Monday, May 11, 2009

Management Values that Count

Stanford Graduate School of Business Dean Robert L. Joss recalls powerful lessons from his grandfather, a dairy farmer

STANFORD GRADUATE SCHOOL OF BUSINESS —While I did not realize it then, I know today that I had learned nearly all the essentials of business management and leadership by the time I was 17. My teacher was my grandfather. He was a most unlikely teacher—being a high-school educated dairy farmer. But the lessons learned by watching and working with him in the 1950s are as powerful and relevant today as ever. My grandfather's 340-acre farm was in upstate New York—within the little town of Putnam Station, about 10 miles from the (more famous) village of Ticonderoga. He was the third or fourth generation of his family to try to make a living on that property. That was never easy. With modest meadows for growing crops and hilly pastures for supporting livestock, it was challenging to generate enough agricultural activity to sustain a family. On top of that, my grandfather was not really cut out to be a farmer. He was a people person. At one time he was the town postmaster. At another time he was half-owner and manager of the local general store. Eventually, after prodding by my grandmother to make the farm more financially productive, in the late 1920s he bought a small herd of dairy cattle—as dairy farming was the predominant activity in that region. Being a dairy farmer in the midst of the Great Depression was no picnic. The only operative business model for these small Putnam farmers was to put their daily milk output into 40-quart cans, which were then picked up periodically by a truck from the Dairymen's League cooperative for further processing and retail distribution by dairies and creameries. Even by the 1950s, milk still sold in this wholesale fashion for only 2 cents a quart. And that is what every local dairy farmer did. Except for my grandfather! He decided to bottle his milk, put it in cases in the back of his pickup truck, and sell it door-to-door in Ticonderoga. With his convenient delivery, amazing personal service, and returnable glass bottles, his retail price was 15 cents a quart. So there was my first great management lesson—business models really make a difference! Strategy is all about being better by being different, and he was a very different kind of dairy farmer from his neighbors. In particular, he intuitively grasped the idea of creating and adding real value for the customer, and finding a way to get compensated for that value. It is such an important lesson—timeless in its applicability. No amount of technological change or globalization alters this fundamental truth about business. But there was a lot more learning. The second thing I learned was about customer service—real customer service. We not only delivered door-to-door, we often (depending on customer preferences) put the milk right in the kitchen fridge. We knew every customer by name and background. He granted credit when people couldn’t pay that week. He extended his product line to include cream, eggs, and poultry (the chicken "division" was run by my grandmother, who handled all the egg and poultry production)—classic brand extension moves when you have unique distribution skill. My grandfather was a true entrepreneur—an owner-operator always willing to innovate, to try new things. Third was operational synergies. We "recycled" the cow and chicken manure as fertilizer for the hay meadows and cornfield, which meant his crop yields were always the best in town, thereby lowering the need to buy any additional cattle feed and keeping costs down. We recycled the milk bottles (indeed, most customers left their current payment inside an empty return bottle). We rotated crops to keep the fields highly productive.

Fourth was hard work and discipline. My grandparents worked incredibly hard. If you want to really understand what it means to be responsible "24/7"—then be a dairy or chicken farmer. The cows have to be milked twice a day, 365 days a year. You have to pick up the eggs and clean the henhouse daily. I worked with my grandparents almost every summer for eight years, rising early and retiring worn out; milking cows twice a day, cleaning stables, delivering milk in the mornings, and harvesting hay in the afternoons. The discipline and hard work were memorable, and very satisfying. They shaped my work habits for a lifetime in leadership roles. Fifth was integrity and ethics. The customers trusted my grandfather and favored him with their business. He trusted them—sometimes too much, credit-wise. I can remember my grandmother worrying about certain people who owed him too much money, but my grandfather didn't have the heart to deny them milk for their kids. He was as honest as the day is long, and would never take advantage of a customer or supplier. Any dispute went in the customer's favor. He sold them products they needed, at a price that was fair (how's that for a timeless and winning business idea!). Sixth was about cash flow. Almost everything in this operation was on a cash basis. He knew his daily revenue by adding up the cash each night, and we spent many hours counting and rolling coins, and wrapping bank notes, for deposit at the local bank. Most of the year our immediate family lived 2,500 miles away in an urban setting, but when we spent summers on the farm, my brother and I handled the direct-to-customer delivering while my grandfather drove the truck. We were like walking cash registers. We would start the day with our known cash supply (bills in one pocket, coins in the other), then take in the customer payments, make change, and account for our cash at the end of the day. Pretty easy to see how cash was the lifeblood of the operation. Seventh was about interpersonal skill. As I said, my grandfather was a people person. He was outgoing and gregarious. Everyone knew him and greeted him warmly, and vice versa. Today we would say his social and emotional intelligence was very high. He was a living demonstration of the importance of managing relationships, as well as managing tasks, in any business. He wasn’t a better farmer than anyone else in town, but he had this entrepreneurial and interpersonal dimension that few others had. As a final lesson—my grandfather was all about having fun. He was fun to be with. He made life fun for all those around him. As hard as he worked, he just had fun doing it. His joy was infectious. As I said, I had learned all this by age 17. But the wisdom and relevance of these eight lessons seem even more powerful today. We wouldn’t be reading and talking about a global financial crisis if all our major institutional leaders had learned and practiced these lessons in recent years.

 

This essay originally appeared in The Financial Times May 11, 2009