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Farming is an entrepreneurial business.

Farming is the epitome of entrepreneurship. It is not easy work. It is a business that first requires an understanding what the market wants: How much does the market need, what can you sell and to whom?  Then you have to figure out if you can grow it for a certain cost and still make a profit. If you approach it any other way you will most likely fail. Like any other new venture, it all starts with the market.

A recent article in the New York Times, “Young Farmers Find Huge Obstacles to Getting Started,” sites many of the issues of getting into farming and how hard it is. Many farmers cannot affordthe land, and even if they can, they have a hard time getting the farm working and selling the produce at market. Yes, it is hard to run a farming business.

By way of example, suppose I decide to sell pencils. Everyone needs pencils, right?  They are always consumed. So I buy the wood, lead/graphite, metal, and rubber, and then I purchase the machines to roll stamp and press the pencils. And finally I rent the building to do all this in. I spent all my capital to do this. Then I go to the corner store and ask him to buy my pencils to sell in his store.  The store owner (being the nice local merchant he is) ask how much I will charge him for the pencils. I tell him, “$1 a piece, they are locally made”.  He tells me, “I buy pencils from my supplier for 25 cents, and I don’t think my customers will buy $2 pencils.”

Then I pursue the option of opening a corner vendor kiosk and selling my pencils direct to the customer for $1 each.  I sell a few, but within a year I am out of money, out of pencils and out of business. That’s when I say this is a hard business. Yes it is.

So what went wrong?  I did not understand the market, the customers and the customers’ need to get a product at a specific price. It’s that simple.

When you read the article about how tough it is to be a farmer and how many new farmers failure, put this in context:  They say that 22% of new farms turn a profit the first year. That is great actually. But only 1 out of every 5 farmers make it all the way to sustainable profitablility.  How many other new business start ups fail in the first 1 to 5 years?  How many actually make it through that long, hard start up phase to actually make a profit? 1 in 5. Sound familiar?

Farming is also unique in that one learns to farm through trial and error. Failure of a crop is inherent in farming and then you learn to do it better.

The top 5 reasons for business failure are:

1. Lack of experience

2. Insufficient capital (money)

3. Poor location

4. Poor inventory management

5. Over-investment in fixed assets

All of these elements are within the control of the new businesses owner.  These reasons apply to farming and business. A well thought out business plan mitigates these issues.

Farming is a hard business but you need to start with the notion of the market and then you have a fighting chance.

This Post Has 2 Comments
  1. With all the defunct land projects in the US right now that are located at the edge of rural areas, have you given any thought to supporting a fund to acquire that land and return it to farming. Perhaps you or Biological Capital could build an “incubator” model for small farmers to help them build the local business with the support from some of the local Agriculture Schools. Overtime, perhaps the farmer could purchase the land from the fund as the business grows and is successful.

    1. Exactly right! There are also a few groups around the country that are supporting this kind of model. Any business is hard to start, but we can create “incubators” that do exactly this. This is a concept and an approach that Bio-Logical Capital seeks to foster. Thank you for that thought.

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