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Wall Street lessons from the farm

Growing Tama County

August 13, 2012
By Heath Kellogg - Executive Director Tama County Economic Development , Toledo Chronicle, Tama News-Herald

An old saying often used by traders on Wall Street, "Pigs get fat and hogs get slaughtered" is intended to explain that those who work hard will get what they deserve but those who try to gain something for nothing will not get very far. In my opinion the sophisticated Wall Street business giants should not look down their noses at their down-to-earth country cousins. Long before there even was a Wall Street, farmers were identifying some pretty classic rules for business. Here are two of those very sound lessons.

Lesson one. A young cattleman was in the process of buying the first bull for his new herd of cattle. Looking over the offerings at a bull sale, the lad struck up a conversation with an elderly man. "I don't want to put too much into a bull right now," trying to sound like he knew what he was talking about.

With great gentleness, the wise old farmer responded,"Always remember: A good bull is 50% of your herd." To which the kid nodded, as if he already knew that. Then the old farmer hit him with this, "But a bad bull is 100% of your herd."

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If you're in the delivery business, eat baloney for lunch if you have to, but buy a good truck. If you're a web site designer, wear out-of-fashion clothes if you have to, but make sure you have the best computer and software known to mankind. Small business owners always seem to have great needs and limited budgets. The challenge is in how to use that budget effectively. Take a lesson from that wise old farmer: don't scrimp on the tools around which most of your operation revolves. Besides, baloney's not that bad, and if you wear clothes long enough, they will come back in style.

Lesson two. A young man decided he wanted to raise pigs. Anxious to forecast his impending wealth, his financial assumptions were based on two well-known facts: 1. Sows often give birth to litters of 12 piglets, sometimes even more. 2. It is possible for a sow to give birth to three litters in a year. Through the magic of multiplication, he began forecasting his potential revenue by multiplying these two assumptions by the number of sows his facility would hold. The product of this equation was then multiplied by the market price. Can you say, "Hog heaven?"

Unfortunately, there is one more well-known fact that he forgot to consider: While his assumptions were quite possible, neither was guaranteed. And in fact, both were highly unlikely.

Financial projections can be a great business tool. Indeed, how could a business plan for the future without being able to forecast the possibilities? But when they are produced with too much enthusiasm and not enough reality, projections can also be dangerous. Many a fortune has been lost by not understanding the folly of forecasting "12 pigs-to-the-litter." The road to bankruptcy is paved with the personal equity of would-be entrepreneurs who did too much multiplying and not enough discounting.

Enter into any venture with the healthy understanding that ALL projections are wrong! And remember: It's okay to plan for great success, but wise farmers prepare for the possibility that they might only average getting 6-7 pigs-to-the-litter to the market.

 
 

 

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