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Buffalo lesson: strategic planning essential

As I See It

Buffalo once roamed across the vast plains of North America, and the animals were a vital part of Native American culture and livelihood — until the great buffalo herds were wiped out, nearly to the point of extinction, in the 19th century.

Several years ago, a group of ranchers in the Midwest decided to bring back the buffalo. Their decision was, in part, a response to depressed cattle prices, and also because of the overall funky financial condition agriculture was in back then.

Another interesting part of the decision? A belief that Americans had a sentimental attachment to buffalo and would support the industry because of that sense of nostalgia.

The result was a model for failure. It could be instructive for businesses, all businesses, to look at what went wrong with the great American buffalo debacle. By analyzing the strategic errors the ranchers made, perhaps we can learn enough to avoid following their path to financial ruin.

Considering the details

A brief description of what happened will set the stage for analysis: As many as 60 million buffalo once roamed the plains, but they were driven to the edge of extinction by the 1880s. About 10 years ago, a group of ranchers saw, or thought they saw, the potential to make lots of money raising buffalo in lieu of cattle. Cattle prices had dipped below break-even and the ranchers were ready to try just about anything. They saw buffalo meat becoming a staple for the American diet, just as it once was for Native Americans. Their thinking was nutritionally sound. Buffalo meat is leaner, and therefore healthier, than beef. Additionally, buffalo grazing is easier on the land than cattle grazing and, thus, their plan had environmental merit as well as nutritional value.

Departing from economic analysis, they drifted into the realm of sentimentality. They reasoned that Americans would support the buffalo business for patriotic reasons, as well as dietary concerns. After all, buffalo occupy an important place in our history and everyone wants to preserve our heritage.

Where it went into the ditch

Here’s what the ranchers did wrong. First, there was no market survey to test demand and probable acceptance of the product. Had such a survey been conducted, it would have revealed a strong consumer preference for the taste of corn-fed beef.

Next, they did not spend any money advertising the product even though they were attempting to enter an established market with a new product. In contrast, the cattle industry spends upwards of $80 million advertising beef each year. Remember: “Beef, It’s What’s for Dinner.”

Following the path to failure, the buffalo ranchers also did no production planning. Had they done so they would have found that, in comparison to cattle, buffalo are expensive to raise, hard to manage and grow much slower than cattle. In fact, it takes twice as long to put the same amount of weight on a buffalo as it does for a steer.

Finally, they thought that sentimentality would generate revenue. It doesn’t. People support charitable organizations of their choice but they don’t spend extra money to promote business undertakings. A pound of buffalo tenderloin costs about $15 more than the same cut of beef while buffalo hamburger meat is twice as expensive as beef.

The result of the experiment was predictable. It failed. It failed big.

Ranchers are now giving away buffalo calves to good homes since the cost of raising the animals far exceeds the revenue from selling. One rancher auctioned off his herd of 450 buffalos for $300 each though he had paid $3,000 each. He lost his ranch and returned to selling insurance. The buffalo meat market is glutted in oversupply and ranchers are having difficulty collecting their money from meat processors.

What can we glean form this unfortunate situation? Business principles work. Strategic planning is absolutely essential before launching a new venture. And, never bet your wealth on consumer sentimentality.

Thought for the Moment — It behooves a father to be blameless if he expects his son to be.

— Homer (circa 1000 B.C.E.)

Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at cpajones@msbusiness.com.


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