Goliath's big fat feet.
Prime Future 144: the newsletter for innovators in livestock, meat, and dairy
It's the most chaotic time of the year in the US for college basketball fans, with the NCAA tournament in full swing. Aka March Madness.
The thing about March Madness is that, because it's a one-and-done tournament, your team having a high seed is great but also nerve-wracking. Because on any given day of the tournament, some pesky David can slay Goliath and dash an entire year of hopes and dreams.
I'm a devoted Arizona basketball fan, so I speak from way too much experience on this, including our own inglorious Goliath-style loss in the first round of the tourney this year. 🙄
The very next night #1 seed Purdue experienced the same fate when a school I'd never heard of just owned this OG basketball program.
Pure magic for David, complete devastation for Goliath.
There are a lot of ways to measure the gap between David and Goliath, but coaches’ salaries are a decent indicator in this case.
Purdue's coach makes a cool $3.85 million salary, with bonuses for post-season wins.
The tiny no-name school that beat them?
Their coach makes $22,990. TWENTY-TWO THOUSAND DOLLARS. This guy could have made more money this year as the Walmart greeter. (tho, of course, he did just punch his ticket to greener pastures)
Amidst all the David & Goliath'ing in basketball this weekend, I've also been reflecting on the complete and utter chaos of the Silicon Valley Bank situation that unfolded last week and into the weekend.
The crux of the matter (as I understand it) was poor risk management, specifically mismanagement of duration risk as SVB bought long-term treasuries. It was all fine and well until interest rates rose and the value of the bond portfolio decreased. This paragraph from the WSJ nails it:
There are a handful of startups that raised capital in the past few years and set out to disrupt SVB, to become the new default banking choice for startups and VC's.
But these startups gunning for SVB had zero to do with why SVB failed.
SVB failed because of unforced errors.
For as much as we love a story of David defeating Goliath, I wonder if more often than not in business, incumbent Goliaths fail because of their own unforced errors.
Maybe Goliaths are more apt to stumble on their big fat giant feet than they are to be slayed by David's slingshot, especially in agriculture.
The backdrop to all of the above is the Animal Agtech Summit & World Agritech last week.
Both events were filled with fledgling enterprises trying to bring their insight to life in enough time to stay alive, some with the hope of proving their value enough to be acquired by an industry incumbent but many with the hope of disrupting incumbents, of being the David to fell Goliath.
But the thing about giants is that they have at least some degree of staying power; that is their superpower.
I look around animal ag at the incumbents in all the major segments (animal health, animal nutrition, equipment, packers, etc) and I think they are far more likely to die of unforced errors than by David's disruptive slingshot.
For starters, despite 15+ years of really great stuff in agtech, I can't point to a single major incumbent in any segment of agriculture that failed because they were disrupted. Not one.
One could argue that this says more about how incumbents have responded to innovation, or about the oligopoly structure of many segments. One could also argue it reflects the type of innovation emerging in agtech. One could also argue the past is not a predictor of the future, and it’s only a matter of time until this happens.
Maybe this is a purely philosophical question, or maybe it’s a good time to look out for big fat giant feet. Or maybe it warrants the question, who is most likely to be the Netflix to the Blockbuster of ag? (Though I’ve also read variations of that story that indicate it too was far more of an unforced error situation than the version we tend to think of.)
There is the loss of local investment from locally-owned and locally-operated companies plus the patronage dollars that go to producers who do business with the cooperatives (although those are not guaranteed to members each year). Add to that the local control for the end-user or market for the grain. Cooperatives can and will work with local mills or value-added companies. Large corporations are usually vertically integrated in some way so the end-user for the grain is already pre-determined. But probably most importantly, cooperatives serve regions - not just specific communities - when those coops are removed from the market, many communities/counties/regions are left unserved because they are not attractive enough for private industry - but still need some kind of infrastructure or market for their grain. That puts the burden on farmers to either increase on-farm storage or haul grain to a market. We see this is Southeast Kansas. They have a very weak - almost non-existent in some counties - coop system. There are some private actors in the region but not enough. On-farm storage is much more common there and folks are trucking grain sometimes hundreds of miles to get it to a terminal or inland port. We also have to keep in mind that on-farm storage is not always insured so any kind of natural disaster can do major damage to storage facilities and decimate an entire crop.
I agree with your thoughts on the corporate "Goliaths" however, I would note - at least here in Central Kansas - agricultural cooperatives are facing a David vs Goliath fight with the bigs getting bigger and the small getting smaller. The disruptor is private industry offering the same products and services for customers - often with the added bonus of technology. This is not only pulling farmers from cooperatives, but is straining already tight labor markets. For those cooperatives that can step up to match corporate services and technologies, the future looks good. But too many cooperatives are failing or simply unable to match the private company options and are therefore losing customers and acres. I love the competition for my grain that has developed through a network of private companies and coops growing outside of their inherent territory, but I know someone or something will give. The smart farmer will take in all options and choose wisely and the smart coop will find opportunities to pivot and customize in ways large corporate players simply cannot.