Idea boomerangs

Prime Future 208: the newsletter for innovators in livestock, meat, and dairy

The best part of writing is after I hit publish, when folks reach out with additional ideas, questions, even pushback….like an idea boomerang returning way better than when it left.

So I thought I’d share some highlights of these after-the-fact conversations.

Prime Future 189: wealth preservation vs wealth generation

While the vineyard business is not really seen as a great way to generate wealth, owning a vineyard in Napa is seen as a solid way to preserve wealth. Not because of operating income from a vineyard and/or a winery but because land holds its value and appreciates over time, especially in the Napa Valley.

You might say that owning a vineyard is a much more effective tool for wealth preservation than wealth generation. The same could be said of some other sectors of agriculture, including ranching.

Three interesting comments from large operators across beef & dairy:

(1) "In other words, this is a BYOBS business. Bring your own balance sheet."

(2) "I think it is probably true that cow/calf operators are doing a better job of looking at it this way now than ever before.   However, I don't think it's an "increasingly true dynamic" because I believe the cow/calf business has actually been more profitable the past decade than it has been the past 50 years.  For a creative and efficient operator, there are a lot more opportunities in the cow/calf sector today than ever before (gov't programs, drought insurance, genetics, specialty programs, feedyard partnerships, etc)."

(3) “I believe the dairy sectors profitability is highly variable as well (generally), and for an established operation today with no outside revenue, low debt level and not vertically integrated, I would put more in the camp of wealth preservation. I know many cases can be made for a dairy operation to be a wealth generator, and I believe it can be. But in moving into the future, the wealth generation will not come from milk sales alone. It will come the operations that are working towards more vertical integration, processing their own milk, building additional revenue sources, etc.”

Prime Future 196: Let them choose.

Jake Joraanstad, CEO of Bushel, recently told a story about how sometimes what "everyone knows is true" isn't true at all.

"We had customers tell us they wouldn't want eSign because farmers won't use it, but when we dug into it, these companies never sent the farmer an option to sign electronically!

As we've rolled it out, we're seeing 90% of those contracts being sent and signed within the first few days. Once they do an eSign they never want paper again."

Did you catch that? It turned out that farmers had never been offered the option to eSign yet these companies were confident farmers would not want to use eSign.

How often do we not offer our customers a choice because, right or very very wrong, we chose for them?

Two great examples came back:

(1) Mark McCulley, CEO of the American Angus Association: "We run into this with our retailers of Certified Angus Beef^®, specifically when prices get high. They can fall into the trap of making conclusions about what consumers are willing to pay, not putting a high-priced item in the ad feature, or even pulling it from the case altogether. For years we have promoted shadow marketing ads where they can put their “hot” priced, lower quality item in the ad and then shadow the comparable CAB item. Many times, the consumer will trade up which increases both sales and margin for the retailer."

(2) Shely Aronov, founder & CEO of Inner Plant: "Replace esign with 4 or 5 way HT (herbicide-tolerant) soybeans and does it play out exactly the same way…?”

Prime Future 198: Farm to Fashion from New Zealand

Paul Ensor is a New Zealand farmer who raises 6,000 sheep and 300 head of cattle. And launched an apparel brand.

Paul shared some insights about adding value to an animal-based commodity, from a farmer turned fashion mogul. You can listen to the full interview on the Future of Agriculture podcast.

One reader, who spent a career in livestock marketing, replied:

"It's all about marketing. Today's consumers like to have a story about the products they buy, be it meat, clothes, etc. There was an old stockyard saying, it's not the way you sell'em it's the way you tell'em you sell'em.."

Prime Future 204: Capital designs the game.

"It’s worth remembering that it’s the capital that ultimately designs the game that everyone else plays."

Capital structure impacts the employee experience which impacts the customer experience. There are 4 primary ways this plays out.

In response to the statement that sparked this newsletter edition, an experienced agriculture operator and investor replied with astute wisdom:

"This is an important conversation and as you well know there are many lanes through which capital flows. 

To the tweet you shared, it’s ironic that there is little acknowledgement of what is the largest $$ source of capital, bootstrap. That reveals a bias that capital is, by definition, externally supplied. I think that is a misformed understanding of capital. If we were to take a step back and simply say all capital has a home then we perceive capital differently. 

I think characterizing patient or venture capital as conservative or growth respectively also reveals a pejorative bias that is unhelpful at the practical level. The broad statements are generally true however, the specific context is paramount."

I really appreciated both the anchor back to customer-funding as often the best path, and the incredibly balanced view of capital sources as a tool. These comments made me think that just like the Job To Be Done theory brings us back to the problem the customer is solving, taking the focus off any specific product, it’s like the Job To Be Done theory can be applied to capital as well, to identify the right capital source (as far as category) for the right company at the right time for the right reason.

Prime Future 205: To what end?

23andMe holds a cautionary tales for data startups and data product leaders in agriculture, including livestock, meat, and dairy.

With the benefit of hindsight, it’s a staggeringly clear example of the 2 fatal flaws in many data-based business models; the same fatal flaws have plagued much of agtech and left many founders, customers, and investors wondering if there's a there.

There are two fundamental flaws for data businesses:

1 - A missing So What.

2 - A missing "for whom?"

One VC said "I sent this article to every one of my entrepreneurs. 🔥" This validates that investors are seeing these fatal flaws way too often in agtech.

Another reader said "Or a start up can typically find the 0.1 - 0.5% of the addressable market who are innovators and prepared to try things, but don't get further than this, as (and you point this out around so what and for whom) there is no value proposition for the next link in the market development chain, the Early Adopters..."

This sparked a very nuanced point I wish I had thought of when writing. The reader was alluding to the idea of crossing the chasm from the legendary book by that name. To cross the chasm is to move from a small set of customers to a larger set of customers in the same market.

But what 23andMe was attempting to do by moving from a consumer market to a physician/medical market was not crossing the chasm; it was crossing the Grand Canyon.

Perhaps the 3rd fatal flaw for data businesses particularly is thinking that if you cross the chasm in one market, it will automatically translate to a completely different market.

There is a gigantic difference in expanding within a segment of customers and moving to an entirely new segment of customers.

In 23andMe's case, that's moving from consumers as customers to physicians as customers....in an agtech setting maybe that's moving from farmers as customers to retailers as customers.

The markets are not the same, the customers are not the same.

That’s not moving up market; it’s moving across markets.

To move from one market to an entirely different market is not merely an attempt to cross the chasm, its a leap to cross the Grand Canyon in one fell swoop. And perhaps the primary benefit of doing so is to increase TAM for a better investor story….

Many thanks to all who read Prime Future and especially those who generously reply to share their hard-learned insights.

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