So, What Business Are We In?

Ted Levitt, "Father of Marketing” central tenet was, know what industry you are in. He used the example of railroads thinking they were in the railroad business instead of transportation, leaving the passengers to the airplane and freight to the truck. So, what industry are we in, raising goats? Right. When the Freedom To Farm Act  eliminated the Mohair subsidy in '96 the 2.5 million Texas Angora goat flock became somebody’s dinner and, Texans discovered that they were no longer in textile business. In my goat farming class I used the fact that the U.S. sheep population has been reduced from 65 million in 1937 to less than six million today all because Dupont invented Nylon and polyester. Goats provide 65% of the world’s red meat, cheese and milk but unfortunately that world does not include the United States. Shelby and I are in the food business. We didn’t eat goat meat or drink goat’s milk. We might have had some goat cheese in our Greek salad but the food business from a goat perspective was Greek to us. We thought we were in the goat raising business. Ted Levitt must have been thinking, “And I thought those railroad guys were dumb”.

# Two What Makes The Food or Any Industry Tick?

Ted Levitt passed the marketing baton to Michael Porter, also of the Harvard Business School. Porter's book "Competitive Strategy" has become the de facto Bible of business analysis for MBA programs all across the U.S. He writes that every capitalist enterprise falls into one of three categories, Mature, Emerging or Fragmented. Automobiles exemplify the mature industry with 3 or 4 major players each needing to maintain at least a 20% market share to survive. Chrysler saved once eventually goes to Mercedes to reside along side the consolidating global giants, Toyota, GM and Ford. The rise of the personal computer illustrates how emerging technology creates many  companies in the beginning, these in time dwindle to a few players that dominate the industry. The Radio Shacks, Osbornes, Gateways, etal give way to the likes of HP’s acquisition of Compac and the critical mass of a 26% share of the PC manufacturing business. Industries, like Agriculture, Food and Retailing fall into the third category where no one firm or company has even a 1% share of the total pie. Porter calls these nameless enterprises fragmented. Besides Ole McDonald can you name another famous farmer. Fragmented industries are characterized by an infinite number of entities, each producing a commodity item and receiving the lowest competitive price. In a fragmented industry there are two and only two ways to differentiate your stuff from the other guy’s stuff. Wal-Mart has perfected the no- brainer stratagem: become the low cost producer or provider. Sam Walton turned his family run Ben Franklin five & dime into the world’s largest retailer, employer, grocer druggist, and toy store, by selling his stuff for 15 to 25% less than Kroger’s, Walgreen’s and Toys-R-Us. Bill Gates used the second, less obvious strategy for overcoming fragmentation, uniqueness to start his family owned business. Bill approached IBM, the gorilla of the mature mainframe market, with the idea of helping them conquer the emerging personal computer business. For every Wal-Mart, General Electric or IBM there are 99 family operations with ten employees or less. IBM would equip its PC’s with DOS and Microsoft would become the Rosetta Stone of the infinitely fragmented PC users market. Bill played off IBM’s mature industry lead in mainframe computers against their desire to dominate the emerging PC business. Bill and his family became the linchpin to those 99 companies out of a 100 that don’t own a mainframe.  So, Gates Smates, that’s great for Bill and Melinda but

What about Shelby and Teg? What Strategy for overcoming fragmentation in the food, agriculture and specifically the goat businesses?

I am eternally grateful to the founder of Macy’s Department stores who in

1912 convinced Teddy Roosevelt to order the pasteurization of all milk.

Today it is against the law in 48 states to sell raw fluid milk in the store. In Texas and several other states it is legal to sell raw milk only on the farm where it is produced.Here was a differentiated strategy that I likened to the Kennedys’ getting rich during Prohibition only we were selling milkshine from our legalized  ‘stil’. For 10,000 years we drank raw milk, the Europeans still do, even Louie Pasteur on his death bed denounced ‘pasteurization’ as a dumb idea. It’s as if the Feds prohibited the consumption of whiskey but substituted non-alcoholic beverages that tasted like the real thing. You’re with me so far but want to know why anybody would want to drink raw cow’s milk, let alone goat’s milk and how are we going get rich? Timing is everything. Ten years or even five years ago natural, organic and raw foods were fringe element diets. Then along came Dr. Atkins’ upending of the food pyramid, embarrassing the American Medical Association and convincing millions of overweight Americans, including me – 235 to 190lbs – what you eat is more important than how much you eat. More recently Jordan Rubin has linked our diet to every degenerative disease known to man and in his own case credits raw goat’s milk as the cure for his Crohn’s disease. So, how are we going to get rich selling raw goat’s milk down-on-the-farm? When Shelby and I got our first dairy goats, a neighbor was selling raw milk for $8/gallon. Another dairy goat producer near Waco, TX, with 200 Nubians on two acres, sold raw goat milk for $7/gal to the health and diet-conscious Dallas yuppies. Her customers were willing to make the two hour drive to Waco to avoid the $12- 13/gallon big city price tag for raw goat’s milk. We hung our shingle out on the Weston Price Foundation’s website realmilk.com and the emails and phone calls came in from Long Island, Miami and even Georgia where it is legal to sell raw milk in the store. That response was proof enough for my CPA/Analyst wife who went out and bought 50 dairy goats and built this $30,000 milking parlor. 

Our goal is to bring in  $10,000 a month from 50 does in milk on five acres.

It takes me 10 minutes to milk one goat to get one gallon of milk. If I want

an urban income of $60 an hour and I charge $10 a gallon how many goats

do I have to milk? This overcoming fragmentation through differentiation strategy only works for dairies adjacent to cosmopolitan cities. Our Panhandle farm is 8 hours to Dallas and ten to Denver. So, what are we going to do about that? Wait for the demand for natural, non pasteurized milk to force the government to license the sale of raw milk in the stores? No, Wal-Mart would soon have our breakfast, lunch and differentiated dinner. The answer came at the charter meeting of the Weston Price foundation, really the raw foods foundation. Everyone’s, including me, first food choice was pasture raised beef. I’m going back to Booker, a town 30 miles west of our farm, hook up with the local meat packer and ship $20 a pound pasture raised rib eyes to Dallas, Denver, Chicago and Houston. Thank God for ‘mad cow’ disease, hormones, antibiotics and undifferentiated meat products. I would be willing to settle for $9.71/lb

‘Choice’ meat cuts from Sam’s Club and not think about all those poor cows standing on manure piles in feeder lots. Just like milk the farmer is

the only one eating natural grass fed beef. That customized, fresh and

healthy food product rewards the producer and meat packer because it is

differentiated.

Two, four, six, eight, you got to differentiate.