Apples and Orchards #43
Hey all, and happy Friday.
Today I wanted to share an idea, perhaps more an observation, an observation on something we all see but don’t necessarily notice. And I’ll try to explain it through an abstract version that may be more relatable.
Observation
A company I used to work for frequently posts on social media to celebrate employees who have been with the company for many years. The post is often accompanied by a picture of the CEO and an employee. In the photo, the CEO is handing an employee a certificate congratulating them for their long-term service.
In this specific case, the long-term employee probably earned €40,000 that year, the CEO took 100% of the profit from the business which was around £10,000,000 (don’t be shocked but these are real values).
Now this isn’t a post about how unfair compensation is between owners and employees. Instead, it is some thoughts on the ‘game’.
You see, we’ve often heard the saying…
Don’t hate the players, hate the game
but I’m going to level with you, I don’t think you or I really understand the ‘game’.
So let’s explore that.
The ‘game’ as an analogy
I want you to imagine, everyone is given a small piece of land when they are born. They can’t expand the size of that land, it is fixed and is of equal size to everyone else.
You start to decide what to plant on that land to grow.
And as you get older you look around. You see what produce is selling in the local area, and you take advice from family and friends about what they think will be good to grow on your land. And then you decide what to plant.
Let’s say you planted some carrots.
You spend several years growing carrots and selling them at the local market. Life is good.
Demand in the local market varies over time, but your carrots continue to sell.
One day you were reading “Small Farms Weekly” and an article made being an apple farmer sound exciting. So over the winter months, you learned all about growing apples and the following season you planted some apple trees. It took a few years for those trees to grow and bear fruit, but eventually, they did.
Your small orchard produces around 100 apples per week.
You eat some of the apples yourself, you give some to your children and every week you take 40 apples to the local market and sell them.
The price you get depends on a whole range of things.
If you’ve maintained your farm correctly, and only used the best fertiliser - then your apples are the best in town, and they sell for more. Because they are a better product.
If someone else who grows apples unexpectedly turns up to the market with a truckload of apples, then your apples sell for less. Because supply was greater than demand.
You even noticed that you can charge more for your apples if you put them in some fancy package. For some reason, people see that as a better quality product and are willing to pay more, even though it’s still an apple.
The Problem
Your apples grow at the same rate every week.
Every week you collect 100 apples from the orchard. And you try to sell 40 of them every week.
To be honest, you need to sell 40 apples every week. you can’t live solely off a diet of apples and you can’t pay the mortgage with apples. So really, you are dependent on selling those apples.
The problem is, sometimes the local market isn’t always busy - some weeks you sell all your apples and wish you had more to sell, and other weeks you end up throwing away good apples because they didn’t sell.
The default solution
On the other side of town, one person decided he wasn’t going to use his small piece of land to grow produce. Instead, he builds a small unit on the land and starts making apple pies to sell at the local market.
After talking to that person, they promised to buy your 40 apples every week. But there are some conditions…
You can only sell your apples to them
You must supply a minimum of 40 apples per week
They may or may not buy the surplus apples you produce
You must deliver 8 apples every weekday, to be delivered promptly at 8 am and distribute at a rate of 1 every hour until all 8 have been distributed
You are able to ‘not supply apples’ for 5 weeks every year, but those weeks must be agreed in advance and one of those weeks is across Christmas when the apple pie factory closes down for a week
If you are unable to make any deliveries you must inform the factory by 7 a.m. and in your next delivery you should attach a note from a qualified individual to prove you had a genuine reason for missing the previous delivery
They decide the buying price for the apples which is less than you could sell them for at the local market
While you will be getting less money for your apples, you have a guarantee that all of your 40 apples will be sold each week. So you accept the deal.
The attached conditions are somewhat restrictive but they seem like a reasonable trade-off compared to the risk of not selling any apples at the local market.
Overall the deal gives you stability.
The growth of the apple pie company
As the years go on, the demand for apple pies increases.
The owner of the apple pie company still likes buying apples from you, but he needs more than 40 per week.
You try selling him 60 apples per week, but those extra 20 apples come from the ones you normally give to your family. After a few weeks, you realise it’s not sustainable and go back to only selling 40 apples per week.
The apple pie company still needs more apples, so now they are asking other suppliers in the area to supply apples.
Now there are a lot more apple suppliers, so the owner of the apple pie company is able to negotiate a better price from the new suppliers.
What happened to the game?
You and your fellow apple suppliers are selling your apples at a discounted rate in return for the security of being able to sell all 40 every week.
The apple pie company is converting your apples into apple pies and selling them at a profit.
Your production capabilities are limited to 40 apples per week, however, the apple pie company is only limited by demand.
The apple pie company continues to expand. Your production stays the same, at 40 apples per week.
Loyal Service Award
10 years have passed since the apple pie company sold its first apple pie.
It’s time to celebrate.
And because you supplied apples from the very beginning you receive a reward…
A certificate for being a loyal apple supplier.
It’s nice to be recognised.
The results of the game
Over those past 10 years, you’ve sold 40 apples every week.
You’ve had a secure income.
You’ve managed to use some of the money you made to have a nice holiday or two every year.
The only real limit on your life has been the price you sold each apple for and/or the fact you could only sell a maximum of 40 apples per week.
The owner of the apple pie company also had a great life. He took your apples, and the apples from the other suppliers to make apple pies. He sold those apple pies at a good enough price that he could pay you and keep some extra money for himself.
The difference between you and the owner of the apple pie company was that his upper limit was the wider demand for apple pies.
So over the past 10 years his income increased while yours remained the same.
The year of efficiency
In the 11th year, the demand for apple pies fell. Customers were still enjoying apple pies but now they were also starting to eat rhubarb pies.
Just like you, the owner of the apple pie company had grown accustomed to his lifestyle. Just as you enjoyed going on holiday to Spain twice a year, the owner of the apple pie company enjoyed owning a villa there. And villas in Spain aren’t cheap.
And while the sales of apple pies had declined, the agreement with you was still in place - he still had to buy your 40 apples at the agreed price.
After all, you had chosen this as a more secure path - so you got paid the same even if apple pie sales were down.
However, the owner of the apple pie company still needed to pay for his villa in Spain, so he thought of two options…
Option 1, instead of putting 5 apples into each apple pie, he wondered if he could get away with only putting 4 apples into each apple pie? If the customers didn’t notice, he could save 20% of his costs. Unfortunately, he would need fewer apple suppliers.
Option 2. Could he make fewer apple pies and use part of his factory to start making rhubarb pies? It would mean he’d need to find some rhubarb suppliers but he would be able to offset that cost because he’d need fewer apple suppliers.
Whatever he decided, it was out of your control.
And you are just one of many suppliers who supply apples to the apple pie company.
What started as a way of increasing the security of selling your 40 apples per week, now seems less secure.
What happened next?
To decide which apple suppliers to let go of, he puts all the names in a hat.
Unfortunately, your name gets pulled out.
Because you’ve been supplying the apple pie company for 11 years, and because he doesn’t want to damage his reputation with other apple and rhubarb suppliers, he agrees to pay you for the next few weeks.
Having lost your secure way of selling your apples you think of two options…
Try to find another buyer for your 40 apples per week.
Stop growing apples and start to grow something else, rhubarb looks good.
WFT you talking about?
OK, I got carried away with the apple story.
And if you didn’t understand the reference to the ‘land’ you are given and the produce (apples) let me explain.
The ‘land’ is the idea that everyone is given the same space, career, and time to operate in.
The ‘apples’ are the units of time you have. 100 apples represents a rough number of free time you have per week, 40 apples is the amount of time you would work (40 hours).
But it’s an important story and it’s important to understand the game…
We all have the commodity of time, our 40 hours per week.
We add value to that time by choosing what to do with it. We increase value by making ourselves valuable through experience and knowledge (for example - picking which produce to plant).
But what we don’t realise is that we often sell that to someone else at a discounted rate in exchange for job security.
Unfortunately - job security is a myth. Yes, there are degrees of security, some jobs are more secure than others, but nothing is absolutely secure.
So what we are really exchanging our units of time (apples) for is an easy life, a life which is in someone else’s control.
There is another aspect of the story though, another decision to make…
While we are all fixated on which produce to plant (what skills to acquire), other people are thinking differently.
Instead of using their land to do what everyone else is doing (planting crops), they are thinking of other uses.
And this is ultimately the difference between the 2 different players in the game.
The owner of the apple pie company
The owner of the apple pie company didn’t do anything wrong, he was just playing a different game.
You were doing what everyone else was doing - planting crops on your land.
The owner of the apple pie company approached it differently, he used his land to add value to other people’s produce - by turning apples into apple pies.
Unfortunately, most of us think more like the person planting crops rather than the person adding value.
So, don’t hate the players, don’t even hate the game, just try to understand the game a little better.
And if you’re unhappy, either plant some different crops in your field or figure out how to make apple pies.
Fin.
Wishing you a great weekend, and best wishes…
John