Shrink & Grow

Kerry Herndon

I just finished a great book called “American Icon” by Bryce Hoffman. The book chronicles the Ford Motor Company’s near death and turn-around under Alan Mulally. It’s an inspiring story of how focusing on the basics and making the big cuts in expenses were able to save Ford from the fate of the other two big auto makers.

The company seemed to see how bad things were long before the other big auto makers and got a lot of financing while it was still available. In all businesses, cash is king. From small startups to huge Fortune 10 companies, when the cash is gone, so is the business. Even before the financial crisis, things were going badly for the Big Three. Foreign transplants had huge cost advantages over Ford, General Motors and Chrysler. The cost to make a car under the union contracts was about $800 more than for their competitors, with new manufacturing plants in southern states and no union contract.

So Mulally had to simultaneously slash all costs across the board while improving the quality and product offerings to the American customers. These would seem to be mutually exclusive and impossible to achieve, but that’s just what he did and is considered one of the great business leaders of all time because of it.

While none of us work for or run a Fortune 10 company, the rules are still the same. When demand goes down we must shrink to meet the demand or suffer excess inventory that must be sold at a deep discount. Even if we do the right things and our competitors over-saturate the market, we’ll suffer, just not as much. I see a huge amount of idle capacity, empty shadehouses and greenhouses, but still there’s too much of many types of plants in the market for the current demand.

I’m told that there are a lot of ornamental growers looking at the food space, as we’re doing. Like with everything, the trick is not in the growing, but in the selling. Field growing is very productive, and even with the high cost of truck transportation all the way from California, it’s difficult for an East Coast greenhouse to compete on price. It would be hard to argue that the quality is better than produce from Mexico and California, especially when they’re grown in greenhouses. The world of food is extremely competitive, but there’s also a large and continuous demand. Navigating this kind of change is both difficult and dangerous.

It’s always a little surprising to me to see how similar the rules are in business. Whether it’s $1 million or $100 billion, some things don’t change. You must have customers who want what you do or there’ll be no sales. You must sell your products for more than it costs you to make or buy them. You must comply with government rules and regulations. You must act with honesty and integrity or it’ll come back on you.

These last seven years have been challenging for many of us. Some have recovered and are now in good financial health; others not so much. For sure, it’s a different world than it was pre-financial crisis that requires our return to old disciplines unnecessary in times of plenty. Most of us are reluctant to cut deep enough fast enough. I am. Mulally was not.

Ford cut everything to the bone and then some. But they kept investing in future products and quality. By keeping that focus and concentrating on the numbers, they were able to squeak through the worst financial downturn since the depression. They did get some help from the government like all of the automakers, with low interest loans for retooling. And the cash for clunkers was a great shot in the arm for all the automakers. Still, Ford was the most prepared to take advantage of an improving economy. Mulally kept repeating to his beaten down staff the ride down is terrible, but the ride back up is wonderful. GP

Kerry Herndon owns and operates Kerry's Nursery Inc. in Homestead, Florida. He can be reached at kherndon@kerrys.com.