A crash course in agtech business model design

A fundamental belief we hold at Tenacious is that technology alone - no matter how powerful or novel - is not enough. To deliver impact and outcomes at scale, you have to find repeatable ways to create and capture value – i.e., a business model. 

But actually doing this, especially in the on-farm part of agtech, is really tough. 

We recently spoke with Jairo Trad, founder of agtech startup Kilimo, on the podcast about the company’s journey, from surviving several near-death experiences to finding product market fit. 

This journey, shared with extreme candor, is a crash course in the challenges - and ultimate success - of finding a venture-backable* business model in agtech. Let’s unpack the learnings.  

Why is on-farm agtech so hard?

Venture investors have spent a LOT of money on businesses that sell technology to farmers. Much of this has been lost. Frustratingly, too often, farmers have wrongly been blamed. 

The reasons on-farm agtech is hard are myriad. Kilimo’s journey alone highlights several.

• Many problems are episodic. It's really hard to make good technology, let alone have users value it enough to make a business, for infrequent problems.

• Farms are far away from each other and hard to reach. It’s expensive to reach them, and the problems they experience (weather, soil types, etc.) are often different. 

• The physical environment is tough on tech. Imagine handing your tablet to a cow. Or leaving it out overnight in the rain, every night, for weeks. 

• The existing distribution channel has lots of power. Finding incentive and skills alignment is very tough. 

• Margins are razor thin and risk is very high. 

Low margins are easy to understand and present an obvious challenge for tech adoption. The nuances of how farmers perceive and manage risk is far less intuitive, yet understanding this was critical for Kilimo. 

The psychology of risk for farmers – case study: water 

Jairo highlights the adoption dilemma for irrigation tech nicely:

“Water is essentially free for agriculture and making farmers more efficient in using that water is not a good business case for the farmer because at some point you’re adding risk to the system. 

If you're a farmer and water is essentially free, and you irrigate 10 percent more, you're fine. You're going to pay a little bit more [on your] electricity bills. And that's it. 

But you get less risk because, in most cases, you are for sure going to produce the best you can get from that crop. If you irrigate less, a lot closer to the limit where you lose production, you're increasing the risk. 

And so the value prop that you as a farmer have [for water efficiency technologies], is being asked to pay to increase your risk. This is not a good business case”

Given the amount of pitch decks we’ve seen wanting to do similar, it’s worth stating again: 

While using the optimal amount of water seems to have a value proposition – saving costs (fuel and perhaps water) – the risk it poses to yields, and the time lag between the cost and benefits, means changing practices is not worth it for most farmers. 

For Kilimo, this insight was key to finding a viable business model.  

Business Model Insight #1: Flip the model to find the real value 

Jairo and the team set out to answer a new question: how can we put a value on the water the farmer is saving?

Rather than charge the farmers in hopes that the fuel savings would be a strong enough ROI to adopt their technology, Kilimo saw that they were effectively asking farmers to pay to increase their risk. 

“We still need to find ways to make agriculture use less water and be more efficient because agriculture takes most of the water we use as humans, and that's not sustainable anymore. So we started thinking about how we could put a value on the risk that the farmer is taking.”

Jairo and the team started looking for ways to pay farmers to save water. This was a value proposition that would stick and scale.

Business Model Insight #2: Expand the system boundary to align incentives

Another unlock for the Kilimo business model was finding other parties who would be willing to pay farmers for the water they save. The team initially started with NGOs and academia, and ultimately realized that for many Fortune 100 companies, saving water was a business continuity issue. 

Kilimo now works with companies like Coke, Google, and Microsoft to save water using a specific methodology in a particular watershed of interest. 

This is a classic example of distinguishing between the user vs. the beneficiary in building a business model. Getting beyond sustainability dollars, into risk management (i.e., business continuity) was also key, and aligns with our view of how sustainability can truly reach scale. 

Kilimo also expanded the system boundary, again, when they realized that incentivizing water efficiency alone would not be enough to satisfy their customer’s demand for water savings. 

“So that's why we also finance irrigation conversion. For our farmers that are doing flood irrigation, if you convert them to drip or pivot, that's extremely valuable in terms of volumetric benefits on how much water you can save.

We do that in partnership with many other companies. We are the ones that bring the benefits, that measure it, that bring the customers. And we structure the projects in a way that makes sense for everybody involved.”

Here, Kilimo is generating leads and accelerating sales for drip irrigation infrastructure companies. Another example of aligning incentives to unlock a business model. 

Business Model Insight #3: Farmers don’t value free

While the farmers are indeed the users of the Kilimo technology, Jairo emphasizes how important it has been to come to them with a business proposition, not a free tool. 

“For many of these sustainability programs, farmers are just a number or an object. They are not that; they are a business, and they have to have respect. They have to make business-like decisions. And that's what we put on the table.”

As a result, Kilimo has seen increased engagement and stickiness - key characteristics of true product-market fit, and actual value being delivered. 

So what? 

The Kilimo journey has been far from smooth, and the company still has a long way to go to achieve their impact and commercial goals. But their hard-earned scars in overcoming the challenges of on-farm agtech adoption are worth celebrating, and learning from.  

Technology is exciting. It’s newness and potential is sexy. But it will sit on a shelf, no matter how well it works, without a business model that creates and captures value at scale. 

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*Before the internet yells at me about VC in agtech, I want to clarify that another fundamental belief we hold at Tenacious is that venture capital is simply one of many tools in the finance toolkit for building a successful business. It’s by no means the “best” and often is not a fit – that’s not a value judgment; just as a screwdriver is no less good than a hammer, but certainly not a fit for a nail.