Author: janettebarnard20

Categories
Leadership

Prime Future 126: I quit.

Today’s newsletter is less learning out loud & more processing out loud.

Annie Duke is a former professional poker player. She’s written a couple of great books on decision-making frameworks but her latest book, Quit: the power of knowing when to walk away, is next level.

Before we get to why Quit spoke to my soul, here are my favorite ideas from the book:

(1) Quit and grit are two sides of the same decision.

“Grit keeps you working on worthwhile things, but it also keeps you working on things that are not worthwhile.”

The central idea is that our culture celebrates grit even tho sometimes quitting is the better decision. The superpower is in knowing when something is no longer worthwhile, no longer worth gritting it out…knowing when it’s time to quit.

This isn't quitting when the going gets tough, as it always will in anything worth doing. This is building the really hard-to-build muscle of knowing when to grit and when to quit, how to avoid quitting too early OR too late.

(2) Build the skill of optimal quitting.

“The skill of optimal quitting is what separates amateur and pro poker players. The desire for certainty, to know the outcome, is what keeps us playing to the end. Having the option to quit helps you explore more and learn more to find the thing you want to grit out.

Quitting on time feels like quitting too early but when you quit you live to fight another day. If you feel like it’s a close call between persevering and quitting, quitting is likely the right choice. Quit while you still have a choice.”

(3) When you quit what’s not working, you can find what will work, faster.

“A common misconception is that quitting will slow or stop our progress but the reverse is true. By not quitting you miss the opportunity to get closer to your goals. When you stick with something when there are other opportunities out there, that slows you down. Quitting gets you where you want to go faster.”

(4) Put the decision to grit or quit in the context of the long game.

“We don’t like to close accounts/games in the loss. But remember that poker is one long game, and life is one long game.”

(5) Escalation of commitment & sunk cost fallacy can wreck our ability to make an optimal grit or quit decision.

The more time, energy, and money we put into something, the more invested we get emotionally. This is the trap of sunk costs.

If I spend another 6 months trying to make something work, I am more likely to spend a subsequent 6 months because I’ve escalated my commitment by spending 6 more months on something.

This is why the sunk cost fallacy causes us to often make sub-optimal decisions about grit or quit. I stay in this market, with this team, with this company, etc etc etc because I’ve already invested so much effort here.

Another way we escalate our commitment is by making something part of our identity.

“When we make something part of our identity it’s even harder to quit. Cognitive and motivational factors make it hard to change your mind or quit a venture, because it is part of your identity. Would shutting down this business make it a mistake to have started?”

Duke offers examples around politics (if I put yard signs up for a politician then learn new negative information about that politician, it’s harder to take the yard sign down because I’ve made my support of that candidate part of my identity to the neighborhood) and business (a founder who built his company in public while frequently railing against venture capital and extolling the virtues of bootstrapping, so when he had the opportunity and need to take venture capital to win his category, he missed it b/c he was so entrenched in the identity of being a bootstrapped founder. Even tho his company got out-competed as a result.)

The two big muscles to build are:

💪🏽 1 – The ability to discern whether grit or quit is the best path.

💪🏽 2 – The ability to act when quit is the best path…the ability to walk away.

Sometimes quitting makes sense because something about the world changed, or the context around the thing. Sometimes it’s because we changed, maybe our context changed or life season changed, or we refined our long-term goals.

Startups, by definition, enter unknown territory. There are so many things you can’t know when you start, that you only learn once you’re in it. Sometimes you realize there’s more potential value to be created for an even larger market, sometimes the opposite. Sometimes you realize it will take longer than anticipated, or that you’re too early for the market. Startups are an ongoing flow of new information informing a series of ongoing grit-or-quit decisions.

So is production agriculture, where grit-or-quit decisions range from deciding whether to quit the status quo to pursue a new market, a new customer, a new business model, new genetics, new facilities styles, etc etc etc.

For producers, maybe the better way to say grit-or-quit decisions is to call them status quo-or-no decisions. Going back to the idea that it’s easier to fail conventionally than to succeed unconventionally (aka quit the status quo in some way), this makes lunatic farmers all the more extraordinary.

Ok so 3 reflections as I process this book…

(1) Knowing when to grit or quit is a more critical skill for new products/companies/business models than it is for established products/companies/business models.

Duke refers to an idea from Alphabet’s X, the moonshot factory to “train the monkey first”. Translation: if your goal is to train a monkey to jump over fire on a pedestal, you already know how to build a pedestal, so don’t build the pedestal until you find out if you can train the monkey, which is the hard part.

So “train the monkey” is shorthand for do the hard thing first, so you know whether to continue on to the easy part, or to quit and move to the next hard thing.

It’s easy to confuse activity with progress, but being busy with easy things just punts the decision to grit-or-quit….which we know makes the decision even harder because of our escalation of commitment & the sunk cost fallacy!

(2) Quitting in the short run can sometimes be the best way to grit in the long run…especially if you’re playing long-term games with long-term people.

As I was writing, I stumbled on a founder announcing that he’s shutting down his current company because they realized they couldn’t do in the market what would make it worthwhile to grit:

This is a founder whose first company (that he left to start this company) is seemingly successful, so he likely has a good feel of the difference between “if we dig in we can breakthrough this problem” and “this problem isn’t worth overcoming”.

(3) We make hundreds of implicit grit-or-quit decisions every day.

There are grit or quit decisions that are small, like whether to keep working a sales channel or keep using a specific genetic line. And then there are big grit or quit decisions, like jumping industries or rethinking our business model.

My hardest quit decision ever was to shut down my first venture. Somehow, by some miracle, this nobody from nowhere kid had found a massive problem that needed solving. We had some customers, a few investors, a product and a team. I was doing The Thing.

I spent ~30 months working on it, and if I had been more discerning at that time about whether to grit or quit, I would have spent <6 months on it. I say that with not one ounce of regret, and of course with the benefit of hindsight.

But the signs were there, I just didn’t want to see them. I wanted to do The Thing and if we could just work harder or be smarter, we could figure it out….right?!?! Wrong.

When I decided to quit, ~40% of investors’ money was still in the bank. We didn’t run out of cash; I spent too much of myself trying to make this one thing work that by the time I realized I would need to take a completely different approach, I didn’t have it in me to shift gears. I ran out of mental and emotional energy, I had nothing more to give to this problem/customer/company.

So I returned the remaining capital to investors and shut the virtual doors.

I knew in my bones it was the right thing to do, but OOPH it felt like I was making a naive/foolish/bad decision. I had never heard of someone returning capital like that because the only startup stories you hear are about either an exit or running out of cash. The message I interpreted from the startup ecosystem was ‘real founders don’t return capital, they keep going and figure it out…they grit it out.’

There have only been two times I’ve had external validation of my decision. The first was a few years after the fact when one of the investors said he had multiple active early-stage investments where the startups had no chance of survival but the founders were clearly going to spend every last dollar, and he appreciated that I returned the capital once the writing on the wall became too prominent to ignore. (He also said he’d invest in my next venture so I hope he’s reading this and still thinks that😉)

The second was reading Annie Duke’s book where she says:

“There is no honor in spending investor capital when you know the company is failing. Returning capital increases odds investors will back you again. Founders also feel like they owe it to employees to keep going but life’s too short to keep going when something is failing, for investors and employees.

Once it’s clear the venture isn’t going to be successful, everyone should get out – founders, investors, employees.

Don’t spend good time after bad, or good money after bad."

Shutting down a company is a particularly heavy decision because there are investors and employees and customers involved. And ego, so much ego. So much self-identity. So much escalation of commitment.

But again, this whole idea is NOT simply quitting when the going gets tough, as it always does in anything worth doing. It’s about building the really hard-to-build muscle of knowing when to grit and when to quit (and to what degree), arguably one of the hardest things for an innovator to distinguish.

Maybe I only liked this book so much because it provided confirmation bias…but I think it’s more than that. Knowing when to quit, and when to grit, is this wildly important skill that NO ONE TALKS ABOUT even though every day we implicitly make hundreds of grit-or-quit decisions.

The book ended with the punch line, “Winners quit a lot. That’s how they win.”

So that’s my new #goal, to wisely wield those two little words like a scalpel, carving out a path of effectiveness and impact over the long run:

I quit.

Categories
Animal AgTech Emerging Tech Transportation

Prime Future 125: the✨magic✨in solving invisible problems

Amazon launched AWS in 2006; Microsoft launched Azure in 2010. The cloud is old news.

We’ve digitized all the things; the digital west has been won. ✅

Yet there are large pockets of huge companies in gigantic industries that still operate on notepads and <gasp> fax machines.

Today we look at one of those not-small pockets within the ag industry and one company’s quest to simplify the ecosystem and create outsized impact.

It is a story about a seemingly invisible problem with a seemingly simple solution….until you dig below the surface.

It’s one of my favorite kinds of tech stories, where real magic gets made for customers by solving the ignored, invisible, and/or ‘boring’ problems. The ones that Silicon Valley is unlikely to find and, even if they did, unlikely to find interesting. The problems that customers don’t even realize they have until a better way is presented, like a fish unaware of the water around them.

This is a sponsored deep dive by M2X Group, the transportation management system for livestock and agriculture, and today we’re digging into the dynamics around the oft-ignored livestock transportation ecosystem & the problems M2X is tackling.

Let’s get a move on…so to speak.

Prime Future Sponsored Deep Dives explore the dynamics around a specific company, the problems they are solving and the world they are creating. As always, here are my personal commitments to Prime Future readers:

  1. I will only deep dive into companies I find intellectually interesting and relevant to the Prime Future audience.
  2. I won’t shill. My goal is for Prime Future readers to always expect, and receive, practical candor and intellectual honesty.
  3. Sponsored Deep Dives will be few and far between.

How the transportation ecosystem works

In the US cattle value chain, a calf can easily be shipped 3+ times before it is processed by the packer. Whether a weaned calf shipped from an auction barn to a stocker, or to a feedyard or to the packer, cattle can rack up a lot of miles over their lifetime.

For napkin math, let’s say the ~25 million head of beef cattle finished in feedyards every year travel 150 miles over their lifetime, a super conservative estimate but that would mean 3,750,000,000 bovine miles! Of course, these are assembled into truck loads so there are fewer actual miles driven but the point is – there’s a lot of cattle moving up and down the road.

Which means someone has to coordinate that movement. There’s a someone at the buying organization, say at the feedyard, who is coordinating transportation with a carrier, who’s going to arrange the truck and trucker to pick up the cattle from a seller, say a stocker.

In that coordination there are times for pick up and delivery, there is a price, and there is some sort of contract locking in prices and approximate times.

And today, the vast majority of that coordination happens via phone and a notepad and fax machine. CAN YOU EVEN?

So there’s administrative staff on all sides involved in the process (buyer, seller, carrier). And a lot of room for human error. And a lot of paper shuffling.

You see where this is headed, don’t you?

M2X provides a Transportation Management System. Their software platform digitizes the processes around coordinating livestock transportation and allows all the players involved to visualize one source of truth for all things related to managing livestock transportation: prices, arrivals, etc.

Some reasons that’s interesting…

(1)You can’t run an algorithm on a legal pad.

Optimization follows digitization.

As M2X customers transfer their workflows related to transportation onto the software platform, the next step is for M2X to work with the customer to start optimizing transportation. In New Zealand, M2X’s home country, this means identifying the most efficient routes to pick up animals in order to fill the truck on its way to the processor. For example, Silver Fern Farms has 14 processing plants, 90+ buyers, 14,000 suppliers, and works with over 160 trucking companies. M2X helps them optimize farm-to-plant flows, meaning that for the same amount of animals delivered to the plants, Silver Fern Farms is removing 1,000,000 kilometers from their network.

At current fuel prices that impact shows up quickly in the financials. Energy cost savings aside, the optimized farm-to-plant flows means animals are on trucks for 14% less time. All of this means 11% reduction in emissions per animal. Check, check, check.

In New Zealand, a big part of the issue is trucks picking up animals from farms in less than truckload lots so those improvements are created both by optimizing which truck is selected for animal pick up, and what route the truck takes in their multiple stops.

But these optimizations are only possible because the workflows have been moved to the software where better data is captured, and then optimizations can be layered on top.

In the US the sale barn often serves as the point of aggregation for cattle, so most truckloads are full truckloads already. But even in the US, route optimization still suggests the shortest, fastest, and safest route for a loaded truck which reduces energy costs, animal time in the truck, GHG emissions, etc.

And there’s another optimization superpower, and that’s to reduce truck congestion at plants. If you have spent much time around meat processing plants, you know this can be a massive issue in 100* summer heat but even more so for dairy processors where time is <literally> money.

I love these examples where what’s good for the income statement is good for animal welfare is good for GHG emissions. Magic.

One reason I'm so bullish on the future impact of tech in animal ag is that there's still so much happening on legal pads or the producer's pocket notebook, and as those workflows are digitized, it will create opportunities to optimize decision-making and outcomes.

For example, Caviness Beef Packers began working with M2X to streamline their transportation-related activities. They set out to pick up some efficiencies but as Regan Caviness put it, “we realized just how inefficient we had been once we had a better way to do the work. We’ve gotten way, way more accurate in everything from scheduling pickup through to billing, but especially in calculating freight costs for each truckload. Now we have an accurate headcount, accurate mileage, accurate owner data (name and address), and the freight costs are calculated in the software rather than across Google Maps tabs and paper.”

Regan also pointed out that every M2X customer will think about their flows differently, from livestock pick-up and scheduling all the way to billing. Working with software that was flexible to fit their business processes, instead of the other way around, made a big difference in the outcome and being able to easily digitize processes.

Because that is the step 1 that enables all subsequent, higher-value steps.

Optimization follows digitization.

(2) There are 4 timely tailwinds propelling M2X’s journey:

  1. Many companies have a weird dynamic where they cannot bill a customer until they have the invoice from the carrier for shipping costs. Take a grain merchant who’s selling feed ingredients to a feedyard or dairy. If the processes surrounding the carrier are managed via fax machine, you can imagine it can take many days or even weeks to settle costs with the carrier which delays when the grain merchant can invoice the feedyard or dairy. That was all fine and well when interest rates were low and money was cheap. But it’s a whole new world now, with high-interest rates where every incremental day of receivables outstanding costs real money.

Think of it this way – if I’m borrowing money at 8% interest for my operating line of credit, and I cannot invoice a customer for 14 days because I’m waiting for an invoice from the carrier to know the precise shipping costs, there is a quantifiable cost to those 14 days. By simplifying the system for all parties, M2X software allows companies to reduce their Days Receivables Outstanding by shortening the time to invoice customers. Like all numbers in high-volume businesses where small differences can make a big impact, except this impact is amplified in a high-interest-rate environment.

  1. We all know, it’s still a tight labor market. So freeing up administrative staff to focus on higher priority tasks than shuffling papers can be a huge win. Not to mention, many folks in these roles have been in these roles for years, sometimes decades. So there’s an element of succession planning and capturing process knowledge to transfer to the next person that’s also relevant.
  2. Almost anything in livestock that creates an increase in efficiency, creates a corresponding improvement in sustainability. It’s math. But that dynamic becomes very real when you’re talking about the carbon footprint of thousands of diesel trucks running up and down the highway moving millions of cattle. There is real, tangible, low-hanging sustainability fruit to optimizing transportation routing and planning. As companies get closer to their self-declared deadlines for reducing Scope 3 emissions, these types of improvement opportunities have to be attractive.
  3. As consumers, Amazon & others have conditioned us to expect visibility into where a package is until it arrives at our doorstep. That expectation for visibility is mostly a curiosity for our collective neuroses but for a company buying or selling a truckload of livestock, the expectation for visibility is a critical business need.

One of the primary benefits of digitizing allll the processes around transportation is that it creates real-time visibility for everyone involved. That visibility isn’t nice to have, it’s a need to have…but you can’t have one digital ecosystem with one source of truth when the whole process is managed on legal pads and fax machines.

(3) Why now?

Usually, this question is asked in the context of why the market or tech is at a point of readiness, but in this case, the question is more of, why hasn’t this been done before?

Coordinating shipping for livestock is, umm, not exactly the sexiest thing. Nor is it visible to those who aren’t working in it day in and day out. It’s one of those pockets of the industry that you only know how terrible it is if you’ve directly interacted with it. And you only have an appreciation for how to solve the problem if you’ve directly interacted with it.

Yes, there are plenty of Transportation Management Systems (TMS) out in the world, servicing manufacturers of all types who are bringing in one kind of widget and sending out other widgets. And those TMS work great for companies who bring goods in and out of their facilities in standard boxes. But they fall short for everyone in the value chain dealing with live animals, meat, even grain and fertilizer.

As we know, agricultural supply chains can be s-u-p-e-r complex which both creates the need for a purpose-built system for agriculture and makes it costly to build such a system.

(4) In the spirit of learning out loud, here are my takeaways as I’ve learned about M2X and the category they play in:

  • Some of the most interesting businesses in agtech are simply competing with a notepad and pen. You can’t earn the right to fix the supply chain or any other lofty aspiration until you solve a one thing for a one customer, ideally a repeatable thing for a repeatable customer. Then layer in more value for that existing customer base.
  • The role of sector knowledge in ag can be a mega differentiator, both in the product you design and in the customer experience. A CRM is a CRM whether you’re storing a customer name and notes about your interactions for a cattle feeder or a battery smelter or shoe stores, a TMS is not a TMS. The M2X team is from the industry so they have an understanding of the many nuances that a generalist TMS just can’t have.
  • High-growth bootstrapped businesses are fascinating because they are outside the norm. M2X has funded most of its growth from revenues rather than venture capital, so their validation has been in the form of paying customers….the strongest possible validation signal.
  • Substantial businesses can be built off what seem like niche spaces. Every livestock category navigates the same challenges around transportation management, as do players in grain and feed and fertilizer. The problem is repeatable with many adjacent markets within agriculture. 🤌🏼

Look, farming on Mars, chickens with 4 wings, steers that yield 80% ribeye, and self-processing pigs are all interesting moonshots for agtech to tackle.

But in the meantime, there’s so much value to be created in improving workflows and laying the foundation to optimize business operations and outcomes, like M2X is doing in the transportation space.

Categories
Alternative Meat

Prime Future 124: Plant-based meat? We’ll see.

As of this writing, Beyond Meat is trading at $12.63/share down from a 52-week high of $109.76. Absolutely brutal.

Meanwhile, JBS shut down Planterra and McDonald’s scratched plans to roll out the McPlant burger nationally.

Across the meat industry these days, there seems to be a lot of jumping up and down on the anticipated graves of plant-based meat companies, and the entire category.

In March I wrote RIP plant-based meat mania (full text below), an analysis that still largely reflects my POV on the category.

But in spite of those celebrating what looks like the plant-based meat category losing its sizzle, here are 3 things to keep in mind…

1) The hype cycle:

Where is plant-based meat on this chart? Maybe the trough of disillusionment, at least for investors but also a lot of customers & consumers. A question is whether it follows the trajectory here, or continues to fall.

Though perhaps the question is whether plant-based meat even belongs on this chart, was there even an innovation trigger? Or was the entire plant-based meat category boondoggle based on a narrative trigger from some skilled-at-storytelling anti-animal founders dressing up the veggie burger with a whole lotta venture capital?

2) The X factor

Even if plant-based meats have peaked and it’s all downhill from here, there is another X factor that we have no idea how it will impact meat: cell-based meat.

The cell-based meat category has also had massive investment, but companies in that category are largely still working out the technical and scaling risk.

It remains to be seen a) how regulators will deal with cell-based meat, b) how well cell-based meat can compete on taste and texture, c) how well cell-based meat can compete on price, and d) how consumers will respond to it / which markets will be a fit.

3) A Chinese proverb:

A farmer and his son had a beloved stallion who helped the family earn a living. One day, the horse ran away and their neighbors exclaimed, “Your horse ran away, what terrible luck!” The farmer replied, “Maybe so, maybe not. We’ll see.”

A few days later, the horse returned home, leading a few wild mares back to the farm as well. The neighbors shouted out, “Your horse has returned, and brought several horses home with him. What great luck!” The farmer replied, “Maybe so, maybe not. We’ll see.”

Later that week, the farmer’s son was trying to break one of the mares and she threw him to the ground, breaking his leg. The villagers cried, “Your son broke his leg, what terrible luck!” The farmer replied, “Maybe so, maybe not. We’ll see.”

A few weeks later, soldiers from the national army marched through town, recruiting all the able-bodied boys for the army. They did not take the farmer’s son, still recovering from his injury. Friends shouted, “Your boy is spared, what tremendous luck!” To which the farmer replied, “Maybe so, maybe not. We’ll see.”

The moral of this story, is, of course, that no event, in and of itself, can truly be judged as good or bad, lucky or unlucky, fortunate or unfortunate, but that only time will tell the whole story.

All that to say, plant-based meat? We’ll see.

Prime Future 92: RIP plant-based meat mania (link)

I am often asked about my view on alternative meats and the threat they pose to old fashioned, plant-fed meat. I’ve stayed away from that question, for the most part because I’m just more interested in plant-fed meat.

First, it’s important to separate “alternative meat” into 3 distinct buckets: plant-based, fermented, cell-based.

Today we are looking at the plant-based meat category. Spoiler alert: I find the plant-based meat category bland and uninspiring. And honestly, I think we can reasonably lay plant-based meat mania to rest in peace in the history books, right alongside 1990’s emu farming mania in the US.

Some background on VC’s appetite for the category:

“Plant-based meat, egg, and dairy companies received $2.1 billion in investments in 2020 — the most capital raised in any single year in the industry’s history and more than three times the $667 million raised in 2019. Plant-based meat, egg, and dairy companies have raised $4.4 billion in investments in the past decade (2010–2020). Almost half, or $2.1 billion, was raised in 2020 alone. This included Impossible Foods’ record $700 million funding haul.”

In addition to Impossible Foods, the other elephant in the plant-based room is Beyond Meat, which has sent investors on a roller coaster since their 2019 IPO.

Here’s the category update, according to the Wall Street Journal:

“Beyond shares peaked above $234 in mid-2019 after the company’s initial public offering at a price of $25 earlier that year. Shares have fallen since then as meat alternative makers have dealt with pandemic-related challenges and uncertainty around the products’ growth prospects. Beyond’s stock has fallen about 71% in the past 12 months.

Maple Leaf Foods Inc, a Canadian meat company that in 2017 acquired plant-based food maker Lightlife Foods, this week said that an internal company analysis showed that after years of rapid growth, the category had stalled.

“All major brands and products across the category are experiencing similar challenges, which largely seems to be driven by consumers’ experience in terms of taste, price, degree of processing and ease of preparation,” said Curtis Frank, Maple Leaf’s president.”

Womp, womp…

Now layer on 3 dynamics about plant-based meat mania….

(1) Timing – conditions over the last 24 months were all that plant-based meat companies could have hoped for, but it wasn’t enough.

Beyond Meat when public in 2019, then record levels of venture capital flowed into the category in 2020. This was during a time when total money flowing into the venture capital class was exploding, and public markets were frothy.

And, it was at a time when plant-fed meat began selling at record prices in the meat case over the last two years, at times even being unavailable.

And yet, the plant-based meat category appears to have stalled.

(2) Competition is fierce and growing, which will continue pressuring (already negative) margins.

Plant based meat is an increasingly crowded market, including private label brands intent on competing on price, driving down margins of the whole category. If I’m a retail sales exec for a meat packer, I’m looking at this dynamic and thinking ‘welcome to the real world, kids!’

Like with any emerging trend, what matters is not the absolute size of the plant-based category relative to plant-fed meat….what matters is the growth rate.

But if the growth rate is slowing, and more emerging brands are popping up then suddenly the category is crowded and competing on price and suddenly the whole category is much less interesting to investors.

This picture is from the meat case in Safeway. Notice the seeming price differential. In reality, the plant-based burgers are $.749/oz while the prime chuck burgers are $.519/lb. But ignore the price differential, the visual quality cues here are striking, right?

You have to really want plant-based meat to pick up the one on the right; you have to have a compelling why behind that purchase….don’t you?

Especially in a time when plant-fed meat quality is high. As in ~90%-of-US-cattle-grading-choice-or-prime kinda high. That’s really high.

(3) Plant-based meat: it’s still just a veggie burger.

We’ve talked before about the 2 things venture capital has funded for plant-based meat companies are product development and marketing.

The plant-based meat category was not invented by Beyond Meat or Impossible Foods, but it was dressed up & juiced up by venture capital.

What I find most interesting about Beyond’s latest quarter results is that while total revenue was only down 1.2% YoY, retail sales were down 19.5%. Foodservice is the sales channel where Beyond is moving more product YoY. But my hypothesis is that much of the foodservice lift is from QSR chains like Burger King and White Castle trying to get a PR lift.

But the canary in the coal mine is McDonalds, and the test they are running with the oh-so-cleverly named McPlant burger. For 3 reasons:

  1. Menu board space is precious. Items have to earn their spot.
  2. Menu board space is all the more precious now, since the menu has been pared down to simplify operations and decrease wait times amidst labor shortages.
  3. Amidst a pared down menu board, sales have increased. Correlation or causation is hard to say, but it does seem reasonable to think that the hurdle to add something to the menu has been raised.

If McDonalds rolls out plant based burgers on a broad scale beyond the current trial, then my view might change.

Ok that’s a lot of negativity in one article….oops. But now let’s talk about the most important aspect: taste.

I’ve done the obligatory tasting of an Impossible burger and it tasted 97% like mushy cardboard.

But let’s say 90% of my reaction was influenced by my bias towards plant-fed meat. So let’s say the burger actually only tasted 7% like mushy cardboard. Is there really a massively growing market of repeat buyers for something that has even a hint of  a mushy cardboard eating experience? Especially in a time when meat quality is at all time highs.

But actually the obvious risk to my entire analysis is that I’m operating out of a complete bias towards plant-fed meat and it’s cultural, nutritional, environmental, societal, and experiential superiority over plant-based meat. I’m unabashedly bullish on animal protein. So perhaps this entire analysis will be proven laughably wrong over time…

One reason I do not anticipate that to be the case though, is The Lindy Effect:

“the Lindy effect proposes the longer a period something has survived to exist or be used in the present, it is also likely to have a longer remaining life expectancy. Longevity implies a resistance to change, obsolescence or competition and greater odds of continued existence into the future.”

I can’t think of a better example of The Lindy Effect than meat. Humans have been eating meat for a long, long time…that won’t change with marketing splash.

Where are my plant-based bulls?

I’ve lined out the (really) bear case about the plant-based meat category and why the sizzle will fizzle out and the category will continue to be a fixture in the meat case, albeit a shrinking fixture.

And yet, many many folks see the bull case for plant-based. That’s who I want to hear from – if you are a plant-based bull, tell me more about why that is.

What do you see that makes you optimistic the category’s growth rate will return to pre-2021 levels and sustain or even accelerate?

Categories
Business Model Innovation Emerging Tech

Prime Future 123: baling wire fix or a hack for muggles?

Did y’all know that all incoming freshmen at Purdue University used to be required to take two semesters of computer programming, regardless of their major?

In the 1980's 🤯

I’m a millennial, the first generation that started learning to type in kindergarten. I’ve lived my entire life on the assumption that as a whole my generation was the most tech-savvy, compared with generations prior. And now I learn that before I was even born there were universities requiring students to take computer science classes, the topic I most regret not studying as an undergrad student?!

Why on earth isn’t there a computer science requirement for all majors at all universities today?
On Twitter someone wrote:
“my advice to anyone who wants to learn to code because they feel like their white collar field isn’t going to get them to where they want: don’t become a software engineer, become an accountant/lawyer/actuary/policy analyst/economist that can also code you’ll kill”
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I love this point of having a skill set PLUS the ability to code. It’s like being someone with domain knowledge, who can also communicate, e.g. an engineer/vet/nutritionist who can speak well. It’s the combo that is their superpower.

But I was an idiot when I was 19 years old and never considered taking computer science, either not realizing the massive impact tech would make on the ag industry during my lifetime or not realizing someone like me could be part of it. Maybe both.

There’s a bit of a juxtaposition here in that while coding skills are more valuable than ever, especially as a secondary skill set, there are more alternatives for those of us muggles who couldn’t write a line of code if our lives depended on it: no-code software tools.

Today we’re looking at how no-code software tools could impact the ag industry, specifically how they could be helpful for innovators – either in startups or established companies.

The good news is that this category seems to have moved past its peak in the hype cycle and is now settling in to find its place in the world. Adoption is still early though, with a sense of “the future is here it’s just not evenly distributed”.

Gartner says that by 2024 that 65% of app development be low code or no code. 2024 is umm, right around the corner. (Note: no-code is for us completely non-technical muggles while low-code is for developers.)

Gartner also suggests that by 2030 no-code & low-code will be a $187B market. As a comparison, Gartner projects the global SaaS market will be $381B by 2030. That’s a lot of no-code runway.

So what kind of capabilities can you find in no-code tools? For starters…

Best tools to get started in No-Code: > Create a form with @TallyForms > Create a database with @airtable > Create a web app with @softr_io > Create a mobile app with @AdaloHQ > Create automations with @zapier

I see 2 obvious scenarios where no-code could create high value in ag innovation:

1. Established companies with limited to no development capability internally.

Every big co now has teams of data scientists and programmers on staff, and that’s starting to push down market to mid-market companies. No-code tools seem like a way for mid-market companies to dip their toes in the water with early capabilities. A Peco Foods (chicken) or a Creekstone (beef) just aren’t going to have the same capacity or capability in this area as a Tyson Foods. But no-code tools could minimize the gap.

Perhaps most interestingly is how these no-code products could either be put to work internally to drive operational efficiency or externally to drive new customer value.

Maybe software products developed using no-code tools will be fully sufficient on their own, or maybe they serve the purpose of running an experiment that proves the larger investment in full infrastructure is worthwhile.

(btw LMK any specific examples in livestock, meat or dairy – I’d love to learn more.)

2. Non-technical founders launching startups.

The entire promise of no-code tools is that non-technical people can build and launch products faster/easer/cheaper.

This means that Non-technical people can build an MVP for a product idea to test the concept in a low-risk way before seeking out a technical co-founder and/or raising capital. Think of the months or even years that this could save, let alone units of sanity.

A friend of mine is a farm kid from the Central Valley of California. A few years ago, with no software development skills to her name, she identifies the challenges for almond growers associated with a limited ability to forecast production each year. She comes up with an idea on how to solve the problem, but in order to even test her concept, she first has to spend a few (really hard) months learning the basics of how to write software. Then do the painstakingly hard work of putting rudimentary skills to work to get to an early version of a product to test with customers, in order to recruit a co-founder and then investors.

I brought up no-code tools on Twitter, and Megan chimed in about how it might have impacted the early start of her company, Bountiful:

There are always tradeoffs though, so would Megan have made progress faster if she’d been able to cobble together no-code tools to come up with an MVP of her yield forecast software that she could take to almond growers and investors? Maybe/probably, but what would she have missed out on compared to the longer/harder road she had to take in learning to code?

Of course, counterfactuals are impossible to know.

No code is definitely something but it is not everything. There are limitations and watch-outs to no-code tools like navigating cybersecurity concerns, limitations to functionality, and knowing when to start building actual software infrastructure to scale a product.

Is no code a hack for us non-technical muggles to get to v 1 of a software product or just the software equivalent of a duct tape and baling wire situation?

Idk but I wanna find out firsthand. Because sometimes duct tape & baling wire fixes are lifesavers.

For non-technical founders whose childhood best friends aren’t wunderkind developers, there are basically 3 options to build & launch a software product:

  1. Take time to learn to code. Ooph.
  2. Find a technical co-founder. But this is like saying “get married by Christmas”…it doesn’t work that way, and most shotgun marriages don’t end well.
  3. Hire a software development shop to build a product. Software shops love non-technical founders because we stink at assessing their pricing, capabilities and timelines. Yes, I did this, and no, I do not recommend. 😑

In general, I think non-technical aspiring founders are going to find some magic in running small experiments on early software product versions created using no-code tools. While it’s not a perfect answer to the non-technical founder’s dilemma above, these tools can at least give you a running start compared with the other options.

I love when technology democratizes stuff.My favorite thing about digital marketplaces is how they democratize individual markets, whether real estate, or farmland, or livestock markets. (ok maybe i just love democracy in general)

And no-code tools have the potential to sort of democratize coding, in the right instances.

As a non-coder who believes tech can unlock mega value, I’m here for it – this is something I’m going to be digging into for myself in the coming months.

But I still wish my university had required this Ag Econ major to take computer science classes. I’m thinking they would have been slightly more relevant to my career than that Italian art history elective I had to take.

Anyway, let’s add this discussion to the list of ways in which higher education has lost the plot, and revisit that another day…

Categories
AgTech Animal Health Venture Capital

Prime Future 122: Not all heroes wear capes.

I’m increasingly convinced that in a world of blowhards who overpromise and underdeliver, to underpromise and overdeliver is a superpower.

Not only is it a superpower, it’s one that compounds and proves its power over time and relationships and results.

Let me start by saying I used to think the opposite was true. Despite this being one of the oft-repeated pieces of advice early in my career when I was a brand new baby sales rep, when I transitioned from animal health sales to startup founder I temporarily left that advice behind as too old school and short sighted….

I thought that painting a big picture of what’s possible (even when my intuition told me it was probably impossible) showed ambition to do big things which could then unlock resources to actually make big things happen. Financial projections up and to the right, further and faster.

Now I tend to think over-ambition just looks naive.

(I hope I can attribute that to the increasing pragmatism that comes with experience, and not cynicism creeping in🤞🏽)

It’s not that the effective under-promiser over-deliverers play small.

It’s that they can separate the future from the present, and they can distinguish between their aspirations and their realities. And they don’t shy from those gaps.

Under-promiser over-deliverers can tell the difference between a base-case scenario, a best-case scenario, and an “only in our wildest dreams” scenario.

Under-promiser over-deliverers still have a compelling vision, especially under-promisers who raise venture capital. The venture game is, by definition, one of big risks and big rewards so a big reward has to be possible.

Under-promisers still sell a big vision with plenty of ambition, but they capture the nuance of what it will take to make the vision a reality.

It’s hard not to be energized by a person/team/company with genuine enthusiasm and commitment to solve big problems. Maybe this whole under-deliver vs over-deliver idea is just all contextual. Know your audience. Know when to paint the grandiose vision and when to manage the reality of what it will take to get there.

Maybe it's all about managing expectations.

There are at least 4 stakeholder groups whose expectations have to be managed well in the pursuit of doing something new and hard and unpredictable:

(1) Early customers.

While it seems obvious that you’re playing with fire as an early-stage company to overpromise and underdeliver, it’s not at all uncommon for agtech startups to create unmet expectations with early customers. Get the right early customers and they have a lot of grace for glitches in an early product, they do NOT usually have a lot of grace for a big gap between reality and the sales pitch.

(2) The team.

The earlier stage the company is, the more the team needs reasons to believe we are on the right track. Whether that is in the form of product development milestones or commercial milestones is irrelevant (for this convo), the main thing is managing the team’s expectations to maintain morale and commitment. Working 75 hours a week is fine as long as there’s progress being made and a light at the end of the tunnel that it will pay off at some point.

Once your team loses faith in your misguided expectations, trust quickly erodes and suddenly a founder finds themselves scrambling to recruit new talent….which of course slows the company’s progress further.

(3) Yourself, as a founder.

This might be the most important of the 4. Being a founder is really hard, mentally and emotionally. A huge part of avoiding burnout is managing your own expectations so that when something takes an extra 6-18 months, you have a frame of reference to handle it. (Have I mentioned how I learned this the really, really hard way??)

(4) Investors.

“There’s more fiction written in Microsoft Excel than Microsoft Word”

I recently heard someone say that and it’s been living rent-free in my head ever since. It’s funny bc its so so so true, isn’t it?

Anyway, I’ve been thinking about this whole idea lately in the context of startup founders, but maybe it applies to…everyone?

“IMHO…. The best sales people under promise and over deliver. The best investors under promise and over deliver. The best founders under promise and over deliver. The best <at anything> under promise and over deliver. 👆🏼Incredibly underrated super power”

Not all heroes wear capes, but maybe they all have the superpower of consistently underpromising & overdelivering. #goals

Categories
Business Model Innovation

Prime Future 121: From the (business) graveyard 💀

I’m in the midst of a move and travel so this newsletter is a bit off the cuff. Bear with me 🙂

Taco Bell has been testing a subscription service: $10/month for 1 taco every day.

Set aside concerns for subscribers health and the egregious assault on tacos that is Taco Bell, the idea of Tacos-as-a-Service is kinda interesting.

Tacos-as-a-Service is further proof that recurring revenue models are no longer confined to the tech industry.

Salesforce pioneered Software-as-a-Service (SaaS) by jumping on the cloud based software trend in its early days. Recurring revenue is now the preferred pricing model for software companies and their investors, but it’s a model that has spread to other types of business from hardware to….tacos.

Recurring revenue pricing models are awesome. They create more predictable revenue, which helps companies plan and scale more predictably than a business model built around one-off transactions. Subscription models mean decreased customer acquisition costs (CAC) which increases the value of that revenue from a company valuation standpoint. And subscription models are great for customers, as would be capital expenses get moved to the income statement. Anything-as-a-Service models also allow for more flexibility from a customer standpoint.

We’ve talked before about how recurring revenue is no longer just for software companies, as all sorts of companies look to build a subscription offering.

But the greatest cautionary tale for the risks of subscription models is now clawing its way out of the (business) graveyard so it’s worth talking about.

Exhibit A: MoviePass

Ever heard of MoviePass? The company started in 2011, in theory to help movie theaters fill otherwise unused seats. This was about the same time Uber, Lyft, and Airbnb were also starting with similar concepts in different categories, all designed to match up unused capacity with additional demand.

MoviePass was a subscription model for moviegoers. Instead of paying $15 each time you want to see a movie, you paid <$20 per month and could see unlimited movies per month. In the years right before the company filed bankruptcy (shocker), the price was ~$7 per month.

As a broke business school student, this was awesome. But of course, it was less awesome for shareholders in MoviePass as it turned out that the model wasn’t sustainable.

The company was subsidizing its customers as MoviePass still had to pay the theater full price for any seat taken by a MoviePass customer. And it turned out that while some customers only went to 1 or 2 movies per month, some customers went to a lot of movies which destroyed the profitability of MoviePass.

After filing bankruptcy, it seemed MoviePass had died until I recently got a message from beyond the grave, an email to previous MoviePass subscribers about the relaunch of the company.

Lets state the obvious: the underlying economics of a subscription offering has to be sustainable.

Duh.

The founder of MoviePass re-acquired the company in bankruptcy court and she is relaunching with a modified business model designed to more specifically match un-utilized capacity in movie theaters to movie goers’ demand, e.g. fill more seats during the less popular show times, and with other parameters around the subscription to maintain profitability.

The MoviePass wikipedia page reads like a horror story of venture-subsidized market growth that never found its own footing.

But with movie theaters struggling in a post-COVID world, maybe a precision version of the MoviePass model will work?

Weird story, valid lesson: building out profitable subscription models isn’t as easy as it looks.

Now let’s talk about a subscription business that should exist but doesn’t…yet. (I have a list of businesses I’m gonna start when I’m tired of agtech and this is one of them.)

The background

I usually go to Jiffy Lube to get the oil changed in my car because it’s less bad than other options.

Jiffy Lube was basically the McDonald’s of oil change:

“In 1979, we created the first drive-through service bay to make oil changes quicker for our customers. We also introduced the first window sticker to help remind you when to get your next oil change. Jiffy Lube also developed a nationwide database, giving you the freedom to visit any Jiffy Lube location with the peace of mind that your service records will travel with you.”

But while Jiffy Lube may have brought some innovation to oil changes, the experience is still terrible.

The problem

Oil changes are inevitably terrible for 3 main reasons:

  1. The customer experience is trash.
  2. The waiting area is inevitably tiny and gross and smells like dirty old man sweat.
  3. Servicemen are either condescending to female customers, or they are shysters to female customers. Or both.

….which is why getting an oil change is one of those chores I put off doing, then hold my nose (almost literally) while doing it.

Oh and if this doesn’t resonate with you, ask your wife/daughter/female friends – chances are very high they get this.

The solution

IMO this market needs an alternative that is built around customer experience as the competitive advantage, where getting an oil change isn’t the worst part of oil change weekends.

The basic concept has two elements:

(1) An oil change franchise that tailors the customer experience to women.

Practically speaking that means:

  • Clean waiting area.
  • Clean play area for kids.
  • Drinkable coffee.
  • Clean restrooms (don’t think a billion-dollar business can be built around clean restrooms? I refer you to Buc-ee’s as exhibit A, but more on that another time.)
  • Actual customer service. Look I’m not even saying you need Chick-Fil-A level customer service (though what customer doesn’t want that) but the bar is low: no condescending service dudes doing either of the things women know to expect when rolling into any kind of car place, either (1) mansplaining things like the fact that the oil needs changing (yeah I know bro), or (2) unnecessarily upselling additional services.

I’m not saying that getting an oil change has to be as luxurious as a spa day, but I believe there is a not small market of American humans willing to pay for a significantly less bad customer experience than current options in the market.

(2) In a world that values recurring revenue above all other revenue, routine oil changes seem like a business that is ripe for a subscription model. Structurally, we’re talking about a service that is needed on a recurring basis at relatively predictable intervals, making it a textbook example of a product wanting to be subscription-based.

Oil change franchises and movie tickets may not be directly relevant for innovators in livestock, meat and dairy but there are 2 relevant concepts here:

(1) There are still shockingly large underserved ‘niches’ in most markets.

Whether it’s female car owners or Hispanic shoppers in the US, as the pork industry has realized is a significantly underserved market and has taken great strides towards product innovation tailored to that specific segment, there are huge ‘niche’ markets that remain underserved…aka remain an opportunity.

(2) Recurring revenue models can build customer loyalty and increase lifetime customer value….but only if they’re sustainable.

Technology offerings are where subscriptions largely are found today selling into producers and processors, or on the other end of the value chain, D2C meat subscriptions. I don’t know how production or processing could operate a B2B recurring revenue model for a physical product in a way that doesn’t end up like version 1 of MoviePass with unsustainable underlying economics. Can subscription pricing models work at an enterprise level for non-software products? I have to think someone will figure that out eventually.

What’s a non-obvious but highly effective subscription service you’ve seen?

Categories
Meat Regenerative Agriculture Supply Chain

Prime Future 120: Game over, polyester.

I don’t know if I’m just noticing it more, or if there has actually been a serious increase in buzz around the topic of sustainability and the fashion industry in recent months. Either way, sustainability at the intersection of textiles, agriculture, and oil & gas industries seems to be a *super* complex topic.

I’m no expert in any of this, but all roads lead to livestock so here we are…learning out loud.

Spoiler alert: there are reasons to believe livestock could be a big part of the solution.

Let’s start with a summary of the fashion industry’s sustainability problem, according to Bloomberg:

“The fashion industry might not be the first that comes to mind as a superuser of fossil fuels. But modern textiles rely heavily on petrochemical products that come from many of the same oil and gas companies driving greenhouse gas emissions. Today, in fact, fashion accounts for up to 10% of global carbon dioxide output — more than international flights and shipping combined.

Eighty-seven percent of the total fiber input used for clothing is ultimately incinerated or sent to a landfill. Textiles are the second-largest product group made from petrochemical plastics behind packaging, making up 15% of all petrochemical products.

When it comes to the environmental impacts of the industry, fast fashion is often blamed. But high-end brands originate trends and generate demand for new styles, which are then mass produced by fast fashion companies for a fraction of the cost.

Polyester has overtaken cotton as the main textile fiber of the 21st century, ending hundreds of years of cotton’s dominance. The global market for polyester yarn is expected to grow from $106 billion in 2022 to $174.7 billion by 2032.

Polyester requires a large amount of energy to produce. In 2015, polyester production for clothing emitted 282 billion tons of carbon dioxide, triple that of cotton."

Or as this article framed it:

“Producing clothing and footwear leads to 8 percent of GHGs (greenhouse gases).

The first-mover innovators are guiding the industry out of its linear ‘make-sell-dispose’ approach towards business models that are more circular and eco-friendly. Business model innovations cover reduction, reuse, repair, recycling, and sharing. It transforms the way business is undertaken and value is generated by attempting to drastically limit the resources and material inputs required in the industry’s value chain and minimising the ecological impact of its activities. The new model adheres to the principles of sufficiency and a circular economy.”

Much of the fashion & sustainability “innovation” has centered around re-shaping buying habits, e.g. buying second-hand clothes or buying higher-quality pieces that last longer, with plenty of startups focused on changing how consumers shop for clothes more sustainably. And that drive to escape the fast fashion model makes sense.

But my original question when I started down this rabbit hole was, why is there not more focus on the actual materials used in manufacturing clothes? More specifically, why are natural fibers like wool not playing a central part in the fashion sustainability conversation?

Initial research led me to Woolmark, “the global authority on Merino wool and owns the Woolmark logo, a quality assurance symbol applied to more than 5 billion products.” According to their website, in 1955 ~95% of major textile fibers were natural (wool, cotton, cellulose) and 5% were oil based synthetics.

Today, it’s more like 30% natural fibers and 70% oil based synthetics. 😵‍💫

(Oh, and 10/10 recommend this 1-minute video from their brilliant campaign, “Wear wool, not fossil fuels.” The video is kinda weird but so well done.)

But where I geeked out is watching this 12-minute video about ALL of the potential fiber applications for wool, not just in fashion. Spoiler alert: there are a lot.

First of all, wool prices have been low for decades since they boomed with the Korean War (a lot of soldiers fighting in a cold region meant astronomical demand for wool uniforms to keep soldiers warm) and then bottomed with the post-Korean war erosion of demand for lamb meat AND the explosion of synthetic materials for clothing manufacturing, beginning with polyester.

In the video, the question is asked of what’s the advantage of wool and what are the advantages of plastics. The advantages of wool, among others, are that it’s biodegradable, fire retardant, and odor resistant. Meanwhile, plastics are….cheap.

Where the video gets really interesting is in the description of new technology to create pellets made of wool, Shear Edge, that can be made into thousands of products – basically any product that would otherwise be made from fiberglass. Shear Edge shows examples from kayaks to ice chests to pigments, which go into everything from cosmetics to industrial applications. Pretty wild stuff.

In a world obsessed with natural and renewable, how is a reversion to wool not an obvious mega trend in textiles manufacturing?

This will be interesting to see how it plays out. In 10 years, will natural fibers be at 40% of total textile fibers? 50%? Or are consumer purchase decisions not going to match what they say on surveys about sustainability as a driver of purchase decisions, and polyester maintains its dominance?

In the very real battle between what people say they want and what they are willing to pay for, which will win? TBD.

The most interesting question is, what innovations will drive wool costs closer to those of synthetic fibers to reduce or eliminate the price tradeoff?

Clothing mostly uses fine wool that is softer. Strong or course wool is what’s used for things like carpet, or used to be used for these more rugged or even industrial applications until plastic-based materials took off. And although higher quality meat characteristics tend to be correlated with stronger/coarser wool, that seems like the kind of problem that genetics companies must be tackling, right? Somebody(s) must be working on the beef x dairy equivalent for the sheep industry with meat x wool genetics?

The beauty of broadening applications for wool by applying new technology and processes is that it’s a classic example of using the whole buffalo, so to speak, with what seems like real potential to satisfy customer and consumer demand AND drive market value for farmers.

Or as the Woolmark guy put it “We are taking the waste of low-value wool, and deriving value for farmers with it.”

JR Simplot would be so proud.

And once again, what’s old is new? What a time to be alive 😉

This is obviously the tip of the iceberg so if you are working on any of these topics, please reach out – I’d love to learn more about what’s happening in this space and how and why. For all I know, I’m just a sucker buying the party line from an industry association because I want to believe livestock is the future of everything….

Categories
Regenerative Agriculture

Prime Future 119: “the rain follows the plow”

The Dust Bowl was one of the most economically and ecologically devastating times in American history. Millions of people abandoned homes, farms, and family to escape the terrifying dust storms and their wreckage.

It was the deadly combination of drought, economic depression, and extreme dust storms that destroyed the finances, health, and morale of an entire region. Imagine wearing a mask 24/7 during severe dust storms that lasted several days, including in your home, to reduce the risk of dust pneumonia. Imagine going out to check cattle and finding a few more each time that had suffocated…from dirt.

It wasn’t just farmers that were wiped out, entire communities were decimated.

I’ve read a decent amount about how gut-wrenching life was for people who lived through the Dust Bowl but only recently watched the Ken Burns documentary which highlights the economic context around the Dust Bowl.

The Dust Bowl followed a time of never-before-seen economic prosperity, during and after World War 1: the roaring 20’s.

Meanwhile, the innovation of all innovations was rapidly changing the agricultural economy: the tractor. The tractor enabled American farmers to cultivate more acres, primarily wheat.

With the global economy soaring, wheat exports were soaring and with it, wheat prices.

Keep in mind the 1920’s were less than 40 years since buffalo had been cleared from the Plains, and less than 20 years since the last cattle drives through the midsection of the country. The Plains were still largely a grassland & grazing ecosystem…until the tractor came along.

And wheat was less than 15 years old as a primary commodity across the heartland of the US. Commercial-scale farming across the plains was still a relatively new experiment; wheat as a cash crop was still a relatively new experiment.

As the price of wheat went up, so did the number of acres plowed to supply what seemed like insatiable global demand. This happened rapidly as 11 million additional acres were plowed within 5 years.

Because the law of supply and demand is immutable, wheat prices dropped as wheat production exploded.

As the price of wheat dropped, farmers plowed more acres to make up for lost revenue.

Meanwhile, the broader economy was feeling the weight of the Great Depression. Wheat prices dropped further.

And somewhere in the midst of that decrease in demand and increase in supply, a severe drought hit the center of the country and settled in.

But that wasn’t supposed to happen.

The prevailing mantra of the era was, “the rain follows the plow”.

In 1933, the same year there were 38 multi-day dust storms that ravaged Oklahoma and surrounding areas, along with crop-stopping drought.

Of course, we know that “the rain follows the plow” was a laughably incorrect notion, it was wishful thinking at best.

So, why is a newsletter written for forward-looking innovators digging up 100-year-old history?

Because I believe, like much of history, there is a lesson in the Dust Bowl.

The lesson is this: no matter how much we think we know, we need a heaping dose of humility when it comes to nature and our collective understanding of nature’s systems and complexities.

There’s all that We Know We Don't Know. Think of how limited our understanding is in many areas of science from the human brain to soil health to human & animal microbiomes.

Then there’s all that We Don't Know We Don't Know.

But perhaps most humbling, are all the things We Think We Know That Are Yet To Be Proven Wrong.

Like folks in the 1920’s plowing up ground with the confidence of “the rain follows the plow” and the confidence that wheat prices would continue up and to the right. In hindsight and with modern meteorology and agronomy, we know that idea couldn’t have been more wrong.

It’s easy to think how much smarter we are as a society today but I have to assume there are things that we accept as true today that in 100 years, society will laugh at how silly we were for believing some things.

We have to be curious in the face of nature’s complexity, as curious as we are convicted about the things we think we know.

This becomes really practical really quickly when it comes to topics like climate change and regenerative agriculture…and relevant for all sides of these debates where conviction tends to run really high.

And yet, what’s old is new…

I recently found this photo of my grandmother from 1946. She grew up in southwest Oklahoma, on a crop and livestock farm. (My great-grandfather was known as a lunatic farmer for all the innovative things he did while farming. Yes, his name was Prime and yes, the name of this newsletter is a hat tip to him💙.)

One of the lunatic things he did was early adoption of cover crops to promote soil health, including vetch. The newspaper clipping went on with ideas that are now very familiar:

Shane Thomas of Upstream Ag Insights recently wrote a fantastic piece, Regenerative agriculture doesn’t have to be contentious:

What is a better approach in my mind is to break down “regenerative ag” into its component parts and seek to better understand each of them and where a farmer can implement small changes by field or farm vs. wholesale telling farmers to “be regenerative” when what regenerative is a bundled system of practices.

It’s worth remembering, a broke farmer is unlikely to be a regenerative farmer. Some practices, like say fall seeded cover crops need to be assessed in the context of the most limiting factor to produce a profitable crop too: if rain is a significant constraint, that might not be the place to start!

This is the benefit of breaking things down into their components: it changes the discussion from an “all or nothing” conversation to a “here’s a starting point and basic roadmap” which is much more palatable for everyone involved.

The problem is that these topics can easily turn from hypotheses with nuanced complexity, to oversimplified & unexamined dogma.

To say regenerative is the answer without a clear definition of what regenerative agriculture is or how it’s measured, is as misguided as saying regenerative is not the answer even though most farmers utilize at least some regenerative practices.

To Shane’s point, even in 1946, cover crops were one example of many practices identified as good for the soil AND good for the bottom line, in certain contexts.

So, here's to curiosity. Here's to learning. But just as importantly, here’s to being able to un-learn when that’s what the moment calls for.

Because the rain definitely does not follow the plow.

What’s 1 thing we assume to be fact in today’s ag industry that you believe time and science will prove wrong?

Categories
Artificial Intelligence Emerging Tech

Prime Future 118: The other AI.

There’s a weird dynamic in the current housing market in Tucson, Arizona. Almost all listings fall into the following categories:

  1. on the market less than 21 days, or
  2. on market greater than 100 days.

It turns out that the vast majority of houses in category 2 are listed by Opendoor, the iBuyer real estate company that IPO’d in 2020 via a SPAC. The company did $8 billion in revenue in 2021, albeit with negative $.5 billion EBITDA.

The idea of Opendoor houses being on the market for so long makes zero sense to me, in light of the core capability that underpins the entire business model: Artificial Intelligence.

The entire premise behind Opendoor is that the company can reasonably forecast future market prices. Reasonable confidence in a forecasted future resale price allows them to back into a purchase price today so they can buy a house quickly, do some minor renovations if necessary, then put the house back on the market and quickly capture a profit.

Set aside the forecasting algorithms that are the backbone of the Opendoor model, the company should have some variation of dynamic pricing to adjust prices for active listings in a way that reflects the current, and forecasted, market conditions.

But that’s not what’s happening with Opendoor listings, at least in Tucson. These houses are sitting on the market, getting stale, in a slowing market.

In 2021 Zillow shut down its ibuying business in a blaze of glory, admitting that it “could not predict market prices with sufficient accuracy to support the business model and the amount of capital at risk in inventory.”

I’ve seen similar concerns about used car dealer Carvana, the Opendoor of the car category and another AI-first business.

All of this jumped out at me as I was reading The AI-First Company: How to compete and win with Artificial Intelligence. (Ok fine I’m generously skimming it bc hello 😵‍💫)

The big takeaway from the book, and observation of companies like Opendoor, is that being an AI-first company creates enormous competitive advantage, or has the potential to do so, but is really hard to execute well.

Today we look at what artificial intelligence might mean for companies in the business of producing & processing livestock, meat & dairy or the companies who provide services to producers & processors.

Some key concepts from the AI-First Company:

“The first wave was tools that brought physical leverage, think rope traps and spears. The second wave brought intellectual leverage in the form of the printing press, calculators, computers.

The third wave is artificial intelligence tools that provide decision-making leverage. These tools are affording us an entirely new form of intelligence that gathers, processes, and communicates information to make better decisions. We’re learning better and faster as we see these decisions play out.”

“When we change what we use to learn, we can change how fast we learn.”

That might be my favorite point, and quote, from the whole book. The entire purpose of using AI is to learn more/faster/better in order to drive better decisions and outcomes. Full stop.

“Data Learning Effects are the automatic compounding of information.”

Data Learning Effects are where competitive advantage is created, in the automated, systematized process of accelerating learning from data.

“AI-First companies put AI to work, prioritizing it within real budgets and time constraints.”

“AI-First companies make short-term trade-offs to build intelligence in order to gain a long-term advantage over their competitors.”

Ok so this is great and all, but how does an established company become an AI-accelerated company?

“The steps to building a data learning effect with intelligent machines are:

(1) capturing a critical mass of data,

(2) developing capabilities to process that data into information, and

(3) feeding that information into a computer that runs calculations over data to learn something new.”

The author also translates that into English:

“Get lots of data, process it into something useful in terms of making a decision, and create a system that automatically generates more useful data.”

You can think of those 3 steps as the Data –> Decisions value chain.

Just like a Cattle–>Beef value chain of cow-calf to stocker to backgrounder to feedyard to packer, or a Hog–>Pork value chain of farrow to wean to finish to packer.

“The value of each part of the chain depends on the other parts of the chain, e.g. commodity data requires a high degree of processing and augmentation by the network to turn into a valuable asset whereas differentiated data requires less processing and augmentation to turn into a valuable asset.”

That statement also holds true for Cattle–>Beef and Hog–>Pork value chains, doesn’t it?!

Some ‘so whats’ for established companies in livestock, meat, and dairy, and their service providers:

(1) Be on the lookout for the AI-First business model, the emerging competitor in your category. Every category will have them, some already do.

(2) Sometimes what’s marketed as Artificial Intelligence is just a smart person with a laptop and mad Excel skills. Beware of the difference between AI-first and AI-as-window-dressings.

(3) A key distinction is whether a company is building an AI capability to drive its own operations and a company building an AI capability to drive its offering to customers.

Two contrasting examples:

AI-first: Opendoor. AI is central to their business model. If their AI capabilities do not meet the task, the entire business model falls apart.

AI-friendly: John Deere. AI is an addition to their business, or maybe it’s a core capability for a secondary part of their business, their software business. But if John Deere’s AI capabilities are not up to the task, less than 10% of the company’s revenue is at risk. They’re still going to manufacture and sell incredibly high-quality farm equipment.

(4) Each of the 3 steps is challenging: capturing more data, processing the data, and systematizing. Different categories within livestock, meat and dairy have bottlenecks in different places; some segments still lack sufficient data capture, while some segments simply lack the automation to consistently process that data into decision-making horsepower, while still other segments have all the building blocks without the necessary changes in management styles to harness AI.

(5) It is really hard to successfully launch and scale an AI-First company, but I think it might be harder to transition from a non-AI company to an AI-Friendly company, because it’s not just the mechanics of creating the system to get decision-making tools, its retooling how you make decisions.

Shifting to be an AI-accelerated company requires retooling how you manage, or at least what you manage to. It requires rethinking SOP’s, in some cases. It requires rethinking culture, hiring, and training. It requires building entirely new capabilities. It requires time and trial and error, all of which require a massive philosophical leadership commitment to doing business differently.

(6) “The future is here, it’s just not evenly distributed.”

That familiar phrase applies to this whole conversation because there are companies investing now AND capturing the benefits of AI to drive better decisions, improved operations, improved customer relationships, etc.

I can think of companies across every single category within livestock, meat & dairy that are poised to win as AI evolves. They are the companies hiring data scientists and software programmers right alongside hog buyers, corn buyers, meat sales teams, or any of the other standard roles involved in the business of producing and processing.

Side note: if I were an ambitious 20-something just starting my career, I wouldn’t even entertain the idea of working for a company that doesn’t have at least 1 data scientist on staff. It’s a proxy for how forward-thinking the company is, IMO.

(7) Warren Buffett only invests in businesses with an “economic moat”, which is a business’s ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share.

Moats are valuable precisely because they are difficult to replicate, which is wildly true here.

What might seem odd is that we started with how AI-First models are not living up to the hype, then dove right into why there’s reason to be hype-ish about AI and its potential impact in the industry. That’s because this is one of those areas with a lot of potential, a lot of promise….but we have to be realistic about the challenges to realizing the potential. Not everyone is gonna win in this game.

Will Opendoor or Carvana be able to survive long enough to improve their algorithms? I have no idea.

Does the outcome of these early AI-first business models change the fact that AI-First models are likely to emerge in every industry, with increasing efficacy, in the next 5-10 years? Nope.

Lastly, I assumed that I didn’t need to offer the caveat that adopting AI does not replace the need for humans, but if your knickers are in a bunch after reading this….well, welcome to 2022, my friend. It’s hard to imagine a world in which the power of data and Artificial Intelligence decreases in the future, especially as we get better at capturing data, building systems to automate Data Learning Effects, and building processes and business models to leverage those Data Learning Effects.

There’s no going back. And the odds are good that while some are trying to decide whether or not they like the idea of Artificial Intelligence, their competitors are building their moat, brick by brick.

Artificial Insemination (AI) has massively accelerated the genetic improvement in livestock, and now it seems likely that Artificial Intelligence (AI) will provide the next acceleration, in the form of decision-making improvement.

The other AI.

What a time to be alive😉

Categories
Meat Processing

Prime Future 117: Walmart: 800 pound gorillas make really weird dance partners

In 2019, the now $371.4 billion market cap retailer announced that they were tired of being treated like the red-headed stepchild by major beef packers and being the grocery store that shoppers went to for everything except beef. Walmart had decided to do something about it. It was time to level up:

In 2021, Walmart announced the launch of its premium fresh beef brand in 500 stores across the southeastern US, McClaren Farms:

In 2022, Walmart announced this:

A lot of folks say the minority investment in Sustainable Beef is a game changer.

I disagree.

It’s interesting, but it’s nothing more than an incremental continuation of their current strategy. Not a shift, certainly not a game changer.

A Walmart minority investment in a slaughter plant makes sense given its recent investment in the supply chain behind its McClaren Farms brand, including the acquisition of a case-ready plant.

But if Walmart were serious about beef processing, they’d build/buy their own slaughter plant. Not make a minority investment in someone else’s.

Today we look at why this minority investment is not a big deal, future potential moves Walmart might make that would be a big deal, and wargame how packers and other retailers might respond.

First, let’s look at the scale of Walmart’s retail beef business.

In the US, 2021 fresh beef sales at retail were $30.1 billion. And in 2021, Walmart had 18% of US grocery market share. Using rough math we can estimate Walmart beef sales at $5.1 billion. Given Walmart’s efforts to improve the quality of fresh beef sold in their stores to increase per pound revenue AND volume, let’s say they’re targeting $8 billion in beef sales by 2025. Whether they hit that or not, this is not a tiny business.

But the bigger impact on the Walmart P&L might be from the ‘basket lift’, or the increase in the total spend, when a shopper buys beef. I don’t have any idea whether that number is .25% or 25% or anywhere in between. But safe to say that when applied across Walmart’s scale, it represents meaningful revenue.

Now contrast those beef numbers with the dairy case, specifically looking at fluid milk. Total 2021 US retail fluid milk sales were estimated at $12.6 billion so an estimated Walmart share is $2.3 billion.

Yet in 2016 Walmart announced it would be building its own milk processing plant in Indiana.

Milk is a much smaller business than fresh beef, yet Walmart opted for total control. That’s one reason my hypothesis is:

If Walmart were serious about beef, they would be buying or building their own kill plant.

Unless this minority investment is a precursor to a bigger move, the baby step before the monumental leap.

Let’s assume Walmart has learned a lot in the last few years from their McClaren Farms aligned supply chain, working with 44 Farms to source Angus genetics and maintain alignment from cow-calf to feedyards to slaughter at Creekstone Farms to final processing at the Walmart case-ready plant operated by FPL Foods.

Contrast that with the supply chain for the remainder of their beef that is NOT McClaren Farms brand. That supply chain, from a Walmart perspective, is both simple and standard for a retailer: buy meat from the packer. Easy as pie.

With a few years of McClaren Farms learnings under their belt, let’s assume the Walmart team has learned A LOT about aligning incentives, navigating industry fragmentation, the challenges of managing a complex biological system, managing costs through the supply chain, and more.

So it makes sense that the minority investment in a slaughter plant is another step in that journey both to scale and expand the McClaren Farms brand beyond the 500-store pilot, AND to continue learning in order to inform Walmart’s future strategy to continue elevating and differentiating its fresh beef offering.

Just for fun, let’s play out some possible scenarios. What might Walmart’s presence in the beef industry look like in 5-10 years?

  1. Status Quo. Slowly grow the new McClaren Farms supply chain in & beyond the current 500 stores. Possible.
  2. Decelerate. Walmart exits Sustainable Beef, exits case-ready plant, winds down McClaren Farms brand. Possible but unlikely.
  3. Accelerate. Walmart decides that beef is as strategically central to its future in food retail as the rotisserie chicken is to Costco’s strategy, and echoes Costco’s decision to build a rotisserie chicken plant by buying/building a wholly owned Walmart beef slaughter plant. Highly likely, IMO.

Let’s say Walmart purchases or builds a beef slaughter plant in the next 3-5 years. How would Walmart’s suppliers respond? What about retail competitors?

Let’s briefly wargame this from 3 angles:

  • What Sustainable Beef might do if Walmart bought/built a plant
  • What the big 4 packers might do (Cargill, JBS, Tyson, National Beef)
  • What other retailers might do (Kroger, Albertson’s, Amazon)

Let’s start with Sustainable Beef. Perhaps a Walmart acquisition is the likely exit strategy for early investors in Sustainable Beef. We recently talked about the criticality for these upstart plants of building a consistent customer base for carcass balance and revenue maximization, so let’s assume that Walmart is that anchor customer in the short run. So one scenario is that Walmart as anchor customer gets the plant to full utilization, and then if the business proves successful, Walmart buys out the other investors. That’s potentially a great outcome for those investors.

But also, there’s a risk that Walmart uses both the relationship with Sustainable Beef, and the insights gained from that relationship, as leverage with their other packer suppliers. Those other packer suppliers also happen to be the companies who, over the long term, are better positioned to be supplier partners to Walmart than Sustainable Beef because of their scale and diversity of capability.

The kicker is that if the McClaren Farms brand only sells into 500 stores today, that’s only a fraction of the total beef Walmart needs to source. The rest comes from the big 4.

So now that Walmart is a minority owner in Sustainable Beef, Walmart is both customer and quasi-competitor to the large processors.

This is messy stuff. You can’t ignore Walmart, it is definitely the 800 lb gorilla of beef retail customers. In this case, you have to dance with the 800 lb gorilla, but wow is it an awkward dance if you are both its competitor and supplier.

So what would the big packers do if Walmart went all in to buy or build a plant? I don’t have a good guess here. I’d love to hear from meat industry folks, because my best guess is that there wouldn’t be much response. It’s very impractical to think Walmart could process enough cattle to supply 100% of its beef supply, particularly when you take into account the cuts that Walmart sells in its meat case. So you would still have the packers as both customer & competitor, only in a more extreme scenario.

And what about other retailers? Would Kroger or Albertson’s follow suit? Would this be what drove Amazon into the packing business? I can see these players trying to replicate the aligned supply chain of McClaren Farms, or even buying their own case-ready plants. But I’m skeptical that it would make sense for any other retailer to make a move into slaughtering cattle given the necessary scale.

And then there are the known unknowns that could impact future Walmart decisions like how the macro environment might change from inflation to interest rates, how the cattle cycle moves, or how capital markets move. And whether in a few years the upstart plants breaking ground now are being sold as those operators realize the challenges of starting & running a beef processing plant (see Prime Future 114 below).

And then there are the unknown unknowns, the next black swan that either pushes Walmart further upstream or pulls them back to their safe space at retail.

That’s a lot of unknowns. But the one thing we know for sure is that Walmart is the 800-pound gorilla of the retail meat case. And that gorilla won’t be ignored.

What a time to be alive 😉