Headlines and Articles, Nov 27

‘Secret’ farm bill faces uphill climb in 2012 – The Hill
Farmers torn over pros, cons of ethanol subsidy – Lafayette Journal & Courier
Proposed dairy policy changes stir discussion – Wall Street Journal
Agriculture’s Cassandra: McKinsey’s dire warning – WorldCrops.com
Farmer Says: Hitch Your Wagons to Some ‘Guar’ – Wall Street Journal
Entrepreneurs learn to tap angels, venture firms  – St. Louis Post-Dispatch
China to bolster agricultural trade with Africa – Independent Online
Why entrepreneurs matter more than innovators – Gallup Press

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Touch your customer, and you’re halfway there.  
~Estee Lauder

Who’s your customer?

I recently attended an event for young entrepreneurs.  I chatted with one aspiring entrepreneur, who explained his ideas for a premium beef business.  He explained that he has purchased the cows, but needs more capital to breed them and get the business off the ground.

I asked him a question I often pose to aspiring business people.  Who is your customer?

“People with money,” he replied.

“Who’s your customer,” I asked again.

“Doctors,” he said.  “They have money.”

“Dr. who?”

“I’ll have billboards.”

“Billboards?”

“You know,” he said.  “Billboards.  Doctors and other people with money will see my advertisements.  My Internet address will be on them, and they’ll order my beef.  No middleman.  Distributions centers…”

“What are there names?”

“Who,” he replied, puzzled.

“Your customers.”  What are their names?”

He just stared back at me…

You get the idea, but the most common weakness I see in business concepts in many aspiring entrepreneurs is their lack of understanding of their prospective customer base.  As a matter of fact, the most common word error on undergraduate papers in my classes is “costumers” rather than “customers.”  Microsoft Word spell-check doesn’t pick it up; right spelling but wrong word usage.  The students are creating businesses to serve those who make costumes?

Errors can occur from two directions.  One is that product designers, engineers, scientists and inventors miss connecting a  technology and solution to a problem of practical, economic consequence.  A solution is created for a problem no one cares about, or at least not enough to pay to solve.

Second are business people who understand how to close a sale, but miss the larger issues of customer value creation and passion.  They can sell ice to Eskimos, but maybe that isn’t a sustainable long term strategy for growing an enterprise.

Walter Isaacson’s biography of Steve Jobs captured the second view.  He writes about Jobs’ axiom that companies stagnate when sales people run the show.

“I have my own theory about why the decline happens at companies like IBM or Microsoft. The company does a great job, innovates and becomes a monopoly or close to it in some field, and then the quality of the product becomes less important. The product starts valuing the great salesmen, because they’re the ones who can move the needle on revenues, not the product engineers and designers. So the salespeople end up running the company.  I don’t think anything will change at Microsoft as long as Ballmer is running it.”

Aspiring entrepreneurs often miss the basic necessity of creating customer value, and more established companies forget the necessity of continually re-inventing their customer value proposition, otherwise known as innovation.  I have to wonder if agribusiness firms aren’t particularly susceptible to innovation myopia by nature of the structure of markets in our industry.  Agribusiness firms, as they grow, focus on industry structure, pricing systems, and margin structure.  How do we ramp up production capacity while squeezing out every possible cost from the value chain?

The nature of competitive markets, particularly those that are commodity-based, tends rightfully to be on per unit cost minimization.  Does this lack of structure for strategic innovation among agribusiness firms leave many companies in a bad position in today’s evolving agriculture and food sectors?

I find many interesting examples of customer change in markets for ‘alternative’ food products.  The USDA in the last month, for example, noted that spending the U.S.  for ‘local’ food products is about $5 billion annually.  Add this to the almost $30 billion in demand for organic food products in the U.S. and you have almost 5 percent of food spending in the U.S.

Many students in my classes, at least those who grew up on farms, as well as friends who work in agribusiness dismiss these markets as markets for hippies and yuppies.  There may be a somewhat counter-cultural feel to parts of these markets, but I find much entrepreneurial energy in them.  In particular, I find leading information on where markets for food products may be headed.  Big changes are afoot, and agribusiness firms that completely ignore these changes do  so at their own peril.

Michael Porter and Mark Kramer referred to an interesting play by Nestle on ‘local’ in the January issue of Harvard Business ReviewNespresso is one of Nestle’s fastest growing divisions, with annual growth rates of 30 percent for the last ten years.  Nespresso combines an espresso machine with single serve coffee capsule containing unique coffees from around the world.

Netspresso Capsules

The challenge for Nestle in growing this business has been development of a supply chain of specialized, high-quality coffees.  Coffee is produced largely by small farmers in impoverished countries in Latin America and Africa.  Rather than work through traditional coffee procurement channels, Nestle has built a system of localized procurement over the course of the last decade.

Nestle works intensely with smallholder coffee producers to improve genetics and cropping techniques, all while creating markets that reward quality.  While growing its supplies of high quality specialty coffees cost-effectively, Nestle was able to impact the livelihoods of smallholder farmers positively in ‘local’ market channels that span half the globe and represent an efficient, if non-traditional, supply chain.

The moment for a broader view of strategic innovation has come to agriculture and the food industry.  As host of factors is driving this, including the increasing segmentation of food markets occurring at the same time as the industry faces the challenge of how to produce more.  It is incumbent on agribusiness managers to push their organizations toward the new boundaries of market and customer evolution.

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