Matthew Hickman is fond of phrases such as “blowing up the organization” and “taking a few leaps off a few cliffs” when talking about his company’s recent history.
He also uses a term familiar to most farmers: shrinking margins.
Hickman’s business, pump and water systems equipment, is far removed from agriculture, but his willingness to jettison enterprises that aren’t generating sufficient profits is something farmers can learn from.
Municipal water infrastructure work comprised one-third of Kean’s Pump Shop revenues when Hickman bought the St. John’s, N.L., company in 2004.
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“It wasn’t so much carving off a part of our business, it was more like an amputation,” says Hickman.
“It had been a good business but once we realized that was no longer the case, we looked at our core strengths and decided it was time to go in a different direction.”
That meant going against the current. The Walkerton contaminated water tragedy in 2000 had pushed governments across the country to rebuild their water treatment systems. That had encouraged more competition, pushing down margins.
So months after buying the shop, Hickman was plotting changes.
“The fact we had to gut this business and go in a different direction didn’t make me regret buying this business because what I had bought was a set of competencies,” says Hickman.
“We knew an awful lot about water and water treatment. We had tremendous vendor relationships, as well as tremendous sales people, management and technicians; and we have people in our business who love a challenge.”
Farmers, of course, are no strangers to change. When soybeans and canola offered better margins, farmers planted more. Ditto for hogs a decade ago and direct marketing of local food today. But Hickman wasn’t looking at current market conditions and what was paying well at that moment. His focus was longer term and centred on leveraging his company’s core strengths.
“I wanted to have annuities, something that was valued-added,” he says. “I also wanted to be in businesses where it’s not just your price but also it’s your product, it’s your warranty, your sales ability, it’s your competence, and it’s your service that helps you get the contract.”
Today, Kean’s Pump Shop has added pumps for ventilation and heating to its line.
It increased marketing of water softening systems for homes and boosted sales in that area from 20 systems a year to more than 500.
“You don’t just install these things, they need semi-annual servicing and they’ll wear out eventually, so you’ll need to replace them,” says Hickman. “If I sell you a heat pump, I’ll be back to take care of you time and time again.”
On the surface, primary agricultural production seems like a different kind of business. You don’t need to service the wheat or milk that you sell. But is that really so?
Look at the custom farming business or identity preserved production. These are businesses based on a skill set complemented by your marketing abilities and capacity to offer customers great service.
Custom cropping and IP production are broad examples. Your opportunities will depend on your circumstances and skills. Although, Hickman talks about blowing up his business, he also describes it as an evolutionary process.
“It took a few months for us to decide what avenues we wanted to experiment with,” he says. “Some worked and some didn’t, and it took a few years to get to the point where we got full traction.”
The process started in mid 2005 and today Kean’s Pump Shop has doubled in size, not including a rapidly growing home heating, ventilating and air conditioning franchise that resulted from another leap off a cliff.
If your farm is growing and profits are increasing, great. If not, maybe it’s time to think hard about your core competencies and whether it’s time to contemplate a leap or two.
Glenn Cheater is editor of the Canadian Farm Manager, the newsletter of the Canadian Farm Business Management Council.
