Innovation


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

In divisive election year, voters agree: Infrastructure needs fixing – Agri-Pulse

“Economic development provided the basis; Lincoln said much later, that would allow every American ‘an unfettered start, and a fair chance, in the race of life.” – From Team of Rivals, Deloris Kearns Goodwin’s book on President Abraham Lincoln and his cabinet.

Key Infrastructure for Disruptive Agricultural Technologies

Sara Wyant from Agri-Pulse asked me to participate in a forum this week on rural infrastructure.  Roads, railroads, locks, roads are each examples of infrastructure important to agriculture and rural economies.

The middle part of the U.S. produces a high proportion of U.S. ag output, much of it big and bulky, but efficiently ships those products to customers on the coasts and around the world.  In many ways it was the transportation ability of the Mississippi and associated rivers that enabled the economic development of the U.S. beyond the east coast. and the ability to ship products efficiently has remained part of the competitive advantage of the U.S. even as other modes of transport have developed.

As part of a panel asked to address disruptive innovation and agricultural infrastructure, I identified four key inputs for disruptive agricultural technologies.

  1. Electricity – Electricity is a key input to agricultural technologies involving microchips, controller, sensors, and a range of technologies that will form the basis of robotics and artificial intelligence taking root in agriculture.  Hydroponic and aquaponic technologies are now being used to grow vegetables and deliver them locally twelve months per year.   Use of software and drones is playing an increasing role in crop scouting.  Microchips are being placed in many traditional pieces of agricultural machinery, enabling them to connect to other devices and enabling better decision making based on new streams of data.  In Iowa and most of the Midwest, electricity infrastructure and cost levels are quite good.  Iowa, for example, has a strong group of rural electric cooperatives that are poised to play a key role in emergence of agricultural technologies.  Grade: A.
  2. Water – The FAO estimates that only 0.003% of earth’s water is available for human use.  Yet it takes a lot of water to produce agricultural products.  Water use and water quality are huge issues for agriculture and certainly a key input for disruptive agricultural technologies.  Indoor aquaculture systems are  a key emerging example of technologies that involve water.  Can we produce fish in a sustainable way and relieve pressure on wild catch and environmental issues related to sea and pond-based aquaculture production systems?  Can we use technology to improve water quality in agricultural production systems?  Water in the rural Midwest is largely available, but water quality in streams related to agricultural production is a challenge.  In addition, the water treatment infrastructure of many rural communities could be challenged by both emerging regulatory and consumer issues. Grade: B.
  3. Bandwidth – The Internet of Things has many possibilities for agricultural technologies, with devices, machines, and even crops and livestock connected to the cloud for sensing, monitoring, analysis and intervention.  The possibilities, however, are limited in broad swaths of rural America for lack of bandwidth/cell phone signal.  Given a geographic footprint that’s big and population that’s small, there are inherent constraints to investment in significant infrastructure for rural areas, but clearly there needs to be some sort of breakthrough in wireless technology for agricultural technologies that find value through connecting to the cloud in rural areas.  Grade: C.
  4. Human Talent – The core input for disruptive technologies in agriculture is people.  Whether entrepreneurs who invent and commercialize technologies, or the people that work with them, human talent is key.  The potential for technology is unlimited because it is linked to human imagination, which has no boundaries.  The Agricultural Entrepreneurship Initiative and Iowa State Univeristy has impact in this through the work our graduates do in rural communities, as well as other higher education institutions.  But that’s only part of the population.  I fear our public schools, especially at the high school level, are not preparing rural young men and women as well as they could for careers of impact in their communities.  Grade: ?.

What do you think are the key pieces of infrastructure for agriculture’s future?  Which parts of that infrastructure do you anticipate will be important for your career and entrepreneurial aspirations?

Article of the Day

Coffee with Startups – Steve Blank

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In an existing market directly compare your product against the incumbent and specifically describe the problems you solve and why Company x’s products do not.

~ Steve Blank

Tips for Customer Discovery

Getting customers involved in product development and innovation is at the core of customer discovery for startups.  We found the power in this model more through accident than insight at my first startup, E-Markets, back in the 1990s.  We had concepts for Internet-based electronic applications, even prototypes, but the actual products we launched were developed in concert with prospective customers.

The customer discovery process is simple, but hard work.

  • Form assertions or hypotheses around the problem that your product solves, the product, and various components of your anticipated business model
  • Test these assertions or hypotheses with prospective customers
  • Verify where you’re right, learn where you’re wrong, and adjust your assertions and hypotheses

The customer discovery process may or may not involve a prototype or minimum viable product, but the overall idea is to work to increase the richness of conversations and dialogue with prospective customers as you proceed.  If all goes well you not only refine your ideas about your startup business, you even build your early customer base.

Some tips for the customer discovery process include the following.

Don’t provide leading information – You are trying to learn from prospective customers in these early conversations, not necessarily sell them something (yet).  Therefore, you don’t need to start out pitching them as if they are investors or as if you have your product or service completed and ready for sale.  Reveal your story and that of your startup business in small bits and let the prospective customer lead the conversation in directions you may not have anticipated.

Start with the problem, not the solution – If you are at the stage of having developed a startup business concept, you no doubt have identified a solution to a problem.  You are also probably excited and energized with your solution.  Resist leading conversations with prospective customers about the solution, however, and work to lead conversations with the problem.  Your task is to understand the problem at a depth and detail beyond what anyone else does.  This understanding will help shape a successful solution more effectively than any technical expert.

Don’t stop with verifying what you know – You not only need to learn where  your wrong about some part of your idea, you also need to learn what you don’t know – you don’t know what you don’t know.  So use open-ended questions.  If answers to many of your questions are simply ‘yes’ or ‘no,’ you’re not asking questions the right way. You’re looking for information, feedback, and ideas that may surprise you in some way, the gold nuggets of insight that will help your form up a more solid startup business.

Ask for references – Don’t end any conversations with a new contact without asking for references.  Even if an interview of a potential customer doesn’t yield new insights, it can at least yield new contacts and an expansion of your network.  How do you make contact with 25 prospective customers and/or industry experts?  Start with four people you know.  If each of them gives you four additional contacts you’re up to twenty four after you contact them.  Only one more to go!

Customer discovery will be different for each business. The process of testing assertions and hypotheses and modifying detailed ideas about the business is a continuous process that takes a lot of hands-on/in-front-of-people work.  For many startup businesses it is the most critical step in discovering a sustainable business model.

What types of contacts will help you with your startup business?  How do you find them?  What are the most important issues for you to explore?  Do you have contacts that could help someone else?

Article of the Day

AgTech Investing Report – 2015 – AgFunder

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Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma – which is living with the results of other people’s thinking. Don’t let the noise of other’s opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.
~ Steve Jobs, Co-founder, CEO, Chairman Apple Inc.

What Are Young Agricultural Entrepreneurs Working On?

I ask many friends to serve as panelists and speakers for the entrepreneurship course I teach at Iowa State University, Entrepreneurship in Agriculture.  These folks, and others, ask what students in the course are interested in and working on.  I suppose the curiosity arises from looking to young aspiring entrepreneurs for creative thinking on new opportunities.

This week students in the course will pitch their favorite of the 2 or 3 new business ideas they’ve developed in the course.  I went through the list of business concepts to be pitched and categorized them by subject.  Most are agricultural businesses, 83%, with non-agriculture businesses in the ‘Consumer Products & Services’ and ‘Social Impact categories the remaining 17%.

Student Business Proposals By Category
Entrepreneurship in Agriculture Course
Spring 2016 Semester, 92 Students

Category                                                                        Percentage
Consumer Products & Services                                      14%
Artisan/Speciality Food & Beverage                             12%
Farm Services                                                                    12%
Recreation/Hunting/Outdoors                                      12%
Plant & Animal Health/Genetics                                   12%
Agri-Tourism                                                                       8%
Precision Agriculture                                                         7%
Logistics, Risk Management, Marketing                       5%
Decision Support Technology                                          5%
Robotics/Farm & Livestock Equipment                        5%
Agricultural Processing                                                     4%
Social Impact                                                                       3%

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.

The top category in the AgFunder report linked to above for 2015 investments was Food Commerce, a category ignored by students.  Curious, but local grocery HyVee has started online ordering and delivery, so maybe this isn’t such an interesting spot for entrepreneurs living in Ames.

Other top categories of 2015 investment from the AgFunder report line up better with student interest; drones & robotics, decision support technology, and soil & crop technology for example.  The students’ interest in animal health and technology relative to 2015 funding certainly reflects Iowa agriculture relative to other areas, heavily concentrated in the animal protein supply chain.

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

Daily Routines of Famous Creative People – Podio

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Even in literature and art, no man who bothers about originality will ever be original: whereas if you simply try to tell the truth (without caring twopence how often it has been told before) you will, nine times out of ten, become original without ever having noticed it.
~ C.S. Lewis

Five Habits of Originality

Originality is a goal not only in literature and art, but also in business and certainly in the startup community.  We often use different terms such as ‘differentiation’ or ‘innovation’ for originality but the concept is the same, offering something to the world that is distinguished in small or large ways.

Just as innovative new products are usually the result of a combining old things in new ways, people with originality skills combine various habits in ways that result in more frequent creativity and impact.  We are a sum of our habits, so establishing and refining habits in ways that result in new ideas is important for those who wish to express creativity in their work.

I’ll draw on some examples from business to depict five habits of originality.  I take significant inspiration from Originals: How Non-Conformists Move the World by Adam Grant.

  1. Seek and speak truth – Bridgewater and its founder, Ray Dalio, are famous for being a successful investment fund and for having a focus on company culture based on an articulated set of principles.  Principle 1 is Trust in Truth.  Truth isn’t just about avoiding lies, its about being transparent and developing a capacity for constructive criticism.  Mistakes happen in business every day, even more often when working on something new.  Anything less than truth when dealing with mistakes leads to an inability to learn from mistakes, fatal for businesses but also for your capacity to get better and grow.
  2. Engage your mind by using your body – Something as simple as taking a walk can stimulate the mind better than sitting for hours on end staring at a computer screen.  Thomas Edison famously dismissed golf as exercise in saying that he got more exercise in walking through his lab from table to table and was able to keep his brain working well at the same time.  The brain is about 2 percent of body weight but consumes about 20 percent of a person’s total energy.  Shifting some energy requirement back to the rest of the body can help bring new mental energy.  I used to go on noon runs with an entrepreneur who loved to work through business issues while on the run.  It was an extremely challenging workout for me because he ran at a faster pace than I typically did, but also because he forced me to carry on a conversation the whole while!
  3. Engage people – Talking through ideas with others is a great habit for those working on challenges.  An entrepreneur I know tells the story of explaining his new business idea to a well-known and successful businessman.  After 4 meetings, the entrepreneur started to question the reputation and intellect of the businessman, as he asked very basic questions again and again and again about the entrepreneurs new business idea.  On the fifth meeting, the businessman again asked very basic questions about the entrepreneur’s new business idea.  Exasperated, the entrepreneur gave one more try to explain the business idea.  By the end of that day’s conversation the businessman smiled and told the entrepreneur that he had finally evolved the business idea to the point where it might be interesting.  His repeated questions weren’t from a lack of comprehension.  Rather they were pushing the entrepreneur to more fully think through important parts of the new business idea.  Socratic business development perhaps, but a powerful example of the mental iteration and evolution that can occur just buy talking to people.  Especially talking to people who ask good questions and challenge your assumptions.
  4. Learn about new domains – Originality often flows from specializing in a trade, task, or skill.  In the book Outliers, author Malcolm Gladwell writes that it takes roughly ten thousand hours of practice to achieve mastery in a field.  Though this is disputed by many, I certainly buy the idea that getting really good at something takes time and effort.  A counter idea to the concept of complete specialization, however, is that many creative originals take time away from their primary occupation and art to learn about new and unrelated things.  Meredith Perry of uBeam started out to create a wireless means of electricity transmission by being told by professors, physicists, and engineers that it was impossible.  While commercial success for uBeam may or may not come, Ms. Perry exhibited tremendous creative capacity in domains in which she had little or no expertise.  While learning new things is challenging, often un-learning things you think you know is the bigger hurdle.
  5. Respect the status quo but question it brutally – The core of creativity involves introducing new things to the world.  The default for originals is to question the status quo.  Just because it’s always been done that way doesn’t mean it always will.  The savvy original, however, will at least respect the status quo.  The world works that way it does today for a complex set of reasons.  You may not agree with those reasons, but you have to at least understand them.  For the new and creative to win, you must be able to navigate past barriers and resistance effectively.  My friend Kevin Maher started Global Vet Link with a goal of transitioning animal health certificates from being paper forms to electronic.  Easy right?  The challenge was that state veterinarians govern animal health certificates and had to approve this change in regulatory model.  The Iowa state veterinarian didn’t buy-in initially (Global Vet Link’s home state) so had to start with Florida as state number one.  Kevin’s great persistence got all 50 states onto the Global Vet Link platform, but it also took a great patience and understanding of the status quo in order to finally change it.

What habits of creative, effective people do you admire?  What is most important for you to work on and develop as  a habit?

Article of the Day

19 Best New Business Ideas for 2016 – Business News Daily

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“I can’t understand why people are frightened of new ideas. I’m frightened of the old ones.”
~ John Cage
 

Evaluating New Business Ideas

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.  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.  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 ignored the opportunity enough that its business was knocked from beneath it and 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 new agricultural businesses?  Which of these business concepts holds the most promise?  Why?

Cybernated Farm Systems – CFS has designed Off-Grid Smart Aquaponic Greenhouses that will benefit people from the first to the developing world.

Tiny Farms – Tiny Farms is building a platform for the production and distribution of insects as commodity agricultural products.

Vital Herd – Vital Herd has developed a solution that captures each animal’s vital sign data and transmits it to a cloud platform for analysis.

Barn2Door, Inc. – A discoverable marketplace where anyone can buy or sell clean, sustainable food.

Iron Goat – Iron Goat is an agricultural robotics company with an autonomous self-fueling hay harvester technology.

 

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