The lead-in to this topic came from a farmer who had heard me speak about the Rule of 10 a number of years ago, and had experienced it in his own business. The gentleman is over 50, and has operated the farm for more than 30 years. Let’s explain the rule.
Businesses go through many ups and downs over the years. Some are the result of macroeconomics. Others are impacted by management decisions made, and those decisions that are not made. Over a period of years in business, you will hit a homerun or have huge windfall profits and equity gains three times based on the alignment of macroeconomic factors or as the result of timely decision-making. Some call this luck, but others say it is proper planning using the right resources that lift the business to a new level.
Four decisions will be status quo, with neither large gains nor losses, analogous to a base hit in baseball. Some call this the plateauing part of decision-making.
Three decisions will be major strikeouts. These could be new ideas, concepts or purchase decisions that are ahead of their time, or those decisions that place your business in a detrimental financial or management position. Your decision could come at the wrong time when macroeconomics placed an ill-timed speed bump, resulting in losses. However, it could be caused by natural disasters or personal health issues that drain both business and personal lifestyle.
The keys to managing through these 10 situations are to:
- Develop a profit plan for the three good homerun decisions
- Proceed forward in a disciplined manner during the four base hits
- Have financial and management parachutes in place for the three strikeout trying times
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at email@example.com.