Using Systems to Diversify North Dakota’s Economy

Article written by Michael Warner
(Mike Warner has had a 40 year career spanning a broad spectrum of business start-ups and expansions. During his career, he has helped start, direct and expand companies totaling over $1.5 Billion in annual sales and an equal amount in assets, ranging from food processing and regional healthcare to high tech software.   He has helped plan and execute the capitalization of start-up businesses ranging from less than $1 Million to over $250 Million with both success and failure.)

“We miss the progress that’s happening right in front of us

when we look for heroes instead of systems.  If you want

to improve something, look for ways to build better systems.”
Bill Gates

 

Heroes vs. Systems

The quote above by Bill Gates is ironic, because most people would point to him and Microsoft as another one of America’s great “hero” success stories. A classic example of the myth so deeply embedded in our culture. The maverick visionary who sees clearly into the future, and sets his business on a course to unimaginable success and profitability. Henry Ford replaced the horse, and Thomas Edison launched the age of electricity, all from meager beginnings and in direct conflict with conventional wisdom and the establishment.

In Bill Gates’ case, it was some computer geek kids who met with IBM and sold the great behemoth of computer technology the software for what IBM apparently viewed as a little “sideshow” in the world of computers called “the personal computer”.  Americans relish and take great pride in these stories, probably because they are legends which tie us back to our heritage. A heritage of the pioneers willing to take very high risks to form, settle and grow the greatest nation in the history of the world.

 

Systems…really, Bill?

So, how does it happen that Bill Gates of all people would say, if you are waiting for guys like me to bring you progress, you are really missing the most important link to success.   He is saying it is systems, which will bring you success, not heroes. None of us were there when Bill and his merry band sold IBM something they hadn’t even created yet. However, it is not hard to imagine what took place, indeed needed to take place, if they were to be successful.  Systems evolved at Microsoft, which could build software which provided not just a “trick” like replacing the typewriter, but solutions which helped the entire back office do all kinds of tasks better, quicker and more efficiently.

Gates is saying it was those systems they developed that made them successful and launched the personal computer, not some heroic moment of maverick inspiration.  Henry Ford developed the system that made automobiles more affordable. Thomas Edison developed the system of industrial technology research and development to light up the world and usher in the supply and use of electricity.   With that in mind you can understand why he makes the statement,  “We miss the progress that’s happening right in front of us.”

 

North Dakota Has Already Used Systems  to Diversify the Economy

North Dakota offers several examples of systems used in the agricultural industry. From approximately 1970 to the present, the economy of North Dakota and Western Minnesota has diversified its economy by establishing and expanding the value-added processing of the raw commodities it raises.  This was done primarily by farmer ownership. Sugarbeets, durum and corn led the way, but since then soybeans, sunflowers and ethanol production have followed. The result has  been billions of dollars in economic impact and tens of thousands of jobs.

 

American Crystal Sugar (ACS), MinDaK & SMSC  In 1970, the sugar industry of the Red River Valley consisted of only American Crystal Sugar, which was owned by a foundation which was milking the company of cash and not reinvesting in the plant and equipment.  It consisted of less than 110,000 acres and it was shrinking as the plants strained in disrepair and old technology. In 1972, the farmers who grew the crop for the company decided to purchase the company. Shortly behind this, farmer-owned MinDak and Southern Minnesota Sugarbeet Cooperative were formed, and they added to the processing capacity of the region.  Today these three processing facilities raise over 700,000 acres of sugarbeets, and they are the second largest sugar marketer in the U.S. This is turn makes them one of the largest in the world, as well as the most efficient producer of sugarbeets in the world. It takes a train of over 70 railcars every day of the year to move the over 2.5 million tons of sugar produced in “Sugar Valley USA.”   More importantly, *independent economic analysis shows the industry which was on the brink of failure in 1972 now provides over $3 billion in economic impact and is responsible for 30,000 jobs in the region.  It also generates over $60 million in tax revenue.

*https://www.researchgate.net/publication/23514183_Economic_Contribution_Of_The_Sugarbeet_Industry_In_Minnesota_North_Dakota

Progold/Golden Growers Corn Processing – Established in 1994 by a joint ownership between the regions corn growers, American Crystal Sugar and MinDak Farmer’s Cooperative, the company grinds 30 million bushels of corn for the production of high fructose corn sweetener and by-products.  This is approximately 7% of the entire North Dakota corn crop. The original construction cost was over $230 Million, and it provides 165 jobs in the home location of Wahpeton, ND. **Through the economic metric called the multiplier effect, the economic impact of the business result in fermultiples of the core revenue and direct job creation.  It is also estimated to add an additional $50 million to $100 million to the on farm price of North Dakota corn crop each year.

Dakota Growers Pasta (DGP) –  In 1991, the North Dakota durum growers looked to the pattern set by the sugarbeet growers of the Red River Valley and asked if they could replicate the same for their crop.  DGP was born as another farmer-owned cooperative, and today it is the third largest pasta producer in the U.S., with production of over 400 million pounds per year. This consumes approximately 14% of the entire North Dakota durum wheat crop, and provides 275 direct jobs for the small county seat city of Carrington, ND.  **Like Progold, through the economic metric called the multiplier effect, the economic impact of the business is likely multiples of the core revenue and direct job creation. For example, it is estimated in any given year, it probably adds from $12 million to $25 million in the value of the entire ND durum crop, which is valued at approximately $350 million.  DGP was at one time the only North Dakota-based publicly traded company.

** Although a multiplier effect does exists which greatly expands the economic impact and job creation, no credible study has been conducted to document the impact. However, the sugarbeet industry is very similar and an independent economic analysis reported its multiples are 3X industry revenue in total dollar impact and 11X in jobs beyond those employed directly by the industry.)

Sugarbeet Industry, Dakota Growers Pasta & Progold All Established by a System

Sugarbeets, DGP and Progold all used an established system and developed additions to the system to begin their businesses. The systems used each have their own unique story of how they contributed, but the point is, they were systems already in place. These systems focused their efforts together into a single overall system, operating together under the umbrella company structure, which ultimately resulted in three successful initiatives.  

 

A System Made Up of Systems Providing Key Elements

In varying degrees and at varying times, each separate system became more aware of the other systems contributions and goals, and melded them together into a single system. The overall single system, which evolved, provided four major elements necessary to the success of each initiative and business start-up, which included the following:

  • Marketing Systems
  • Business Planning Systems
  • Financing Systems
  • Human Resource Systems

 

Contributing Systems They Used 

The following are the already existing systems in place, which worked together to make all three of the value-added businesses possible.

  • Farmer Commodity Groups Organized Farmer/Investors
  • Economic Analysis by NDSU and Private Sector
  • Professional and Expert Business Planning
  • Bank Financing
  • Equity Financing
  • Legal Business Formation & Structure
  • Construction Planning
  • Owner Equity Financial Management
  • Business Plan Execution
  • Government Involvement
  • Local, State and Regional Economic Development

 

The Critical Systems Were Private Enterprise, Not Government

For those of us present and taking part in these three initiatives from their beginnings, one fact stands out.  These businesses were started and made successful because the primary driver was profits and returns on investments.  The farmers wanted to make money as processors, as well as farmers. Bankers understood these efforts would generate more economic activity and therefore more loans.  Expertise and professional advice and services were offered at a price. Government and creatures of government helped, but they did not start or sustain these efforts. The trusty old search for profits made it happen.

Conclusion

Remember, Mr. Gates is challenging us to forget about “heroes” and pay attention to “the progress happening right in front of us.” Our state and region built major market-leading businesses with billions of dollars in economic impact and tens of thousands of jobs.  We did it by using existing systems, and where there wasn’t one, we modified existing systems to meet our needs. We then melded them into a single system.

So, let’s do it again. Logic, expert advice, and our own experience tells us to diversify our economy by using and creating systems. Let’s use technology as an example. If we want to diversify our economy by building a bigger and better technology sector, let’s take an inventory of the systems we already have, which might contribute to that effort.  Let’s organize and coordinate these systems to focus on our technology sector. Let the profit motive drive these systems to work together into the four big categories of marketing, business planning, financing and human resource.  Then let’s tell the people of our technology sector, we are open for business.

If you are interested in further exploring the possibilities of organizing “systems” to facilitate the diversification of our economy, please contact Mike Warner at sugrbeet@gmail.com. This is especially the case if you are interested in technology.