck me.  One simple change would have re-written the financial fate of the Jones Farm, and we were leaning on it the whole time:  The freshly-financed 2014 Ford F250 Lariat Diesel 4×4 pick-up truck.

A quick search found an identical truck at a local dealer for $73,526 (See burgundy truck below.)  Farmer Jones had financed the truck, but let’s give him the benefit of buying it outright, for the sake of a simple calculation.  The same dealer listed a nearly identical 2009 version of the truck (without the fancy Lariat leather seats), showing 50,000 miles on the odometer  (See white truck below.)  The price was $24,324, for a difference of roughly $49,000 between the 2014 and the 2009 with fewer options.

Let’s imagine now that Farmer Jones had been in the habit of buying the 5-year-old truck for his entire career, starting at age 25.  He had replaced it after 5 years each time, with another 5-year-old truck.  Again, using rustic math, we divide the $49,000 difference in price by the 5 years of use, and find that he saved about $10,000 per year.

If Farmer Jones had invested the difference into the US Stock Market, he would have made 12% interest every year on average, during any 40 year period (his career) since the great depression in the 1930’s.  That figure comes from Dave Ramsey, America’s financial planning guru.  We’re farmers, so let’s use a slightly more modest 10%

A sum of $10,000 per year, invested at 10% for 40 years, results in $4,425,925.  Yes, that’s 4 million, thanks to the power of accumulated interest.  And if that money were re-invested into a well-managed farm, the return would be similar.

Its safe to say that Farmer Jones isn’t aware of to the real cost of his fancy transportation, and not sure why he retired with a shiny truck but very little money.  In Texas, they call that “all hat and no cattle.”