I talked to a man the other day who has cows — Jersey milk cows to be precise.  As part of his desire to be self sufficient, he wants to open a dairy.  he lives just a couple of miles from the creamery which would give him a bit of advantage to be sure, but it still makes me think twice.

While I’m 100% behind self sufficiency, I have to wonder about a dairy.  There’s not a single career I’m aware of where one is more “married” to the job than dairymen are.  And even worse than that, when the price of milk rises and you can feed your kids.   When it drops, you starve to death until the next time it rises (which hopefully occurs before you starve all the way out of the business.)

I told my friend that I would be more interested in buying the creamery.  Not that having a herd of milk cows would be such a bad idea (if you owned the creamery,) but the focus for me would be on adding value.  The creamery makes money regardless of the price of milk.  They buy milk at whatever the prevailing price is, make it into butter, cheese, ice cream, etc. and charge whatever the market will bear.

Selling milk to a creamery puts you at the whim of the market.  You have no control whatsoever over the price of your product.  The creamery, on the other hand, can choose to be the BMW of butter or the yugo of yogurt.  They are only limited by the effectiveness of their marketing.

Look at Hagen Daas for example.  Do you think they’re worried about the price dairymen are receiving for milk?  Of course not.  They’re Hagen Daas.  They can price their product at whatever they choose and people will line up to pay it.  They’ve taken the milk, added some value, done some outrageously effective marketing, and they make money.  Never mind that dairies are dropping like flies.

This is true with any commodity.  You make a lot more as a furniture manufacturer than a lumber yard owner.  Why?  Because you take the wood and add value — value that can’t be regulated, pre-priced, or whatever.   The value is whatever you can convince people it is.  Hagen Daas is no better than any other high-fat product.  But they’ve convinced the public — through great marketing — that it’s somehow worth more.

So when you start your next business, ask yourself if you’re adding value or if you’re too close to the source to make the real money.  When you add value, you give your marketing department something to work with.  If you’re not currently adding value, see if there’s not some way to begin doing so.  Adding value separates you from the crowd and gives you the opportunity to be different (read in worth more.)

Source: Tecoris Management Group