What it takes to build and scale in a recession-proof industry
Investors, founders, and engineers discuss the future of our food system, hosted by MistyWest
As the global economy continues to face uncertainty, many industries struggle to maintain growth and stability. However, the agricultural sector remains a beacon of resilience with steady demand for its products and services. But what does it take to actually sustain this hardiness? MistyWest brought together a panel of local leaders for its quarterly Vancouver Hardware Meetup, diving into this seemingly recession-proof industry to discuss the role of agtech in the future of farming.
Like any good startup, what appears to be stable on the surface often scrambles to hold itself together underneath. While inflation has brought up the cost of food, farmers aren’t actually earning more money: commodity prices have plummeted and inputs have gotten more expensive. “[Farmers are] under a lot of pressure, especially with the oil price raising the [cost of] fertilizers, and the war in Ukraine, and all the stress that it puts on the whole supply chain,” said Vincent Clerc, vice president of engineering at Terramera.
So how did the panelists grow their companies in a sector with shrinking margins? Here are the top takeaways from the evening’s discussions.
Technology can’t sell itself in this industry
Yuan Shi, investor at The51, made clear that the sector isn’t a straightforward space for disruption. Shi specializes in deep-tech venture-capital investments in food and agriculture, and emphasized common mistakes that she sees founders with engineering expertise make. “A lot of deep-tech companies will try to develop a technology and then try to find a problem to plug [into] that technology. However, it should be the other way around,” she said. “It should be – identify the problem and make sure that it is a pain point. And then, let's provide a painkiller solution to that huge problem that we're facing in the market.”
For founders in this industry with technology that addresses the pain points of growers, the solution is hardly half of the battle. “Growers only have 40 seasons in their lifetime,” said Michael Burton, director of engineering at Semios. “And so for them to make investments [in technology] is a big deal.”
So what sells? The proof is in the pudding, and adoption follows when the product visibly works. “Farmers and agronomists are people that want to see to believe,” said Clerc. “If you can't really show that your technology is actually delivering what it says it should deliver, then you will not get that trust. And without that, you won't be able to actually sell your innovation or your product.”
Face-to-face relationships are key to scaling
Entering the market truly does require boots on the ground. “Ag is very relationship-based, [with] face-to-face handshaking,” said Burton. “No grower is going online [to look at a product] and clicking and saying ‘I want to test that out.’” As a result, growers place a high level of trust in the retailers that sell them technology, fertilizers, and other agricultural inputs.
It would seem reasonable for founders to sell their technology through these retailers, then — but Semios found it difficult to do so. “It was fraught because the retailer is only worried about their margins,” Burton continued. “They're not incentivized to be in your corner. So if something breaks or something goes wrong, you're gonna be thrown under the bus.” Instead, Semios opted for a direct-to-consumer model, which was expensive, difficult, and admittedly made some enemies in the space, Burton added. But the approach allowed for hands-on relationship building with their consumers that proved worthwhile.
“I really do like the direct-to-grower model, mostly because you are there to help facilitate the transition to [your] technology,” affirmed Roman Kozak, CTO and co-founder of Verdi. As a startup in the space, the company opted for this model thanks to relationships first established by academic partners. “[As founders,] you're able to be there to set it up and hear the problems that are going on.”
Prioritizing relationships is important throughout the growth of a company. Even at scale, Semios has built systems in place to ensure that farmers have hands-on support, demonstrating its independence from retailers. “We have hundreds of people during the growing season all up and down the western seaboard to go and install and maintain and monitor everything that we have,” said Burton.
Climate change has opened the doors for innovation
One of the biggest pain points for growers are the uncertainties that come with a changing climate. “I think the adaptation to climate change has actually driven a lot of growers to be open to technology,” said Burton. “The extremity of [climate] events are causing some serious financial damage. And so there is an incentive there for them to experiment.”
A notable indicator for a farm’s success is in its soil. “Growers used to just go by their gut,” he added. “They would pick up the soil and they say, ‘This feels like how it was 10 years ago, so I think the events are going to happen in this way.’ That's not true anymore. They can't predict what's going to happen. So I think that has opened [the door] for us and for other companies.”
So what exactly are the panel companies working on? Terramera, which has historically focused on green chemistry solutions, is hedging the next wave of agtech innovation to be in soil health. “[Soil is] a foundational asset that we need to take care of,” said Clerc. “If we don't do that very rapidly, and then change the way we deal with soils and how we treat soils, we only have 60 harvests left in front of us before it's completely gone.”
Meanwhile, Verdi sees an agtech future rooted in prediction and automation. “With climate change, we have more unexpected events,” said Kozak. “Helping [farmers] predict when they're going to happen — they’d be able to direct resources to the most critical areas of their farm first.”
And Semios? After a suite of acquisitions last year, the company is honing in on its “precision agriculture as a service” model to support holistic crop management, from irrigation to pest control. With a quickly changing environment headed our way in 2023 — from both an economic and planetary point of view — we’ll have to wait and see how these technologies stand the test of time.
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