"Overcoming
Fragmentation Through Differentiation", Michael Porter.
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| The guy in the cap, Ali from Turkey, buys sheep and goats in San Angelo, Fredericksburg, Junction and Goldthwaite for the eastcoast ethnic market. |
What Makes Your Industry Tick? Ted Levitt passed the marketing baton to Michael Porter. Porter's book "Competitive Strategy" has become the MBA Bible of business analysis. He writes that every capitalist enterprise falls into one of three categories, Mature, Emerging or Fragmented. Automobiles are a mature industry with 3 or 4 major players each needing to maintain a 25% market share to survive and thrive. The rise of the personal computer industry is an example of emergence. First there was Radio Shack and a host of others and now HP has acquired Compac to lay claim to a 26% share of the PC manufacturing business. Meat goats in the United States are ten years old but the American Dairy Goat Association is celebrating 100 years in 2004. But our business, the food business, is 100,000 years old. It must be a fragmented industry where no individual firm has more than a 1% share of the total pie. Where there are little or no barriers to entry. Shelby and I know that is right. We started with $2400 in bred nannies and now own 100 of the 1 million goats in Texas, one ten thousandth of the total.
Michael devotes a whole chapter to competitive strategies for use in fragmented industries e.g. agriculture, food and retailing. Of course his book was written in the early eighties, well before the Boer goat made it to the U.S., so there are no goat examples. He does use this matrix, Harvard invented the matrix, to illustrate the two main themes to success in a fragmented business.
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Differentiated |
Low Cost Producer |
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|
General |
Signature Farming Registered Herd |
Plain ordinary ole meat goat |
| Focused | Registered Boer Goat Herd | Red head, white bodied, Boer goat |
It is easier to visualize what Porter is talking about using the meat cow as an example. There are 100 million head of cattle compared to 1 - 2 million goats. Americans each eat 84lbs of beef every year and hardly anyone has ever tasted goat. The Angus marketing program has been in existence a long time, even Burger King touts Angus beef. The meat goat industry is so highly fragmented that when it comes to slaughter goats, low price is the only form of differentiation. When Doumit, our Marionite Lebanese buyer, comes to our farm to kill a barren doe, we differentiate ourselves as the local goat farmer he can trust. The West Texas low cost producer spends $36 out-of-pocket cash per year per adult nanny. We spend closer to $150 and Doumit gives us $125. So much for differentiation.
Working backwards from Ted Levitt, we are in the food business. Why do we want to raise meat goats for food. Americans don't eat goat meat. They don't eat Emu, Ostrich and Alligator either, so how are we going to differentiate our goats from anybody elses. We do and can differentiate cattle because buyers are willing to pay for their main course. The ethnic goat buyer is not into organic-hormone free-grass fed meat and the beef-eater is not impressed by the fact that all west Texas goats are all natural, 100% pasture (semi-arid vegetation) raised, consuming only what God put out there to eat. The price per pound has gone from 80 cents to $1.40 in the six years that we have been raising goats. Say the total real cost is 50 bucks, as in dollars, per nanny. Nanny Algorithm is a .95 nanny (5% death rate for adults) has a 175% birth rate in the bush and her babies stand a 10% chance of not making it. .95 x 1.75 x .9 x 80lbs (max sale weight/best price) x $1.40/lb = $168 or $118 net. That's a year. How many nanny goats to make even $10,000 a month. Try a 1000. Thirty acres per 1000 pound animal unit - the stocking rate in San Angelo, TX - means 5000 acres for your 1000 goats. At $250/acre minimum, you'll need a million 250 to get started. There are Texas ranchers with 2, 3, 5,000 goat herds but they already had the land.
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Differentiated |
Low Cost Producer |
|
|
General |
100% Grass fed meat cow |
Plain ordinary ole meat cow |
| Focused | 100% Grass fed Angus cow | Black Angus cow |
The cattle industry doesn't have it much better. NPR ( National Public Radio) did a report on the feeder lot enterprise where the cow spends the last 40% of its life. $3 net profit on a $1000 animal is the average take home pay for the last 20 years. Cattle are graded prime, choice and select with the price paid being higher based on the quality of the finished carcass. A goat is currently a goat, sold by the pound with the buyer doing the grading based on the goat's appearance in the sale ring.
What Is Your Strategy? Every business owner has an inherent strategy for achieving profitability. Our original game plan was to sell Full blood Black Boer breeding stock for $500 per head instead of goats you eat for $50 a piece. Last week, midway through our sixth year raising goats, we calculated $156 instead of $500 of gross income in breeding stock sales. If we had sold them at the sale barn for a dollar a pound we would have made $160 a month. Worse yet our goats eat 30 cents a day in grain and alfalfa leaving us a net profit of twelve dollars per doe. We are in the food business but everybody is eating lunch but us.