How Many Baskets Do You Have Your Eggs In?

 

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By Chris Gandy

Ran into local sage Alf again yesterday and he started lamenting:

“There just aren’t any serious farmers around anymore”

“Hey, what do you mean” I said feeling a bit affronted. “I might be small time but I take this farming thing pretty seriously as does everyone I know around here”

“Yeah but you all have second and third jobs, you’re not true farmers”

I tried to explain that the harsh reality faced by small to medium-sized farming operations today is that off farm revenue is needed to keep your operation healthy and sustainable. Also having another job didn’t mean a lack of interest in farming. In fact you could argue that it is a sign of just how committed to the land some people are – working 16 hour days just to keep their passion alive.

Alf wandered off down the road grumbling. I think he could see my “not having all your eggs in one basket” point but he is not one to admit it.

I got to thinking after our little encounter that not for profits face the same dilemma – but how both groups tackle it tends to vary considerably.

In this country, at least, where Government contracts dominate the funding landscape, the common mantra seems to be ” have a diversity of contracts or perish.” If a tender pops up that is even slightly related to our Cause we must go for it. Lets have a mix of contracts (revenue streams), lets spread the risk! In theory this sounds sensible but in practice it just doesn’t seem to work all that well for an organisation’s Cause. The reason is that every revenue stream comes with a cost. New contracts are expensive to set up and place the organisation on another learning curve. They often require the recruitment of new people with the ability to deliver the service; new management and compliance systems; divert management attention; and often confuse the supporter base – “Hey I thought you are focused on people with a disability, now you are providing mainstream youth services – what next?”

OK, so what can the sector learn from farmers when dealing with this diversity issue? Here are three things:

1. Have a darn good reason to diversify. Farmers I know have “off farm” jobs because they have to. It is a means to an end. The second job is seen as supporting the main cause – in their case the farm. But to put it bluntly, if they didn’t need the extra income to reinvest in the farm they probably wouldn’t have a second job!

2. Get into something you know and are good at. I realise I am talking about a very small sample here, but many good farmers I know are also very competent builders, electricians, business consultants, plant operators etc. The lesson here for non profits is to only diversify into a new business area where you have the organisational knowledge, ability and desire. Chasing new contracts shouldn’t be an ego trip. It must be a researched strategic decision.

3. No more than two revenue streams. Not taking in to account working partners, individual farmers can physically only successfully handle two jobs – the farm and one “off farm”. They place their eggs in two baskets. And there is empirical evidence to support that this is a prudent approach. As reported by Clara Miller, the financial performance of just over 1000 US organisations providing youth services was compared against the number of revenue sources they declared. And as Clara says the results are very interesting:

” It is easy to conclude that two revenue sources are better than one, but interestingly, more isn’t necessarily better. When organizations have a third major revenue source, profitability declines and, in some cases, to levels below that of organizations with only one primary source. This likely happens because a third line of business creates complexity and drives up internal costs, boosting the overall cost structure.”

Do you need to reconsider the number of baskets your organisation has its eggs in?

About Chris:  Chris Gandy is a farmer and the founder and a director of Cause and Effective – a provider of contingent resourcing and leadership search services to cause-based organisations.

About B-Cause

B-Cause is published by Cause and Effective. Our goal is to inspire, inform and encourage people doing good to do even better.

Thats our take on things. Over to you, please add to the discussion.

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