Last week I shared the first part of a new three-part series offering some insights into the current state of hydroponics and the controlled environment agriculture sector. In the first part I offered some encouragement for potential growers, laying out 7 Reasons why 2024 is an ideal time to get into CEA. Today I want to put up a few warning signs.
I truly believe that this is a moment of rich opportunity for building an economically viable business in CEA farming. It is genuinely a good time to get into the business, but you cannot do so recklessly. Our industry is only just shaking off the hangover caused by the failure of high profile farms whose founders thought they could spend their way out of trouble.
The ability to learn from past mistakes is a gift. By looking at the causes of failed CEA farms, looking at my own decades of experience, and unpacking it all in the context of the present moment, I’m pleased to share 7 cautions for prospective CEA businesses in 2024.
Here are 7 things for prospective CEA businesses to be cautious of in 2024
1. Unit economics are everything
If you’re not going to pay attention to the details from day one, don’t bother writing a business plan. “If you build it, they will come” doesn’t cut it when you’re producing high-end commodities. You need a business plan that accounts for the defined market you want to reach and every single penny that it will cost to bring your product to that market. If that sounds like a lot… It is! But it can be done.
2. Don’t Cut Corners on Equipment
Your business will live and die by the quality of your equipment. It’s an investment. There are a lot of budget options and DIY guides out there, and I know how tempting they seem, but reliability is everything. There’s hardly anything I regret about my career, but one of the biggest mistakes I ever made was when I was starting out as a CEA grower in the 80’s. I bought cheap hydroponic equipment so I could go bigger, faster. If I could do it again I’d start smaller with better quality pieces so that I could avoid those first few years of equipment-driven headaches.
3. Start at a Reasonable Level, With a Plan to Grow
It’s much easier to build on early success than it is to recover from treading water with a configuration that’s too much to manage. Even if you’re an ace at growing, you want to avoid flooding your market with more product than you can sell. This creates an increased demand on your time for sales and marketing, which can distract you from growing well.
4. Don’t Over-Leverage Your Money
This obvious point is always worth repeating. Know your limits. There are creative solutions to minimize risk to yourself by brining in financial partners like family members and friends. This can carry other risks, but can also offer more benefits than just financial.
5. Don’t Over-Leverage Your Time
This crucial point is often overlooked. Many see growing as a path toward supplemental income, not a career change. But without help and support in managing a business, one can easily find themselves underwater, and that’s hard to come back from. Having a plan to get help, whether from friends or employees, is a must.
6. Pay Attention to Big-Picture Economics
Just last week I said that a point in favor of getting in now is the currently-stable business climate. Well, since then, the stock market has taken a bit of a tumble. I think my broader point stands, but it’s a reminder that your plan should not be based on idealistic projections of perfectly-smooth economic waters. Our goal of growing clean, local food is all about creating solutions to help our communities navigate a challenging and uncertain future. We owe it to our neighbors and customers to ensure that our businesses can handle big-picture economic challenges alongside them.
7. Don’t Wing It
Get expert help. There are so many consultants and pros who know a thing or two about a thing or two. Seek them out and your chances of success will go up immediately. Here at AmHydro, we’re best known for having the most reliable NFT gutter systems in the business, but if you talk to any of our customers, the second thing they’ll tell you about us is how invaluable our consulting services have been. You can spend years learning through trial and error, or you can avoid that pain by partnering with an expert.
In many ways, CEA is all about doing more with less. Less water, less fertilizer, less square footage. More plants, more flavor, more local. We can bring this mindset into our business planning too, but it starts with an honest and detailed assessment of our resources, our capacity, and much more.
Next week I’ll bring this series to a close by sharing a checklist of questions that every prospective grower should be able to answer to know if 2024 is the right time for them to start their hydroponic business.
