Tomato Plant

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The Tomato Plant Problem

One of the classic management dilemmas is the presence of business opportunities that outstrip available resources. A manager in such a situation can be compared to a farmer who has 20 acres of tomato plants and enough water for only 10 acres. The problem is insidious and eventually pervades even the largest, most profitable companies. 

SPROUTING TOMATO PLANTS  

Tomato plants start sprouting when you’re flush with profit and cash; new technologies beckon; ideas compete; development projects proliferate. And management rationalizes that the most profitable path to the future includes parallel, competitive developments that will provide “future choices.” Under this scenario, tomato plants sprout like weeds and water floods the fields to nourish them.

But Parkinson’s Law eventually and inevitably comes into play: Any project eventually grows to consume and then exceed the resources available to support it.   The tomato plant problem hits smaller, entrepreneurial firms particularly hard. Human nature often drives the entrepreneur to race frantically around the field, sprinkling a little water here and there, trying to keep all the plants alive. Then, as the frustration and anxiety grow, all 20 acres of plants begin to wither and die. And the company is left hanging. 

HARD CHOICES  

The reality is this: If you have 20 acres of tomatoes and only 10 acres of water supply, you must either get more water or plow under 10 of the 20 acres of plants.   “But those tomato plants are assets!” you say. And that is precisely the point. To restore the balance and focus of the business, you’ll have to get rid of assets. It’s a hard thing to do. 

GETTING MORE WATER

 There are, of course, all kinds of ways to go after more resources, at a price. Going into debt is one of the common methods for underwriting opportunity and borrowing more water. But you must have a plan for repaying the debt and interest or you’re simply deferring the problem to a later date. Debt deepens the bet and the burden and those plants had better yield big tomatoes or you’re in trouble.

Giving up equity is another common way to go after more water. But when you sell a piece of your enterprise to investors, expect your investors to be closely involved in the approval, control, and implementation of your business plans.  

Increasingly, companies are turning to “strategic partnerships” as alternative sources of capital to leverage scarce resources. A well-matched partnership can fill product gaps, produce sales force synergy, and help both partners to compete more effectively.

Of course, these tactics take precious time while the tomato plants continue to wither. Like most things, your timing and structure can make the difference between winning or losing your company. 

GETTING OUT THE PLOW

It takes courage to get out the tractor and start plowing under assets. It’s hard to turn down the next product acquisition or the two page advertising spreads that look terrific or the massive direct mail campaign plans.   It’s even harder to stop doing something that has already become a tradition, or to kill off a product that is marginal. But it’s axiomatic that 20 percent of your product line probably accounts for 80 percent of your profit, and something has to go.  

There are usually several ways you can save: 

• Review the last 6-12 months of sales and chop or reduce the promotion for marginal products.

• Cut non-revenue-producing activities and overhead.

• Track/measure the yields from marketing campaigns and weed out the ones that deliver marginal sales.

• Contract for temporary, project-oriented, professional personnel to delay or avoid hiring more staff.

• Cross-train your employees in multiple jobs so that you can more readily respond to peak load needs in various parts of the business.

• Stop pouring additional money into products that are not positive profit contributors. 

Above all, don’t panic. 

PLANNING

You should develop alternate scenarios to try to anticipate any possible outcome. Plan three cases: a best case, a most probable case, and a worst case.   When you plan ahead like this, you will be forced to examine your assumptions more objectively.

It is crucial to begin planning when you first realize that you don’t have enough water and before it has become a crisis. You’ll probably come up with a hybrid plan that involves both getting more water on the one hand, and plowing under some plants. You may actually discover that you’ve improved your profitability by making these hard decisions.  

 

 
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All contents of this site are copyrighted 2003 by Mike Harvey .  All rights reserved.
Last modified: 9/15/2014