Unintended Consequences, Part 1

A few months ago, I was honored to join the board of the Urban Ag Council (UAC) which is comprised of the top green industry companies in Georgia. In recent discussion with industry leaders, it is universal that labor, or lack there of, is the number one issue facing any service business and especially the UAC companies. Our nation’s entitlement programs have given Americans a number of alternatives to a conventional “hard days work” as a means of income and financial security. This has created an imbalance in the supply and demand between the number of workers willing to break a sweat and the number of service positions needed to meet market demands. There are many effects of this imbalance:

1) The wage that must be offered to a normal worker goes way up. With more demand for positions than supply of available workers, simple market economics force wages to go up. In a recent WSJ article, billions of dollars in produce went to waste in the fields this past season because there were simply not enough willing workers to harvest them. This occurred after many farmers raised wages to $17 per hour, which is double what they offered just a few years earlier.

2) There is massive amounts of poaching and turn-over in today’s work force. Similar to a buyer’s market with housing, there could easily be ten spots for each worker to choose from and they are jumping ship as companies one-up each other. The impact of this is that business interruption increases and resources spent on training go up for each business. 

3) Consumer price expectations and market pricing are and will always lag behind rising labor costs, which greatly depresses margins and profitability for service businesses. Just because the cost of labor for produce farmers doubled doesn't mean that the consumer is willing to pay double for a tomato or blueberries. 

Regardless of your political views, there are always unintended consequences when government policies interfere with free market economics. But, there is good news! The two part solution to this problem lies in first evolving and utilizing technology to automate and mechanize every area of your business that you can so that you can get more done with fewer resources.  The second part is that you must have a deep understanding of your numbers. You must know what products, services, processes, and customers work and which ones don't. Where you may have been able to get away with it before, you simply won't survive if you don't know your numbers. My next blog post will elaborate on these two solutions in more depth. Until then, think about the impact of these unintended consequences and how you will put yourself in a position to not only survive, but thrive.  

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