Sep 20, 2019

What we can Learn about Taking the Long View from Chianti Olive Trees

Olive trees around Castellina in Chianti, Italy

In a prior post I spoke of how Dario Castagno waited 14 years to get a sale with me. A friend remarked this is an example of taking the long view in business, which reminded me of the story Dario told about the olive trees of Chianti, which is another great example of the value of looking beyond the short term.

This chapel dates to the 16th century, so it's a "new addition" on a 1000+ year old farm

Italy is an ancient land, having hosted many civilizations throughout the millennia. "Modern" unified Italy as we know it today only dates from 1870 with the unification of multiple regions and kingdoms from 1859-1870, so it's no wonder that the people of Italy identify more with historical and geographic alliances rather than the modern Italy as a whole.

In a country where (arbitrarily), something that's 2000 years old is "ancient" and 1000 years old is merely "old", where a 500 year old add-on is the "new extension", and something that's 200 years old is "modern", it's no wonder that the people who live here have a whole different philosophy about the time it takes to do something worthwhile. Which brings me to the olive trees.

Olive trees have been with man since the beginning. Archaeological evidence shows that the earliest Mediterranean civilizations cultivated and used olive oil for a variety of purposes, not just cooking and eating as we are familiar with it today. An olive tree can live for 1000 years, yet they're a bit finicky. Most varieties don't produce any fruit until they are at least 8 years old. They don't reach full productivity for more than 50 years, and their yield starts waning after 100. They need some cold weather to regenerate for the next season, but not too cold, or they die off. You have to prune and tend them even in the off-season. They take a good bit of work to produce anything at all.

Chianti should be a horrible place to grow olives, but it's not!

On the face of it, Chianti should be a horrible place to grow olives. It's the very northern edge of the olive's range. Olives are not native to the area, having only been introduced around 1300. Every 30 years or so, there's a hard freeze that's likely the kill the trees-- at least the part above the ground. The roots are hardy, so you can cut off the trunk of the old tree and new shoots will start the cycle all over again. So why even bother? Why do you see so many olive trees in the hills of Chianti? One word: quality.

The few olives that the trees here do produce make remarkably good olive oil. Low yield, high quality. There's only one measured attribute that matters with olive oil, and it's the acidity, the lower the better. Extra-Virgin Olive Oil (EVOO) must have an acidity of no more than 0.8%. The olive oil produced in Chianti is typically 0.1% or 0.2% acidity, among the lowest anywhere, provided that it's produced in a careful way that results in the best quality of the pressed oil. This means picking and sorting the olives by hand, and pressing them immediately at a consistent temperature.

So you may get only about 1.5 liters of oil per tree in Chianti, versus four times that or more from more productive regions. The harvest is self-limiting. There's only so much land that's allowed to be devoted to agriculture, and grapes are more profitable on a per hectare basis than olives. It's solely due to the quality and scarcity of the Chianti oil that allows it to command a significant price premium, with prices on par with high quality wine. The fact that you also can produce high quality wine (and relatively more of it) in Chianti actually improves the business case for producing low volume olive oil, which doesn't make much financial sense on its own, but yet olive oil makes sense here...as long as you look at the long view.

Chianti Olive Oil is among the best in the world, and there's very little of it available to buy

Ok. So what's my point? What can we learn from low volume olive oil in a world of "hypergrowth" and quarter to quarter thinking?

This is very clearly a group of producers that understands their "why". Simon Sinek's "golden circle" says that many organizations know what they do, and how they do it, but few have a good handle on "why". The what and the how are easy here-- they make high quality olive oil by following a bunch of strict guidelines that once a year produces a wonderful product. But the why...the why is because an olive tree does not belong to the present generation, it is a gift from the past to be cared for and passed along as a gift to the future. Why do they make olive oil? Because they believe it is their privilege to care for and enjoy this crop, while preserving it for future generations. It's a long term commitment.

So given this why-- they will be producing this product regardless of the economics, what else do we learn?

Sometimes "more" just isn't a possibility. And that's OK. There's never going to be much more EVOO produced in Chianti than there is now. And the Chiantigianos don't mind. Quality and pride in the product is more important than making more of it.
When you combine objective quality with real (not contrived) scarcity you can easily command a premium.
Building a high-quality business might actually take time. Just like we cultivate olive trees for not just us, but for future generations, we can build a business culture that hands down value to those that come after us-- and this includes the people that join your company while you're still there. Because someone needs to learn your "why" directly from you.
When we invest ourselves in creating something worthwhile, people become fanatical about it. Dario typically has more people interested in his once-yearly release of olive oil than he has bottles to sell, and so he has a waiting list. No matter how much the trees produce, he knows it will sell.

The long view on business that we learn from olives is that today you are realizing the benefits of those that came before you, and your hard work today not only has present benefits, but can build value for the future, including people you will never meet and never know.