Entrepreneurship


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

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

The Future of Agriculture – Economist

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The seafood counter historically is the only place in the grocery store where we have been hunting and gathering, and that is rapidly changing to a farmed environment. And with the interest in local and domestic production, sustainability, and carbon footprint, the emphasis is now on producing more seafood here in the U.S.
~ Joe Hankins –  Director, Freshwater Institute

Six Reasons Salmon Production in Iowa is Interesting

I am part of a startup business, Inland Sea, that in September publicized for the first time an intention to build a recirculating aquaculture system facility to produce salmon in Iowa, specifically a site in Harlan.  With a two-acre footprint, this large-scale, bio-secure and efficient facility will result in weekly harvest of approximately 100,000 pounds of salmon, 5.3 million pounds annually.

ras-tank-renderingRendering of Salmon Production Tank ~150 feet in Diameter

We believe indoor fish production is the emerging frontier of aquaculture and the most promising systems to emerge for indoor, efficient production are recirculating aquaculture systems (RAS), and it’s been interesting for the last month to get a deeper sense of other people’s thinking on the topic.  As we’ve conducted a series of public meetings about the Inland Sea-Harlan project, a sense of people’s interest in the project has emerged based on the questions they ask.

A common question to the Inland Sea team, however, is why we became interested in this opportunity.  The top six include the following.

  1. The technology model has been proven elsewhere – Multiple RAS salmon production facilities are currently operational in Europe. These European RASs have demonstrated capability as environmentally sustainable and scalable, with the ability to guarantee both the safety and the quality of the fish produced.
  2. Competitive unit economics – The economics of aquaculture starts with feed conversion. One advantage fish have over land animals is feed conversion. Fish need fewer calories, because they’re cold-blooded and due to living in a buoyant environment, they don’t fight gravity as much. It takes roughly a pound of feed to produce a pound of farmed fish; it takes almost two pounds of feed to produce a pound of chicken, about three for a pound of pork, and about seven for a pound of beef. The salmon produced in a model facility in Denmark has demonstrated a feed conversion ratio of approximately 1.10.
  3. Salmon consumption has upside potential – U.S. salmon demand grew rapidly in the 1990s, and has been relatively flat since because of higher prices and constrained supplies. Salmon passed tuna as the second highest consumed seafood in the U.S. in 2013, coming in at 2.7 pounds per capita compared to 3.6 pounds for shrimp and 2.3 pounds for tuna. In addition, salmon is the only seafood consumed primarily as a premium product rather than frozen or canned.  A one pound uptick per capital in U.S. salmon consumption would require about 60 Harlan facilities worth of production to fill.
  4. The next model of salmon production – Due to biological constraints, seawater temperature requirements and other natural constraints, seaside farmed salmon is primarily produced in Norway, Chile, UK, North America, Faroe Islands, Ireland, and New Zealand/ Tasmania. Seaside salmon aquaculture production has reached a level where biological boundaries are being pushed. The Chilean industry, for example, has had significant struggles with disease, sea lice, and algal blooms in recent years. In addition, seaside salmon aquaculture production can occur only in a few areas globally because of water temperature and there is little upside production potential remaining. Future production growth of any significance will need to come from RAS systems.
  5. A fantastic food – A good aim for a food business is to make a fantastic product, and salmon from RAS production fits the bill with great texture, taste and nutrition profile.  And, of course, fresher is better.  Salmon has been termed by nutritionists as a superfood for its health impact. It is one of the best sources of omega-3 fatty acids, particularly EPA and DHA, which are nature’s heart medicines.
  6. Iowa and aquaculture are a fit – The major input for salmon, like any animal protein, is feed. Iowa is one of the lowest cost feed ingredient locations in the world. Another major input for RAS salmon is electricity, and Iowa has one of the lowest kWh prices in the nation. Finally, the salmon you eat in the Midwest travels approximately 4,000 miles from Norway or approximately 5,500 miles from Chile. We anticipate that salmon production in Iowa will have an out-of-the gate transportation cost advantage of approximately $0.50 to $1.00, aside from a freshness advantage.

We know other agricultural entrepreneurs working on aquaculture projects, driven by similar reasons to ours at Inland Sea.  But what other opportunities may be driven by one or more reasons similar to the above?  What opportunities are there for other proteins?  How might technologies deployed in RAS systems (sensors, water treatment, precision feeding, biological controls) be deployed for agricultural production beyond fish?  What opportunities for entrepreneur may emerge as new industries emerge in new areas?

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.

Video of the Week

What do you know that no one else understands? – Peter Thiel

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“Try your hardest to combat atrophy and routine. To question the obvious and the given is an essential element of the maxim ‘de omnius dubitandum’ [All is to be doubted].”
~ Christopher Hitchens, Letters to a Young Contrarian

Contrarian Agriculture

Contrary
adjective
          Opposite in nature, direction, or meaning.

The entrepreneurial paths with the most upside potential are those that are new and untried.  Identifying those paths comes, at least in part, from the way the entrepreneur looks at and interacts with the world around him or her.  While pleasing other people is not a bad habit, agreeing too quickly with others on the way the world works today dampens one’s ability to identify interesting opportunities.

In addition, being willing to try new things that may invite questions or even ridicule.  It is difficult if professional acquaintances  have doubts about something you’re working on, but how much harder is it if the doubts come from family and friends?  Courage is a great word for behavior in extreme circumstances, but what about behavior in more day-to-day circumstances?

My contention is that entrepreneurs find ways to be contrarian.  In doing so they uncover ideas, pathways, and ultimately businesses that are trail-blazing.  Peter Thiel gets at this in interviews and his book Zero to One by asking ‘what truth do few people agree with you on?’

One method I suggest to students for putting your inner contrarian to work is to capture it in a persona.  In my case, I envision a neighbor of my grandfather named Vladi.  Vlcdi was dead before I was even born, but I still recall Grandpa’s tales about the sheer orneriness of Vladi, and some of the funny reactions to his behaviors.  So my inner contrarian takes the form in my mind of a German-accented farmer in 1930s bib overalls growling disagreement at those people and situations he encounters, just for the amusement of it really.

Another means of honing your contrarian skills is to examine bits of conventional wisdom and where you may differ from it.  Conventional wisdom is the body of ideas or explanations generally accepted as true by the public or by experts in a field.

Conventional wisdom, to be fair, is conventional because it has some element of truth.  Thinking in a contrarian way about it, therefore, is more an exercise in critical thinking and reasoning than in mere disagreement.

Five examples of what may be taken as conventional wisdom about entrepreneurship includes the following.

  1. Successful entrepreneurs love big risks.
  2. A well-written business plan is the first outcome of the entrepreneur who is starting a new business.
  3. Marketing of a new product trumps the actual functionality of the product itself.
  4. The past experience of an entrepreneur is the best predictor of whether his or her startup will succeed.
  5. Breakthrough, disruptive, innovative new products and services are usually completely new to the world and can be patented.

What does your inner (or outer!) contrarian tell you about any one of these five examples of conventional wisdom about entrepreneurship?  Reply to this post.  In addition, reply not only to this post but to those of other respondents.  Do you disagree with any of these examples of conventional wisdom?

Unleash your inner contrarian!

Article of the Day

The 10 Rules For Successful Entrepreneurs – Forbes

Economics aside, this is what underpins entrepreneurship for me: freedom, independence and the ability to choose.

~ Luke Johnson at the UK launch of Global Entrepreneurship Week, 2013

Entrepreneurship. So What?

Does entrepreneurship matter?  I ask this question of students the first day of class each semester.

The first answers to this questions are usually about the big picture.

Entrepreneurship matters because it creates jobs.  Quite true.  Kauffman Foundation research shows that if startups were removed from the U.S. since the 1970s, there would have been non net job growth since then, even as the workforce has grown substantially.  Small businesses employ 80 percent of workers in the U.S., so take them out of the equation and there are serious problems.  Large businesses are important and garner the bulk of publicity, but the real horsepower and dynamic for change in the economy comes from entrepreneurs and small businesses.

Startups-Kauffman-Foundation

Entrepreneurship matters because it drives innovation. The innovations that define the modern world came from entrepreneurs and entrepreneurial organizations.  I type this post on a Macbook Air (Apple founded by Steve Jobs, Steve Wozniak, and Ronald Wayne, 1976), using a WordPress application (WordPress founded by Matt Mullenweg and Mike Little, 2004), seated at HON desk and chair (HON founded by C. Maxwell Stanley in 1944), in my home that is heated and cooled by Lennox equipment (Lennox founded by David Lennox, 1895).

Entrepreneurship matters because it creates wealth. Entrepreneurs create the machines, methods, and systems that make us more productive, thus more wealthy.  New businesses exhibit a ‘churn’ dynamic where  innovative and successful firms grow rapidly and become a wellspring of jobs and economic growth, or quickly fail and exit the market, allowing capital to be put to more productive uses.  Those with a mis-informed view of failure view the churn of startup firms as negative, but in fact this is the dynamic that represents progress in wealth creations.

Leaving the big picture behind, I ask students if entrepreneurship is important to them.  Why might a university student care?

Typical answers from students include the attractiveness of being their own boss, the ability to earn more money if successful, the ability to design a lifestyle of their choosing, and the freedom to make an impact in markets they care about.

These answers are all good, but it draws them toward the idea that entrepreneurship may matter to them as young professionals because they should strive to live a professional life of impact and meaning.

Depending upon the source, more than one-half of Americans respond to surveys that they are not satisfied with their job.  How bad is it that more than one-half of people report that they are unsatisfied with something that occupies the majority of their waking hours?  At some point a person needs to take command of their professional life and make a change that positively impacts their satisfaction.  Anything else is just excuse making.

Being an entrepreneur, starting a business, is indeed a powerful professional choice.  Deciding to be entrepreneurial, however, is even a bigger one.  It implies dedicating yourself to making an impact whether at your own business, someone else’s business, or even in a non-business setting.

Being entrepreneurial implies development of life skills.

  • Critical thinking – The ability to ask the right questions.  Knowledge and experience is valuable, but even more important is the ability to ask the right questions at the right time.
  • Creative problem solving – A natural instinct is to avoid problems.  An entrepreneurial instinct is to seek deeper understanding of problems and then search for solutions.
  • Communication – The ability to persuade is the ability to lead.  The two most powerful words in English: “Follow me.”
  • Teamwork and networking – A fundamental part of the entrepreneurship process is organization building.  If a business is to achieve any scale and long-lasting sustainability, it needs to build a winning culture, team, and network of supporters, customers, and stakeholders.
  • Persistance – The value of an enterprise is related to its knowledge, and that knowledge builds through overcoming mistakes, learning from them, and doing things better as time goes on.  It’s a process that never stops, so persistence through the inevitable ups and downs involved in anything of consequence is key.

Why does entrepreneurship matter to you?  What is your vision for building your skills to be entrepreneurial?

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