Agriculture


Building an Ecosystem for Agtech Startups

Excerpts from Kevin Kimle’s February 15, 2018 testimony to U.S. the House of Representatives Small Business Subcommittee on Agriculture, Energy, and Trade

Technology is nothing new, of course, whether in agriculture of any other industry.  What may be new is the speed and scale at which technology can shape new opportunities and disrupt existing businesses and industries. Agtech is by all indications important.  There are many accelerator programs related to starting agtech businesses, funding of agtech startups has grown, etc.

Funding for agtech startups has increased significantly.  As tracked by AgFunder News, investment in agtech increased from about $150 million in 2010 to more than $800 million in 2016 and more than $500 million in 2017.  Transactions like Monsanto buying Climate Corp in 2013 for $930 million or in 2017 DuPont Pioneer buying Granular for $300 million certainly got attention of investors, entrepreneurs and agricultural business professionals.

Both Climate and Granular were founded in Silicon Valley, the hub for tech startups and investing. Will there be a Climate or Granular type exit event for an agtech startup from the Heartland? Is there an ecosystem for agtech startups apart from Silicon Valley?

A 2017 report from M25 examined the Midwest and labeled it as the region that will give rise to the next crop of $1 billion-plus companies (Schulman 2017). From where does that observation arise? What’s going on in the Midwest?

Can the Midwest be a Hub for Agtech Entrepreneurship?

The Midwest is home to the greatest concentration of animal protein supply chain activity in the United States and early-stage agricultural technology activity in the Midwest is particularly relevant to these supply chains. For purposes of this paper, the Midwest is comprised of Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin.

The Midwest has a strong concentration of public and private entities focused on developing agricultural technology. It is home to land grant public universities that provide a unique network of cutting-edge basic and agricultural science platforms. There is also a concentration of agricultural businesses engaged in technology development at many different levels. The Midwest is a catalyst of US agricultural innovation, knowledge transfer, and entrepreneurship development.

And yet there is much untapped and undeveloped potential for agtech entrepreneurship and investment-related activity.

Examples of geographic clusters of early-stage agricultural technology development in the Midwest include established public and private organizations that shape the environment for technology development, business development and entrepreneur/startup mentoring and support:

  • Des Moines/Ames, Iowa.
    • Multiple plant science agricultural business such as DuPont Pioneer and Stine Seed
    • Iowa State University – land grant public university.
    • Iowa State University Research Park – assistance and accessibility for early stage businesses
    • Iowa State University Agricultural Entrepreneurship Initiative – development program for agricultural entrepreneurs and agricultural innovation
    • Agriculture Startup Engine – investment platform for agtech startup businesses
    • Iowa AgriTech Accelerator – Mentor-driven business accelerator designed to foster innovation in the AgTech industry
    • Cultivation Corridor – Organization aiming to create a global center of excellence in agbioscience, biorenewables, biotech and advanced manufacturing
  • Omaha/Lincoln, Nebraska.
    • Home to agricultural businesses such as Green Plains Energy and Valmont
    • University of Nebraska – land grant public university
    • Nebraska Innovation Campus: support for early stage companies
    • Water for Food Institute – research institute for achieving food security with less pressure on water resources.
    • University of Nebraska Engler Agribusiness Entrepreneurship program – support and encourage entrepreneurship amongst students
  • Louis, Missouri.
    • Monsanto – plant science agricultural business
    • Bio-Research & Development Growth Park – bio-research facilities for emerging scientific enterprises
    • Danforth Plant Science Center – nonprofit scientific facility to increase understanding of plant biology
    • Yield Lab – agtech accelerator with a stated mission to sustainably increase the global food supply and reduce inputs to agricultural production and distribution
  • Twin Cities, Minnesota
    • University of Minnesota – land-grant public university
    • Home to agricultural and food businesses such as Cargill, General Mils, CHS, and Land O’Lakes.
    • Techstars Farm to Fork Accelerator – focused on the tech/digital side of food and agriculture from agtech, manufacturing and supply chains, to food safety, waste reduction and traceability.

Though agtech investing has risen significantly in the U.S. and entrepreneurial activity in the Midwest as evidenced by programs related to agtech has also increased, evidence of significantly higher venture capital funding in the Midwest is limited.

Venture deals in the United States have been most heavily concentrated in Silicon Valley, with up to 50 percent of total VC investment dollars in the country flowing to companies in northern California during some quarters. The Midwest remains underdeveloped relative to other parts of the United States in attracting venture capital funding. While venture capital invested in the Midwest rose from $1.8 billion in 2007 to $4.0 billion in 2017, this represented only 4.7% of the total in the U.S. in 2017, making the Midwest a poor performer in terms of per capita venture capital investing (National Venture Capital Association Data).

Early-stage business activity is difficult to track by its nature. Inventors, entrepreneurs, and investors advance projects without extensive public disclosure, and personal networks are an important means of communication and development. To provide a proxy for the state of early- stage agricultural innovation activity in the Midwest, an analysis was conducted of business plans developed by students at the Agricultural Entrepreneurship Initiative at Iowa State University compared to those tracked by AgFunder in 2016. The dataset offered here is a snapshot of early-stage business development activity, much of it related to agricultural technology.

AgTech Interst by Subsector

This analysis revealed a higher interest by ISU students in production agriculture oriented technologies than those tracked by AgFunder. Areas of activity such as animal health and management, decision support technologies, food science, energy efficiency, feed efficiency, sustainable production systems, environmental mitigation and manure management are more focused on the agricultural activities present in the Midwest.

Ecosystem Opportunities and Challenges

The common metaphor for fostering entrepreneurship as an economic development strategy is “ecosystem.” But what makes an ecosystem vibrant for entrepreneurial activity?

A Harvard Business Review article provided a true/false quiz on the topic (Isenberg 2014).

You know that you have a strong entrepreneurship ecosystem when there are more and more startups. FALSE

Offering financial incentives (e.g. angel investment tax credits) for early stage, risky investments in entrepreneurs clearly stimulates the entrepreneurship ecosystem. FALSE

In order to strengthen your regional entrepreneurship ecosystem, it is necessary to establish co-working spaces, incubators and the like. FALSE

According to entrepreneurs the top three challenges everywhere are access to talent, excessive bureaucracy, and scarce early stage capital. TRUE

Wanting a vibrant entrepreneurial ecosystem for agtech entrepreneurs in the Midwest and actually having one are different.

Specific challenges include the following.

  • Funding – The right money at the right time for each startup business is always a challenge. The good news is that there are many more sources for early-stage funds than 20 years ago. The popularity of shows such as Shark Tank has led to a proliferation of competitions that often have financial prizes, and is a cultural phenomenon that shouldn’t be discounted. There are pitch and business plan competitions, incubation and accelerator programs, a greater array of local and regional funds today than ever before.
  • Mentoring – Most startup success stories will also have stories about key mentors that provided key advice and perspective at key times.  Entrepreneurs break rules and make mistakes in an effort to drive their businesses forward. As with funding, mentoring programs are now much more common than 20 years ago. However, the most valuable mentors for entrepreneurs are entrepreneurs, and those can be difficult to find depending on where you live. For entrepreneurs working to build high-growth businesses, the best advice will come from those who have built their own high-growth businesses. But the number of individuals who have ‘done it’ is not high, especially in a region with lower population density.
  • Change-making culture – An element of support for entrepreneurs is cultural. A culture that is accepting of the risks and contrarian nature of new ideas is important. The friendly and egalitarian culture of the Midwest may at times be at odds with widespread celebration of entrepreneurial rule-breaking and risk-taking. There is an old saying in the Midwest that’s indicative of a culture that, at times, may not be conducive to entrepreneurs: “Nothing is punished in a small town like success.”
  • Agglomeration – Economists view agglomeration as an issue important in economic development in that firms and professionals from an industry are often located near to each other. This concept relates to the idea of economies of scale and network effects. As more firms in related fields of business cluster together, their costs of production may decline significantly (firms have competing multiple suppliers; bigger talent pool; greater specialization and division of labor result). Cities form and grow to exploit economies of agglomeration. But what about the Midwest and agriculture? By it’s nature, agriculture is spread out. The biggest concentration of agricultural production in the U.S. is in the middle of the continent while the highest populations densities are on the coasts. While it’s a good thing that cities and agriculture don’t on a large scale compete for land in the U.S., it also means that agricultural professionals and entrepreneurs don’t have the agglomeration affects of something like the tech industry in the Bay area of California.

On the other side of each of these challenges lie opportunities. Agtech investing and the popularization of it as a sector unto itself now results in websites, funds, conferences and other events that enable coordination, new relationships and other positive spillover affects.

For the agtech ecosystem in the Midwest to continue to become more vibrant three things are critical.

  1. Expose more young people to the concept that entrepreneurship is an option – Whether university programs or even high school programs, young people will benefit from being exposed to entrepreneurship. Fewer young people today grow up in families with farms and small businesses, so we need them to meet entrepreneurs and small business owners and have experiences that expose them to the idea that they can not only someday get a job, but also make a job.
  2. Continue to develop more forms of early-stage funding – The more sources of funding for early-stage startups, the richer array of startup businesses that will emerge. Competitive filters on funding, whether a pitch competition or review panels for government programs, are important not only to insure the best ideas rise to the top but also to institutionalize feedback loops. The more sources of early feedback for aspiring entrepreneurs, both positive and negative, the better off they will be.
  3. More Midwestern funds – The development of more professional funds in the region, whether angel, seed, venture, private equity, or whatever will benefit the region. Investors from one region and entrepreneurs from another can work sometimes, of course, but location matters. If there are more funds in the Midwest, there will be more investing in the Midwest.

Rural Vitality

Are there implications of agtech development for the economies in rural areas?

The adoption of agtech will result in a more productive and sustainable agriculture. The process of farm to fork will be more automated, connected, sensed, and traced. The ability to do and create new products, services and experiences will create opportunities that can work anywhere, including rural areas.

Will there be agtech startup businesses in rural areas? Yes. Agglomeration affects will still favor more urban environments for many agtech firms, but smaller towns that support entrepreneurs will result in startup activity. As one example, the Startup Factory program at Iowa State University has started to work with rural communities on running parallel programs for entrepreneurs in Ames and in those communities.

The most significant impact of entrepreneurs on rural economies, however, will come from Main Street businesses.   The entrepreneurs with high growth agtech businesses to have emerged from programs at the Iowa State University Agricultural Entrepreneurship Initiative are to be commended. But a much higher rate of new business formation and employment has come from the many alumni who have started a new livestock operation, crop farm, vegetable farm, seed business, trenching business, crop input supply business, etc. And many or most of these businesses are in rural areas. We estimate that twenty times more alumni have started these types of farms and businesses than have started higher risk/higher reward businesses.

A 2008 survey of Iowa State University alumni from 1982 to 2006 found that 15.8 percent had started at least one for-profit business (Jolly, Yu, Orazem, Kimle 2010). These businesses resulted in creation of 222,569 jobs. These companies had 2007 revenues of approximately $64 billion. For an indication of magnitude, note that Iowa gross domestic product was $135.7 billion in 2008.

Of the 222,569 jobs created at the businesses started by ISU alumni entrepreneurs, only 35,242 of those were created in the state of Iowa, 15.8 percent of the total. A higher proportion of total companies founded by alumni were located in Iowa (35 percent), but those businesses located outside Iowa had more jobs created per enterprise. Large metropolitan areas both in the Midwest (Minneapolis, Chicago, St. Louis, Kansas City) and outside the Midwest (Phoenix, Los Angeles, Dallas, Seattle, San Francisco) recorded multiple alumni starting businesses. A alumni base that was greater than 75 percent from the state of Iowa created 84 percent of jobs outside the state of Iowa.

There are likely multiple explanations for this. The top response for business location in the survey was ‘where I lived’ (82 percent ranking it as very important) indicating that alumni had already moved away from Iowa to pursue their careers when they started their entrepreneurial ventures. Rather than move back to their native state of Iowa, they located their business where they lived currently and had built their post-undergraduate career and lives. The first business start for alumni was on average 10 years after graduation.

The founding of entrepreneurial ventures by ISU alumni outside the state of Iowa may signify the ‘brain drain’ problem long cited in the Midwest. But the graduation period for this survey group, 1982 to 2006, had an extended period of economic distress in agriculture and other Iowa industries. Job opportunities for ISU graduates were outside of the state and even region and they settled and started their businesses elsewhere.

Will a future survey of 2007 to 2031 graduates show similar results? Preliminary indications are that no, a higher proportion of entrepreneurial activity will occur in Iowa and the Midwest. Certainly the attractiveness of a career in agriculture in 2018 compared to 1988 is higher based on enrollment at Colleges of Agriculture at Iowa State University and other universities also. More young people seeking careers in agriculture is likely positive for rural areas. 66.6 percent of 2015/16 ISU College of Agriculture and Life Sciences graduates, for example, accepted their first jobs in the state of Iowa.

More programs, competitions, and cultural celebrations of entrepreneurship are also positive for the economies of rural areas.

Shark tanks can work anywhere.

________

References

Isenberg, Daniel. “What an Entrepreneurship Ecosystem Actually Is.” Harvard Business Review. May 12, 2014.

Jolly, Robert W., Li Yu, Peter F. Orazem, and Kevin Kimle. “Entrepreneurship and higher education: an overview of the Iowa State University alumni survey.” (2010).

Schulman, Katherine. “Agtech in the Midwest: Creating Fertile ground For the Next Unicorn.” M25 Group. 2017.

Article of the Day

What Americans can learn from other food cultures – ideas.ted.com

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There is no sincerer love than the love of food.

~ George Bernard Shaw 

Driver of Agriculture Megatrends – Culture

The third and last driver of agriculture megatrends I’ll address is culture.  How do changes in how food is communicated and celebrated in society impact the future shape of agriculture?

Components of Food Culture

The five components of food culture include the following.

  • Tradition – Foods, ingredients and cooking methods passed down from one generation to the next.
  • Geography/Natural Resources – The land, water and weather’s impact on food availability and distribution.
  • Cooking – The art, technology and craft of food preparation.
  • Food service – Businesses, institutions, and companies responsible for any meal prepared outside the home.
  • Affluence – The impact of disposable income on food consumption patterns.

First an example from food service.

An important issue in the modern world is expenditures for food at-home versus away-from-home.  In the United States, for example, consumers now spend about 50 percent of food dollars away-from-home.  Per meal expenses are higher away-from-home, so it is less than 50 percent of meals that are consumed away-from-home.  However, this dynamic explains the importance to agriculture of ingredient decisions by large food service businesses such as McDonalds.  Back in the 1980s, my Dad was absolutely convinced that the occasionally-offered McRib sandwich at McDonalds positively impacted pig prices when the sandwich was available.

Food Expenditures at Home and Away From Home United States

The U.S. Grains Council Food 2040 study predicts that the United States will move to 58 percent of food expenditures being away-from-home by 2040.  For China it predicts the same number will move from about 25 percent today to 65 percent in 2040.  For Japan, 75 percent!

Our ultimate customer in agriculture is the individual, but as their food decisions become more integrated into away-from-home experiences, those food services businesses become even more important.

What about food retailing?  The most important trends right now are 1) electronic commerce and 2) the growth of fresh format retailers.

Food Retailing Projections 2016 to 2020

Source: Willard Bishop. 2016 The Future of Food Retailing.

Twenty years after early entrepreneurial efforts to take food purchasing online mostly failed (WebVan), the Internet has begun to impact food retailing.  From Amazon to local grocer HyVee, electronic ordering and delivery of food is growing quickly.

An affluence-related cultural impactor is the link between health and wellness and food and nutrition.  This expresses itself in food consumption expenditures in many ways.  Specific products, for example, burst onto the market.  Coconut water sold less than $50 million in the U.S. ten years ago and now exceeds $500 million.

Product categories are also impacted.  Natural and organic food product sales in the U.S. have had compound annual growth of 10 percent and now account for more than $60 billion annually.

A sizable group of consumers in the U.S., and in many other countries, now bring a set of value judgements to food purchases that are difficult for many in production agriculture to understand.  One result is a frantic search by food companies to be able to make sustainability claims for their food products.  The challenge is that they need to reach back into production agriculture to get data to be able to make claims.  Do many want to pay more to agricultural producers if they can make sustainability claims?  Not right now, but the issue, and others arising from food culture, will not go away.

Article of the Day

In Chinese culture, fish symbolize abundance and prosperity. A growing middle class now earns the equivalent of about $25,000 in U.S. dollars annually, giving buyers disposable income to spend on such high-end food as salmon.

Salmon prospects bright among China’s growing middle class – Alaska Dispatch News

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With a population of more than 600 million people, an emerging middle class that is driving strong consumption, and a robust and resilient economy, Southeast Asia presents a compelling growth opportunity for Starbucks.

~ Howard Schultz 

Driver of Agriculture Megatrends – Economics

The second driver of agriculture megatrends I’ll address is economics.  How do changes in production, consumption and wealth creation impact the future shape of agriculture?

The first example of an economic driver of agriculture megatrends is per capita income.

In the previous post, I described how demographics impact food consumption and spending and some implication for the future.  An example of economics intersecting with demographics is per capita income.  Food demand may not have positive signals from demographics in China, for example, but it does have positive signals from economics if per capita income is growing.  In China, tens of thousands of consumers are entering the middle class every week.  As this happen, people are working for wages ands shifting food consumption from grow-your-own or carbohydrate-centric to purchased food and higher protein food choices.

Countries_by_GDP_(PPP)_Per_Capita_in_2015

Source: International Monetary Fund

Many economists describe the beginning of these middle class habits that impact food consumption patterns as somewhere between $5,000 and $10,000 annual income.  Globally, according to one estimate, 384,000 people per day join the middle class.  The number of global middle class participants at the end of 2016 numbered 3.2 billion.  This implies that the point of one-half of global population will likely be reached sometime around 2020. (Kharas 2017)

Food categories for upgrade by the new middle class especially impact proteins; meat, dairy, eggs, and alternative proteins such as fish.  These food products are more intensive to produce, so middle class growth in regions without developed agricultural supply chains will have significant impact.

What role will trade play in meeting the needs of the emerging global middle class?  Corn and soybeans are two significant inputs for protein production, for example, and carryover stocks figures imply that the United States currently has excess production capacity in both.  In 2016 the U.S. produced its first 15 billion bushel crop.  With continued yield increases and higher acreage it isn’t at all inconceivable to envision the first 20 billion bushel crop in the U.S.  But where will it be used?  Its use will need to be either through straight exports of corn, or through exports of products that were produced in the U.S. using corn as an input.

The second example of an economic driver of agriculture megatrends is energy.  The U.S. agriculture industry used nearly 800 trillion British thermal units (Btu) of energy in 2012, or about as much primary energy as the entire state of Utah (U.S. Energy Information Administration).  Energy is a major input for agriculture in many ways.

US Energy Production as a Share of Energy Consumption

What has changed in the last decade is the United States’ role in global energy production.  The shale revolution in particular has put the U.S. on track to be a net exporter of energy as opposed to a net importer.

Why does this matter to agriculture?  It matters because it means the price of energy relative to the rest of the world goes down.  The United States has many sources of comparative advantage in agricultural production, and you can now add energy to that list.

Of particular interest in next-generation agricultural production is the price of electricity.  Whether electric motors, indoor agriculture, or other electric powered agricultural technologies, electricity only becomes a more important input in tomorrow’s production agriculture and the U.S. advantage in this area is growing.

 

 

References:

Kharas, Homi. The Unprecedented Expansion of the Global Middle Class. February 2017. Brookings Institution Working Paper 100.

Video of the Day

How demographics impact the cost of capital – Peter Zeihan

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…because of demographic aging on a global scale, the United States is emerging as the only market over the long-term. 

In the United States, you have the market, the financial capital, the labor system, the consumption base, the energy—and you can project power out, rather than have to defend your own borders. That does not exist anywhere else on the planet, and is not going to exist anywhere else on the planet in the next fifty years.
~ Peter Zeihan (excerpts from Reasons the U.S. will Dominate the World Economy, Forbes) 

Driver of Food Megatrends – Demographics

I’ve given a number of talks in the last two years on megatrends that will determine the future shape of agriculture.  I build my analysis of megatrends on a foundation of three drivers.

  1. Demographics – Statistical data relating to the population and particular groups within it.
  2. Economics – Knowledge concerned with the production, consumption, and wealth creation.
  3. Culture – How human achievement is communicated and celebrated in society.

Framework for Megatrends

The fun part of these talks is the look-forward: How are megatrends expressing themselves in changes we see today, and how will they shape the agriculture of tomorrow.  Therefore, I typically don’t spend time elaborating on how I derive the megatrends I propose.

In the next three weeks, I’ll use this forum to elaborate briefly on demographics, economics, culture, and how each shapes impactful megatrends.  I’ll start with demographics.

I borrow heavily in my thinking about demographics from Peter Zeihan,  Zeihan is a geopolitical strategist who specializes in global energy, demographics and security. He analyzes the realities of geography and populations to deepen the understanding of how global politics impact markets and economic trends.  His two books, The Absent Superpower and The Accidental Superpower are provocative reads.  He, more or less, predicted Brexit and the election of Trump.

Zeihan’s analysis boils down to the idea that most of the developed world outside the United States, has reached it productive peak.  Mature workers, 45 to 65 years old, are at their productive peak and are in net savings mode.  For societies as a whole, this leads to ready supplies of capital and output growth.  But now that’s begun to shift as those workers turn to retirement and begin to hold on to and burn their savings and then take their production out of the marketplace.  Capital becomes more expensive and growth lags or sags.  There simply aren’t enough workers at younger demographics to make the world work the way it has for the last century.

Developed World Demography Without US 2030

Zeihan’s chart of demography of the developed world excluding the U.S. in 2030 tells the story.  There isn’t a bench in the younger demographics to replenish those retiring from the workforce.

China Demography 2040

The same holds true for China.  The one-child policy has in two generations moved China to one of the most rapidly aging populations in the world, important due to sheer numbers (1.4 billion people).

US Demography 2030

Meanwhile, U.S. demographics in 2030 are projected by Zeihan to be on a more sustainable track.  Higher birth rates than other developed countries along with immigration keeps the younger demographic groups recharged.

What about demographics and food?  Below is a table with a simplified view of how I analyze the impact of demographics on food choices, consumption and spending.

 

Demographics of Food

For the United States these demographic drivers hold a few clues as to current and future trends.

  • Trends related to health and wellness are linked closely to demographics.  A higher proportion of the population puts health concerns toward the top of their list when making food choices.  Growth in organic food sales is a manifestation of demographics, for example.
  • Many tag those born in the U.S. between 1980 and 2000 as millennials, and their food choices are notable for a couple reasons.  First because that demographic is big, having by some counts now surpassed the baby boomer demographic, counting somewhere between 75 and 80 million people.  So there are a lot of them.  Second, their food choices tend to mimic older demographics sooner than past generations.  Millennials make food choices earlier based on lifestyle and health, often in spite of budget constraints.  In a 2013 survey of U.S. consumers conducted by a student research group at Iowa State University, it found that Millennials made food choices based on health issues just as often as older demographics.

In a nutshell, food trends in the U.S. related to origin, production method, and health impact will not go away.  In fact, we are likely still in the early stages of those sorts of trends in consumer food demand.

For countries outside the United States, it’s a mixed bag.

  • Europe, Russia and most Eurasian countries are not growth markets from a demographic perspective.  The population is aging with birth rates much below death and net-migration in most countries so the amount of calories needed to support those populations is in decline.
  • In China the demographic picture is aging also, but that is offset by income growth.  However, the interplay of demographics and income growth makes future food consumption predictions really difficult to nail down.
  • Many countries across southeast and southern Asia as well as Sub-Saharan Africa have the most positive developing country demographics.  Food demand increases are a sure-thing and will be significant.  The significant question is where it will be produced.

In next week’s post I’ll address economics as a driver of food megatrends.

Article of the Day

AgTech Mid-Year Investing Report – 2016 – AgFunder

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Seed stage investment continues to drive agtech investment, representing 52% of deals recorded. The total size of seed stage investments grew with 159 seed stage deals raising $104 million in H1-2016 compared to 260 deals raising $130 million for all of 2015.
~ AgFunder

Student Ag Entrepreneur Business Concepts by Subsector

Visitors to the Agricultural Entrepreneurship Initiative ask me what businesses student ag entrepreneurs are most interested in.  One way to answer the question is to look at business concepts students create for the entrepreneurship course I teach at Iowa State University, Entrepreneurship in Agriculture.

Two week’s ago, students in the course pitched their favorite of the 2 or 3 new business ideas they’ve developed in the course.  I went through the list of business concepts and categorized them by subsector.  I use subsector definitions from the AgFunder report on AgTech investment activity.

Alternative Protein – These companies look to replace traditional sources of protein such as meat and eggs. Companies fall into three categories: cellular agriculture; ingredient innovation; and the production and discovery of alternate protein sources, such as crickets or algae.

Animal Health & Nutrition – Companies that identify agricultural livestock or farming of aquatic organisms as a key market.

Bioenergy – Companies producing energy made from materials derived from biological sources.

Biomaterials & Biochemicals – This includes companies using biological material to produce/farm: peptides, bioplastics, non-ag inputs, microorganisms, pharmaceuticals, microbes and algae, functional ingredients/nutrients/phytoceuticals.

Cannabis Technology – Companies developing technologies for the emerging legal cannabis and hemp markets.

Decision Support Tech – This is our primarily software-focused category. It includes but is not limited to precision agriculture technologies. It includes satellite data companies, big data, and ERP technologies. Excludes companies categorized under drones & robotics, and smart equipment & hardware, and irrigation & watertech.

Drones & Robotics – Companies that are building drones or robotic technologies which have self-identified food or agriculture as a key market.

Farm-2-Consumer – Companies that directly deliver food to consumers from farms, differing from food e-commerce, which involves e-grocers, meal kit delivery services, and specialist meal delivery.

Food E-Commerce – E-grocers, meal kit delivery, and specialist meal services which are attempting to disrupt the agriculture value chain. Excludes restaurant delivery.

Food Tech – A broad category including food processing, food enhancing technology (e.g. flavor or nutritional value), packaging, food analysis.

Food Safety & Traceability –  Includes all companies attempting to track food production, food sterilization or introducing technologies that reduce the risk of food safety concerns.

Indoor Agriculture – Includes all farming operations that occur indoors or in greenhouses, and the technologies that accompany them. It does not include Cannabis-related tech, which is spun out into its own category.

Irrigation & Watertech – Includes all technologies involving the management of water for agriculture. Some precision irrigation companies could technically fall into smart equipment or decision support tech, but we felt that this categorization would be more informative.

Smart Equipment & Hardware – Predominantly includes sensor technology, Internet of Things (IoT), and other non-robotic machinery in the food and agriculture value chain.

Soil & Crop Technology – Includes: biological inputs and treatments, chemical inputs, genetics–based tech, new crops, seed technology.

Waste tech –  Includes products made out of food waste, wastewater treatment for agriculture, and agriculture or food waste mitigation technologies.

 

Student Business Proposals By Category
Entrepreneurship in Agriculture Course
Fall 2016 Semester, 94 Students

Category                                                                        Percentage
Alternative Protein                                                             0%
Animal Health & Nutrition                                              11%
Bioenergy                                                                              0%
Biomaterials & Biochemicals                                            3%
Cannabis Technology                                                         1%
Decision Support Tech                                                      9%
Drones & Robotics                                                             5%
Farm-2-Consumer                                                            15%
Food E-Commerce                                                             0%
Food Tech                                                                            0%
Food Safety & Traceability                                               0%
Indoor Agriculture                                                             5%
Irrigation & Watertech                                                     0%
Smart Equipment & Hardware                                       5%
Soil & Crop Technology                                                    0%
Waste Tech                                                                          0%

Non-Technology Agriculture                                         20%
Non-Agriculture                                                                15%
Social Impact                                                                       8%

I work the students through various exercises to see if we can identify new business ideas that come from something unique to their experiences or observations.  In particular, many of their ideas come from:

  1. A problem they’ve noticed or experienced that others haven’t noticed.
  2. An experiment, accident of circumstance, or heritage activity from their past.
  3. A personal passion and interest.

57 percent of student ideas were related to agricultural technology, 77 percent in total related to agriculture.  Most, but not all, students are agriculture majors at ISU and/or have backgrounds in agricultural production, so probably not surprising as to their interests.

The top category in the AgFunder report linked to above for 2016 investments was Food Commerce, a category ignored by students.

What categories of student business plan or investment will be the most attractive when we look back ten or twenty years from now?  I suspect certain themes will run through winning businesses.  To suggest a several:

  • Time/labor saving technology – It’s an old story in agriculture, but technologies that save labor win in the long-run.  Robotics offers a myriad of potential applications to take labor out of various processes in agriculture.
  • Unique food ingredients and products – Consumer interest in food products with a story will continue to grow. Where was it grown?  How was it grown?  What makes it different?  What experiences are coupled with the food?
  • Data at the right time and place – We have a lot of data in agriculture today.  The question is what to do with it. Technologies, services, models, and algorithms that enable decision making at points in time where those decisions make a difference in outcomes will win.
  • Disruptive economic models – New technologies and accompanying business model innovations enable challenges to existing supply chains and logistics models.  Some may create significant changes in unit economics for production of certain agricultural products /commodities which will drive changes in place of production and logistics of product movement.

What are the most interesting categories of future business opportunities for you?  Why?

Article of the Day

Why Grass-Fed Beef is on a Roll – Wall Street Journal

Supermarkets Make Stars Out of Weird Apples, Knobbled Carrots and ‘Spuglies’ – Wall Street Journal

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This magical, marvelous food on our plate, this sustenance we absorb, has a story to tell. It has a journey. It leaves a footprint. It leaves a legacy. To eat with reckless abandon, without conscience, without knowledge; folks, this ain’t normal.
~ Joel Salatin, farmer and author of Folks, This Ain’t Normal; You Can Farm

Food as a Lifestyle Purchase

A megatrend I see underlying change in agriculture and the food industry is a switch from food purchases for taste and convenience to a lifestyle item.  This megatrend expresses itself in all kinds of ways, but it presents both challenges and opportunities to agricultural entrepreneurs.  The ugly fruit and vegetable campaign, growth in grass-fed beef, the bigger organic aisle at your grocery store, local food fans.  All these are indications of changes in U.S. food markets that are being driven by our customers.

megatrend-food-as-a-lifestyle-purchase

Case – Whole Foods. Whole Foods Market Inc. is the grocery store chain featuring foods without artificial preservatives, colors, flavors, sweeteners, and hydrogenated fats.  It is the United States’ first certified organic grocer.  It started in 1980 in Austin, Texas and now has more than 400 stores and 90,000 employees. On a trip to Austin last summer, I spent three hours in the first Whole Foods store.  I talked with staff and customers and checked out products and produce.  Austin is certainly not Ames from a cultural perspective, but I came from that tour with an even stronger sense of the underlying shifts in consumer preferences for food. Consumers interest in the health characteristics, production methods, source, and environment impact of what they eat is increasing, and it’s not a fad that will run its course.   You may or may not be a fan of items in the organic aisle, but its become almost 4 percent of U.S. food purchases, approaching a $40 billion market.

fruitsandvegetablesorganicdemand

Case – Sawmill Hollow Family Farms. Sawmill Hollow Family Farms in western Iowa is a great example of a farm-to-table business riding the megatrend wave.  Andrew Pittz pioneered growing aronia berries, a native superfood with polyphonolic compounds, including: antioxidants, anthocyanins, resveratrol, proanthocyanins, now considered to be one of the most nutritionally dense fruits on the planet. He evangelized the products made from aronia berries, and has forged a place in the market for a growing array of superfood products.  From an entrepreneurial perspective, consider the boxes he’s checked in developing his business.  Crop/product with an intriguing story – check.  Product traceable to farm – check. Product with unique and marketable nutrition and health traits – check.

Case – Blue Apron.  Blue Apron is a meal kit business founded in 2012 that now delivers more than 5 million meals monthly.  Blue Apron’s approach, the meal kit, offers the convenience of delivery while keeping home cooks in the kitchen. The precisely portioned dinners minimize waste and allow consumers to try ingredients they might not otherwise buy, at a price they’d have trouble matching–roughly $10 per meal per person.  And many of the ingredients are sourced directly from farms.  Is this sort of service just for people in cities?  I heard about Blue Apron from a student who’s parents live in rural Iowa.  Both are busy so they enjoyed the convenience, the quality of the ingredients and meals, and the introduction to new food ideas.

What does food as a lifestyle purchase mean for opportunities for agricultural entrepreneurs?  That’s difficult to forecast, but it’s safe to say that there has never been a better time for the imagination of entrepreneurs to define the future of food and agriculture.  Emergent sweet spots will continue to emerge for entrepreneurs who can reduce transportation costs, have fewer levels between farm and consumer, and create novel products and experiences.

What opportunities do you find most interesting that may be driven by tomorrow’s food consumers?  How will those opportunities shape agriculture and the food industry?

Article of the Day

Idea Evaluation Checklist – Entrepreneur

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“Every problem has a solution.  You just have to be creative enough to find it.”
Travis Kalanick, Uber

Evaluating Early Stage Ideas for Startups

The beginning idea for a startup business is only part of what’s necessary to get to a viable business, but it certainly helps to start with a quality idea.  So how should aspiring entrepreneurs both come up with and evaluate the potential of new business ideas?

A tool I’ve developed to help students evaluate their own and other student startup ideas is the Startup Evaluation Matrix.  It also serves as the rubric by which I formally evaluate and grade new startup business concept papers.  In addition, I increasingly use it when speaking to aspiring entrepreneurs from outside the course who are looking for feedback on their ideas.

Startup Evaluation Matrix - Kevin Kimle - Iowa State University

Each of the elements of the Startup Evaluation Matrix reflects a yin and yang relationship; complementary, interconnected, and interdependent forces that shape its attractiveness. This balance in a startup business idea is difficult to shape, yet one that consistently comes through in the most attractive startup concepts.

Migraine Problem/Value to Customer – I use Diana Kander’s all in startup book’s notion of a problem that represents a significant opportunity, a migraine problem. A business needs to solve a problem so significant that customers will do whatever it takes to solve it, including paying someone else for a solution.  Envision the problem as a migraine headache.  The flip side of the problem is the value of the solution to the customer.  Does the solution have a clear and significant advantage?  Does it hit the ‘homerun’ of being better, faster, and cheaper?  Does the solution deliver value while making life simpler for customers?  So many technology startups miss this mark in that they may be able to solve a problem, but they are so complex or require such significant changes in behavior that they simply will never be considered viable by most prospective customers.

Niche Now/Big Market Potential – Peter Thiel in Zero to One writes that entrepreneurs need to look for ‘monopoly’ opportunities; markets where they can shield their businesses through various means from competition that will bid their profits to zero.  I think of attractive market opportunities for startups as being markets that are niches currently, but with the potential of big growth.  When we started E-Markets in 1996, there was not really a market for Internet-based electronic applications in the agribusiness space.  However, the Internet was new as a platform, and clearly had significant growth potential as a better, faster, cheaper platform for e-business.  Today I see agricultural entrepreneurs working on indoor aquaculture, robotics, diagnostic software, and other areas that have an undefinable market opportunity today, but huge potential in tomorrow’s market.

Doable Now/Unique Solution Long Term – Rarely is their something completely new, whether a technology, production system, product, service, or method.  Rather, entrepreneurs combine old things in new ways, and new places to create new solutions to new audiences.  New ideas build on old ones and combine them in unique, new ways. Quality startup ideas balance the do-ability of a new solution near-term with its long-term uniqueness.  A startup that will truly scale can’t be a copycat, it must aim to solutions that are unique and represent the target for which copycats aim.

Contrarian/Surprise Element – An attractive startup idea has some element that is contrarian.  It is treading left while everything else is treading right.  Perhaps that arises from the independent-minded nature of entrepreneurs who chart their own course.  The contrarian nature of interesting new business ideas also lends an degree of surprise or unexpectedness.  The highest impact startups will be something that could not be predicted by most people in advance.  The innovations that disrupt an established market will be initially dismissed by businesses that will eventually be put out of business.  In 1996, I was involved in a consulting project for Kodak.  The Senior VP we worked with dismissed the strategic threat of digital cameras.  Kodak was the first company to market a digital camera in the 1990s, but largely ignored the opportunity. Kodak filed for bankruptcy in 2012.

Deciding the quality of a startup business idea is more art than science.  Malcolm Gladwell’s Blink explains that choices that seem to be made in an instant-in the blink of an eye-actually aren’t as simple as they seem.  I know great investors and entrepreneurs that very quickly assess a startup idea, a business plan, or the viability of a new product or service.  I suspect that they have some kind of internal matrix-like structure that enables them to make snap judgements that are most often on-target.  Their mental matrix has been developed based on experience, but I’ve found that the Startup Evaluation Matrix is a means to embed a beginning way of thinking for less experienced entrepreneurs too.

How would you apply the Startup Evaluation Matrix to the following early stage agricultural businesses?  Which of these business concepts holds the most promise?  Why?

FarmStockNY, LLC – FarmstockNY is a New York based vertical farm delivering locally grown, premium quality produce using only the best organic practices. We use substantially less resources and can produce 10 times more yield (utilizing patented growing towers) than traditional farming methods. With our proprietary greenhouse and business model we can offer a large array of produce in an ecologically and economically sustainable way at very competitive prices.

EndoBiome – Current agricultural practices will be challenged to safely meet the nutritional needs of future populations. EndoBiome was founded to to tap the diversity of the plant microbiome to produce microbial products that increase agriculture. yield and sustainability. Endobiome is differentiated by a proprietary isolation process that yields beneficial microbes and a high-throughput bioassay to identify microbial products that improve root systems.

FarmShots, LLC – FarmShots automates the detection of diseases, pests, and poor plant nutrition on farms. We’ve grown rapidly over the past two years- scaling from small farms to more than 300,000 acres across the United States. We’re excited to be changing the face of agriculture as we know it.

Farb Guidance Systems – Formed with the purpose of developing, manufacturing, and marketing the next generation of machine guidance technology for agriculture: agricultural machinery that drives itself and can be guided and controlled from anywhere in the world. The technology, in conjunction with the equipment, will increase production and profits, decrease accidents, and help develop regions of the planet un-farmable today.

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