Creating a Great and Lasting Farm
Talking generational farm transfer with Tom and Irene Frantzen
Tom and Irene Frantzen are leaders in their willingness to tackle generational farm transfer issues—and in being willing to share so that others may learn as well. They also are proponents of the leadership principles in Jim Collins’ book Good to Great, which Tom first heard about while serving as board chair of CROPP Cooperative’s Organic Meat Company. I recently sat down and talked with Tom and Irene about how those leadership concepts apply to generational farm transfer.
Teresa: Good to Great is a best-selling book on business management. How do you think the book and its ideas apply to all those vexing issues surrounding transferring the farm to the next generation?
Tom: The book is based on extensive research of 1,435 companies. The researchers found that only 11 of those companies deserved the ranking of “strong and lasting.” Their study is based on financial performance, but the book also applies to agriculture and generation transfer in so many ways. Take leadership, for example. We often think great leaders need to be charismatic folks who can command a room, but the book indicates that that is not necessarily so. Visionary leaders don’t provide the vision. They create the right atmosphere, and the people around them develop the vision. And they see the development of their successor as an essential responsibility of leadership.
Teresa: So the older generation should not create the vision for the future of the farm when they are gone?
Tom: When the older generation tries to dictate the vision for the younger generation, you have a lightning rod for future problems.
Irene: If we said that our farm has to be an organic farm in the future, for example, we would be setting that vision for the next generation. Instead we, as the retiring couple, need to listen, to accept that the farm may look different in 10 years. The Nimrod Family [the recipients of the 2014 Practical Farmers’ Farmland Owner Award] knew they wanted their farmland to be used as a family farm. So they searched and found the Petersons and sold their farmland to them. But they let the Peterson family set their own vision and farm the land according to their needs.
Tom: Amanda, who is working on our farm, is another example. I am stepping back from deciding where the farm needs to go and am trying to create the atmosphere where she can develop her own vision. To do that, I have to know Amanda’s passions and talents, as well as the economic drivers for the farm.
Teresa: A central concept in Good to Great is that you need to get “the right people on the bus.” With farm family businesses, who is on the bus is not as flexible—your family members are already there. To be blunt, you may not have a son or daughter who has the skill sets you need. Does family trump talent sometimes?
Tom: Here is where the farm is different from businesses that don’t have family ties. Good to Great asks: Who wants to be involved? To what extent? In which roles? With generational transfer, asking the “who” question first opens the transfer discussion in the right way by seeking to engage the right people first. This prevents the discussion from starting on “what are we going to do” and instead asks if all of the right people are engaged or should we look into getting some outside help.
If you have a farm family with zero interest in the next generation in farming, then the farmers have to face the brutal truth: Where is this farm heading? It might be heading to the auctioneer. If you want to have a great and lasting farm, you need to create an atmosphere to bring people in who take ownership. This is why great and lasting companies are so slow to fill positions if they can’t find the right people. If you hire the wrong person in the wrong spot, how do you fix this problem? And if you do not fix it, how much damage will be done?
Teresa: This “facing the brutal truth” is a key concept in Good to Great. What are some other brutal truths with farm transfer?
Irene: One is “doing nothing is not an option.” You cannot just say “My kids will take care of it.”
Tom: Yes, if you do nothing, you are not going to like the result. Another brutal truth: If you do something and don’t communicate with the others involved, that will backfire. Not having an open discussion can lead to people being left out and then becoming angry or disillusioned.
Teresa: Is this a brutal truth: If you have farming and non-farming heirs, you will not be able to treat them all financially equally AND provide a situation where the farming heir can continue to farm?
Tom: I agree with that. A 240-acre farm I know was split six ways. The guy who was trying to farm it only owned 40 acres of it and had to deal with all the other family members. Now it is in bankruptcy and a hell of a big mess. A lot of people are getting hurt. There must be sacrifices made. My dad made that really clear when he decided to sell Irene and me the farm. ‘Dorothy and I will be the decision makers here without referendum,’ he said. My dad did not say, ‘I am going to have my estate divided equally six ways.’ He could see that was not a good thing to do. He didn’t love any of his kids less, but he had to make a decision and then go forward with that decision. And he communicated that very clearly to all of us. There was no confusion about what he was going to do, and therefore no unrealistic expectations. We dealt with his generational transfer while he was still alive, including the dispensation of his personal assets. And the six of us get along today, which is priceless.
Irene: I know of one family where a child said, “That is MY money is taking care of Dad in the care center.” The brutal truth is that money is the parents’. You might inherit it someday, but it is not your money. The cost of long-term care is a brutal truth, and all that money may be needed to help with the care of the parents.
Tom: Another brutal truth: When husband doesn’t let wife be involved in the farming decision making and operations, what happens when he dies? If the pilot drops dead and the co-pilot doesn’t know how to run the ship, then the pilot hasn’t done his job. The brutal truth is the couple better have a working relationship that will take them through unexpected situations like a sudden death.
Teresa: With your generational transfer planning, you thought through all of these terrible scenarios: What if Tom dies tonight? Irene dies tonight? Tom and Irene together die tonight? What if James dies before Tom and Irene? And so on. These are all brutal truths.
Tom: Any plan that does not take potential disasters into account is not a plan.
Teresa: Because there are so many of these “brutal truths” in generational farm transfer, a lot of people are scared to get started. Which brings us to the “Stockdale Paradox,” discussed in Good to Great.
Tom: The Stockdale Paradox is that you lay out the brutal truths, but you still take action. Stockdale did not believe his conditions as a prisoner of war were going to get better. He did believe he was going to survive. He said that those who set themselves up with unrealistic expectations got into a “doom loop” when those expectations were crushed. They were taken down psychologically. In all the great companies, you must believe you will be successful, even if it takes many years.
This works well in generational transfer: If you care about this operation and you absolutely want it transferred to the next generation, you must believe you will be successful in the end and set down an approach to make it happen. You can’t just say “It is going to work if my son does this.” You must say “we are going to make this work. Period. We may have to suffer consequences in the process.”
Teresa: When the Good to Great team did their research, they thought that circumstances were the key role in creating great and lasting companies. They discovered that wasn’t the case. Conscious choice and disciplined action are the key influences instead.
Tom: The book builds on the famous essay “The Hedgehog and the Fox” by Isaiah Berlin, which in turn is based upon an ancient Greek parable. The world is divided between fox people and hedgehog people. The fox knows many things, but the hedgehog knows one big thing. The fox people look at the opportune moment to make the most money in the shortest period of time, without discussing the economic drivers, passions and talents of the team. The fox is always looking for the greatest opportunity—like making a killing selling high-priced land…
Teresa: … or taking out the pasture to plant $7 corn.
Tom: Absolutely. That is a fox strategy. Or get out of pigs because the market is going to go down next year. Agriculture is so loaded with those examples. The hedgehog idea in the book is different. Hedgehogs have a unifying vision. They include three overlapping circles: What are you deeply passionate about? What can you be the best at in the world? What drives your economic engine? When I read about the hedgehog concept, I felt better about myself as a farmer. I like what I am doing. I am not the best at a lot of what I do—a lot of farms outperform me on almost everything. But my best talents are knowing the value of an integrated package and doing my best to make that integrated package work—some marketing, quality control, etc. I am a generalist, not a specialist, and that is my talent.
A successful generational transfer – a great and lasting farm — will take this hedgehog approach. It will integrate the people’s passions and talents and economic drivers as well. Passions. Talents. Economic drivers—you need all three.
Teresa: Another concept from the book: the flywheel. Collins points out that good to great comes about by a cumulative process—action by action, step by step, turn by turn of the flywheel. There is no single defining action, no one killer innovation or lucky break that makes a great institution. Instead, great and lasting institutions push with great effort, over and over again, to keep that flywheel turning. How does this apply to farm transfer?
Tom: The flywheel is made up of the current things that work. Our farm is a good example. Amanda is very interested in learning about the farm and she has some great talents. I can flesh out her talents very well. But I own the beef cow herd and I own the brood sow herd. And we own the cropland. The question: Is she going to build her own flywheel and run the farm differently? Or will we continue to feed the current flywheel? If she does not want to take the farm organic, then she’d build a different flywheel. If she does not want the beef cow herd and wants to buy feeder cattle, the flywheel for the farm will change.
Teresa: Can’t there be a tension between keeping a good flywheel running and letting the next generation set its own vision?
Tom: Some examples: My parents had a poultry laying business with about 1,500 head. I wanted nothing to do with that. My dad had a small hog operation, and we needed to expand that operation so I could pay him rent. We had no beef operation at that time and no dairy. After some discussion, the poultry flywheel was stopped, even though it had been part of the farm since the 1930s.
Teresa: You could also see the flywheel as the whole operation as well. You let the poultry operation go and the flywheel slowed some but then picked up when you expanded the hog operation and then added cattle, for example.
Tom: When I started farming, I needed to get more revenue because I had a mortgage with my parents’ grain and livestock equipment. So I rented my dad’s pigs, and I fed the flywheel by raising more pigs. My dad fed the flywheel by investing in facilities even though he was a retiring farmer. That was quite a sacrifice he made.
Teresa: Another analogy of the flywheel and farm transfer: You have to keep taking action to keep the generational transfer flywheel moving. As you two continue to do, bringing Amanda in to the operation, selling your feed business to James, and continuing the discussion with Practical Farmers on your planned gift of land.
Tom: The retiring couple has to have the discipline to create a culture that welcomes the young people in. And they might have to listen to some things that they don’t want to listen to. There will have to be sacrifices here for the greater good, and how can you make sacrifices without discipline? When it comes to transition, many leaders have poisoned their companies. They see themselves as the savior. There are people who want that poison pill, because it feeds their ego. The same thing happens with generational transfer. Farmers may think “I’ve spent my whole life creating this farm. It’s the perfect operation. The day I leave the whole thing goes to hell.’ That is not leadership. It is a lack of commitment to the idea of great and lasting. Farmers who make a conscious choice and use disciplined action to transfer their operations to the next generation are the leaders who create farms that are strong and lasting.
Tom and Irene Frantzen are featured in The Future of Family Farms: Practical Farmers’ Legacy Letter Project, which is being published this fall by University of Iowa Press. To order the book, go to uiowapress.org/books/2016-fall. For more information on generational transfer (including more on the Frantzens’ plans), see practicalfarmers.org/farm-transfer. In addition, find more good resources at farmtransitions.org.